Japan’s digital watches massively disrupted the Swiss watch market. So, an entry level fashion watch is created to save the day. Swatch!
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us. But we’re highlighting ads we’ve written and produced for our clients, so here’s one of those.
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Dave Young:
Welcome back to the Empire Realtors podcast. Dave Young here alongside Stephen Semple. And as usual, Stephen has whispered the topic into my ear as the five-second countdown commenced. So, I have three seconds to come up with my initial reaction to the brand is that we’re going to discuss. And my recollection for this one is … Let me tell you what it is first. It’s Swatch. Remember the watches? And my recollection of it is they were just too damn cool for me.
Stephen Semple:
I mean, you’re not a fashionista, Dave?
Dave Young:
I never have been. But here’s the thing. I think by the time … you’ll have to fill in the dates here, but I think by the time I got out of college and was making my way in small market radio, the point of having fashionable timepieces on your wrist, which is … was like, “That’s just too cool for me. No.” I recognize it as a cool idea that was going to make somebody a gazillion dollars.
Stephen Semple:
Yeah.
Dave Young:
But it wasn’t going to be my dollars that got it done.
Stephen Semple:
Well, you’re somewhat accurate, and somewhat aren’t because I believe that we are around the same age. I might be a tick older, but it was fall of 82 when Swatch was launched, but they became really big, late eighties, early nineties.
Dave Young:
So, yeah, I graduated college in 84, and so, yeah, by the late eighties … and remember, I was in Western Nebraska.
Stephen Semple:
And there was no Amazon.
Dave Young:
Dude, Gone With the Wind has just now arrived at theaters in Western Nebraska. When you think about the good old days, they haven’t even hit Western Nebraska yet. They’re still waiting. So, go ahead.
Stephen Semple:
As I got looking at Swatch, here’s the thing that’s really remarkable about Swatch is how much they changed the watch industry. It is an idea that was remarkable because not only did it change the watch industry, it saved the Swiss watch industry.
Dave Young:
Oh, I believe it. Yeah.
Stephen Semple:
The change that came about was incredible. If we go back pre-Swatch, the idea of a watch is it was a single purchase item.
Dave Young:
There’s a time … yeah.
Stephen Semple:
People own one wristwatch.
Dave Young:
Yeah, and you decided, do you want a leather watch band or one of those metal expandy ones?
Stephen Semple:
Yeah.
Dave Young:
Which watch guy are you?
Stephen Semple:
Right. And Rolex, for example, was not even a high-end luxury product at that time. It was an expensive watch, but it was not a luxury watch. It was not an aspirational one. And it’s really interesting. Even if you take a look at Rolex’s advertisements from the seventies versus the ones 2000 and on, they’re a very, very different feel. One was it’s rugged, and you can use it, and they aligned with certain sports such as diving and things along that lines. You look at how it’s positioned today, and it’s a fashion statement.
Dave Young:
Yeah, I see that.
Stephen Semple:
It’s very, very different. In 10 years following the launch of Swatch, they became the largest watch brand on the planet.
Dave Young:
Well, I’m sure we’re going to hear about tons of imitators. And they hit right in that slice of time. There’s a couple of decades, just maybe a decade just before everybody had a cell phone in their pocket and didn’t need a watch anymore.
Stephen Semple:
Right. Yeah.
Dave Young:
Right? Because that took the wind out of the sales of the watch industry for a little while.
Stephen Semple:
Yes.
Dave Young:
Okay.
Stephen Semple:
So, we got to go back to basically the early eighties. And Nicholas Hayek Senior is running the group, and he was born in Beirut. He grew up in Switzerland. Here’s the thing that’s interesting about all of that. There’s two industries in conflict at this time in Switzerland. If you take a look, the two biggest industries in Switzerland at that time was the watchmaking industry and the banking industry. Here’s the issue. The watchmaking industry, the entire industry, is in deep, deep, deep trouble. And they actually call it the quartz crisis because what had happened is the Quartz watch came out. And basically, what was happening is the Japanese can make this electric watch that kept better time, dirt cheap.
Dave Young:
Seiko, yeah.
Stephen Semple:
Yes. And it was killing the watch industry because, at the end of World War II, half of all watch sales were Swiss-made watches. And at the time, Swiss man quality, all this other stuff. 1969 comes along. Japan enters the market with the Seiko. It’s cheaper, more accurate. And guess what? The watch industry does what every other industry does. It’s just a fad. It’ll never catch on.
Dave Young:
Yeah, that’ll pass.
