The Swatch group as a whole had an unparalleled ability to provide consumers with a wide range of products in all market segments. They could provide hi-tech watches that functioned as ski passes, fashion watches such as the Swatch, or an exquisite diamond studded precious metal watch - Swatch provided products at all extremes. However, certain product lines were more successful than others. The Swatch watch in particular was struggling to gain market share in the United States and elsewhere for several reasons including fickle consumer behavior and a product line that was daunting to consumers and resellers (Thomson & Baden-Fuller, 2010).
The Swatch product was quickly losing its competitive edge against other players such as Fossil, Guess, Timex and Seiko. Resellers were dropping like flies and consumers felt like Swatch had saturated the market with too many products. Worse of all, consumer perception was that Swatch was a fad. Swift decisions need to be made to reverse this before the brand becomes part of a MTV or VH1 "I love the 90's" television show. Luckily, most of the decisions to be made regarding product mix have very little impact socially and ethically (Thomson & Baden-Fuller, 2010).
Omega (part of the Swatch Group portfolio of brands), was facing a similar demise in the early 1990's and successfully repositioned itself and became a major profit driver for the group. It achieved this by carefully selecting its marketing programs and drastically trimming its product line from 2,500 to 130. This strategy needs to be applied to Swatch, which focuses on the basic and middle-priced market. This is supported by the fact that the number of resellers dropped from 3,000 in the early 1990's to 1,200 in 1998 (Lash& Lury, 2007).
Swatch needs to apply a SWOT analysis and determine which product lines are successful in this market space and drop the remaining products. In addition, the Swatch Group needs to look at their consumer base and determine if it would be profitable to launch a new product line that captures past consumers who have now progressed to the next stage of their lives and desire a more expensive and sophisticated watch. A marketing campaign needs to be chosen that helps attract new consumers in the basic and middle price market focusing on the smaller number of brands and a separate campaign should be created that focuses on keeping their existing customer base. These campaigns should be replicated to other countries to ensure the Swatch brand remains visible. Neither of these resolutions will be easy to implement; however, if done successfully Swatch will decrease their production costs because there are fewer product lines and increase their sales based on marketing campaigns to two separate groups: new customers and existing customers (Lash& Lury, 2007).
In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.
If rivalry among firms in an industry is low, the industry is considered to be disciplined. This discipline may result from the industry's history of competition, the role of a leading firm, or informal compliance with a generally understood code of conduct. Explicit collusion generally is illegal and not an option; in low-rivalry industries competitive moves must be constrained informally. However, a maverick firm seeking a competitive advantage can displace the otherwise disciplined market. When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies. The intensity of rivalry commonly is referred to as being cutthroat, intense, moderate, or weak, based on the firms' aggressiveness in attempting to gain an advantage.
II. Threat of Substitutes
Threat of substitutes: substitutes are the products which gives same result when use them. If there is a substitute for our products which gives best result than our product then it is great loss to our business. We can’t survive in a market if we can’t find any solution to this issue. Let me give one example for substitutes, initial tape recorder is used to listen to the music. It was a great business one point of time as everyone listening to the music. After few days’ compact discs are introduced, it is a substitute of tape recorder business.
The tape recorder market was getting reduced at one point of time this business went off from the market. The substitute product is danger to any kind of business as it gives much damage to the business than others. If a customer can able to switch from our product to substitute without spending more money than it is the end of our business.
Differentiation is the best way to sustain in market. Add differentiation or uniqueness to the product so that no customer will prefer the substitutes. The cost of our product should be acceptable compare to the substitutes. Innovation is another way to sustain; innovation in our product design attracts more and more customer and keeps them with our business itself.
In Porter's model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices.
The competition engendered by a Threat of Substitute comes from products outside the industry. The price of aluminum beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are substitutes, yet they are not rivals in the aluminum can industry. To the manufacturer of automobile tires, tire retreads are a substitute. Today, new tires are not so expensive that car owners give much consideration to retreading old tires. But in the trucking industry new tires are expensive and tires must be replaced often. In the truck tire market, retreading remains a viable substitute industry. In the disposable diaper industry, cloth diapers are a substitute and their prices constrain the price of disposables.
While the threat of substitutes typically impacts an industry through price competition, there can be other concerns in assessing the threat of substitutes. Consider the substitutability of different types of TV transmission: local station transmission to home TV antennas via the airways versus transmission via cable, satellite, and telephone lines. The new technologies available and the changing structure of the entertainment media are contributing to competition among these substitute means of connecting the home to entertainment. Except in remote areas it is unlikely that cable TV could compete with free TV from an aerial without the greater diversity of entertainment that it affords the customer.
III. Buyer Power
The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsony - a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure marketplaces exist, but frequently there is some asymmetry between a producing industry and buyers. The following tables outline some factors that determine buyer power.
IV. Supplier Power
A producing industry requires raw materials - labor, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry's profits. The following tables outline some factors that determine supplier power.
V. Threat of New Entrants and Entry Barriers
In Porters five forces, threat of new entrants refers to the threat new competitors pose to existing competitors in an industry. A profitable industry will attract more competitors looking to achieve profits. If it is easy for these new entrants to enter the market – if entry barriers are low – this poses a threat to the firms already competing in that market. More competition – or increased production capacity without concurrent increase in consumer demand – means less profit to go around. According to Porter’s 5 forces, threat of new entrants is one of the forces that shape the competitive structure of an industry. Porter’s threat of new entrants definition revolutionized the way people look at competition in an industry.
There are many issues facing the Swatch Group and there is no right way to solve any of the issues. Each issue comes laden with ethical and social consequences that will also impact the company. The Swatch Group will need to take steps to ensure that international integration does not cause domestic social disintegration. Regardless of how the issues are resolve, the greatest challenge is going to be finding the right balance between markets and societies.