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Tag heuer market positioning

26/03/2021 Client: saad24vbs Deadline: 2 Day

JEAN-CLAUDE BIVER: POSITIONING TAG HEUER FOR THE FUTURE

This case was prepared by Professor Dominique Turpin, the Dentsu Professor at IMD, Research Associate Athanasios Kondis and Professor Goutam Challagalla as a basis for class discussion rather than to illustrate either effective or ineffective handling of a business situation.

In March 2017, Jean-Claude Biver, President of the Watches division of LVMH (Moët Hennessy Louis Vuitton) – the global luxury goods leader – was reflecting on the forthcoming Baselworld 2017. Baselworld was the leading annual event for the watch and jewelry industry. TAG Heuer – the largest company in LVMH’s watches division – was expected to unveil the second generation of its digital watch. With a starting retail price of CHF 1,600,i approximately four times the price of an Apple Watch, TAG Heuer Connected Modular 45 would be the most expensive digital watch on the market.

Since taking the top job at LVMH in 2014, Biver had focused on TAG Heuer and managed to revitalize what was still a performing business but a brand that was no longer fashionable, particularly among young customers. Biver had achieved this by repositioning TAG Heuer as an affordable luxury watch, catering to both the “traditionalists” and to new segments among the young generation. The digital watch was a key part of this strategy as Biver believed that there was high demand, particularly among young people, for luxury connected watches.

Two weeks before the official launch, Biver was still pondering a number of unresolved questions:

 Was the connected watch a threat or an opportunity for the Swiss watch industry and for TAG Heuer in particular?

 Did the connected watch require a rethinking of TAG Heuer’s overall marketing strategy and in particular the brand positioning, customer targeting, communications and channels?

 How could US technology affect the Swiss image of the brand? Would TAG Heuer potentially lose its independence by relying on American suppliers such as Intel and Google?

 What should his next move(s) be?

Copyright © 2017 by IMD - International Institute for Management Development, Lausanne, Switzerland (www.imd.org). No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior written permission of IMD.

i Exchange rate in January 2017: CHF1 = €0.93 = US$1.01.

For the exclusive use of M. Vyas, 2019.

This document is authorized for use only by Megha Vyas in MBA646-AP-2019-02B taught by SHIRLEY YE SHENG, Barry University from Jun 2019 to Aug 2019.

www.imd.org
- 2 - IMD-7-1891

The Swiss Watch Industry

Although the tradition of Swiss watch manufacturing could be traced back to the middle of the 16th century in Geneva, mass production of timepieces only began at the turn of the 20th century. Swiss watchmakers were behind many of the inventions that shaped the industry, including the wristwatch (introduced after the First World War), the first automatic or self- winding watch (1926) and the first electric wristwatch (1952).1

By 2016 and following a series of mergers and acquisitions the Swiss watch industry comprised three types of players (refer to Exhibit 1):

The Swatch Group. This was the world’s largest watchmaking group with the largest selection of brands, covering every price point in the market. It was also the top supplier of watch movements and components to third-party watchmakers in Switzerland and around the world.

The second group consisted of Richemont, LVMH and Kering. While Swatch focused on watches, these three companies also managed other luxury brands, chiefly in jewelry, fashion and leather goods.

A shrinking number of around 40 companies, which were primarily independents. The size of their businesses varied from large players like Rolex/Tudor (producing over 750,000 units per year for estimated revenues of CHF 4.5 billion) to mid-size companies like Patek Philippe (50,000 units a year) and Franck Muller (8,000 units a year), and smaller players like Parmigiani, which produced only a few hundred pieces a year.

In 2016, the global market for wristwatches was estimated at CHF 40 billion (based on export prices).2 China was the biggest exporter in volume terms (652 million units), followed by Hong Kong (241.1 million units) and Switzerland (25.4 million units). In value terms, Swiss watch exports were worth CHF 18.3 billion, representing 46% of the value of all timepieces sold globally. Swiss watchmakers produced both electronic and mechanical watches. The latter had a high number of clockwork parts (movements) and a starting price over CHF 500 (refer to Exhibit 2). Watches that were priced at CHF 3,000+ accounted for the majority of exports – around two-thirds.

Swiss companies highlighted the “Swiss made” label – a mark of high quality, reliability and precision. Premium manufacturers of mechanical watches also emphasized the history of the brand and the craftsmanship and complexity involved in creating the different watch movements. They positioned mechanical watches as luxury timepieces of the highest quality that carried a sense of heritage, prestige and timelessness.

With exports falling for the second year in succession, 2016 was a difficult one for the Swiss watch industry. Analysts cited several reasons behind this development, including the strong Swiss Franc (since 2010 it had appreciated more than 20% against the Euro and the USD), uncertainty associated with the upcoming US election, tumbling oil prices and weaker demand in important markets such as China and Russia.3 The Swatch Group and Richemont issued profit warnings, and watch executives were preparing for another turbulent year ahead.

However, there was one company that outperformed the market and stunned analysts by reporting growth in 2016. This was LVMH’s watch division – with Biver at its helm.

For the exclusive use of M. Vyas, 2019.

This document is authorized for use only by Megha Vyas in MBA646-AP-2019-02B taught by SHIRLEY YE SHENG, Barry University from Jun 2019 to Aug 2019.

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