The New Moorea collection made of the Japanese-made Seiko calibre as a problem to Pequignet
Pequignet, a French Haute Horlogerie watchmaker, launched the New Moorea collection in 2014 with brands for male and female segments (Wong, 2015). These low-priced entry-level watches could be mass-produced compared to the earlier Manufacture brands, giving the firm a strategic advantage due to economies of scale.
However, the use of the “low-end Japanese Seiko caliber” developed in the Moorea watches is a problem for Pequignet for three reasons (Wong, 2015, p. 5). First, Pequignet has built strong brand loyalty and reputation through its Manufacturer brands that boast of the superior ETA watch movements. Therefore, the new features could affect the brand’s unique positioning in the watch industry.
According to Bastien (2015), a brand position depends on brand attributes, customer expectations, competitor attributes, price, and consumer expectations. Brand attributes are the design features that deliver unparalleled value for customers. In Pequignet’s context, the luxury Swiss-made ETA movement was the source of competitive advantage for the firm. Customers expect the firm to develop high-end solutions associated with its earlier brands. Therefore, replacing this feature with the inferior Seiko movement could affect consumer perceptions about the firm’s quality focus. As a result, they might switch to competitor brands (Swiss watches) perceived to have superior attributes.
Second, the firm is only a small player in an industry dominated by Swiss producers. Therefore, Pequignet is bound to experience financial fluctuations that could drive it into bankruptcy. A case in point is the financial difficulties the firm experienced in 2012 after the premature launch of the Calibre Royal. The high return rates (150%) indicate that the firm had a risky product strategy. The declining performance could be linked to the use of inefficient technologies. Therefore, Katz’s utilization of the Seiko movement, though important in achieving economies of scale, was a risky strategy. Competing effectively in a market requires the use of a proven movement with marketable quality.
Bastien (2015) writes that decisions to launch a new product line should evaluate “financial, technological, and infrastructural” constraints (para. 6). By leveraging on its competitive advantage position as the only French Haute Horlogerie producer, Pequignet could compete with Swiss players as a direct competitor. The reliable ETA movements coupled with Pequignet’s unique position would enable the firm to compete as it seeks to develop quality in-house movements for its Moorea collections.
Pequignet should use a ‘red ocean strategy’, wherein it focuses on “building competitive advantages over rivals” through continuous improvement of the ETA movement as opposed to utilizing the low-end Seiko movement (Bastien, 2015, para. 11). This approach would help strengthen public relations and strategic positioning. Quality concerns can erode customer satisfaction and affect a firm’s public image. Pequignet could dent its public image and financial performance as it happened to TAG Heuer when it chose to adopt the Seiko caliber for its watches (Wong, 2015).
Third, the use of the Seiko caliber is a problem for Pequignet because it does not give the firm long-term commercial advantages. According to Bastien (2015), the reliance on in-house developments opens up new opportunities, builds core competencies, and enhances quality. These factors favor the long-term commercial viability of the product. Therefore, instead of using the Seiko caliber, Pequignet should improve on the tested Swiss ETA movements to develop a new patentable feature to power the Moorea brands. Alternatively, the firm can implement the Calibre Royale movement in the Moorea collection.
This movement is an in-house feature designed and produced by Pequignet for the Manufacture brands. The watchmaker has developed internal capabilities to adapt the Calibre Royale for the Moorea brands. The expanded brands sell at competitive prices of between EUR700 and EUR2, 000 (Wong, 2015). In this view, they fill in the low-end segment that the expensive Manufacture brands do not attract. Thus, implementing the Calibre Royale in the Moorea watches could give the firm a long-term strategic advantage.
Continuing the expensive haute horlogerie experiment vs. targeting the inexpensive watch market
Industry trends show a rise in demand for high-end brands. In the last quarter of 2014, the demand for Haute Horlogerie watches rose by 16%, indicating bright prospects for the brand (Maillard, 2015). In contrast, the demand for Couture brands, which originated from the fashion industry, dropped by 10% over the same period (Maillard, 2015). Given this statistic, Katz should not stop the Haute Horlogerie project because interest in these brands is increasing. The statistics indicate two industry trends. First, luxury watch customers want pure players that focus on core business offerings as opposed to providing brands for all segments.
Pequignet is a sole Haute Horlogerie producer in France. This unique market position or niche is an important strategic resource that differentiates it from the Swiss Haute Horlogerie manufacturers. Second, the ‘middle market’ for watches is declining as customers show a growing interest in exceptional brands (Maillard, 2015). Therefore, the Haute Horlogerie category and other luxury brands are likely to attract more customers than the fashionable category.
