Essay: Hublot: Business Case Study

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  • Hublot: Business Case Study
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1. What?

Describe the organization, the core activities and any additional services it provides.

Hublot is a Swiss luxury watch manufacturer founded in 1980 by Italian Carlo Crocco. Hublot, the French word for ‘porthole’ described the design of the brand’s first watch. This was the first watch with a natural rubber strap, which had required 3 years of research. The combination of a gold watch case with a rubber strap was controversial at the time.

Hublot is a very young brand for a Swiss luxury watch manufacturer. Furthermore, the brand was very small until it came under new leadership in 2005. Jean-Claude Biver, previously the president of Omega, led the development and release of a new model called the Big Bang. Hublot expanded very rapidly thereafter going from a turnover of $25 million in 2004 to $200 million in 2008. This means Hublot is missing the selling point of heritage, but the brand’s use of avant-garde materials and designs attracts customers regardless.

Hublot was acquired by LVMH (Louis Vuitton Moet Hennessey), a French multinational luxury goods conglomerate, in 2008 for around $500 million (Lelarge & Biver, 2015).

Hublot also offers servicing for their watches which is often necessary for mechanical timepieces every 5 years or so.

3.2. Why?

What does the market look like?

Guidance: Who is their target customer, what attributes defines this group? Can the market be segmented, what useful insights come from this? How do they compare against the competition or alternatives? How large is the market, what are the spending habits of customers etc… Industry Description and Outlook/Target Market/Competitive Analysis/Projections/Regulations

Watches are the third largest export from Switzerland after chemicals and machinery. The Swiss watch industry sold $20 billion of watches in 2018. Despite only accounting for 6.6% of these sales by volume, luxury watches (over $3000) accounted for 66.1% of sales by value. With the rising middle class around the world, especially in Asia, Swiss watch exports are expected to continue to grow modestly (Federation of the Swiss Watch Industry FH, 2019).

Figure 2 – 2018 sales of Swiss watches in main markets with growth from previous year (Federation of the Swiss Watch Industry FH, 2019)

Figure 3 – Portion of Swiss watch sales in 2018 by region (Federation of the Swiss Watch Industry FH, 2019)
The stereotypical luxury Swiss watch buyer is an over 40 year old businessman. Indeed, a 2017 study found that in the UK, the average Rolex owner is a 68 year old male, living in South-East England and London, working in a managerial role (HomeProtect, 2017). According to a YouGov poll, 31.2% of 16-34 year olds do not even own a watch compared to 10.5% of 55+ year olds. Of those who do own watches, young people are less likely to wear a watch regularly: 25.8% for 16-34 compared to 49.5% for 55+ (Floyd, 2011). This confirms the older age of target customers for Swiss luxury watch. However, Hublot targets a different customer segment. Typical Hublot customers are 25-40 year old rappers, professional athletes such as footballers, and start-up CEOs according to the previous CEO Jean-Claude Biver. They are necessarily rich to afford the steep luxury pricing. Most importantly, they are flashy individuals who want a showy design. As part of this, exclusivity and uniqueness are highly valued traits in the products they buy. These customers will buy luxury goods regularly (as opposed to customers who may only buy one expensive watch for a very special occasion). This customer segment can be quantified by looking at the number of millionaires under 35 around the world: about 128,000 (Verdict, 2017).

Figure 4 – Number of millionaires under 35 per city (Verdict, 2017)

While 30% of luxury Swiss watches were sold in Greater China in 2015, this number is only 10% for Hublot (Lelarge & Biver, 2015), matching the percentage of millennial millionaires living in Greater China (Figure 4). There is substantial optimism in the luxury watch market for continued growth in demand in China. However, the Chinese market currently favour more traditional brands and designs such as Rolex, Longines and Omega. For this reason, Hublot does not directly target China but is waiting for Chinese tastes to “westernise”.

