Spencer Rosen Javier Fungairino Antonio “Chuck” Paguio Guillaume Beck Sophia Liang

Agenda History Swatch Today Industry Analysis Financial Position Our Proposal Swatch Today Industry Analysis Financial Position Our Proposal

Development of World Watch Market Rolex Traditional Swiss brands 17th~mid 20th Century: Swiss brands dominate the world market Prestige, Design, Exclusivity History Swatch Today Swatch 1984: Launch of Swatch Industry Analysis Seiko, Citizen Cheap HK brands 1950s~1970s: Seiko, Citizen, Casio re-invent the industry: Analog and digital quartz technology Cheap digital quartz watches from Hong Kong Low Price High Price Financial Position Our Proposal

1970s Crisis in the Swiss Watch Industry History World Market = 500 million watches Swatch Today World market Swiss Share (%) (%) Luxury 8 m 1 Industry Analysis 97 Middle Range 3 42 m 9 Financial Position Low Range 450 m 90 Our Proposal Swiss watches = Jewelry = Life time investment

Swiss direct labor > 30 % Total cost COMPETING ON PRICE History Benefits Swatch Today Price Industry Analysis Fixed Cost Financial Position Variable Cost Swiss Japanese Hong Kong Our Proposal Swiss direct labor > 30 % Total cost

Hayek’s 4 Strategic Recommendations (1980) History Technological innovation Vertical integration Expansion of production Compete in all watch segments Swatch Today Industry Analysis Strategic Intent compete in high volume market control quality and costs Financial Position Our Proposal

Watch Unit Production Cost History Benefits Swatch Today Price Industry Analysis Fixed Cost Variable Cost Financial Position Japanese Hong Kong Swatch Swiss Our Proposal Swatch charged “Swiss-made” premium but operated at similar costs as Japanese and Hong Kong competitors

The Swatch Value Chain History Swatch Today Industry Analysis THE ONGOING CHALLENGE FOR SWATCH History High quality, high value Margin Mass marketing of individualized products Low costs despite high wages in Switzerland Swatch Today Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Margin Industry Analysis Vertically Integrated Fast moving Fashion Watch Seasonal Non-conventional Marketing Olympics, F1 Internet Time Fashion Shows Financial Position All in Switzerland Highly automated Economies of scale Our Proposal

Swatch Today Marketing Mix: The 4 P’s History Swatch Today Marketing Mix: The 4 P’s Swatch Today Industry Analysis Financial Position Our Proposal

One profitable growing global brand in every segment PRODUCT & PRICE Swatch group Watch sales History Price US$ 40 110 600 +500k Longines Tissot Certina Mido Hamilton Pierre Balmain Swatch Flik Flak Rado Omega Blancpain Swatch Today 44% 60% 10% Industry Analysis 14% Financial Position 42% Our Proposal One profitable growing global brand in every segment

PRODUCT: From Low-end to Mid-market From Plastic to Metal Unconventional product Life Cycle Extension Emotional product “Always new, Always different” History Swatch Today Industry Analysis Financial Position Our Proposal

PLACE: Swatch’s distribution network History Swatch Today Brick & Mortar Swatch Store Swatch Megastore Online Store but only for limited markets limited customization on Internet Industry Analysis Financial Position Our Proposal f A1-Misc-Basic Slide Formats-

PROMOTION History Swatch Today Industry Analysis Financial Position Unconventional promotion Olympic Games Official Timekeeper Online expansion SIT (Swatch Internet Time ) Swatch Club – Customer Loyalty & Following Swatch Today Industry Analysis Financial Position Our Proposal

Industry Analysis History Swatch Today Industry Analysis Financial Position Our Proposal

Development of World Watch Market Followers competing in the same segment as Swatch, (Benetton, Guess, etc.) Prestige, Design, Exclusivity History Licensed metal sports watches (Adidas, Puma, Fossil, etc.) Rolex Swatch Today Traditional Swiss brands Swatch Industry Analysis Seiko, Citizen Cheap HK brands Low Price High Price Financial Position More local brands in emerging markets, i.e. China and India Our Proposal