Stephen Semple:
Right? By 1972, it’s having such an impact that James Bond in Live and Let Die Wears a Pulsar, the world’s first digital watch, where before, it had always been a Rolex. Think about that in terms of an impact. And so, yeah, when faced with disruption, often, the players in the space kind of ignore it. It’s a fad. It’s below us. It’s going to go away. And it starts bleeding sales. By 1982, the Swiss watch industry had declined by two-thirds.
Dave Young:
Wow, that’s many thirds.
Stephen Semple:
Yeah.
Dave Young:
There’s only three of them.
Stephen Semple:
Yeah. And basically, what happens is the banks want to cut bait on the industry and sell out to the Japanese.
Dave Young:
Oh, wow. Okay.
Stephen Semple:
Let’s just sell this industry to the Japanese. Now, it’s interesting. Rolex was not part of this group that was looking to sell to the Japanese. Rolex was a different group, but this impacted Rolex as well. And what they did is they asked Hayek for a blueprint to basically get out of this problem. It’s like, “What are we going to do here?” And instead of selling out to the Japanese, he comes up with a different plan. And this is brilliant because when faced with a low-price competitor and this disruption going on, Dave, what do most people want to do?
Dave Young:
Well, they want to do what’s popular,
Stephen Semple:
Right. Which would be lower the price and go after that, right?
Dave Young:
Yeah.
Stephen Semple:
He creates it different. He basically looks at the marketplace, and he says, “The market is split into three parts. There’s the bottom. There’s the middle. There’s the top.” And what he looked at is that the Swiss watchmakers were really pricing themselves primarily in that middle space. They were expensive, but they weren’t really expensive, and they had nothing at the bottom end. So, the first thing he did was dramatically increase the prices on all their watches. He at least doubled the prices on them, moved them all up into the top end. He said, “Okay, what we’re going to do is we’re going to go up. Even though we’re getting killed, even though our sales are down, we’re going to increase prices.” That’s bold.
Dave Young:
Sure.
Stephen Semple:
That’s really bold. And then what he wanted to do was create something for the low end.
Dave Young:
I love this.
Stephen Semple:
Build something new for the low end.
Dave Young:
Because if you’re already positioned as middle of the road, yeah.
Stephen Semple:
When disruption happens, the players in the middle always get slaughtered every time. We’ve seen it in every industry. You can make money at the top end. You can make money at the bottom. And what his plan was, we’re going to do both. Now, here’s the other thing that we know. Anybody who’s been super successful at the low end, it’s not just about having a low-price offering. You actually have got to have something that you can manufacture at a low price. So, it wasn’t like they could come out with a cheap mechanical Swiss watch. What they needed to do is they needed to create a Swiss version of the Quartz Watch.
Dave Young:
Right.
Stephen Semple:
What they found is there’s something that they had been working on, which was the world’s thinnest watch. They’d been working on this technology for a thin watch. And to make a watch really thin, you have to make it with fewer parts. If you can make a watch with fewer parts, you’re able to lower the cost of manufacturing. And they got it to the stage where they were able to make it with 51 parts versus what the Japanese were doing. The Japanese were making the watches with 91 parts. So, they were actually able to come in with even more efficient manufacturing than the Japanese.
Dave Young:
And this is still an analog watch driven by a battery, a quartz piece, electric device.
Stephen Semple:
Correct. Correct.
Dave Young:
Yeah.
Stephen Semple:
Correct. They called it the Vulgaris, and in 1981, they came out with the first prototypes. And they were this black and white with this plain black band, and it was dull. And then, what they decided to do was create ones with a whole pile of colors because the idea was they wanted to start making the watch a fashion accessory.
Dave Young:
Got you.
Stephen Semple:
That was the idea. And in 1982, they ran a test actually in a mall in Texas. They created 25 different colors, and they called it a Swatch. And what we don’t know is whether Swatch stands for second or whether it stands for sweat, like your second watch or Swiss watch. We don’t know the origin of that, but it was somewhere along that is what created the idea Swatch. It was waterproof, and the battery lasted for three years, and it was Swiss-made. And France Specker was the guy who created this idea of the name and the idea of a second watch. The idea of a second watch was brand new.
Dave Young:
Yeah.
Stephen Semple:
Here’s a second watch. You want this as your second watch. And they came up with a price point where they price it similar to a tie. Ties, at that time, were selling for 40 bucks. They made it 40 bucks and started to make it a fashion idea. Look, Warby Parker did this with eyeglasses.
Dave Young:
Yeah. Who doesn’t want another watch?
Stephen Semple:
Warby Parker copied this idea. And sales weren’t that great. They weren’t that great. But what they did notice was there were customers wanting to come back to buy a second and a third watch.