Hublot have some direct competition through Audemars Piguet and Richard Mille. However, both command higher prices while subjectively missing the exotic appeal of Hublot, concentrating on the horology/internals instead. The largest competitor for Hublot’s target customer segment is likely Rolex due to their substantial brand recognition despite Rolex’s different value proposition with more restrained and less exclusive designs. There is some competition through other luxury Swiss watchmakers, though they are either very niche or target different customer segments. Hublot’s target customer segment being young would indicate smartwatches are a potential competitor to Hublot. Indeed, Hublot released a luxury smartwatch in 2018. However, Hublot and the wider Swiss watch industry do not necessarily see smartwatches as a threat but rather an opportunity. They hope smartwatches will get young people wearing wristwatches again (Lelarge & Biver, 2015).

60% of watch consumers use online and digital channels to research prices or find product information (Deloitte, 2017).

Diagram showing competition comparison

9.3. How?

What is the business model?

Guidance: How do they make money? Important costs, sales approaches, relationships etc… The ‘Business Model Canvas’ is a very helpful guide (google the term and lots of great advice on it will come up). Not all of it is relevant to every organisation but it’s a great place to start if you’re stuck.

c.a. Value Proposition

Hublot’s value proposition include their exclusivity and avant-garde, unique, and flashy design. The expensive and exotic materials also bring value to Hublot customers. Moreover, customers mention they feel they are joining a community when buying a Hublot watch (Ap, 2018). This is due to the exclusivity of Hublot watches but also the possibility of joining an online community called Hublotista. On this website, customers are invited to exclusive events (often with Hublot sponsored celebrities attending), invited to service their watches after a few years, given early announcements about new limited releases, and easy contact with Hublot representatives.

d.b. Sales Channels

Hublot sell their watches through two channels: directly to the customer through their boutiques or indirectly through third-party retailers who buy stock from Hublot. Hublot is very selective in their choice of retailers and limit their supply to ensure the exclusivity of the product. Hublot does not sell directly online however some third-party retailers do. Hublot have started a new sales technique they call the “Digital Boutique” where customers can book an appointment for a Skype or FaceTime call with a sales associate who can present watches digitally and work with the customer on finding the right watch for them. This brings the personal assistance that luxury shoppers expect, while keeping the convenience of online shopping.

e.c. Sales & Marketing Costs

A sizable proportion of the sales revenue goes directly to the retailer and a commission to the salesperson. These values are very secretive and vary significantly between companies. According to the consolidated income statement for LVMH, cost of sales (or production cost) accounts for 33.4% of revenue, while marketing and selling expenses accounts for 37.9% (LVMH, 2019). This shows the importance of brand image for most luxury businesses. Hublot does not have the brand recognition of other luxury brands. Hublot is only the 14th most recognised Swiss watch brand (Interbrand, 2016) and so invests heavily in sponsorships to remedy this. Hublot, knowing their customer segment, invested in football before other luxury brands.

10.4. Strategy?

What is their strategy?

Guidance: What guides their decision-making process? How has this changed over time? Who/what steers the strategy? What is the purpose behind the actions? Is there a precedence? What are the critical factors or resources that might be key to their approach? Etc… Problem/Policy/Actions

Although LVMH owns Hublot, the brand has relative independence in its decision-making according to the then CEO of Hublot. This is likely due to the brands continued success.

There are three major aspects to Hublot’s strategy.

a. “The Art of Fusion”

The term “art of fusion” is repeated constantly in interviews and press releases. The term loosely means the fusion of future and tradition often through materials. Hublot invests heavily in the development of new materials for use in its watches which it then mixes with “traditional” materials such as gold with a “traditional” mechanical movement.

The brands production is vertically integrated to allow for faster innovation and strategic independence. The brand actions clearly demonstrate the brands materials and production investment strategy: Hublot built their own foundry in 2012, does electro-plating in-house, have had the capability of machining sapphire crystal since 2016 and acquired the Swiss firm Profusion, specialised in the manufacture of carbon fibre components, in 2011 (Hublot, 2018).

