My thesis-on-sony-computer-entertainment-inc

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My thesis-on-sony-computer-entertainment-inc

  1. 1. Marketing Project 05BSP069 An Analysis OfSONY COMPUTER ENTERTAINMENT inc. BY Ioannis Samaras ID:A589718 Word count:9500
  2. 2. ContentsIntroduction…………………….. …………………………...………… Page 4Strategic Standpoint………………………………………...………… Page 4Situation Analysis……………….…………...………………….….… Page 5Environmental Analysis……….………...…………………………...… Page 5 Political factors………………………………………………… Page 5 Economic factors…………...……..…………………………… Page 6 Socio-cultural factors…..………………………………...…… Page 6 Technological factors…………………………………………… Page 7 Environmental factors………………………………………… page 8 Key Macro success factors……………………………………… page9Porter’s Five Forces………………...………………………………..… Page 9 Intensity of Rivalry Among Existing Competitors……….. Page 10 Threats of new entrants……………………………………. Page 11 Threat of substitutes………………………………………. Page 11 Bargaining power of suppliers…………………………….. Page 12 Bargaining Power of Buyers……………………………….. Page 12Downe’s Three Force........................................................................... Page 13 Digitalistion……………………………………………………... Page 13 Deregulation…………………………………………………….. Page 13 Globalisation…………………………………………………… Page 14Strategic Group Analysis….…………….…………………………… Page 15 Sony…………………………………………………………….. Page 15 Microsoft……………………………………………………….. Page 16 Nintendo………………………………………………………… Page 17 2
  3. 3. Internal Analysis……………………………………………………… Page 18 Product Life Cycle………………………………………………. Page 18Corporate Portfolio........................................................................ Page 19 BCG Matrix………………………………………………. Page 19 Market Attractiveness…………………………………… Page 19 Strategy Guidelines………………………………………. Page 20 Strategic Capabilities and Resources…………………… Page 21SWOT Analysis……………………………………………………. Page 22 Strengths…………………………………………………….. Page 22 Weaknesses…………………………………………………. Page 23 Opportunities………………………………………………. Page 23 Threats……………………………………………………… Page 24Marketing Strategy……………………………………………… Page 24 STP Approach to Segmentation………………………… Page 25Strategic Options Analysis……………………………………….. Page 27Implementation and Control…................................................... Page 28 Marketing Mix…………………………………………… Page 28 Organisation……………………………………………… Page 29 Control…………………………………………………… Page 30Conclusion……………………………………………………… Page 30Appendix………………………………………………………... Page 31References ……………………………………………………… Page 34Bibliography …………………………………………………… Page 36 3
  4. 4. Introduction Sony Computer Entertainment Inc is the company which manufactures,distributes, markets and sells Playstation . Sony Computer Entertainment is a divisionof the Sony Corporation. Sony Computer Entertainment Inc is based in Tokyo, Japanwith subsidiary divisions in America, Europe, Korea, China and Japan.¹ Playstation isthe leader in market share and PlayStation 2 is the most popular gaming platform inNorth America, Europe/PAL territories and Japan/Asia, the only gaming platform toenjoy such widespread global success.² Key competitors of SCE are Microsoft and Nintendo. Industry is facing thechange, that the new generation consoles will bring with Playstation 3, from SCE, thealready launched XBOX 360 from Microsoft, and REVOLUTION from Nintendo. The electronic game industry is in the middle of a transformation as it hasevolved from a niche industry into one of the most dominant sector in the media andentertainment business³. Capitalising on technological advances SCE can exploit thisspectacular growth that has the potential to continue through the end of the decade. The aim of this project is to analyze the external and internal environment ofSony Computer Entertainment and create a SWOT analysis to assess where marketingstrategies could improve SCE’s positioning and competitive advantage. BAP 1coursework studied the video game industry more generally and gave an overview ofthe environment in which the key players deploy their strategies. This study will takea deeper view assessing the internal and external environment of one key player SonyComputer Entertainment inc.. I chose the specific company because of its rich and unique brand personalitybut also because of the growth the company can achieve exploiting and interpretingthe external environment, better than the competitors.Strategic standpoint Sony as a company has a very clear mission statement: “Sony is a company thatis deeply involved with culture, it is our mission to pursue the dreams and emotions ofour individual customers, in addition to bringing them advanced technology andeconomic valueIndividuals creativity is an essential ingredient to realize these objectives” 4. The clear 4
  5. 5. nature of the statement helps Sony be consistent with its mission. Every decision itmakes and every business objective it sets, is based on this idea of pursuing thedreams and emotions of consumers. The focus of Sony in these principles help it be amarket leader and innovator for many years and it should adhere to them in the futureas well.Situation AnalysisEnvironmental Analysis The remote environment of a company is the an area that a business has nosignificant control over, but which heavily affects the way a company operates. 