Running Head: Seiko Case Analysis
Seiko Moving Up Market
Situational Analysis:
Company:
Seiko’s goals have traditionally been to bring technically advanced watches to their customers. In 1969, Seiko achieved international recognition by successfully integrating quartz technology into a wristwatch. Seiko is able to accomplish these ambitious goals because they use a vertically integrated management system and consist of many different firms, which focus on various aspects of watch production. This structure means they are able to mass-produce technologically advanced watches at affordable prices. Seiko has established itself the premier watch manufacturer in Japan and most parts of Asia. This can be attributed back to Seiko’s origins when founder Kintaro Hattori’s vision was to bring the best product possible to their customers.
They made this vision a part of their very identity by naming the company “Seiko,” which means exquisite in Japanese. With a strong following in their domestic market, Seiko expanded their product offering with the creation of a line of high-end luxury watches. The Credor collection and The Grand Seiko represent Seiko’s luxury watch lines with prices of some pieces reaching $10,000 USD. These watches do very well in their domestic market because of Seiko’s strong reputation of quality and technical excellence.
Despite all their success in their domestic high-end market and their ability to deliver watches as precise as Swiss products, Seiko’s international perceptions were seen as cheap and inferior. One reason for this inferior international recognition can be attributed to the fact that Seiko’s scope never defined a specific target markets. Seiko has historically faced a problem of being a production-oriented company by mass marketing and mass-producing their watches. Seiko sold their watches at price levels in the low (0-$150), mid ($151-$500), and high-end ($5,000 and above) markets in an effort to please as many customers as possible. These misconceptions have restricted Seiko and its goals to become internationally recognized as a manufacturer of high-end luxury watches.
In 2001, Seiko began an effort to revamp their image as a premier watch manufacturer in the international market; Seiko chairman Reijiro Hattori created a subsidiary of Seiko called Seiko Watch Corporation (SWC). SWC’s goal was to try and reverse this perception and to get customers to identify Seiko the brand and not the product offer. Seiko never had a specific target market because their product offer had been their identity.
An example of the overemphasis that Seiko places on their products is their Spring Drive Technology. Spring Drive was a hybridization of mechanics and electronics that Seiko had been able to master because of their many resources. In fact, 80% of the 280 parts that are in the Spring Drive are the exact same as those used in the Grand Seiko watches. All Spring Drive watches are assembled completely by hand.
Competitors:
Despite being the most recognizable of high-end watch manufacturing, Swiss watch companies were losing their share of the world watch market in the mid-1990s. With the watch market being diluted with low to mid-level Asian made watches, Swiss watch companies felt pressure to compete. In 1998 Swiss company, ASUAG-SSIH produced “Swatch” which used cheaper parts, mass-produced, and priced at less than 50 USD. In fear of possibly blemishing their high-end reputation, approximately 30% of Swatch’s retail price was spend on advertising.
The result was a success for the Swiss watch industry. They were able to recapture their lost market shares thanks to heavy investment they made in automated production which made it easier for them to market watches at a variety of prices. With the introduction of the Swatch product line, the Swiss watch manufacturers were able to gain entry into the low-end watch market where Seiko had been well known and had an established foothold in the market.
The American watch market consisted of companies such as: Timex, Bulova, and Hamilton Watch Company. They relied on the American mass-production system to sell and distribute watches all over the world. Timex was able to sell quartz analog watches at $125 USD, which was the lowest price in the market at that time. Semiconductor firms also used their resource of knowledge of microelectronics research to integrate a circuit production to mass-produce digital quartz watches.
These watches could be sold at extremely low prices, which traditional manufacturers could not match. In terms of low-end watch production, the United States could have posed a problem for Seiko. However, as the market became saturated with low-end watched and the demand for them began to decline, almost all semiconductor firms exited the watch-making scene. Later on, the United States would become the largest market for Japanese watches.
Chinese watchmakers posed a threat to Seiko because they were able to manufacture and produce watches with very low production costs meaning they could sell them at a very low price point. Seiko took advantage of China’s low labor cost and low tax rates by establishing plants in Hong Kong. China was able to become to world largest exporter of low-end watches by volume by the early 2000s. However, Chinese watch firms lacked the technology and investment to move beyond the low-end watch market. This was a benefit to Seiko as it has all but forced them out of the low-end watch producing market. Seiko was also able to take advantage of lower labor costs by establishing productions plants in China.
