☞ The Customers: End Users (Game Players)
The demographics of video game players are changing. Indeed the target audience has broadened over the past ten years. Most notably, the average age of a gamer is increasing—as is the number of females. According to the BMRB (British Market Research Bureau), a market research agency, 17.5m people in the UK (over 15 years old) have access to a games machine. This equals 38 per cent of the UK population. A more meaningful statistic, of course, is how many of these consumers are active players. The survey found this to be 13.8m - 30 per cent of the UK population. However, a much smaller number can be described as dedicated gamers. The average player’s age is 28 and 43% are women. The majority of these individuals play games with their friends and family.
At the end of 2000, 46% of all UK households owned at least one game console. Thirteen million homes are estimated to have a game console by 2005. The factors most frequently considered when purchasing a console are: 1) quality of system, 2) number, variety, and price of games available, 3) price of the system, 4) graphic quality of the system, and 5) ease of use of console. (Appendix 3).
II. Competitor’s Marketing Strategy
☞ Corporate and Marketing Objectives
-
Microsoft is committed long-term to the video game market. As such, its goal for the
next 24 months is to build Xbox’s installed base. Xbox is not expected to breakeven
during this time.
- A corporate goal is to achieve between 30-40% market share of next-generation video game consoles (Xbox, PS2, and GameCube combined).
- As a new entrant. Microsoft’s acquisition strategy will focus on stealing share from Sony and growing the overall market, particularly as a leader in online and interactive gaming.
-
Nintendo Co., Ltd. and its consolidated subsidiaries strive to create new and unique hardware systems and interactive video games, utilizing advanced computer technology in both the home entertainment and handheld gaming environments.
- Nintendo seeks to provide consumers with “world of entertainment”, which is both innovative and fun with creative elements they have never experienced.
-
However, it is becoming increasingly more difficult to create new and unique games which utilize the full capabilities of the new hardware. Nintendo is focusing more time and more resources on developing a new world of video game entertainment featuring its well-known franchise of characters while creating new characters and game concepts.
-
Sony as the market leader in home entertainment system’s will seek to maintain it’s market leadership position and not allow Microsoft to advance into it’s share of the market.
-
Sony has dominated the electronic games market since 1998 when Playstation1 was the leader. Sony’s success in maintaining this leadership when releasing Playstation2 ahead of their rivals reflects Sony’s power and growing experience. The Sony Corporation has a history of innovation in the home entertainment industry and this has been expanded into electronic games.
☞ Segmentation, Targeting, and Positioning
Microsoft
-
Segmented the user population on demographics (i.e., age and gender) and behaviour (i.e., game usage). As a newcomer to the video game market, it was critical to capture “hard core” gamers (Appendix 4).
- This target was considered key because:
- Microsoft had to establish credibility in the marketplace. Winning over this
segment would influence purchase behaviour among serious and casual gamers (a lead-user strategy).
- Xbox had been designed to provide the best gaming experience available. The
design choices it made (i.e., graphics and sound) would appeal to this segment. The initial Xbox launch targeted 16-24 year olds who played games more than 11 hours a week.
Nintendo
- After a successful run in the console market with the Nintendo 64 product, Nintendo
is looking to capture the same 7-16 year old consumer market with the Game Cube product.
- Nintendo intends to leverage low console price and historically successful game brands like Mario, Pokemon, Zelda, and Donkey Kong to capture its target market. In addition, Nintendo seeks to benefit from a close relationship with game developers.
- Nintendo has developed the most advantageous royalty structure for game developers among all of the console companies.
- This strong relationship with game developers will provide Nintendo with the depth and breadth of games developed specifically for the GameCube console to satisfy their target market.
Sony
- Sony will continue to target an older demographic of around 16-24 as well as attempting to maintain purchasers of the Playstaion1 by making there games compatible with the Playstation2. This way consumers can improve their existing console while maintaining their games.
- Their strong market position in the market as a quality system with some of the most recognisable and wanted games gives them an obvious advantage. As games are the forefront of the industry Sony’s relationship and association with quality game developers is vital. The company hope to realise greater synergies among it’s gaming division as well as leverage recently struck partnerships with AOL Time Warner and Real Networks.