5 Ananalysis of the remote environment of a company is really important because it canbring changes to the way it operates. This is where trends and strategic issues startfrom. PESTEL is a strategic tool, useful in modelling the macro-environment of SCEand identify factors that can have influence on its strategic directions.Political factors There are two major political issues in the video game industry that createimplications for SCE. The first is the debate on whether video games are harmful forchildren due to ultra violent content. There have been many efforts on the part of stateand local legislative bodies to regulate access to games. However, the courts haveruled seven times in five years “that computer and video games are protected speech,and efforts by these legislative bodies to ban or limit access to or the sale of gamesthey find objectionable will inevitably run afoul of the First Amendment of the UnitedStates Constitution”.6 SCE and the industry as a whole tries to prove the unsoundnessof this accusation by promoting stats and debates that stress for example that theaverage American video game player is 33 years old and The average game buyeris 40 years old or that the Violent crime, particularly among the young, has decreaseddramatically during since the early 1990s while video games have steadily increasedin popularity and use. However this doesn’t seem to have affected the industry interms on sales at all. Additionally to my opinion, the broadening of the demographicand the family targeted orientation of SCE and the rest of the industry leads to morefamily-friendly game content with more socialization and less violence. 5
  6. 6. The second issue that the industry has to confront is the piracy issue. SCE has wona landmark case in the British High Court, with a judge ruling that “the sale of modchip devices for the Playstation 2 is illegal under the UKs implementation of the newEuropean Union Copyright Directive”. 7The chips circumvented the built-in protectionof the PS2 and allowed the console to play pirate and imported games. According tothe president of SCE, “SCE is sending a clear message to manufacturers anddistributors of mod chips throughout the PAL territories that it will continue to pursuelegal action against them”8. Furthermore the industry has shown will andeffectiveness in dealing with piracy issues which had, since now, very little impacton sales and industry rather acts proactively and wisely.Economic factors For Sony Computer entertainment it is imperative to analyze macroeconomicand micro economic factors to analyze key strategic issues, problem areas, andopportunities. The economic factors determine the nature of the competition withinlocal and global markets.Macroeconomic stability - Macroeconomic stability is the major factor that affectsthe potential of console sales and console game sales. Low interest rate creates astrong stimulus for consumer spending, whereas high interest rate creates a strongstimulus for saving. Long term macroeconomic stability leads to a strong consumerconfidence and this is one of the major sales drivers. The gaming industry depends oneconomic state as it affects inflation rate, interest rate and disposable income of theconsumer. In terms of marketing strategy the economic factors determine the futuremarket value and might influence the budget allocation for promotion activities andnew product development of SCE.Socio- Cultural factors In my opinion the first element of the industry that changed over the years is thatvideo games is not a niche market any more. Video games are now standard part of 6
  7. 7. our culture. Twenty years of video game history behind us forged a huge video gamegeneration (90 millions in U.S alone), supporting an industry which is in the centre ofthe new mainstream and not the “geek haven” as many might have assume. Videogames has become a central ,defining part of growing up for many millions of people.I believe that this realization is very important for the industry to understand ,asPorter notes, not only “the competitor’s assumption about it self “ and thecompetitor’s assumption about other companies” ,but in sociological terms ,tounderstand the huge impact that it has to the society.Price sensitivity –Price has become a key determinant of purchase choice. Variousconsumer groups have used to various offers and always look for the best priceopportunities.MMO games - The recent vast development of Massive Multiplayer Online gamesshows that games become the new communication media. At the same time, bothgame publishers and PC and console hardware companies might use variousopportunities to maximise sales and increase the customer loyalty.Fashion - More and more consumers are becoming fashion conscious. Their choice ofproduct strongly depends on the appeal of product mix and its congruence with theirself-concept.Broadening of demographic - A marketing refocus by Sony with greater emphasistowards club culture and "twenty-somethings" resulted in a much older initialPlayStation user-base than pervious consoles had achieved and this resulted in abroader social acceptance. This led to a broadening of demographic with appeal tofemale gamers and baby boomers.Technological factorsNext generation consoles – The introduction of new generation consoles will changethe preferences of different customer segments. At the same time, is certain that it willrequire certain time till the proper market adoption of new generation consoles will 7