Dave Young:
Decide. There’s so many. Yeah.
Stephen Semple:
So, it didn’t catch on. There was this hint that there was something to this second watch idea.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
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Dave Young:
Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.
Stephen Semple:
There were customers wanting to come back to buy a second and a third watch.
Dave Young:
Decide. There’s so many. Yeah.
Stephen Semple:
So, while it didn’t catch on, there was this hint that there was something to this second watch idea. So, in March of 83, they come up with 12 styles, and they’re way more colorful. If you look at the first bunch, they weren’t really vivid. Now they leaned into, let’s really make these colors and styles look like it’s-
Dave Young:
Got you. Yeah.
Stephen Semple:
… something cut out of a fashion magazine. They leaned more into that. And they roll it out in Europe, and it does great. It does great. Now, they get some advice. The president of Bloomingdale says, “This is a great idea, except what you need to do is you need to lean more into this idea of fashion.”
Dave Young:
Okay.
Stephen Semple:
So, the first brilliant move is they go high end, and they go low end. They find a cheaper manufacturing process, but they don’t go on price. They reposition the watch as fashion. Brilliant. But the CEO of Bloomingdale says, “You’re not selling this like fashion because here’s how fashion is sold. You come out with 20 different models, and you sell it for a season, and then you come out with 20 different models, and you sell it for a season. What you need to do is, twice a year, launch 20 models. New collection. Fashion is collections, right? A new collection every six months, act like a fashion brand.”
Dave Young:
Right.
Stephen Semple:
Swatch runs with this. And the first thing they come out with in the summer of 83 is this thing called the jellyfish, which is this transparent watch. You can look them up. They’re wild. They come up with 200 units. It sells out right away. Boom. Sold. And what happens with most companies when something sells out right away? What do they want to do?
Dave Young:
Make more.
Stephen Semple:
Make more.
Dave Young:
Yeah.
Stephen Semple:
Swatch says, “Nope.”
Dave Young:
That’s it.
Stephen Semple:
That’s it. No reissues.
Dave Young:
So, now they’re in Beanie Baby territory.
Stephen Semple:
They’ve now become a collectible. They now created scarcity. When you create scarcity at the low end, that is magic, man.
Dave Young:
Sure.
Stephen Semple:
Designs become exclusive. No reissues. By December of 83, one year after starting this idea, a million Swatch watches are sold. Boom.
Dave Young:
And there’s got to be people that have every one of them. Right? Or loads of them.
Stephen Semple:
Right. So, what does fashion brands do? Fashion brands connect themselves with subcultures that are cool, right? Especially when you’re getting started. The interesting thing is Red Bull learned this from these guys. 1984, what they do is they sponsor the world’s first break dancing competition.
Dave Young:
Of course.
Stephen Semple:
Right? And then, sponsored by Swatch, so they create these events, and then they design watches to those events.
Dave Young:
So, they’re red bowling before Red Bull Red Bulled.
Stephen Semple:
Red Bulling before Red Bull. And they partner with artists, and designers, and sports celebrities, but in these small niche sports, mountain biking, breakdancing. And they create 140 timepieces for each one of these events. And when it’s gone, it’s gone.
Dave Young:
Gone. Brilliant.
Stephen Semple:
By 1983, they’re doing a million watches, 84, 3-and-a-half million. In 86, they triple that number again. And here’s the other crazy thing. Guess what else happens in the Swiss watch-making business? The top end grows as well.
Dave Young:
Sure.
Stephen Semple:
The selling of the Swatches reinvigorates-
Dave Young:
All the whole
Stephen Semple:
… the whole Swiss watchmaking industry.
Dave Young:
Yeah, that makes sense.
Stephen Semple:
Because the top end pivots also to this fashion statement except glamorizes it, makes it aspirational. Rather than your day-to-day watch, this is the watch you dream to own. This one is really and truly the fashion statement.
Dave Young:
And this is, I’m guessing, where some of these other giant high-end watches come into the game.
Stephen Semple:
So, Golden Eye, remember how we lost Bond? Well, Bond comes back with an Omega. Now, Omega is part of the Swatch group.
Dave Young:
Okay.
Stephen Semple:
And basically, by 1993, Swatch is doing 2 billion in sales.
Dave Young:
All right.
Stephen Semple:
Just killing it. Just absolutely killing it.
Dave Young:
And the Swiss bankers are probably happy.
Stephen Semple:
The Swiss bankers are now happy.
Dave Young:
They’re on board.