- Their view on games as being a movie like experience relies on game realism and differs greatly to that of ~Nintendo’s ‘Games are fun’ attitude. Sony positions their product more so for the individual than for group play. Their highest selling games are mainly one player games.
Perceptual Mapping of consoles
Price
Quality
- Playstation 2
- X Box
- Game Cube
Ansoff’s Matrix
Markets
Existing New
Existing
Products
New
PS2
Gamecube
X-Box
PS2 and Gamecube are both product expantions from previous models, these were replaced because they became saturated within the market, the new models have both past the introduction stage in their product life cycle and are in growth.
X-Box is a new product in an already existing electronic game market.
Additional positioning details can be found in Appendix 5.
☞ The Marketing Mix (4Ps)
The Product (Console)
(See Appendix 6 for console technical comparisons.)
While technology improvements in graphics and speed drove the video game industry in the past, today platforms are differentiated by the games they provide.
Nintendo has a portfolio of beloved videogame characters—Mario, Zelda, and Pokemon—that appeal to a younger target audience.
Microsoft, however, pushed the technical limits with its Xbox console by making the strategic decision to include a hard drive and Ethernet connection.
Sony’s use of a multi-functional, all purpose home entertainment system with DVD, CD and gaming capabilities all in one made it an attractive purchase to the customer.
The Product (Games)
Microsoft expects to have 200 games available for Xbox by the end of 2002, but less than two dozen will be exclusive Xbox titles from third-party developers. Sony, by contrast, has been touting high-profile titles such as Grand Theft Auto III exclusively available on PS2 and claims it will have up to 1000 titles available by the end of FY2002 (March 31, 2003). Nintendo has a smaller range of Gamecube games available, but the ones that are available are of high quality. Most of these games are conversions from existing Xbox or PS2 titles.
(See Appendix 7)
Promotion
Microsoft spent a huge amount of budget on advertising (£350M) to gain people’s attention. And the result is obvious that Microsoft has successfully created a separate, unique identity and brand for Xbox. (For example, “Microsoft” never appears next to “Xbox.”) This again is critical for building credibility with lead-users (hard-core gamers)—many of whom were very sceptical that the same company that introduced the world to “Mr. Paperclip Office Assistant” could create high quality games.
Nintendo, on the other hand, does not spend as much money in advertising with a £50M campaign. Nintendo's new TV and cinema advertising is edgy, highly engaging and often surreal, dramatising the immerse nature of gaming on Nintendo GameCube. The company will run seven different ads, with a glass cube dominating each of the executions. The glass cube has been chosen so as to "show the blurred line between reality and the escapist fantasy of the gaming world experienced through the Nintendo GameCube."
Sony, due to the success of Playstation1 had already built up strong brand awareness among consumers. This was shown when the announcement of Playstation2 resulted in a backlog of reservations before it’s release. Their promotion relies mainly on advertising the exclusive games available for it such as Grand Theft Auto 3. The adverts would often show clips of the game then end with thePS2 logo. There was around £200M budgeted for the advertising of Playstation2 this involved TV and magazine advertisements in target audience magazines such as Maxim, FHM and the more obvious Game magazines.
Graph showing the worldwide sales of console units in Millions
See Appendix 8 for Product launch matrix
Place (Distribution)
- Sold primarily through consumer electronics retailers (e.g., Currys, Dixons) and specialized retailers (e.g., Game, Virgin Mega Store, HMV, etc) as well as supermarkets (e.g., Tesco, Asda, etc).
- Customers want to try consoles and games out before they buy so providing a satisfying in-store demo experience is imperative.
- Merchandising strategy includes placing interactive demonstrated kiosks in such retailers.
- This is new terrain for Microsoft that typically has not had to manage retailer relationships closely because its software (e.g., Windows) is pre-loaded on many of the computers sold through retail chains.
Price / Margin
-
Xbox Currently retails for £159. Its production costs are estimated between £250-
£350. Therefore Microsoft will lose between £100-£200 after every Xbox is sold. Consumers purchase 2-3 games on average with the initial game console sale and according to an Xbox Sales Director, owners must purchase X additional games before Xbox breaks even.