  8. 8. take place. Not only it will have to do with the process of market adoption of newproduct, but with mere availability of sufficient range of games for new consoles.New distribution channels - The continuous technological development, especiallyin the area of digital and communication technologies create new operatingopportunities such as new marketing mix channels, new service encounterenvironment (online sales) and new market research tools. According to Mintel(2004)9 more and more retailers and switch to new cost-saving distribution channels.Internet usage – The current penetration of Internet creates the stimulus for theincrease use of Internet as information and transaction zone. The major issue is thecurrent tendencies towards Internet consumption which vary respective of a countryof operations. For instance Internet transactions in EU countries account for 10%,while in US it is 30%. It means that with the further increase of Internet as transactionarea distributors with well-developed e-capabilities will have increased sales andmarket coverage.New information requirements - The introduction of new technologies havechanged the nature of customers’ expectations, creating new zones of tolerance.Today, customers expect more flexibility, speed and dependability from retailers, thanbefore the introduction of web-based technologies.Cheapness of Computing Power- As processors have dropped in price, bothconsoles and PCs have added high-end CPUs and graphics chips. All gaminghardware is now fast enough to meet any requirements that game developers mayhave .Processing power is no longer a restraint in the development of more advancedgraphics and sounds in games.Environmental factorsTwo environmental concerns are commonly associated with console games:Health related concerns First is a general perception that impact of frequent gamingon young people’s health. Players have complained of eyestrain, headaches, chestpain, fatigue and mood swings (Tazawa et al. 1997). However this perception may 8
  9. 9. subject to change as research shows contrasting outcomes that there is the view thatconsiders such side-effects to be ‘relatively minor or temporary’ (Griffiths 2002) andthat finds playing computer games is comparable to a mild intensity exercise: withnormal use, playing may neither improve nor harm physical fitness (Emes 1997).The compliance with safety requirements– Sony Europe shall resolve the issueregarding the possible threat of fire hazards and overheating of PlayStation 2Adapters. Sony plans to counter this ecological factor by not only ensuring heatresistant technology but also continuous recalling of complained adapters all fromeverywhere possible to assess the potential effects and respond to this problemeffectively by renewing adapter technology.Key macro success factorsOn the basis of the macro environmental analysis the following key macro successfactors can be defined: -The importance of price as the important determinant of the positive sales decision, -The importance of fashion trends for Product Mix, -The impact of Internet in terms of MMO games as Product and Promotion Mix, and the importance of new distribution channels for Place Mix, -The compliance with censorship regulations especially when doing co-marketing activities with leading game publishers, -The consideration of ecological issues when developing both Product and Promotion Mix. Sony needs to make sure that it products comply with the health and safety standards and that consumers are aware about that.Porter’s Five Forces When studying a company in an industry it is very important to asses its operatingenvironment,10 industry structure has a strong influence in determining the competitiverules of the game as well as the strategies potentially available to a firm this area willanalyze the five key forces that porter highlights and affect SCE‘s strategies. These 9
  10. 10. forces determine the intensity of the industry competition and profitability. (Porter,1980, Pg3).Intensity of Rivalry Among Existing Competitors Rivalry occurs when one or more competitors either feels the pressures or seesthe opportunity to improve position and this can be done by products introductions,advertising battles or price competition (Porter, 1980, Pg.17). Video game industry ismarked by an oligopolistic control over hardware (consoles) by the three key playersand tremendous competition. Sony and Microsoft seem to follow the second path ofcompetitive strategy through offensive strategic moves in an attempt to differentiateits products with innovations in marketing and technology. Nintendo seems to havelost its competitive edge and sheets back and waits the moves of the two players sinceit is the weakest of the players. However each firms core strategy is based on the samebasic business principle: the money is in the software because development andmanufacturing costs keep consoles at a break-even sale price in most consumers pricepoints. The incentive to sell consoles below cost is created by the need of a largeinstalled user-base. In order to generate the required profits to compensate for thelosses from the console sales manufacturers must have a critical mass of possibleusers to take advantage of significant network effects. Despite the findings of H-H index measurements that the US market benefitswhen there are more viable players (Dimitri Williams, the international journal ofmedia management, vol. 4,p. 44), The proprietary nature of the console marketdecreases the chance for any spirit of cooperation between the oligopolistic firms.Video games are now a standard –based industry, with the expected importance offirst mover advantage, mass acceptance of the product and technical innovation.(Gallagher and Park,2002).On this Microsoft hopes to exploit the first moveradvantage with its launch of XBOX 360. The only common interest the players haveis not in each other but in the health of the industry. In fact they have a disincentive indoing this because their fighting over the same potential user base. One firm’s gainin network effect is likely another’s loss, so the drive to acquire the consumers first isof defining significance. 10
