HMT vs Titan

After going through a case study of Titan company (which discussed the data upto 1994-95), I tried to find out what happened to HMT after that. I expected that HMT must have been trying hard to get its lost market share back from Titan. But, the real story was something else. I am posting my findings as below:

Study of performance of HMT during recent 5-7 years and analysis of what it did wrong and what it could have done better
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Though HMT finally responded to the competition put by Titan, there were many other factors to the company’s failure to gain the overall market share. As the case discusses the data upto 1994-95 only, we need to analyze the data after this period, to get information about the changes in the market. We will concentrate on the statistics of the market and performance of the organization in this period to understand “why HMT failed to capitalize on positive moves later. Following analysis shows the problems that HMT faced and “what it could have done better”.

1. HMT had the overall market share of 26% during 1997-98 and it dropped to 14% during 2001-02. Out of this, HMT still had 70% market share of Mechanical watches during 1997-98, which increased to 94% during 2001-02. Company performed poor in Quartz market, it had market share of 8% for five year during 1998-2002. This shows how the sale of mechanical watches dropped drastically. The value curve for Mechanical watches kept falling and there was no driving force from HMT to oppose this.

Mechanical Vs Quartz: HMT observed the demand for mechanical watches go down, largely because it focused more on competition from Quartz, instead of their own strength i.e. Mechanical watches. In the world market, still Mechanical watches hold a good position. A recent study shows that the Swiss watch industry exports of mechanical watches accounts for two-third of their total export value. While the Swiss watch industry did not accepted Quartz technology, they were able to make a point with mechanical watches in the watch industry. Exhibit-1 shows the growth of Swiss mechanical watch export in recent years.

Conclusion-1: HMT could have emphasized on Mechanical watches only and could have provided a greater competition to Titan by selling over the strength of Mechanical watches. Some of them could have been as follows:

a. Quartz watches are as reliable as mechanical, but the battery is a slip. You can not predict the life of the battery.
b. The parts to replace are easily available for mechanical watches, but for age-old quartz watches, the battery would have been obsolete.
c. Mechanical watches last longer (provided serviced on time), while quartz watches have lesser life because of the limited life-span of the electronic circuitry. Mechanical watches have good resale value.

So, HMT could have made it a point that, if you want quality, class, precision and historical value, go for Mechanical watches.

2. HMT remained into losses for last 5 years. Exibit-2 shows the sales revenue of the company for last few years. Though it launched many watches to gain the market share into the quartz market, it could not capitalize on the success of these watches due to many reasons. Some of these reasons are as follows:

Advertisement: Exhibit-2 shows the 5 year data for expenses made towards advertisement by HMT. In year 2006, the expenditure was around Rs. 0.1 Cr. as against Rs. 4.5 Cr. in 2001. This puts a big question mark on the awareness level of the customers about HMT watches caused by lack of advertisement. This analysis becomes more critical, when compared with expenditure made by its competitor Titan. Exhibit-3 shows that Titan tripled its expenditure from Rs. 40 Cr. in 2001 to Rs. 133 Cr. in 2007. While titan engaged major celebrities like Amir Khan, Kapil Dev etc. for its advertisement, HMT advertisements went almost missing from print & electronic media.

Conclusion – 2: HMT could have made more advertisements to let its customer know about what they are producing. Underestimating the power of advertisement was one of the key factors for HMT to loose its market share. Also, HMT could have done some research on various new ways of advertisement.

Retailer Stores: HMT hardly looked into their stores or took any big steps towards renovation of their stores. While Titan kept investing into renovation of its stores, similar efforts were missing from HMT.

Conclusion-3: HMT could have spent more on consolidating and renovating the retail stores. Given the large distribution network the company had, it could have done it in phases. Exclusive HMT stores were hardly seen and this was also one of the major reasons for further decrease in sales.

3. Some of the decisions made by HMT were unreasonable given the production ability of the company itself. To meet requirements of the quartz market, company outsourced the production of various visual parts (dial, cases etc.) [Outsourced from Tennmax India Ltd.]. It got large these parts in large volume from this organization, while its own production capacity of dials and cases remained underutilized at 34% and 47% respectively.

Conclusion-4: This clearly shows that there was large scope for optimization of the production facility. HMT could have used its existing production capabilities to meet the market requirements. As it was lagging behind in the production initially, producing of its own could have resulted in efficient production. This would have reduced the operating expenses also. It does not make sense to underutilize own production capabilities and go for outsourcing of the same parts.