Stephen Semple:
Yeah. But when have we seen something that has come along that not only was this new, innovative idea but actually saved an entire industry?
Dave Young:
That’s great.
Stephen Semple:
Isn’t it incredible?
Dave Young:
Yeah.
Stephen Semple:
And what I love is the boldness of this. This whole idea of we’ve got a cheap competitor coming in, so what we’re going to do is going to dramatically increase our prices, step one. Step two, we’re going to find a new manufacturing technique to meet them. Step three is we’re not going to compete on price. We’re actually going to change what a watch stands for, and that is fashion. Step four is, if we’re going to do it as fashion, let’s do it the way fashion industry actually works. Let’s lean into it, which is collections that run, and sold out, and is gone. And then the next thing we’re going to do is we’re going to make it cool by leaning into counterculture, breakdancing, mountain biking, artists that aren’t super well known, small collections. Send it out there. It’s a brilliant strategy and roadmap.
Dave Young:
Mm-hmm. Yeah, I love it. I love it. And again, they were too cool for me.
Stephen Semple:
Well, yeah. But isn’t it interesting you started off with it being too cool, and that’s exactly what they were going for?
Dave Young:
Oh, absolutely. Yeah. Honestly, I ended up with a Seiko in the eighties.
Stephen Semple:
Right? Yeah.
Dave Young:
But that’s it. That’s as far as I was going. Yeah, I love this story.
Stephen Semple:
Here’s the other super, super interesting thing. You ended up owning multiple watches. The whole idea of a Swatch is it’s your second, third, fourth watch. Lots of people owned many Swatches. But here’s the psyche it created. Guess what then started to happen in the luxury watch brand?
Dave Young:
People start collecting multiple luxury watches. Right?
Stephen Semple:
I saw a study one time. I don’t know how accurate the study is, but I saw a study one time that said when somebody owns a Rolex watch, guess, on average, how many Rolex watches they own?
Dave Young:
How many?
Stephen Semple:
Three.
Dave Young:
Okay.
Stephen Semple:
When we talk about marketing, it’s interesting when you create this idea how this idea bleeds. Initially, pre-nineteen seventies, you owned one watch. By the end of the Swatch era, not only were you owning multiple Swatch watches, people were owning multiple luxury watches. This is how much of an impact this idea had on the space. To me, the more I looked into the Swatch story, the more fascinated I became by it.
Dave Young:
Great story, and what a powerful lesson. When you’re faced with the demise of your industry, almost, to figure out how to take your product higher and then enter it back down at the low end.
Stephen Semple:
Right. And even when you go back down to the low end, don’t compete on price. Do something slightly different.
Dave Young:
Yeah.
Stephen Semple:
And what I loved is they looked at the fashion industry and said, “How can we make a watch like a tie? You wear a different tie with every suit. Why wouldn’t you wear a different watch?” Right?
Dave Young:
Mm-hmm. There were fashion collections of ties out at that same time.
Stephen Semple:
Correct. Correct.
Dave Young:
Right?
Stephen Semple:
Yeah.
Dave Young:
So, it was the same kind of trend, the same idea. I love it.
Stephen Semple:
Yeah, so it’s this whole idea of look at another industry. Learn from that industry. And that’s what they did. They didn’t learn from the watch industry. They looked at the fashion industry and mimicked that, and even initially mimicked it a little bit, and then really doubled down on it. And again, that’s an overarching theme of this podcast.
Dave Young:
We’ve always called it in our Wizard of Ads group, business problem topology mapping. Right? You figure out how somebody in some other industry either has solved a problem that you’re facing or is solving it. And you figure out the shape of the problem, the shape of the solution, and see if you can figure out how to apply it to your situation. That’s exactly what they did. They did it intentionally.
Stephen Semple:
Yes. They did it intentionally and saved an entire industry.
Dave Young:
I love this story. Yeah.
Stephen Semple:
Yeah.
Dave Young:
Well, thank you for bringing Swatch to the conversation.
Stephen Semple:
It may be enough that we may see Dave Young in the future wearing a Swatch.
Dave Young:
Well, I don’t know because I’m still not cool enough to wear a Swatch. Thank you, Stephen.
Stephen Semple:
Thanks, David.
If you’re wanting to dig a little bit deeper into the Swiss watch industry, you can go back to episode 186, where we talk about the origin of Rolex and actually take a look at how Rolex did a lot of their early advertising. I think you’d find it really interesting, especially after listening to this story.
Dave Young: Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app, and leave us a big fat, juicy five-star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute empire-building session, you can do it at empirebuildingprogram.com.