  11. 11. Threats of new entrants The console market segment is highly competitive and requires significantcapital for entry. In fact since Nintendo and SEGA popularized consoles in the late80’s, only SONY and MICROSOFT have been able to enter the market successfully,Sony technology know-how and marketing resources gave them the advantage toenter the market and dominate it. Technology changes with each generation ofconsoles, so relationships with suppliers such as CPU and graphics chip makers arecritical. Without similar resources, it will be difficult for a new player to repeat suchan entry. New entrants would also have to face the battle of an installed base of usersand software that current players possess. Sony and Microsoft also had arguablyweaker rivals (Nintendo and Sega) to defeat than an entrant today would have. On theother hand the three players have posed significant brand barriers by building theirbrands through marketing and advertising. Additionally new entrants will have toconfront long-term relationships of the players with the retailers and matureddistribution channels. .The dynamics of the handheld market are similar to those in console gaming,where significant capital and infrastructure are needed to challenge the marketentrants. Sony will have to base its strategy in this segment on the positioning of theproduct in that to aim a different target market through software titles or content ofthe games since NINTENDO DS aims the a broader segment with no appeal to hard-core gamer. Sony has a very strong product differentiation Which means that it has a verystrong brand identification and customer loyalty, which comes from past advertising,customer service, product differences or simply being first into the industry.(Porter,1980, Pg 9) .This means that there are very strong barriers to entry for newcompanies that will have to create a new brand from scratch and risk theirinvestments.Threat of substitutes Sony competes in two different areas. The first area is the direct competitionwith the rest of the players where Sony tries to persuade new customers to buy itsconsoles (handheld or normal) rather than a substitute and broadens its installed base 11
  12. 12. (market penetration). The other indirect competition occurs in broader context whereSony competes on the entertainment consumer expenditure for substitute products asCD’s, DVD’s and PC games. Substitute products limit the potential return of theindustry by controlling the prices that can be charged. People will buy substituteproducts if they are cheaper and have a similar effect (Porter, 1980, Pg 23). Sonyhowever, with great amount of investment in marketing and advertising has achievedan outstanding level of brand loyalty. Along with the cutting–edge content of itssoftware titles and strategic price cuts in consoles have achieved to eliminate theimpact of other substitute and gain a huge market share in all markets.Bargaining power of suppliers Suppliers can exert bargaining power over participants in an industry bythreatening to raise prices or reduce the quality of goods or service (Porter, 1980, Pg27). In the video game industry the most important suppliers are the suppliers ofprocessor chips because there lays the power of each machine to handle moreinformation and richer content. With the advance in the specific field of the last yearsthe success of each machine will depend upon the power of the chip every machinewears .Sony Microsoft are trying to develop the quantum leap in computer powerand graphics that gamers have come to expect with each new generation of consoleTechnology. Given the massive investment required in the new generation of consoletechnology is unlikely more than two will survive. Sony plans to take the lead in thenew generation with and along with Toshiba and IBM created a new chip called “cell”which it is said that it will revolutionize the industry. These kind of collaborationswill significantly increase the cost of Sony’s cost over the life of the product but itwill keep making money from software titles. The high technology nature of theindustry and the cost inducted tend to favour rather a collaborative way of workingwith supplier’s because they of unique importance for the life of the industry.Bargaining Power of Buyers There are two main buyers of SCEE products: retail outlets that buy consolesand software titles to sell into the second section of buyers ,consumers. In the light of 12
  13. 13. the fierce competition and wide variety of substitutes consumers enjoy a strongbargaining power. At the same time, Game Industry specialists claim that thedevelopment of specific game communities might create strong consumer attachmentboth to a specific game title and to a game platform.Downe’s Three Forces Downe’s identifies three new forces that require a new strategic framework anda set of very different analytic and business design tools: digitalization, globalization,and deregulation. This will be a compliment to Porter’s Five Forces as the changingenvironment of the world demand a more up-to-date analysis.Digitalization As power of information technology grows, all players in a market will haveaccess to far more information, thus, totally new business models will emerge inwhich even players from outside the industry are able to vastly change the basis ofcompetition in a market.11 The internet as a new distribution channel has a significantimpact in the industry. On line retailers have put a great pressure in the regularretailers as they see the consumer moving towards the internet for purchases.Furthermore the adoption of high speed Internet through DSL or Cable modemconnection. Services will increase the accessibility of on-line gaming, such asmassively multiplayer online gaming (MMOG). According to a study from ABIResearch12 the video game market will expand from $32.6 billion in 2005 to $65.9billion in 2011 as a result of its fast-growing online and mobile gaming segments.Sony is committing considerable resources to the development of online services fortheir respective machines 13
