TAG Heuer: A Swiss Brand Ahead of its Time?
How a brand rooted in tradition is redefining its image to take on its greatest threat yet; the Apple Watch.
These days nobody needs a watch to tell the time. We live in an age where the devices around us constantly remind us of the time, and millennials are beginning to wonder – why own a wrist watch? Consumers are becoming more tech savvy and demand more functionality than ever. New technology is enabling breakthroughs in products to become more innovative. Smartwatches, led by Apple, are flooding the market and offer an entirely new value proposition to consumers. Watches have now become digitized and yet Swiss watchmakers have been slow to adapt, and may not be able to hold on to the valuable real estate on a consumer’s wrist for much longer [1]. Traditional watchmakers should be concerned as consumer preferences are shifting, and they are in an industry that has proven susceptible to disruption once before. Although the industry has been complacent in its response to the rise of the smartwatch, TAG Heuer (“TAG”), a Swiss watch brand owned by LVMH, is taking action.
The Quartz Crisis
In the early 1970’s, the Swiss watchmaking industry, which had dominated the trade for centuries, was completely turned on its head in a matter of years. The new quartz watch technology offered a more accurate and cheaper product than the traditional mechanical watches, and companies like Seiko and Casio came in and dominated the market. The “quartz crisis” killed off so many Swiss watchmakers that two thirds of the watch industry jobs in Switzerland disappeared [2]. Swiss companies eventually made a comeback by marketing expensive mechanical watches as traditional luxury items [3]. However, through decades defined by innovation, it was only a matter of time before the traditional mechanical watch was challenged again.
Enter Apple
When Apple first introduced its $400 smartwatch in 2015, Jean Claude Biver, watch legend and CEO of TAG, dismissed it, saying that the watch looked “like it was designed by a student in their first trimester” [4]. Two years later, at its September 2017 keynote, Apple announced that it had become the largest watch manufacturer in the world, uprooting hundreds of years of watchmaking tradition in less than three years of production [5]. Apple isn’t the only large player in the smartwatch industry, and this year smartwatches overtook Swiss wristwatches in terms of total units sold globally. Even though Apple continues to grow its offering to gain market share, 72% of Swiss watch executives do not see smartwatches as a threat to their business – a sign that the industry is not reacting [6].
TAG Connected
TAG Heuer has been the first Swiss watchmaker to adapt. In 2015, TAG partnered with Google and Intel to launch its first smartwatch, the TAG Connected, a watch that fuses tradition and technology. At a price point of $1,400, the watch was the first luxury smartwatch of its kind [7]. Although a great success, the product was only seen as a short-term solution for TAG, as it was not considered “Swiss Made”. For a watch to be considered Swiss, laws require that 60% of manufacturing must be done in Switzerland, and TAG simply did not have the manufacturing capabilities to pull it off [8]. Through substantial investments in their La Chaux-de-Fonds workshop, TAG was able to unveil their second smartwatch earlier this year, the TAG Heuer Connected Modular 45, introducing the first “Swiss Made” smartwatch. The watch is again powered by Intel and operates Android 2.0, allowing the watch to support apps, connect to wifi and cellular networks, and even use Android Pay [9]. It is offered for $1,650 and introduces TAG’s long-term strategy – modularity. The base of the watch will be able to host both digital and mechanical modules, allowing customers, to switch between a smartwatch and a mechanical piece. This is the next step in TAG Heuer trying to bring tradition to the smartwatch industry by solving the problem of smartwatch model-specific technologies becoming obsolete after a time. So much of the value proposition for a mechanical watch lies in its ability to last forever and TAG has created a smart piece that can.
Looking Forward
TAG is heading in the right direction. With high demand for their smartwatches, TAG should consider entering the price range for one of their typical watches at around ~$3,000, or even higher. Although some luxury brands have introduced inferior smartwatches at higher price points, TAG can make an early move to dominate the higher end smartwatch market, as it is ahead of the Swiss watchmaking competition in both technological and manufacturing capabilities.
Questions
- Are smartwatches the future or a “Quartz Crisis 2.0”?
- Is it wise for TAG to change more of its manufacturing capabilities to support smartwatches?
(Word Count: 792)
[1] Deborah Weinswig, “The Wearables Report 2016: Reviewing a Fast-Changing Market,” Fund Global Retail & Technology, June 21, 2016, https://www.fbicgroup.com/sites/default/files/The%20Wearables%20Report%202016%20by%20FBIC%20Global%20Retail%20and%20Technology%20June%2021%202016.pdf, accessed November 12, 2017.
[2] Clive Thompson, “Can the Swiss Watchmaker Survive the Digital Age?,” New York Times, 2015, https://www.nytimes.com/2015/06/07/magazine/can-the-swiss-watchmaker-survive-the-digital-age.html?_r=0, accessed November 11, 2017.