Swatch Group sales revenue in China is high but volume is low Top 10 Brands in China (unit) Top 10 Brands in China (value) History Brand Market Share 1. Tianwang 4.32% 2. Fiyta 4.09% 3. Rossini 4. Citizen 4.02% 5. Everbright 3.77% 6. Casio 2.64% 7. Tianba&Harpo 1.83% 8. Enicar 1.75% 9. Seiko 1.66% 10. Xinhuang 1.34% Brand Market Share 1. Omega 13.68% 2. Rado 9.26% 3. Longines 5.34% 4. Rolex 3.92% 4. Titoni 3.81% 5. Enicar 3.26% 6. Fiyta 3.24% 8. Citizen 3.13% 9. Tissot 2.86% 10. Tudor 2.78% Swatch Today Industry Analysis Financial Position Domestic Brands The Swatch Group Our Proposal Source: China National Commercial Information Center, 2001

Major Competitors in the Global Mass Market History Swatch $ 2173 m 73%/ Group Watch Watch & components mfg Electronic systems Citizen $ 1153 m 40%/ Group Watch Info& electronic equipment & devices Industrial machinery & equip. Seiko $ 921 m 47%/ Group Watch Clock and precision pr. Optical pr. Sports & toiletry pr. Timex N/A (private) Watch Clock Eyewear Thermostat Healthcare Audio Fossil $ 781 m* N/A Watch Accessories (leather goods, belts, handbags, sunglasses, etc.) Swatch Today Industry Analysis Financial Position 73% of Swatch Group’s total sales come from watch sales Our Proposal

Trends History Swatch Today Industry Analysis Financial Position Emphasizing FASHION - Swatch: Calvin Klein - Seiko: Nike - Timex: Nautica, Guess? Fossil: Burberry, Emporio Armani, Diesel, DKNY History Swatch Today Fossil WritstPDA MSN Direct Citizen Eco-Drive Timex Bodylink Casio GPS Pathfinder Emphasizing TECHNOLOGY Industry Analysis Financial Position Our Proposal

Trends (cont’d) History Swatch Today Industry Analysis Financial Swiss target HIGH END/ LUXURY MARKET Average unit price of export watch by country (in CHF), 2003 History Swatch Today Industry Analysis Increasing ADVERTISING - Brand ambassador - Sports event sponsorship Financial Position Our Proposal

SWOT of The Swatch Group Expertise in core technology Vertical integration Brand equity Distinctive segmentation Economies of scale Low market share in mid-market Marketing not localized enough Lack of IT-converged products History Swatch Today S W Industry Analysis T O Competitors produce in low-cost countries Oversupply of watches in the global economy Mid-range market Super low-end market for developing countries Financial Position Our Proposal

Financial Position History Swatch Today Industry Analysis Financial Our Proposal

Swatch ROE is Superior History Swatch Today Industry Analysis Financial Position Our Proposal

Margins are superior History Swatch Today Industry Analysis Financial Position Our Proposal

Market shows signs of recovery History Rebound & Recovery Swatch Today Industry Analysis Financial Position Our Proposal

Group Sales have slowed down History Swatch Today -7% Industry Analysis Financial Position Our Proposal

Our Proposal History Swatch Today Industry Analysis Financial Position

Recommendations 1. Target the Mid-Market Segment History 1. Target the Mid-Market Segment Swatch Today COMPETITION 2. Create “Super Low-End” Brand Industry Analysis CHINA INDIA Financial Position BRAZIL Our Proposal

Target the Mid-Market Segment History Create mass customization via the Internet - localize sites - design your own watch online - purchase watches online Swatch Today 2. Change “Swatch The Club” to promote loyalty - strategic alliance with airlines: frequent flyer miles - link with ClubMed and resorts - award Swatch points, e.g.- thru Olympics Industry Analysis 3. Invest more heavily in R&D, IT convergence - memory stick watches - GPS watches - watches with cameras - PDA watches Financial Position Our Proposal

“Super Low-End” Product Research Creating “Super Low-End” Product History Develop cost reducing operations improvements Swatch Today 2. Explore producing outside Switzerland, e.g.- China, India 3. Research cost reductions in raw materials Industry Analysis Nearly 5 billion people of the world’s 6 billion population are considered poor, earning less than US$20,000 per year. The key to success in these markets, such as India and China, is providing super low cost products in high volumes. - C.K. Prahalad Financial Position Our Proposal

Forecast for the Future 1. Target the Mid-Market Segment History 2. Create “Super Low-End” Brand Swatch Today Forecast +2% year over year in watches Forecast -0.5% year over year in movements Industry Analysis Financial Position Our Proposal

“Time is what you make of it.” Q & A “Time is what you make of it.”