Within Japan and Asia, Seiko’s main competitors consist of Citizen and Casio. Citizen, like Seiko, uses a fully vertically integrated management system. They are known for their Eco-Drive watch line, which uses solar technology to power the watch. Citizen continues to create innovative watches and has released radio-controlled watches that are able to synchronize with government-maintained atomic clocks. Casio has been known for their low-priced digital watch lines that contained multiple functions.
However, with the rising influx of low-priced watches coming from Chinese manufacturers, competition was increasing. Casio’s main strength is that they are also technologically innovative. They are in the process of developing solar-powered and radio-controlled watches. With both Casio and Citizen growing in their market shares of the Japanese and Asian watch markets, Seiko’s continued dominance in their domestic market is not guaranteed.
Customers:
SWC identified their target customers as: watch enthusiasts and collectors who looked for originality, exclusivity, and innovation. With this description, Seiko began the long overdue process of defining their target market. In order to incentive these types of customers, Seiko needed to overhaul of its brand image. They did this by applying a two-pronged approach by changing their international marketing strategy and their production approach. They changed the way they advertised on billboards and TV ads. They also opened Seiko Shops around the world, which offered in-store presentations of their technical excellence and luxury styling. Seiko restricted supply so that discount realtors had a harder time obtaining their watches.
In an effort to both motivate these target markets to purchase their high-end product line and enhance the Seiko Brand, SWC decided to globally market the Spring Drive technology instead of keeping it just domestic. Watch enthusiasts were won over with the product and Seiko sees Spring Drive as a platform to move up-market.
Climate:
With many customers now abandoning low-end watches in favor of using their phones, the need for and development of these types of watches was becoming stymied. SWC believes that with the Spring Drive technology, Seiko should no longer compete with low-end watchmakers. They believed that their new target market would be willing to spend around $5,000 USD. However, this was just the beginning to Seiko’s goal of becoming a big player in the high-end watch market and staking out a place next to Swiss luxury brands. While sales in the United States for Seiko were now in the high-end market, Seiko is still working to rehabilitate its brand image and correct American consumers’ negative perceptions. In a 2004 Gallup survey, customer perception rated Seiko just above the mid-range brands, but still lower than Swiss brands.
Collaborators:
Within each market Seiko selects only one-high end retailer to carry Spring Drive lines in an effort to make their brand more exclusive. In the past, Seiko was not selective about the retailers who sold their products and distributed their watches to many different companies. Moving forward, Seiko made sure that the high-end retailer they chose shared their same marketing vision.
Problem Statement:
Seiko Watch Corporation is faced with a series of interrelated obstacles in their global aspiration of moving up-market. Though their parent company has experienced tremendous growth and success over the past century through diversification and innovation, the watch segment has been left on the proverbial back burner. Prior to the creation of the SWC, decisions made by upper management regarding the company’s watch manufacturing were made based strictly on finances and did not necessarily consider the reputation of their timepieces. This lack of corporate attentiveness along with an overemphasis on emerging technology created a series of hurdles that the Seiko Watch Corporation will have to surmount in order to successfully transition their brand.
Shortly after the inception of the company Seiko has been capable producing exceptionally high quality timepieces. They have experienced success in terms of sales volume, and perceived quality in the Japanese market. However, their reputation for quality has struggled elsewhere. Many markets including Western markets consider Seiko to produce “reliable but unremarkable” timepieces.
In the company’s effort to capitalize on the demand for watches they produced them at several price-points and varying levels of quality. In fact, much of the manufacturing of the lower end timepieces was outsourced to Asia in attempt to keep costs low. With such varying levels of quality on the market and a large overall volume of sales, the perceived quality and value of Seiko watches was diminished. Seiko’s overly diverse product offerings failed to live up to their tradition of producing exquisite products.
Another obstacle that the Seiko Watch Corporation will need to overcome in their transition toward the upper end of the watch market is to shift their emphasis from technological advancement to luxurious styling. Industry research has indicated that the high-end segment of the watch industry is growing faster than any other, and is projected to continue on that upward path.
