If you are reading economic newspapers those days, chances are high you come across articles on Volkswagen and Swatch. Both groups are profits champions and analysts just love them.
On the one hand Volkswagen became the world’s #2 car manufacturer and ambitions to become #1. The current #1, General Motors, which still sells more vehicles than VW but it has undergone a difficult crisis (which led the Detroit-based giant to bankruptcy) and its profitability is far away from VW records.
On the other hand the Swatch group reinforces its position as world’s #1 watch manufacturer and posted a double-digit revenue increase accompanied by a profitability increase. Never has a watchmaker earned so much money and Swatch already announced it was about to recruit 1000 more employees this year to sustain its growth.
Both companies are benefiting from the Asian growth, as well as from their positioning and brand image: “Made in Germany” vs. “Made in Switzerland”. Those two labels are the best you can expect in each product category (cars and watches respectively).
Both brands are very similar in terms of consumer behaviors: they both produce objects that allow the owner to show his/her status and social success to the outer world. Marketing and promotion techniques are therefore easily comparable.
Last but not least, the most striking common point I can find between the two groups regards their business models. At the time of Piëch Volkswagen went for segmentation and what I could call an horizontal integration. All types of consumers could find a vehicle : from affordable cars (Skoda, Lupo, Up) up to luxury super cars (Lamborghini, Bentley), even nuances among one and the same platform were available : VW was the reassuring quality brand, but you could also opt for a more sportive lifestyle with Seat or a less expensive one with Skoda.
Swatch did a two-way integration: it first started with vertical integration at a time when everyone was “disintegrating”. Swatch bought all its suppliers to control the whole supply chain and went so far as having a monopolistic situation. The genius of the late Hayek (who passed away last year) was to conduct an horizontal integration at the same time. From the famous Swatch watches up to Breguet and Blancpain, through Omega and Flik Flak, all consumers will find the watch they are looking for.
A 10-year long strategic journey has brought both companies to transform their business model from mono-brand to multi-brands. They applied what one could call textbook marketing. Even Kotler would love it: you identify a profitable segment, develop a tailored offering and go to the market. That’s exactly what they did and today’s amazing figures are in great part the result of operational excellence: sharing components and platforms for VW, sharing components and movements for Swatch.
Yet the question remains how long this strategy will remain the best in existence. Growth in Asia is slowing down. Revenues from Asian sales are decreasing for Swatch, and as far as VW is concerned its inventory has never been so high (100,000 units, up from 50,000 units on the last 9 months).
Posted in Strategy.