What is the goal? What problem are they addressing? Exotic materials, making cool exclusive watches, innovation, push boundaries.

c.b. “Partnerships”

Hublot invests significantly in “partnerships” or rather sponsorships of celebrities or sporting teams. For example, Hublot sponsorship is heavily present in football, currently sponsoring the FIFA world cup, Pele, Kylian Mbappe, Juventus, Chelsea, Benfica, and Jose Mourinho. In 2008, Hublot sponsored Manchester United for 3 years for £4 million.
Partnerships often involves working with the celebrity on limited edition watches. This is an advertising opportunity to appeal to fans of said celebrities or teams. This is also an opportunity to work with a target customer to better understand their needs (Lelarge & Biver, 2015).

Goal: Exposure

e.c. Exclusivity

“You only desire what you cannot get. People want exclusivity, so you must always keep the customer hungry and frustrated” asserts previous CEO Jean-Claude Biver. Limited edition watches with differing materials and designs offer this exclusivity to customers. The vertical integration of Hublot from production to sales allows Hublot to strictly control the sales volume.

11.5. Improvements

What would you do differently / improve and why?

Guidance: How might you grow the business? Improve profitability? Change to address a future trend you worry might impact them? Etc…

As stated above, there are no right or wrong answers. Good scores are awarded to answers that are believable, credible, and sound like they would work. To do this, they need to be clearly articulated and supported by good research and analysis.

c.a. Advertising Through Social Media

Although Hublot are proud of their avant-garde materials and designs, their advertising methods are very conventional. They invest heavily in advertising through sponsorships of celebrities and sport events. I believe Hublot is missing an important means of communicating with their target customers: social media. Although Hublot boasts an Instagram page with 3.7 million followers (2nd only to Rolex’s 9.4 million followers among Swiss watchmakers), I believe their social media strategy is missing the point. 25-40 year old “flashy” and rich individuals use social media such as Instagram extensively to show off their lifestyles. Other brands such as Louis Vuitton and Daniel Wellington have used social media “influencers” effectively to advertise. Daniel Wellington offered influencers a watch in exchange for a post mirroring the content their followers regularly enjoyed, while inserting and mentioning the brand. Searching for #danielwellington on Instagram brings over 2.1 million results with endless pictures of young and rich Instagramers showing off their lifestyles. The watches are clearly present in the post while not appearing like an all-out advertisement. This advertising technique helped Daniel Wellington become a well-known brand with $260 million of revenue in 2016 (Pechter, 2017) despite only being founded in 2011 with $24,000 of investment (Byttner, 2016). By advertising through multiple ‘smaller’ brand ambassadors, a brand can develop a wider and more personal awareness among customers, rather than relying on a single star brand ambassador.

Figure 6 – Typical Daniel Wellington Instagram post

Searching for #hublot shows over 2.6 million posts, mostly featuring spam with other brands or simple advertising by Hublot boutiques. A comparison between the Instagram brand presence of Hublot and Daniel Wellington can be found in appendix CAdmittedly, Hublot watches are 50 times more expensive and might not be as attainable. However, this could be an opportunity to get there before other luxury watch companies.

A brand name

Admittedly, Hublot watches are 50 times more expensive and might not be as attainable.

Figure 7 – Marketing channels from a consumer’s point of view (Deloitte, 2017)