-
Sony In November 2001 Sony triggered the price war by cutting the European price of its PlayStation 2 by £100 to £199. Then in June 2002, just three months after Microsoft launched their Xbox in UK, Sony triggered the price war again by cutting further £30 to £169 on PS2’s price. Furthermore, Sony was in a position to lower its price having launched PlayStation 2 a year prior to Xbox and GameCube, it has been able to recognize cost savings on manufacturing through the learning curve. Sony can better absorb the cost because the PS2 has been on the market for almost two years and 30 million units have shipped.
-
Nintendo In comparison, retains its low price position by launching their GameCube at only £129, they did not (or perhaps could not) follow others and enter the price war.
Typical Strategies employed by the companies.
A generalisation for the electronic games market is that new systems are brought into the market at as high a price as the market allows. Companies tend to then skim the market by getting as much sales at this high price before reducing the price when the buying curve drops. This practice is known as price skimming.
Product life cycles:
Market Growth
Time
- Introduction of games console into the market. For example Sony bringing out Playstation 1. Microsoft have started at this stage.
- Immidiate high sales over a short space of time. Use of price skimming to gain maximum possible profits.
- Product matures. At this stage consumers start building up brand loyallty (or not). Competitors entrance into the market slow down sales of product.
- Decline of product sales. Possibly through tiring technology. Competitiors may have brought out new system.
- Release of new Console or extention to existing console. When Playstation 2 came out to replace original. Nintendo and Sony are both at this stage. Consumer confidence and loyallty has been made and needs to be maintain.
III. Challenges
From SWOT analysis of the all 3 game consoles (Xbox, PS2 and GameCube, Appendix 9), we conclude the challenges what the companies are facing with.
With next generation consoles from Sony, Nintendo and Microsoft now available in North America, Japan and Europe, the video game console market reached 31.8 million units shipped and revenues of nearly $7.4 billion in 2001, according to In-Stat/MDR. The high-tech market research firm reports that Sony is, and will remain the leader in this space, shipping its 40 millionth PlayStation 2 on September 19th, 2002.
The video game console is increasingly big business. The year 2001 saw total video game revenue surpass movie box office receipts in the US for the second consecutive year, and shipments are expected to increase substantially in 2002. The introduction of plans for online gaming by all three console manufacturers has the potential to transform the market going forward.
How the companies compete and what the future holds.
- A recent survey of consumers revealed that nearly half of the respondents expressed interest in online console gaming. When asked what they would be willing to pay per month for online console gaming, well over half of the positive respondents were willing to pay $5 or more per month, while over one-third were willing to pay $10 or more per month.
-
A solid 25% of the survey respondents watch movies on their PS2, with 6% watching them on Xbox. Overall, nearly one-third watch movies on their video game consoles.
-
By early 2003, Nintendo should have released most of its franchise software titles, such as Mario and Zelda. Since Nintendo has always been driven by such franchise software, this holiday season should go a long way to determining the overall success of the GameCube.
- The video game console market has had a very interesting year. Both Nintendo and Microsoft have introduced their next generation consoles, while Sony has continued to increase the installed base for its PlayStation 2 at an enormous rate.
- In 2001, nearly 32 million consoles shipped worldwide, with that total expected to increase substantially in 2002. Beyond 2002, shipments are expected to continue to increase, as the three companies battle to control this very lucrative market.
- Even if console online gaming does not take off overnight, consumers are bound to move inexorably towards consoles. This will be the next battlefield between Microsoft, Nintendo and Sony.
- Sony and Microsoft are the most active regarding console online gaming. Nintendo, true to its cautious nature, is playing a-wait-and-see game.
- The success of its Xbox Live service will be crucial for Microsoft. It is currently third in the console market closely behind Nintendo but console online gaming could enable Microsoft to differentiate its console and pass the GameCube, which lags behind in this sector
- Already the battle between Sony and Microsoft has intensified in Europe when Sony Europe's latest PlayStation 2 price cut re-ignited the price war with Microsoft's Xbox. Nintendo will not follow suit in the short term as it has less room to manoeuvre on price (and much shallower pockets) than its rivals.