  14. 14. Deregulation Deregulation occurred over the last decade with governments removing theirinfluence in many industries due to industries to restructure. 13 In video game industrythere was not a great deal of change in terms of restructuring but SCEE has seen thepossibility of transferring the video gaming on the internet enhancing its product byexploiting the tastes of the gamers and advantages of playing online.Globalization Improvements in distribution logistics and communications have allowed nearlyall businesses to buy, sell and cooperate on a global level. 14For a company to besuccessful in the interactive entertainment business it must operate on a worldwidebasis. Sony was one of the pioneers in that sense and was the first global company inthe industry to have strong footholds in the three core markets: Japan, North Americaand Europe. Sony’s performance till this moment shows that Sony will be able tocope with the factor of globalisation in the future and even take advantage of it usingits valuable know-how. 14
  15. 15. Strategic Group AnalysisSony As it strived to do with the original PlayStation, Sony has built up a considerablesupport base of developers and publishers. Indeed, strong third party publisherconfidence underpins Sonys continued success and since most development projectsduring the last two cycles have been PlayStation-led, Sony has been guaranteed aconsistent flow of software releases which in turn has lead to consistent hardwaresales. This momentum has given Sony doubtless leads during these cycles.Despite having predicted the advent of online console gaming in 2001, and with amany years of trials and service development behind it, Sony has been remarkablyslow to evolve its online proposition to a commercial stage, especially in Europewhere Microsoft beat them to a full launch and is widely acknowledged to maintain atechnical and strategic lead. Sony certainly views online as critically important to itsoverall console business strategy but has not yet developed a commercial strategy. Sonys PlayStation 3 console is expected to ship in mid or late 2006 and onlineis expected to be a greater priority for the next cycle .”Sony is expected to lose marketshare in the next cycle with its 67% peak market share of hardware sales in the lastcycle reduced to around 50% in the forthcoming cycle. Microsoft is expected to be thesole beneficiary of this with its share of the overall market forecast to increase fromaround17% to 36 %”.( Games Investor )15 Sony has also now made its first major assault on the portable games marketwith PlayStation Portable (PSP), launched in late 2004 (Japan) and 2005 (NorthAmerica and Europe). Third party publishers have rallied behind PSP as well asmovie companies looking to provide PSP-compatible versions of its major DVDreleases. PSP has already impacted the handheld market with 2005 shipments of the 15
  16. 16. product just below direct competitor Nintendos DS. According to Games InvestorPSP will take as much as 50% of the total handheld market in 2006-200716.Nintendo Nintendo has consistently failed to secure meaningful third party publishersupport alienating publishers either by using high cost/risk media or by offeringunattractive third party licensing terms and conditions. In addition, its restrictedsupport for third party developers and relative unwillingness to court third partypublishers is in contrast to Sony and Microsoft and has certainly contributed to itsconsole market collapse. A key tactical error has also been its failure to re-establish afull publishing office in Europe (rather than just a sales and marketing department)which has resulted in the underperformance of the territory relative to others.Nintendos decision is bizarre as the European games software market is now similarin size to the North American market and considerably larger than the Asian market. However, Nintendo shows no sign of changing its strategy.Indeed, in the face of increased competition and further forecast market sharedeclines, Nintendo appears intent on retaining most of its major home consolestrategies for its next-generation console, the Revolution. Revolution is due at somepoint in 2006 and is not expected to compete directly with Xbox 360 and PS3. WhilstSony and Microsoft intend to use processing power as a key marketing battleground,Revolution is relying upon a combination of low hardware price, innovation (such asits movement-sensitive controller) and software to sell. Nintendo aims to capture thechildren and casual gamer market as a result. The problem with this approach is that itwill further alienate third party publishers and make Nintendo even more reliant on itsown software than with previous consoles. Most third party publishers are focused onthe hard-core male gamer and regard new demographic targets as being of high risk.At the same time, Revolutions relatively restricted processing power will likely limitthe porting potential for publishers creating multi-platform titles for Xbox 360 andPS3. However, such is the strength of Nintendos software, Revolution will 16