d.b. Targeting the Chinese Market

Whereas Greater China accounts for 30% of Swiss watch sales, it only accounts for 10% of Hublot’s sales (Lelarge & Biver, 2015). This is likely due to Hublot’s lack of brand recognition of other major brands. Rolex, Omega and Longines currently dominate the luxury watch market in China with a 50% market share between them. The top 10 brands keeping an 80% market share. A mature market such as France has 31% and 64% for these market shares respectively (Zhou, 2013). This shows China is a difficult market for new brands to crack as consumers search for well-known brands and models as a secure purchase. Hublot have said that they will not adapt to the Chinese market as “Hublot only has one DNA” (Lelarge & Biver, 2015). Hublot has a longer-term strategy of waiting for Chinese tastes to “westernise” as they have done in the luxury fashion or accessories sector with young consumers turning to more informal and niche brands (Abrams, 2019). Despite Hublot having countless brand ambassadors around the world, only one of them is Chinese, the classical pianist Lang Lang. I believe Hublot should embrace the changing tastes and influx of young Chinese luxury consumers early, by advertising more in China, either through more traditional brand ambassadors, or through social media influencers. Other competing brands such as Audemars Piguet have already done so with Chinese singer Luhan who advertised their watches through his Weibo social media account with 50 million followers (Smith, 2018).

e. Luxury Watch Hire

Currently car dealerships and manufacturers have diverse financing offers, such as leasing and personal contract hire, to incentivise the purchase of new cars and to bring alternative revenue streams. Offers to hire luxury watches for special events for example, are limited and not well established. Offering the possibility to hire luxury watches directly from the manufacturer could add further revenue streams and attract younger customers, as yet unable to afford purchasing Hublot watches. This could however reduce the exclusivity of the brand as more people wear their watches.

Bibliography

Abrams, M., 2019. Luxury watch leaders braced for risk and opportunity in 2019. [Online]
Available at: https://www.ft.com/content/c8416b68-f326-11e8-938a-543765795f99
[Accessed 18 February 2019].
Ap, T., 2018. Hublot Debuts Bitcoin Watch. Women’s Wear Daily, 7 November, p. 9.
Byttner, K.-J., 2016. This 31-year-old who couldn’t afford a Rolex has built a $180 million watch empire in less than 5 years. [Online]
Available at: https://nordic.businessinsider.com/this-31-year-old-fashion-outsider-has-built-a-watch-empire-in-less-than-5-years-2016-5/
[Accessed 24 February 2019].
Deloitte, 2017. The Deloitte Swiss Watch Industry Study 2017, s.l.: Deloitte.
Federation of the Swiss Watch Industry FH, 2019. Press release: Swiss watch industry exports in 2018, Bienne: s.n.
Floyd, M., 2011. Almost 60% of 16-34 year olds use a phone as their primary timepiece. [Online]
Available at: https://today.yougov.com/topics/lifestyle/articles-reports/2011/05/05/brother-do-you-have-time
[Accessed 16 February 2019].
HomeProtect, 2017. A Nation of Rolex Owners?. [Online]
Available at: https://www.homeprotect.co.uk/discover/insights/nation-of-rolex/watch-owners
[Accessed 21 February 2019].
Hublot, 2018. Hublot or the “Art of Fusion”. [Online]
Available at: https://presslounge.hublot.com/history/
[Accessed 13 February 2019].
Interbrand, 2016. Best Swiss Brands 2016. [Online]
Available at: https://www.rankingthebrands.com/PDF/Interbrand%20Best%20Swiss%20Brands%202016.pdf
[Accessed 22 February 2019].
Lelarge, G. & Biver, J.-C., 2015. Jean-Claude Biver : L’homme qui a sauvé la montre mécanique. Paris: Eyrolles.
LVMH, 2019. 2018 Full Year Results. [Online]
Available at: https://www.lvmh.com/news-documents/press-releases/record-results-for-lvmh-in-2018/
[Accessed 15 February 2019].
Pechter, O., 2017. Daniel Wellington just posted 1 billion in pure profit — and this guy gets all of it. [Online]
Available at: https://nordic.businessinsider.com/daniel-wellington-just-hit-an-insane-milestone–1-billion-sek-in-pure-profit-2017-6
[Accessed 24 February 2019].
Smith, T., 2018. Watch Out: China’s Young Influencers Lead Timely Recovery of Global Luxury Watch Market. [Online]
Available at: https://jingdaily.com/luxury-watch-market/
[Accessed 18 February 2019].
Thompson, J., 2009. 1969: Seiko’s Breakout Year. [Online]
Available at: https://www.watchtime.com/featured/1969-seikos-breakout-year/
[Accessed 20 February 2019].
Verdict, 2017. In which cities do the world’s millennial millionaires reside?. [Online]
Available at: https://www.verdict.co.uk/millennial-millionaires-cities/
[Accessed 22 February 2019].
Zhou, E. Z., 2013. An Updated Look at the Chinese Luxury Watch Market in 2012. [Online]
Available at: https://www.europastar.com/data/1004085731-an-updated-look-at-the-chinese-luxury-watch.html
[Accessed 18 February 2019].