The spring-drive technology has become the pet project of the Seiko Watch Company may be industry leading technology, but the company must make a deliberate determination on the potential detriment of overemphasizing it. Research commissioned by SWC revealed the major determinants of value for consumers of high-end watches were quality, exclusivity, and uniqueness. While technology and innovation were also contributing factors, their primary value lies in the degree with which they reinforce the three major determinants.
In order for Seiko to realize their goal of selling more units and transitioning up-market, there are two key problems that they will need to address. First, they will need to find a way to improve upon the perception of quality that they have acquired in Western markets. The industry is trending toward higher end timepieces. For Seiko to gain a significant portion of the market share their brand must be elevated in the eyes of potential customers.
The second problem that Seiko will need to address is to shift their focus from producing market-leading technology to producing luxury. With the prevalence of cell phones and other devices that receive continuous wireless time signals from atomic clocks and other sources, accurate time is not considered a premium as it once was. To move forward and upward as Seiko intends to do, they must determine how to elevate their brand perception. Additionally, they must determine how to execute a paradigm shift in their product development and marketing. Success in these two key problem areas is crucial for Seiko Watch Corporation to realize
their goals.
Alternatives:
Alternative 1- Focus on High-End
In order to address the poor international perceptions about Seiko as a brand, the company will need to distance themselves from their previous policy of offering, “watches to everyone.” The current market offers a wide mix of technology that is affordable by many and has replaced watches from the low to mid range price point. The need for a watch is no longer what it was and technological innovations such as cell phones provide more accurate timekeeping than most analog and digital watches. As an effect the watch industry has seen sales split between two distinct categories.
Lower end watch sales are predominantly represented by Chinese manufacturers who enjoy very little relative production cost. On the high-end the Swiss manufacturers are perennial leaders. Other large competitors in the luxury watch segment include French, German, and Italian companies. Since Seiko is adamant about raising their perceived reputation, primarily in Europe and America, they need to minimize their low/mid range watch production and take control of the high-end market by catering to the affluent watch collectors.
This alternative would not only enhance their perceived image internationally, but would bring them into alignment with the vision, identity, and core values of Seiko—trustworthiness, innovation, refinement, reliability based on quality, and worldwide brand recognition. To optimize this alternative, Seiko should invest the majority of its resources into the high-end operations of the Seiko line and focus the rest on de-emphasizing its current low end and mid level watch line. This move would enable Seiko to satisfy the needs of its customers who have relied on Seiko’s quality and affordable watches for decades, yet significantly enhance the image of the company and cater to the high-end market.
This high-end exploitation should consist of across-the-board spending increase to the high-end Seiko line—marketing, research and development, production, etc. The key to success in this model is a tightly integrated and refined international marketing strategy. This may include official sponsorship of professional and Olympic games, television advertisements, and a visible advertising presence in upper-end magazines, newspapers, and billboards; all aimed to the appropriate demographic. While production and sales of these watches will not meet or exceed the volume of the low end and mid level watches, the profit margin on sales of high-end watches should make up some of the difference.
The reason for not eliminating the low end and mid level watches altogether is for its ability to provide reliable profits. While accuracy is not a key concern for most watch enthusiasts, it is a value-added benefit. Seiko should make a point of testing the Spring Drive’s abilities against comparable luxury watches certified by Contrôle Officiel Suisse des Chronomètres to provide proof of their technical superiority. Seiko would also benefit most by producing all of their own parts, movements, and assembly processes in-house with stringent oversight and transparent operations. In addition to the product, price, and promotion of this fine timepiece, the place these are sold should be confined to relatively wealthy areas, all of which should be easy to locate.
Rising to the challenge of a high-end watch market involves many risks and can pose significant problems. The bread and butter of Seiko is the low end and mid level market, which they are so well known for, but cutting this back may leave opportunity for loyal customers to abandon Seiko altogether. Another serious concern is that there will be little to no execution of luring in affluent customers that Seiko will target with this new strategy. Both of these would be detrimental to the success of SWC and could ultimately result in a backfire.