  17. 17. undoubtedly sell although I believe it will come a clear third in the new cycle. Following the 10 year shelf-life of its original Game Boy handheld console,Nintendo has released five different handheld platforms over the last six years. Themost recent machine, the Nintendo DS, a dual-screen, touch-sensitive and wirelessenabled handheld, launched in Japan and the USA in November 2004 and Europe inearly 2005 and was clearly designed to counter the threat posed by Sonys multi-functional PSP. Nintendos DS is currently outselling the PSP in most major territoriesalthough according to DFC intelligence Sony will overtake the DS in 2006/2007.17Microsoft Microsoft has learned from the mistakes made with the original Xbox and hascreated a console that can properly benefit from manufacturing economies of scaleand efficiency redesigns (which Microsoft struggled to do with the original Xbox) andhas improved the support it provides to third party developers and publishers. It isexpected for Microsoft to make some substantial market share gains, primarily at theexpense of Sony but also Nintendo. Xbox 360 is expected to double the market sharegained by Xbox to reach around 36% in 2009. (DFC Intelligence). It is believed thatMicrosoft will surpass Sony primarily due to the continued underperformance of theXbox 360 in Japan. One market in which Microsoft does have something of a lead over Sony andNintendo is the online console gaming market with Xbox Live enjoying a successfulUS launch in late 2002 and a European launch in March 03. Microsoft has been firstto offer a revenue-generative online service with both subscription revenues as well asmicro-billing enabled premium content downloads. Third party publishers are alreadygenerating useful incremental revenue from Xbox Live and this looks set to growsubstantially with Xbox 360. 17
  18. 18. Internal analysis The internal analysis of a company enables managers to observe how thecompany is functioning. This analysis is focused on the internal environment andhelps understand what are the strategic capabilities of the company ,what are therecourses that can base its competitive advantage and what future strategies should bepursued.Product life cycle Product life cycle is a useful tool for conceptualising the changes that may takeplace during the time that a product is on the market 18 and its phases are, introduction,growth, maturity and decline. SCE in general follows the “video game cycles”. Thevideo game industry is characterised by cyclical patterns which are referred as “videogame cycles”. These cycles last 5 to 6 years and re-start when the new-generation ofhardware is introduced. The exhibit below depicts the video game hardware cycles. Internally SCE has to manage two products that are in the second “video gamecycle” and it prepares it self for the launching of the PS3 .The two products that has tomanage at this point of time is PS2 and PSP (Portable Sony Playstation). Thecumulative worldwide shipment of PlayStation®2 had reached 100 million units as ofNovember 29th, 2005, breaking the record as the fastest computer entertainmentplatform to reach this remarkable figure. This achievement comes within 5 years and9 months since its launch in Japan in March 2000 with 37.14 million units (launchdate: November 24, 2000) in Europe/PAL territories only. 19 PS2 is in the maturity stage since sales hasn’t fall only a couple of monthsbefore the final stage of anticipation of PS3. But SCE makes still money from it byintroducing new software titles since PS3 is going to be backward compatible. 18
  19. 19. Moreover at this stage PS2 is supported by price cuts and introduction of newenhanced models that keep the momentum of sales till the end of the cycle. The PSP is in the growth stage of the product life cycle and had a recordpenetration speed for SCE of 10000 Shipments worldwide 10 months after itslaunching20 . It has to be noticed that SCE since now never leaves a product to fall in thedecline stage before the introduction of a new generation console and finds ways forkeeping the momentum of sales.Corporate Portfolio Key decisions regarding corporate portfolio involve decision of choice of whichbrands/product lines to build, hold, harvest or divest. 21 At this point of time SCE hasto Strategic Business Units which are the PS2 and the PSP. These two SBU’s havedifferent market shares and the markets that are in are in different phases.BCG Matrix. The Boston Consulting Group Matrix highlights the relationship between marketshare and market growth (Jonshon et all, Pg 315).PS2 is considered a ‘cash cow’ as itis in the maturity stage, it has a very high market share of the console market but themarket growth is low. However the market is affected by the moves and the standardsof the new generation console of Microsoft, XBOX 360. PS2 loses market share fromXBOX 360, competes directly with it as it has the first mover advantage in the thirdvideo cycle and creates new potential for market growth.PSP is considered a ‘star’ product as it holds already a 28% 22 of the handheld market,albeit second in market share after Nintendo DS .However the PSP is a youngersystem, and has been out less than a year, while Nintendo has been in the handheldmarket for over a decade. PSP is in the growth stage with high market share and highgrowth of the market. PSP is expected to eat into Nintendo’s handheld dominance. 19