Appendix A: Business Model Canvas

Infrastructure Offering Customers Finances
Key Partners
• Supplier relationships secretive in Swiss watch industry.
• Celebrity Partnerships
• Special Editions
• Owned by LVMH Value Proposition
• Exclusive
• Avant-Garde
• Unique
• Flashy design (easily recognisable)
• Community (events, Hublotista)
• Expensive materials

• Pricing not too important
• Brand recognition not strong Customer Segments
• Niche
• Younger (25-40 years old)
• Rich
• ‘Flashy’ individuals
• Rappers, professional athletes, start-up CEO, etc. Cost Structure
• Partnerships likely expensive
• 37.9% of total revenue goes to marketing and selling expenses compared to 33.4% for cost of sales.
• Materials R&D, investments likely expensive
• Value driven business focused on value proposition. Premium value proposition.
• Economy of scope? Through materials investments (and acquisitions)

Key Activities
• Development of new materials
• To a lesser extent, in-house watch movement development.
Channels
1. Awareness
• Sponsorship of sports events, teams and players. Other celebrity brand ambassadors.
• Magazines
• Hublot Events
2. Evaluation
• Website
• Going to the boutique/retailer
• Very visual product
3. Purchase
• Boutiques (around 80)
• Retailers – Many retailers in different cities
• Online through retailers, not directly
• ‘Digital Boutique’
4. Delivery
• In-shop purchase
• Hublot Events
• Hublotista
5. After Sales
• Hublotista
• Hublot events
• Servicing through retailers and boutiques
Key Resources
• 2012: Foundry; Metallurgy and Materials department
• Acquired Swiss firm Profusion: manufacturer of carbon fibre components
• In-house electroplating
• 2016: In-house sapphire crystal machining capability Revenue Streams
• Asset sale
• Product feature dependent pricing. Advanced materials and movements with extra complications sold at higher prices.
• List price. Haggling possible (?) though very secretive.
Customer Relationships
• Hublotista community
• Relationships with previous customers. Get told about exclusives in advance.
• Events
• Personal shopping experience (personal assistance in-store or on Digital Boutique)
• “Interactions important”
• Co-creation of new watches with ‘partners’

Appendix B: Porter’s 5 Forces

1. Competition in the industry
• Direct competition: Audemars-Piguet, Richard Mille
• Other luxury watch brands : different ethos, targeting different customer segments.
• Smartwatches (specifically Apple watch, not really exclusive enough)
2. Potential of new entrants
• Strong barrier to entry for new companies.
• Very difficult machining and engineering of internals.
3. Power of supplies
• Only raw material suppliers could have an impact
• Very flexible for materials (not restricted to one alloy)
4. Power of customers
• Small client base and very rich so could easily take their money elsewhere.
• Not sure how powerful client base is though.
5. Threat of substitutes
• Counterfeits common and dilutes the exclusivity of the product.
• Less likely to get genuine substitutes as:
o Exclusive materials
o Relatively unique designs
o Difficult to manufacture

Appendix C: Instagram Brand Presence

#Hublot
Not a single picture actually shows a Hublot watch (Audemars-Piguet and Rolex mostly). Mostly spam posts and close-up shots.

#DanielWellington
Many “influencer” pictures (circled) including a DW watch.

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