Pequignet also has tangible and intangible resources it can leverage on to compete in the Haute Horlogerie market. The tangible resource includes an established laboratory complete with equipment, including the “Variocouple instruments, powerful binoculars, and 3D optical testing stations” (Wong, 2015, p. 8). The modern facility has enhanced production capacity.
On the other hand, the intangible resources include Pequignet’s technical expertise, vendor relations, and patented prototypes for the EMP01 or Royale caliber developed by Leibundgut’s team. The team has trained human resources to design award-winning prototypes presented at the 2010 Baselworld. The technology used integrates “all Haute Horlogerie complications” into a thin main plate (Pequignet, 2016, para. 3).
Besides the innovative design, other unique features of the Calibre Royale include a high “frequency of 21,600 vibrations per hour” and an 88-hour power battery (Pequignet, 2016, para. 4). From a resource-based view, the unparalleled designs, expertise, patents, equipment, and production facilities are the valuable strategic assets of Pequignet. Therefore, the firm has the resources and capabilities to create customer value and sustain a strong competitive advantage in the Haute Horlogerie market.
The high-end watch market requires a premium or luxury strategy characterized by finesse and heavy financial requirements. As Bastien (2015) states, the luxury strategy creates a strong brand value by “heritage, craftsmanship, and prestige” while a premium strategy offers quality at an extra cost (para. 13). On the other hand, the fashion strategy does not take into consideration the elements of heritage or artisanship. In this regard, stylish or elegant products are of a perishable value. Haute Horlogerie marketing requires a luxury strategy to produce watches for high-end clients who can pay more for quality and finesse.
Although the fashionable and inexpensive watches could be mass-produced to cut production costs associated with economies of scale, they may not create long-term customer value. On the other hand, Haute Horlogerie watches create long-lived standards and taste for the future. Therefore, Pequignet should continue with the project as a way of strengthening its unique selling proposition as the only French producer dealing in Haute Horlogerie watches.
A high-end brand is not comparative or imitable. This attribute gives a firm a sustainable competitive advantage because rivals cannot reproduce the same products. The unique positioning creates a strong taste or liking for luxury products. Katz attributes the poor performance of the Calibre Royale was attributed to an ill-advised managerial decision to the sale of the watches prematurely (Wong, 2015). The financial difficulties experienced by Pequignet are due to the premature launch of this product. A new development strategy built around the firm’s resources and supply chains can help reinforce its positioning in the luxury market and ensure the success of the Calibre Royal brand.
Differentiation of Pequignet watches from Swiss watch brands
The Pequignet watches differ from the Swiss watch brands in their ‘links’ (fashion bracelet), integration, and the type of caliber used. The Moorea brands are renowned for their characteristic link bracelets. The bracelet consists of a “steel grain-shaped link” joined to a bracelet of the watch (Doran, 2015). This distinctive feature is a recognizable feature of the Pequignet watches. As a result, the firm has bagged several Caltrans d’Or awards for the stylish bracelet designs that differentiate its Moorea brands from Swiss watches. The Pequignet links are a source of identity for the firm’s collections.
A brand identity reinforces a brand’s image through visual elements such as strategic design or color (Bastien, 2015). The unique bracelet links reflect the value that Pequignet wants to offer to its customers to improve its positioning in the market. Since its establishment in 1973, Pequignet has maintained its focus on advanced designs and quality standards. The female brands feature fashionable bracelets that appeal to women. Emile Pequignet, the founder of Pequignet, designed the bracelet, which is considered to be unparalleled in the industry. Unlike the Swiss manufacturers that source local materials and technologies, the Pequignet’s collection boasts of Swiss-made and creative Seiko movements. However, the women’s brands, including Cameleon and Moorea, contain the prestigious French-made bracelet.
The second feature of Pequignet watches is design integration. Pequignet Royal Calibre watches are designed to accommodate future integration with other features. The design entails a 13-inch caliber (casing) that leaves space for integration with various features (Maillard, 2015). The unidirectional winding is located away from the center, which enhances the visibility of the wheel. The watches also have significant power storage of 88 hours attained with an enlarged barrel that encapsulates the center of the movement (Maillard, 2015). The brand drew attention because of the integration of Haute Horlogerie features into a thin casing (5.88 mm).