Alternative 2- Focus on Mid-Level
The second alternative is to shift the primary manufacturing and marketing focus to the mid-level luxury market for the international (U.S. and European) markets, while not abandoning the high-end market. Seiko does not have brand recognition as a high-end luxury watch manufacturer in international markets. The few competitors who are already sell to that target segment are well established, have brand recognition as high-end luxury watch manufacturers, and would be difficult to displace. James Dowling, the Editor in Chief of TimeZone.com argues that due to Seiko’s perception in the Western markets, their offerings are not given an opportunity to demonstrate their excellence when sold alongside highly-established brands. While it is a misperception of Seiko’s demonstrated high quality, it would be very difficult if not impossible to correct it.
However, Seiko is known in those same markets for offering a quality, mid-level product. A proposed shift in focus would capitalize on this reputation of high quality to cost ratio. Increasing production and marketing of the mid-level luxury watches for international markets would allow Seiko to increase overall sales numbers and in turn revenue which can be put back into the development of the company’s high-end luxury offerings. In addition to increasing the volume of mid-level watches, a proposed diversification of offering would help Seiko move into new target segments.
Diversifying their mid-level offerings with technologies designed for specific activities, such as endurance athletes and divers, while using the same basic technological base would allow Seiko to expand into the emerging luxury sports and outdoor recreation market. This model would help Seiko create a nimbleness of production by being able to quickly customize watches for emerging markets, a concept which was problematic for them in the past. By creating unique watches for different activities, Seiko can still tap into their identified target market of collectors looking for innovative products. Targeting watches at a price range in which they are already recognized and then diversifying those offering could allow Seiko to become a top competitor in the mid-level luxury watch market.
While the proposal has its advantages, there are also potential disadvantages. The first is a focus on mid-level watches would not contribute to increasing the reputation of Seiko as a high-end luxury watchmaker. Seiko executives have already taken an approach of value over volume, demonstrated in dropping sales of mid-level watches from 2003 to 2005.
This proposed shift might in fact be a disadvantage because it continues the perception that Seiko sells only mid-level luxury watches. It could also do the opposite and raise Seiko’s reputation as the manufacturer of high quality, innovative product offerings at an affordable luxury price. Another disadvantage might be that increasing production on mid-level watches could compromise their quality. However, this is unlikely because Seiko’s own stated mission is to provide “reliability based on quality.”
Alternative 3- Hybrid Approach
Another alternative is a hybrid plan of action. This approach involves no longer actively targeting the low-end watch segment. Instead, Seiko will focus company efforts on targeting the mid-level and high-end segments. The manufacturing and production will focus on the mid-level segment in order to reach Seiko’s overall sales goal. The marketing focus, however, will be on their high-end product line. This focus works to strengthen Seiko’s overall prestige level.
The advantages of this plan are threefold. The first advantage derives from Seiko abandoning efforts to actively target the low-end watch segment. This is already a decreasing market as low-end watches are being replaced by alternatives such as cell phone clocks. Low-end watches are also affecting the perception of Seiko’s higher end watch segments by creating a negatively association with the overall band. Customers from the high-end segment see the Seiko name as good quality but lacking in prestige. The company instead will place its focus on the mid-level and the high-end watch segments. One of Seiko’s goals is to increase its overall number of watch sales.
This leads to the second advantage: by focusing production efforts into creating unique watches for the mid-level segment, Seiko can aim to increase its overall watch sales. The final advantage to this alternative comes from the new marketing focus on the high-end segment, which is the fastest growing watch segment. If Seiko can monopolize this growth it can ensure high market share in this segment for the future. Also by capitalizing on the prestige created by their high-end watches, Seiko can boost the perceived value of all the watches under its name.
The hybrid plan, however, does not come without its own set of risks and disadvantages. This approach advocates throttling down the company’s focus on the low-end segment before its presence is established in the high-end segment. Seiko, therefore, faces the threat of significant downturn in sales during the focus transition. A risky assumption is also assumed that when the transitional phase is over the plan will have its desired outcome. On the contrary, the switch in focus could result in Seiko losing its position in the low-end watch segment and never attaining its goal for the high-end segment.
