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Tag heuer promotion strategy

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IMD936 IMD-7-1891


09.10.2017


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.


- 3 - IMD-7-1891


Jean-Claude Biver: Entrepreneur and Visionary


Biver was a celebrated icon of the Swiss watch industry. Greatly esteemed by his peers at home and abroad, he was considered to be both an extraordinary entrepreneur and a visionary. Born in Luxembourg, the son of a shoemaker, Biver moved to Switzerland when he was in his teens to study in Lausanne and had remained in the country ever since. After graduating from HEC Lausanne, he joined Audemars Piguet, a premium watch company located in the Vallée de Joux – a key watchmaking area of Western Switzerland.


In 1981, watchmakers from Japan and Hong Kong were conducting a ferocious attack on the Swiss watch industry with their inexpensive electric quartz watches. To compete against them, many Swiss watchmakers began abandoning mechanical watches in favor of the quartz movement. The reeling Swiss watch industry had to lay off about 50,000 employees and retool in microelectronics to compete with Japanese firms.4 At that time, Biver and his friend Jacques Piguet bought the rights to the brand Blancpain, which had been out of business for about 20 years, for CHF 22,500.ii In essence, Biver and his partner purchased a defunct company with no physical assets and a brand that had diminished in stature.


Blancpain had the unique distinction of being the oldest watch company in Switzerland (founded in 1735). Many suggested the logical way to position Blancpain would be to emphasize it was the “oldest” Swiss watch. Could that be a powerful differentiator? Biver was not convinced. He dug into the history of the brand and discovered that Blancpain was traditionally looked upon by other craftsmen as “the patriarch of the art of watchmaking.” He was faced with a dilemma; the industry was migrating to electronic quartz watches, but the Blancpain brand history was inconsistent with chasing other companies or trends. Instead, Blancpain had served as the “reference” to others in the art of watchmaking. A big believer in staying true to a brand’s history and positioning, Biver decided to buck the trend of quartz watches. He was convinced that mechanical watches and craftsmanship still carried an emotional appeal with consumers. He relaunched the company with the slogan “Since 1735 there has never been a Blancpain quartz watch and there never will be!” and positioned it as the ultimate reference in fine watchmaking. A luxury watch was inheritantly an emotional purchase and Biver believed that this message was unique and would give luxury watch buyers a rationale for standing out from the crowd.


The company bought a former farmhouse surrounded by forest and pastureland and designed it not as a factory but as a workplace of craftsmen. Each watchmaker worked at his workbench and assembled by hand all the components of a watch from A to Z. A flexible working schedule was introduced and watchmakers were allowed to work any day and time of the week. “Watchmakers are artists so I had to create the conditions for artists to flourish,” Biver remembered. Blancpain enjoyed phenomenal success and 10 years later (1992), Biver and Piguet sold the company to the Swatch Group (then called SMH) for CHF 60 million.5


Nicolas Hayek, then CEO of the Swatch Group, asked Biver to stay and revive its struggling Omega brand. Omega, as the first watch worn by astronauts on the moon, had a rich heritage. However, chasing the mass market through lower prices and multiple product lines – perhaps a consequence of belonging to the Swatch Group – had weakened the brand’s identity.6 Fixing this was one of Biver’s first tasks as CEO. He would often draw a wheel with the spokes converging in the center and remark, “The center of the wheel is our brand message – it is the promise, it is the vision. It guides the actions of everyone from the receptionist to the CEO.”


ii Exchange rate in December 2014: CHF1 = €0.83 = US$1.00.


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.


https://22,500.ii

- 4 - IMD-7-1891


In addition to redefining the brand identity and introducing new products, Biver pioneered original product placement in movies such as the James Bond series, and secured endorsements by celebrities such as actor Pierce Brosnan, fashion model Cindy Crawford and Formula 1 driver Michael Schumacher. By 2003, when Biver decided to leave the Swatch Group in search of a new challenge, Omega’s revenues had almost tripled.

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