The collection features a “dual-window large date feature, dual-direction winding, a large barrel, and a prominent four-arm balance” (Maillard, 2015, para. 15). These elements were developed in-house by Pequignet and epitomize the French Haute Horlogerie category. As a result, the firm has won many awards, including the “Best Watch 2011” award for its Rue Royale design (Wong, 2015, p. 4). The in-house designs are exclusive and original to Pequignet.
A third feature that differentiates Pequignet’s watches from the Swiss watchmakers is the unique EMP01 movement deployed. Swiss manufacturers use Swiss-made caliber in their watches. In contrast, Pequignet, besides the Swiss movements, uses the Japanese-made Seiko caliber and an in-house EMP01 movement (Calibre Royale) in the Moorea collection (Wong, 2015). The new Calibre Royale is a patented product developed by the firm.
The movement is an “exclusive 318-component” caliber that was designed from scratch by Pequignet’s staff (Wong, 2015, p. 5). Thus, it constitutes a core capability that cannot be found in the Swiss watchmakers. A core competency gives firm unrestricted access to wide-ranging markets, creates customer value, and is difficult for rivals to reproduce (Govindarajan & Trimble, 2005). Thus, the unique caliber, not only sets the Pequignet watches apart from the Swiss models, but it is also a source of competitive advantage for the company.
Pequignet also uses Seiko calibers sourced from Japan. The Seiko produces advanced movements, including the 4S calibers, a superior quality automatic movement (Doran, 2015). The unique features of the Seiko movement include the bidirectional rotor and the balance wheel. Thus, the Pequignet watches powered by the Seiko differ from Swiss models in terms of the automatic caliber. The architecture of the Seiko movement is strikingly different from the Swiss models that focus on the Haute Horlogerie features. Also, the watches powered by the Seiko are less costly compared to the high-end movements used in Swiss watches. Thus, Pequignet’s Moorea collection can be differentiated from Swiss models based on price.
Necessity to merge or acquire with any other independent watchmakers
Mergers and acquisitions (M&As) constitute a strategic alliance for expanding portfolios to compete effectively. In the luxury watch segment, players leverage on M&As to expand equity and portfolio of brands. Acquiring a small firm can strengthen a brand’s status in the market. On the other hand, a merger combines the assets and skills of two co-equals to create a competitive advantage.
Merging firms must exhibit a similarity of industry, the complementarity of assets, and relatedness of management practices (Govindarajan & Trimble, 2005). In the luxury watch industry, a firm’s operations can be enhanced through mergers or acquisitions. The acquisition option is the best strategy for Pequignet given that independent manufacturers with proprietary rights produce different parts of luxury watches, such as the caliber and rotor.
A weak market (slow growth in China) and an untimely launch of the Manufacture collection caused Pequignet’s financial difficulties in 2012. The costly manufactory affected the firm’s supply chain relationships, which forced the government to put it under receivership. It was claimed that operating a “full-fledged manufacturing facility” was a costly affair because of the high maintenance costs (Wong, 2015, p. 5).
Even banks declined to support Pequignet’s manufactory part considering it a risky venture. In this view, Pequignet should vertically integrate with independent suppliers of quality calibers and rotors. In vertical integration, a firm controls certain steps of the production process (Govindarajan & Trimble, 2005). Haute Horlogerie watches come with innovative features that reflect customer preferences in a fast-changing environment. To sustain a competitive position in this segment, an acquisition plan would allow Pequignet to integrate with specialized movement makers (suppliers) in Switzerland or Japan. Currently, besides the in-house Calibre Royale, the firm obtains its movements from Swiss makers and Seiko.
One advantage of an acquisition over a merger is that it allows a firm to streamline its supply chains. Pequignet, though boasting of renowned caliber, it lacks the “rich history, prestigious branding, and extensive sales network” that its Swiss competitors have (Wong, 2015).
Pequignet seems to have considerable control over the downstream supply chains. It markets its watches in 50 outlets spread across the EU. It also operates a company-owned “boutique and a point-of-sale counter” in France that supports its brands (Wong, 2015, p. 6). In contrast, the upstream supply chains (movement suppliers) are not under the direct control of Pequignet. A backward integration with these firms would enable Pequignet to produce custom-made movements for its Moorea collection. Backward integration involves the acquisition of a firm that manufactures an input product, such as the rotors and watch movements.
A merger may not appropriate for Pequignet because of the diseconomies of scale. As Govindarajan and Trimble (2005) write, in mergers, companies lack sufficient control over their respective human resource and knowledge base. Pequignet is renowned for its Manufacture collection that is powered by its in-house Calibre Royale. The brand, also called ‘Royal fleur-de-Lis’, was developed at its laboratory after extensive research, testing, and prototyping that involved 50 employees.