Alternative 4- Focus on Eastern Market
The fourth alternative for Seiko is to concentrate on the high-end markets of Japan and South East Asia where they already have a strong presence in the market and to stop selling watches in North America and Europe. Selling only high-end watches in Eastern markets would increase demand and exclusivity in the North American and European markets. If the strategy was successful and demand increased in Western markets, Seiko could reintroduce high-end watches into the North American and European markets in very limited numbers. Once reintroduced Seiko would only need to tweak its existing marketing mix for the Western market. Seiko should keep supply below demand for the first few years until they have the market position that they desire.
Once this happens it should resume normal business and marketing of their high-end watches in North America and Europe. The main risk with this alternative is possibly alienating these important and valuable markets. North America and Europe make up for 52% of the market for Japanese watches. However, since the high-end watch market continues to grow in Western markets, it is likely that reintroduction of the rehabilitated Seiko brand would be well received.
Alternative 5- Abandon Watch Manufacturing
The final alternative for Seiko is to permanently abandon their watch manufacturing division by selling off their watch production plants and the use of their trademarked brands. Seiko has extremely high brand equity and this would be very important to another company wanting to invest in the watch industry. Seiko is very successful as a manufacturer of consumer electronics and the watch industry is not only highly competitive but also not as economically robust as it once was. The barrier to competing with the Swiss watches in the high-end market is almost impenetrable and Seiko is not satisfied with being a low to mid-level watch company.
This move would free up lots of capital for the other business divisions and would allow for Seiko executives to concentrate on their other products, which are already in the markets they desire and are successful in. The main problem with this alternative is abandoning a successful business segment that is still making healthy profits. However, due to increased competition and reduced need of watches, it is likely this business would become more of a financial burden to Seiko in the future.
Recommendation:
We recommend the hybrid alternative. This approach involves focusing company efforts on targeting the mid-level and high-end segments. The benefit of focusing production resources on the mid-level segment will be increased overall sales numbers; one of the company’s main goals. The main benefit of focusing marketing research on the high-end watch segment derives from the belief that doing so will strengthen Seiko’s overall prestige level. The low-end segment is currently responsible for negatively affecting the company’s brand image. Therefore, this strategy involves no longer actively targeting this segment.
Implementation
The first step to this alternative is to abandon actively marketing in the low-end watch segment. Seiko can decide to cease all low-end market production or can simply continue minimal efforts in this segment. The production resources required would not be a significant detriment to Seiko’s finances. However, if any presence is maintained a new and unique brand should be created in order to avoid continuing the negative association between the cheaper, low-end watches and the high-end product line’s prestige.
To increase sales in the mid-level watch segment where production would be focused, the first thing Seiko needs to do is analyze the watch market. Determining the target market for the mid-level product lines can help them modify production to include product modifications to specific segments inside each of the overall mid-level segment. For instance, the mid-level segment may consist of a group that is outdoors/sports focused. A watch with specifications for an “active” user that is waterproof with a built in stopwatch would be a mid-level watch that would meet the needs of individuals in this group.
Seiko could then have multiple brands in the mid-level segment that are all responsible for targeting a certain niche group within the segment itself. It is worth noting here that Seiko takes great pride in their brand name. Since the mid-end watch segment is less prestige/social status oriented then the high-end segment, the issue of Seiko’s neutral perception in Western markets will not affect the use of the Seiko brand name in targeting this segment’s groups.
Much like with the mid-level watch segment, the first step is to analyze the target market for high-end luxury watches. This market is not as segmented as the mid-level market meaning targeting product specifications such as outdoor/athletic features would not be effective. Instead, Seiko will need to focus on creating a marketing mix highlighting their products’ ability to provide the value high-end watch collectors seek.
This value derives from quality, uniqueness, exclusivity, and the ability to enhance social status. In the Eastern markets, Seiko should face little difficulty in continuing to market and sell high-end watches under its already prestigious brand name. However, the same cannot be said of western markets, particularly the U.S and Europe. In these markets, the perception remains that Seiko watches provide quality but not prestige. In order to combat this Seiko may find more success selling high-end watches under a different and unique brand name. Finally as an overall suggestion, Seiko should have no more than five active sub-brands in each of the high and mid-level markets. This helps avoid spreading resources and focus too thin.