  20. 20. Market attractiveness The directional policy matrix categorises business units into those with goodprospects and those with less good prospects.23 In this analysis we will consider PS3as well to show the relative strength pf the whole portfolio.(According to newannounces PS3 will be launched with delay in march 2007).Appendix is used toshow the prospects of the two SBU’s of Sony, PS2, PSP and PS3. PS2 has a verystrong installed user-base but its already loses market share from XBOX 360.As anSBU is in very strong position since it is the market leader in market share, it hasestablished relationships with distributors and a powerful brand name. In the marketattractiveness axis PS2 lies in the low market attractiveness as it is a ‘second videocycle’ cosole and has a low profit potential ,it lacks in chip power and graphics incomparison with XBOX 360 and it seems les attractive not only to XBOX 360 butalso to the forthcoming PS3. PSP, in the SBU strength matrix has a very strong position because it has a marketshare of around 30% and it is only a 1.5 year machine in comparison with Nintendowhich is in the handheld market for around 10 years. It has the potential to develop adifferential advantage through positioning and strong brand name and can also baseits ascendant in market share. In the market attractiveness axis PSP holds equally avery high position as the market is in the growth stage and has a great profit potentialsince it is a much more powerful machine than Nintendo DS, albeit DS is a highlyinnovative and puts efforts to be the leader in handheld sector. The new PS3 console is a very highly anticipated console in the market since itwill be the most powerful in the market. PS3 with a history of a market leader brandexpects to have a great appeal on the consumers and high sales. In the SBU strengthaxis PS3 will be very high as it will be the console that it will revolutionize the marketwith real-life graphics, great investments in R&D and an established distributionnetwork. Moreover it has a high market attractiveness as the market in the beginningof a new cycle with high market growth.Strategy Guidelines The directional policy matrix provides a way of considering appropriatecorporate-level strategies, depending on how the business units are positioned in thematrix (Jonshon et al, Pg 319). PS2 falls into the ‘cash cow’ category in the BCG 20
  21. 21. matrix and in the low market attractiveness- high SBU strength zone in the directionalpolicy matrix. Therefore Sony should defend PS2 and hold sales and market sharewith new software titles and introduction of product improvements, for example PS2ceramic white. The excess cash generated should be invested in ‘star’ PSP or in thenew PS3 whose R&D was supported by PS2 cash flows. PSP falls into the ‘star’ category in BCG matrix and the high marketattractiveness- high SUB strength in the directional policy matrix so the strategicobjective should be to build sales and market share through advertising, promotionsand brand building. At this point of time PSP is second in the market but has greatpotential to outsell Nintendo DS and that’s the strategy Sony should follow. PS3 probably will be the new ‘star’ of Sony although it may find difficulties dueto the first mover advantage of Microsoft’s XBOX 360.Gradually Sony should startfocusing in the substantial marketing investment in PS3 after its launch and startdivesting PS2 .Strategic Capability and Resources Strategic capability is the adequacy and suitability of resources andcompetences, of an organisation, for it to survive and prosper. Resources enable acompany to have competitive advantages depending on how resources are employed.(Jonshon et al, Pg 117) this is more likely to happen when companies have uniqueresources and core competences that others is difficult to imitate and are deployed insuch a way as to achieve competitive advantage. Physical resources of Sony is the consoles that it produces and the softwaretitles for its consoles (some of them produced internally, some from other companies).Sony since the beginning of its computer entertainment division set a very highstandard of computing power and appealing game content. As it strived to do with theoriginal PlayStation, Sony has built up a considerable support base of developers andpublishers. Sony has been guaranteed a consistent flow of software releases which inturn has lead to consistent hardware sales. This ability to produce appealing softwaretitles based on effective networking is a competitive advantage. Software plays aconsiderably more important role than hardware in determining the long-term successof a console. Few people buy consoles based on hardware alone; most buy consoles 21
