In late 1998, Jo Ann Blake, Product Manager for Spree Watch, was planning the future for General Clock's new product, a branded fashion watch. General currently manufacturers industrial time products and clocks for consumers. As a result of innovations in materials and techniques used in manufacturing industrial timing products used in very demanding conditions, General is considering development and introduction of watches. John O'Neil, General's Vice President of Marketing, felt that this product would be a major profit maker for General and just last month hired Blake from the Gillette Safety Razor Division to plan and coordinate the marketing plan for the Spree Watch.

The Company

General Clock was founded in 1912 to manufacture and market industrial time clocks. George Taylor, founder and grandfather of the current president of General, recognized the opportunities for clocks as a control tool for manufacturing labor. Growth of sales and profits were strong through WW2.

Although successful as a one product company, in 1948 a program of new product development was begun. General had experience in manufacturing clocks for use in factories. Factory conditions were difficult and they had developed flexible, reliable products. They decided to pursue the more generic market of industrial timing devices that could be used throughout manufacturing and distribution. Their timing was fortunate, preceding the rapid development and growth of electronics and semiconductors. General turned these technological advances into products, growth, and profits. In 1960 sales had grown to over $120 million.

In the mid 60's General organized their Consumer Division with a mission to develop and introduce consumer time products. Their engineering and manufacturing experience was suitable for development of clocks and a small line of middle priced clocks was introduced with moderate success.

In 1995 General was organized into five divisions with total annual sales of $400 million and pre-tax profits of $30 million. As a result of increasing lives of industrial timing devices, even with development of many new uses, sales growth has slowed to under 5 percent annually. It was felt that growth in current markets was limited. A variety of ideas were generated, but none was judged to be likely to return profits worth their risk until the development of the Spree watch.

The Spree Watch

The industrial timing division had developed interesting advances in technology. These advances were primarily in developing durable plastics to replace metal in the housings of timing devices. In the early 70's plastics were developed that were far more durable and less expensive than the metals previously used in timing devices. An unfortunate consequence was that some customers were uneasy about using plastic timing devices. They had questions about durability and many did not like the appearance. The appearance issue was eliminated by the development of plastics that very closely resembled metals.

These new plastics had potential use in fashion watches. They could be molded into virtually any shape imaginable and could be made to look like plastic in a wide variety of colors or to look like metal. The "metal" plastics looked exactly like actual metal cases and appeared as such on the wearer. Tapping the case against something produced a flat sound revealing it to be plastic.

A second advance, useful for watches, was General's development of their patented very small quartz time movements that could be produced inexpensively and used in the Spree.

Industrial timing products required a wide variety of laminated faces. These laminates could be developed inexpensively, were very cheap to manufacture, and could be designed with any picture or pattern desired. The laminates were durable and ideal for faces and other parts of watches.

Overall the Spree was lightweight (3/4 ounce), shock resistant, and water resistant to 100 feet. It consisted of only 40 components rather than the usual 90 and is was constructed on a single automated production line.

In summary, General believed they had a differential advantage in watch technology compared to the competition.

 The Spree Division

Recognizing the potential for this technology to be used in watches, John O'Neil formed a product development team consisting of accountants, manufacturing engineers, and market planners. Blake was hired as product manager and charged with the responsibility for leading the team. The watch was given a initial name of Spree.

The Spree watch development team was given the responsibility for preparing cost estimates for investigation and development of the Spree watch and a first year marketing plan. Based on the estimates of investigation and development costs and time and the first year market plan, a decision would be made whether to proceed on the Spree project.

The Watch Market

Watches were differentiated into three basic product types:

1. Fine and luxury products
2. Mass marketed products
3. Branded fashion products

Fine and luxury watches had prices ranging from $150 to $20,000 characterized by high fashion and internationally known brand names such as Concord, Piaget, and Rolex. This type made up about forty percent of the $4.5 billion United States retail watch market in 1997. Mass marketed watches included watches from Timex, Armitron, and others that are sold mainly through discount outlets for prices ranging from $5 to $40. They included about 50 percent of the dollar market. Branded fashion watches are generally priced from $40 to $150, and accounted for a little over 10 percent of the dollar market. Sales of fashion watches are given in Table 1.