- Usually, manufacturers will cut prices around Christmas to boost demand during this crucial period. Hence, Sony's move in slashing its console prices came a little early and there is a reasonable chance of yet another price cut later on this year.
- Questions: can Sony afford to further reduce its price? Would Microsoft follow suit again? Would Nintendo be dragged into the price war? The answer to all of these questions is most likely to be yes, the research firm concludes.
APPENDICES
Appendix 1: PlayStation 2 Cumulative Shipments by Territory (as of May 2002)
Japan (including Asia) 9.99M
North America 11.25M
Europe/PAL 8.78M
Worldwide total 30.02M
Source: Sony Corporation press release
Appendix 2: Microsoft’s Slowing Revenue Growth
During the past decade, Microsoft has averaged 30.5% annual sales growth and 37% annual earnings growth. But with more than $25B in annual revenues (2001), a 30%+ growth rate becomes increasingly difficult to maintain. Many Wall Street analysts predict growth no better than the low to mid-teens for the foreseeable future. Sources: Microsoft financial statements, The Economist, and Money.
Appendix 3: Facts of the Gaming Industry
How Many People Play Computer and Video Games?
- 38% of all British play video games, or about 17.5 million people.
Who Plays Computer and Video Games?
- 43% of people who play interactive games are women.
- The average age of an interactive game player is 28 years old.
For Computer Gamers...
- 28% of most frequent game players are under eighteen years old.
- 30% of most frequent game players are between 18 and 35 years old.
- 42% of most frequent game players are over 35 years old.
For Console Gamers...
- 42% of most frequent game players are under eighteen years old.
- 37% of most frequent game players are between 18 and 35 years old.
- 21% of most frequent game players are over 35 years old.
Why Do People Play Games?
- In 2000, 35% of all British rated playing computer and video games as the most fun entertainment activity for the third consecutive year.
- Games are challenging (78%).
- Games are a great stress reliever (55%).
- Games provide a lot of entertainment value for the money (49%).
- Games are engrossing (39%).
- Games are an interactive social experience that can be shared with friends and family (37%).
- 59% of most frequent game players play with friends.
- 33% of most frequent game players play with brothers and/or sisters.
- 27% of most frequent game players play with spouse.
- 25% of most frequent game players play with parents.
- 43% of most frequent game players play with other family members.
Games Are Played in Groups
- 59% of most frequent game players play with friends.
- 33% of most frequent game players play with brothers and/or sisters.
- 27% of most frequent game players play with spouse.
- 25% of most frequent game players play with parents.
- 47% of most frequent game players play with other family members.
What Were the Top-Selling Game Genres in 2000?
- Strategy/RPG (21%)
- Action (17%)
- Sports (15%)
- Racing (10%)
Who Purchases Computer and Video Games?
- 97% of people who purchase computer games and 87% of people who purchase video games are 18 years or older.
- Of those under 18 years old who purchase games, 84% get their parents permission.
- 50% of people who purchase computer games are men and 50% are women.
- 52% of people who purchase console games are men and 48% are women.
Source: British Market Research Bureau
Appendix 3: Facts of the Gaming Industry (Cont’d)
Source: British Market Research Bureau
Appendix 4: Xbox User Segmentation by Behaviour (Usage)
Appendix 5: Console Positioning
Source: Adapted from The Red Herring and Microsoft Company presentation.
Appendix 6: Technical Specification Comparison
Appendix 7: Competitor Matrix
Sources: Company websites
Appendix 8. Product Launch Strategies Matrix :
PROMOTION
High Low
High
PRICE
Low
This illustrates the strategies adopted by the three main competitors. Playstation and Microsoft clearly lie in the high promotion and high launch price. Nintendo however could probably be classed more so in the Rapid penertration due to it’s significantly lower launch price it’s aim was to clearly establish itself as the market leader.
Appendix 9: SWOT Analysis
I. PS2
II. XBox
III. Gamecube
