The Swiss company rescued an entire sector from disaster and invented a new concept of the watch as a fashion accessory, using a Pricing Strategy that was a precursor to the classic “good, pretty, and cheap”.

            Technical file: 

• Company: The Swatch Group.
• Objectives: Retrieve the company from crisis and corner the Asian competition.
• Solution: Drastically reduce a watch’s number of components, cut costs by more than 30% more than the competition, launch the cheapest watch on the market and position it as a fashion accessory.
• Result: Transform the group into a worldwide leader, reorganize it, and rescue the Swiss industry from its crisis. More than 333 million Swatch watches have been sold worldwide.

 At the end of the 1970’s and beginning of the 1980’s, the Swiss watch industry, which had until then been the undisputed worldwide leader in its specialty, was facing the greatest crisis in its history. The fierce competition from Japanese digital watches, which were cheap, practical, extra-thin, technologically advanced, and very fashionable, had the sector’s main Swiss companies against the ropes, and several of them went into bankruptcy.

Nicolas Hayek, founder of the current The Swatch Group, was then charged with designing a rescue plan for the sector’s two major companies: ASUAG and SSIH, which were on the verge of suspension of payments. The entrepreneur decided to merge both companies – the beginning of the current group that went on to be one of the most successful sales launches of the 20th century. Hayek was convinced that the solution lay in a double-impact response: transform the watch into a fashion accessory, in such a way that each consumer can have more than one and, in order to do that, drastically reform the watch industry’s pricing structure in order to obtain costs and prices with no competition. It was clear to Hayek that the market was prepared to change its concept of the watch and pay little for a new aesthetic.

In 1983, the first line of Swatch watches was born in Zurich. As opposed to the “cheap” Japanese watches at a price of around $75, the firm was able to put watches with a new design on the market for about $40, with the goal that people would be able to acquire more than one and fulfill Hayek’s visionary idea: transform the watch into a fashion accessory.

How was the firm able to revolutionize the market’s price structures in a limited amount of time? The use of materials such as plastic (instead of the traditional leather or metals), was added to a drastic reduction in a watch’s number of components (from more than 90 to close to 50), which resulted in lower labor costs (a clear disadvantage for Switzerland as compared with Asia), and a record low price was achieved, which left the strong competition of Japan and Hong Kong’s labor and technology with no margin for error.

Swatch watches quickly became a true global success. In their first year they sold one million units. At the beginning of the 1990’s, The Swatch Group –which today includes brands, apart from the most famous one, such as Omega, Longines, and Tissot, among many others- it is already the principal watch company in the world. Currently, more than 333 million Swatch watches in over 2,500 different models have been sold in close to 80 markets around the world.

The challenge, however, is not over. Hayek warned, after his recent departure as the group’s CEO, that the Swiss industry must increase profits, and he recommends supplementing the focus on affordable design with luxury brands, which allow for higher profits. The sector has already begun to act, following the wise advice of this pricing wizard…

The Swatch Group figures
     > The group is present in more than 50 countries worldwide.
     > It employs close to 20,000 people.
     > It closed last year with sales of 2.8 billion euros.
     > Apart from Swatch, the group owns, among other brands, Omega, Longines, Tissot, Calvin Klein, Rado, Certina…