4. HMT started outsourcing the watch manufacturing to other firms. Suspensions of services from these firms lead the problem of stopping them to use the HMT logo in their production. HMT also started to employ vendors with quite less experience and less technical expertise. Outsourcing led spurious watches in the market. HMT failed to act immediately and took 15 months to take follow-up action in July 2002.

Conclusion-5: HMT needed to be more mature towards decision made for outsourcing of various parts, outsourcing of the watches manufacturing and they way they selected the vendors. It could have handled the suspension of services more authentically to stop the spurious HMT watches in the market.

5. During recent years, HMT suffered from the high operating expenses and higher debts. It did a cut-off of staff in 2003 and sold some land it had in Bangalore to get near-term financial stability.

Conclusion-6: Given the financial conditions of the company, it could have restructured its complete organization (HMT watch Ltd.). As the company was in losses for many years, company should revisit the vision of the company and evaluate itself in current market environment.

6. During 2000-01, around 15 million watches were sold at the lowest end of the market and of this only about seven million were branded. Bijou Kurien, vice-president, sales and marketing, Titan said:

“We found out that customers in this segment badly wanted a brand with which they could be associated with.”

Conclusion-7: There was a big opportunity in the lower segment in 2001-2002. HMT could have utilized this opportunity by putting more effort on advertisement and distribution of watches for this segment.

7. When Titan planned to play the volume game, it launched SONATA (1998) in the range of Rs. 300-1000. This was a major success for Titan in terms of sales. But, it was only after few years; Titan realized that, by entering into the lower segment, it has actually paid a price of its brand image in the luxury segment. It then decided to separate SONATA from Titan in 2002, as Mr Bijou Kurien, vice-president, sales and marketing said:

‘‘It’s a double-edged sword and we have constantly debated whether we should separate the two or not.’’

NOTE: Please relate this to “why Titan came-up with Timex for lower end and not with its own brand. This is what happened when they finally launched Titan brand in lower segment.”

Titan pushed SONATA into rural market also.

The decisions made by Titan, shows the aggressiveness of the company towards the market and its changing dynamics. Titan was quite pro-active in their strategy. HMT, on the other hand, was reactive most of the times. It never had an innovative approach towards the market.

Conclusion-8: When you are competing against an aggressive competitor, you have to be innovative. HMT needed to take the feedback from the market and make their strategy based on the data collected, and should not make moves just to counter the moves made by Titan.

Following are few more things that HMT could have done:

1. Spin off a subsidiary for Quartz segment. While HMT’s mechanical watches could have target the quality, class and elegance customers. Quartz subsidiary could have targeted the lower end market.
2. Innovation was the most important missing factor from HMT’s culture and strategy all through years. It could have innovated various ways of advertisement (celebrities, discounts, sponsoring events etc.), marketing (renovating stores, making distribution channel more efficient etc.), getting customer feedback, adopt the changing market conditions etc. Attracting the young generation through media was completely missing.
3. HMT could have invested into R&D or hired some good designers to design new models of the watches. With customer looking for new varieties of watches after 2000, this could have boosted their market share.
4. HMT could have promoted different watches for different moods (e.g. formal, casual etc.). This would have resulted into sales of more than one watch to the same customer.
5. HMT could have collaborated with some of the good retailers of different brands (with big distribution network and good retails showrooms) to display and sell some newly launched models. An example can be television show rooms, which is present in almost all the cities.HMT could have been collaborated with some jeweler to launch the jewel watches.

End Note: The study of GUCCI case provides the details of how the company turned around after it went to the extent of getting sold. This case also provides a lot of insight about various ways the production can be made efficient and marketing can be boosted. HMT badly needs marketing efforts to make its sales revenue go up and to get its old brand image back. At the same time, lots of efforts are required to make the production process more efficient.

Interesting info: During 2002-2003 Titan wanted to buy 50% stake of HMT and restructure the Organization.

EXHIBIT – 1

Mechanical watches export from Swiss Industry

CHF: Confederazione Helvetica (Swiss) Franc, currency
Ref: http://www.fhs.ch/statistics/watchmaking_2006.pdf.

References:
http://www.tata.com/titan
http://www.hmtindia.com/
http://www.blonnet.com/
http://www.fhs.ch/