  Market Segments

Blake had research on fashion watch buyers as shown in Table 2. In many cases a watch is purchased as a gift. Users may have a different age profile. She challenged her staff to seek other ways of segmenting consumers and develop some hypothesized consumer segments so that a research study could be designed to evaluate characteristics and behavior of consumers by age, sex, lifestyle, watch attributes desired, and purchasing behavior.

Distribution

Blake purchased a marketing research study showing where sport watches are purchased. She compared these percentages to General's current consumer clock volumes as shown in Table 3.

The Competition

There are four major competitors; Swatch, Fossil/Relic, Guess?, and Anne Kline/Anne Kline II. There are ten other manufacturers with relatively small market shares. Market shares are estimated in Table 4.

TABLE 3
DISTRIBUTION	FASHION WATCHES	GENERAL'S CURRENT PRODUCTS
Catalog Showrooms	15%	10%
Discount Stores	20	45
Department Stores	30	25
Drug Stores	10	20
Jewelry Stores	25	0

Costs of Manufacturing the Spree

Initial estimates of the costs of manufacturing the Spree watch were made. It was expected that the typical Spree watch would consist of 40 component parts. The expected material costs are $12.00, labor costs are $3.00, and the packaging material costs are $3.00. Assembly and packaging of the watch was to be highly automated. The plastic extruding dies and the assembly and packaging machines required significant capital investment. Manufacturing overhead of $500,000 would be charged to the Spree watch each year.

Evaluation of the Spree Project

Before beginning investigation and development of the Spree watch the feasibility of the project had to be evaluated. Additional investigation of the specific manufacturing methods and costs would take three  months and cost about $250,000. If the project passed this hurdle development of the manufacturing tools and dies would take another nine months and was expected to cost $750,000.

Developing the First Year Marketing Plan

Blake viewed the development and implementation of a successful marketing plan as a challenge and a career opportunity. She was a hard core believer in organizing the plan using the four P's; Product, Price, Place, and Promotion. She had the following additional facts:

 Product

Watches were supplied in a wide variety of styles and colors. Swatch had revolutionized the sport watch product with very unusual, trendy styles and Fossil had furthered this trend.  The final production dies were yet to be designed. She wondered how many styles and colors should be offered. She realized that adding additional styles and colors was likely to increase manufacturing and distribution costs. She did not know the impact of the number of styles and colors on gaining shelf space at the retail level. Specific watch, packaging, and display designs were needed.

Price

A price survey revealed the average retail price of fashion watches was $50. Odd price endings were typical. Trade discounts were typically based on suggested retail price. retail trade discounts were about 25 percent, while wholesale discounts were 20 percent. Little inflation in watch prices was expected in the next five years as competition and manufacturing efficiencies were expected put pressure on watch prices.
 

Blake was considering two retail price levels for the Spree watch; $45 or $50. She expected different market shares at each price as shown in Table 5. Under current assumptions, market shares were expected to continue at the 2002 levels into the future.

Distribution

Watches followed a three level distribution system. Manufacturers sold most of their product to national wholesalers who in turn sold to either retail chains or to regional wholesalers. Watches were sold in more than 300,000 retail outlets in the United States, including 5,000 department stores, 40,000 drug stores, 220,000 discount and variety stores, and 26,000 jewelry stores, and other outlets such as hotel lobbies and clothing stores. Sales varied regionally as shown in Table 6 (United States Census Bureau definition of regions).
 
 

Promotion

General's  sales force consisted of 4 regional manager, a national accounts manager, 15 district managers, and 160 sales representatives. The sales representatives called on wholesalers, headquarters of retail accounts, and the leading retail outlets served by their wholesalers. The national accounts manager sold to various national organizations including large chains and U.S. government agencies. It was decided to charge $500,000 annually to the Spree watch division for sales force support.

The competition's advertising and promotion expenditures in 1997 as estimated from marketing research are shown in Table 7. Watch promotion included about 30 percent national television advertising, 30 percent print advertising, often as coop advertising with retailers, and 40 percent point-of-purchase displays.  Blake was considering spending $2,000,000 for advertising, however, some of her staff questioned if this would be enough to build targeted market share.