[3] Carmen Nobel, “Technology Re-Emergence: Creating New Value for Old Innovations,” Harvard Business School, January 6, 2014, https://hbswk.hbs.edu/item/technology-re-emergence-creating-new-value-for-old-innovations, accessed November 13, 2017.
[4] Thomas Shambler, “Is Time Running Out for the Swiss Watch Industry?,” Esquire, October 17, 2017, http://www.esquireme.com/content/24242-is-time-running-out-for-the-swiss-watch-industry, accessed November 12, 2017.
[5] Michael Sawh, “Tim Cook: Apple is now the No. 1 Watchmaker in the World,” Wareable, September 12, 2017, https://www.wareable.com/apple/watch-sales-rolex-tim-cook-556, accessed November 12, 2017.
[6] “The Deloitte Swiss Watch Industry Study 2017,” Deloitte, 2017, https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/consumer-business/ch-en-swiss-watch-industry-study-2017.pdf#page=15, accessed November 11, 2017.
[7] Colleen Kane, “Tag Heuer to Rolex: How Luxury Watch Brands are Responding to the Apple Watch,” Fortune, June 2, 2015, http://fortune.com/2015/06/02/luxury-watch-brands-apple-watch/, accessed November 12, 2017.
[8] Arthur Touchot, “The TAG Heuer Connected Modular 45, The Company’s First ‘Swiss Made’ Smartwatch,” Hodinkee, March 14, 2017, https://www.hodinkee.com/articles/tag-heuer-connected-modular-45-swiss-made-smartwatch, accessed November 12, 2017.
[9] “TAG Heuer Connected Modular 45”, TAG Heuer, 2017, https://www.tagheuer.com/en/watches/tag-heuer-connected, accessed November 11, 2017.
Thanks for sharing!
I’m worried that TAG might lose its authenticity as a “Swiss” matchmaker by moving too much towards smartwatches, thereby alienating its core customers, who could likely afford a different $400 smartwatch in addition to their original TAG.
I think that moving significant digital manufacturing capabilities to Switzerland will be expensive and risky for TAG, but as you highlight, if they don’t, they risk losing their “Swiss made” label and, more importantly, reputation. So despite their early success, it could quickly turn to a lose-lose situation for them. I’m curious to see how it turns out!
As a watch aficionado, I really want to think that mechanical wristwatches are not going extinct. While smartwatches have undoubtedly shaken the ground for Swiss watchmakers, I believe that they satisfy fundamentally different customer needs than luxury mechanical watches. People do not pay thousands of dollars for a Rolex or Patek Philippe because they want to know the time or date, but rather because the physical attributes and craftsmanship of the watch itself has timeless value and meaning. Therefore, I believe that lower-end watch brands are more susceptible to disruption, while the higher-end ones will retain their standing as jewel-like luxury items. TAG Heuer may be stuck somewhere in the middle, and it needs to tread carefully to avoid becoming a technology accessories firm and lose its Swiss watchmaking cachet.
You touch on an important point regarding TAG’s technical expertise. As a traditional Swiss watch brand, TAG is faced with the decision of whether to develop in-house digital expertise, or to continue its current strategy of partnering with Google and Intel to produce smartwatches (The Economist: Swiss watchmakers try to keep pace). I am inclined to recommend that they continue the partnership route in order to ensure that their smartwatches keep up with technology and can interact with the other digital devices that consumers use. However, if TAG wants to continue being a luxury brand, it is critical that the brand retains its credibility by continuing its mechanical watchmaking operations.
Thank you for sharing this! I really enjoyed reading your article. However, I want to challenge the idea that TAG even needs to respond to the rise of Apple’s and other SmartWatches. Maybe I am a traditionalist, but (like Alberto in the comment above) I have ‘bought in’ to the view that there is something innately valuable – and, to be honest, special – about the craftsmanship and complexity of a mechanical watch movement. To my mind, mechanical watches satisfy a very different need (or want) and market segment to that targeted by Apple et al.
That having been said, since TAG has decided to go down this route, I want to consider their approach. While Apple may now describe themselves as the world’s biggest watchmaker, I see smartwatches more as wearable tech (than as time pieces) – i.e., offering a fairly utilitarian function. Given this, I’m not sure that it makes sense for TAG to produce a *luxury* smartwatch at such a high price point. What would compel a consumer to buy a TAG for 5x the price of an Apple Watch? And if they did, then from the company’s perspective, is there a concern that this could cannibalise sales of traditional TAG watches, given the similar price point? Given these concerns, should they try to more directly compete with incoming, cheaper smartwatch competitors – possibly through sub-branding (to avoid diluting the TAG brand if this is a worry)?