It also boasts of modern equipment, quality control, sales support, and marketing departments housed in one building at its Mortaeu location. Pequignet also has strong vendor relations, especially with Seiko, which provide the caliber that powers the new Moorea collection. In this view, merging with an equal-size firm would lead to the loss of these core capabilities and resources of the firm.
In contrast, the acquisition of suppliers or vendors will enable Pequignet to have proprietary rights to certain technologies that could give it a strategic advantage. Also, it will give the firm the technical capability to continue its Haute Horlogerie project to strengthen its Calibre Royale. Acquisitions will also enable Pequignet to retain its brand equity and brands that customers are familiar with within the market.
Top 3 marketing priorities of Pequignet
The luxury watch industry is a fast-changing sector. Keeping up with the most recent trends in the market requires marketing strategies that strengthen customer relationships and brand image (Govindarajan & Trimble, 2005). The three marketing priorities suggested for Pequignet include the use of technology, development of core competencies and knowledge base, and overseas expansion.
Pequignet should capitalize on the opportunities availed by technologies to enhance its market presence and sell its unique value proposition as the only French Haute Horlogerie maker. The firm has the expertise and scalable facilities to meet high market demand and changing customer needs. Maillard (2015) indicates that the online search for Haute Horlogerie watches shot up by 23% in 2014 from the 2013 value. The market that experienced the highest growth included China (+41%) with the Royal Oak brands being in high demand (Maillard, 2015). Therefore, customer engagement through media platforms would enhance customer awareness and familiarity with the new Moorea brands.
Social media networks provide opportunities for engaging customers and creating brand loyalty. Pequignet receives international attention through the brands and innovations presented at national and regional events, such as the Baselworld and the London Watch Show (Wong, 2015, p. 6). The firm also revamped its website and increased its online activity. The initiatives provide a means of engaging the customers to reinforce the brand position and build customer loyalty. Pequignet runs online contests to boost the perception of its brands and respond to customer concerns. One survey found that the engagement rate on “Instagram is six times higher than on Facebook” (Maillard, 2015, para. 8). Based on these findings, the firm should increase its presence on Instagram in key geographical markets.
The development of core competencies is another marketing priority recommended for Pequignet. In developing its movement, the firm focused on precision and reliability as the core features of luxury goods. In the current market, the customer is bombarded with a range of choices, which makes it difficult to select a product that brings value for money. Pequignet can differentiate itself as an authentic luxury brand by being a manufacturer, as opposed to an assembler. The Haute Horlogerie project allowed Pequignet to build internal capabilities, vendor relations, and distribution networks. It should prioritize the project to create movements, such as the Calibre Royale, as opposed to using ETA or Seiko movements. In this way, the company will rely on internal capabilities to establish a unique strategic position in the market.
The stylish bracelet links constitute a distinctive feature of the Pequignet watches. Marketing initiatives should focus on the design features unique to Pequignet brands. The stylish bracelet links in female watches have earned Pequignet prestigious awards. In addition to the non-imitable bracelet links, Pequignet has developed the Calibre Royale for its Manufacture collection. The exclusive “318-component caliber” is exclusive to the firm and therefore, it should feature in all marketing campaigns (Wong, 2015, p. 3). It represents the firm’s specialty in the highly sought-after Haute Horlogerie brands.
Pequignet should also prioritize expansion to overseas markets. In particular, it should target the Chinese market, which indicated a remarkable growth in interest (41%) in the luxury watches sector in 2014 (Maillard, 2009). The statistics indicate that the Haute Horlogerie brands are highly sought after in China and Europe. Pequignet, with its Manufacture and Moorea brands, can compete effectively with the Swiss watchmakers for high-end customers in these markets. The firm’s unique position as the only French watchmaker could make its brands attractive to clients interested in French luxury goods.
References
Bastien, V. (2015). Marketing To a High-End Consumer, Using The Luxury Strategy. Web.
Doran, S. (2015). SIHH 2015: New Heights for Haute Horlogerie. Web.
Govindarajan, V. & Trimble, C. (2005). Organizational DNA for Strategic Innovation. Management Review, 47(3), 47–76. Web.
Maillard, P. (2009). Pequignet – The Strength of a Dream. Web.
Pequignet. (2016). History: 40 Years of History. Web.
Wong, K. (2015). Pequignet: The Face of the Renaissance of French Haute Horlogerie. London: Ivey Publishing. Web.