  22. 22. based on software releases and a regular flow of high quality software (originalproducts and existing brands/licenses) is therefore essential. For consolemanufacturers, the most effective software is that provided on an exclusive basis. Bysecuring the exclusive platform rights to key brands such as Tomb Raider and GranTurismo, Sony provided significant incentives for gamers to choose a PlayStationover other consoles. Alongside with software titles Sony has a core competence in creating the mostpowerful consoles in the market by creating more advanced chips than competitorsand thus more compelling graphics .This competence gives the ability to Sony todifferentiate its product and gain a competitive advantage. Intellectual capital and human resources is a very strong resource of Sony. Thevideo game industry is a knowledge-intensive, userbase-led industry which hastechnology in its core. The innovatory capacity and commitment to high performanceis a competitive advantage. Another core competence of Sony based in theorganizational knowledge is the ability to create marketing strategies that match theneeds and aspirations of target markets but also the capability to create a world wideadmired brand whose value is essential for the future success for the company. Financial resources at present are good considering that Sony hasn’t yetlaunched its next generation console PS3. Sales in the SCE fell 6.5% 24 due to fall inhardware sales of PS2 and strategic cut prices but also due to start up costs forPlaystation Portable. Is very important for SCE to have a balanced portfolio so that itcan minimize risk. Finances of SCE are directly affected by sales in software andHardware but also from the Product Life Cycle each of its products is.SWOT Analysis SWOT analysis summarises the key issues from the business environment andthe strategic capability of an organisation that are most likely to impact on strategydevelopment (Jonshon et al, Pg148). SCE can see how its strengths can be exploitedand assess future courses of action. 22
  23. 23. Strengths SCE has a great number of strength .One of the most important of these is that ithas great potential for the future .SCE have a very strong brand name which gives itbrand loyalty and credibility in business relationships. Its new console is anticipatedwith great amazement and this imminent product launch gives SCE confidence for thefuture.PS2 is a ‘cash cow’ but its software units hit a record high for PS2 25,somethingwhich is very good because software tittles give SCE far greater profits thanhardware. Moreover SCE have a wide selection of software titles that can support thewidening of the demographics and a great number of exclusive titles based on theeffective support base of the publishers and developers. With regards to the running of the company and the resources it possess, SCEhave a committed and competent management which can lead SCE to long- termfuture success. Furthermore SCE have a highly innovative R&D department whoserelationships with hi-tech industry can lead to long term technical superiority. FinallySCE have a balanced portfolio with a ’cash cow ‘ and a ‘star’ but also a strong andsuccessful parent company which is committed to create value for it.Weaknesses One of the most obvious weaknesses of SCE at the launching of all its productsprices are higher than that of competitors. Provided the price sensitivity of casualgamers, the price is a certain competitive weakness of Sony and this might alienatecasual gamers and the importance of price as the important determinant of the positivesales decision should not be underestimated. Moreover , despite having predicted theadvent of online console gaming, and with a many years of trials and servicedevelopment behind it Sony has been remarkably slow to evolve its online propositionto a commercial stage, especially in Europe where Microsoft beat them to a fulllaunch and is widely acknowledged to maintain a technical and strategic lead. Sonycertainly views online as critically important to its overall console business strategybut has not yet developed a commercial strategy. The underdevelopment of massivelymultiplayer online gaming (MMOG) solutions is an important weakness for Sony. 23
  24. 24. Opportunities There are a number of opportunities for Sony, which could help them improvetheir position in the market. Firstly, it is the winning of the battle for the living room.Sony has already realized that the biggest battles in the electronic game market willtake place for the living room –and not only for the TV screen. The objective of thenext generation consoles for Sony should be, not only dominance in the game marketbut also to be a leader in the digital convergence that takes place in the living roomsaround the world. This opportunity should be matched and interrelated with thebroadening of the demographics so that can incorporate the whole family and theindustry will keep expanding. There would be fierce competition from Microsoft butSony can exploit its delay of PS3 to work better on this direction. The adoption of high speed Internet through DSL or Cable modem connection.Services will increase the accessibility of on-line gaming, such as massivelymultiplayer online gaming (MMOG). Sony is already committing considerableresources to the development of online services for their respective machines but thisshould be done to comparison to Microsoft in order to benchmark and offer moreappealing solutions to the customers.Threats There is a number of influences from the external environment that can pose athreat on Sony. The most obvious threat at this point of time is the first moveradvantage it has with its new generation console XBOX 360. There are a number ofreasons this advantage exists. Microsoft will be able to increase sales quickly andreduce the average cost of the product, over Sony. This allows Microsoft to have moreflexibility with pricing, either reducing the price to make it less attractive for newentrants (increasing barriers to entry) or increasing the margin and therefore profitwhile prices remain fixed, this additional profit can then be used for furtherinnovation. If Microsoft is able to achieve a lock-in of its installed-base. It will bemore difficult for Sony to attract those customers away from Microsoft.Moreover Sony has a disadvantage in online services which will bring variousMMOG solutions to customers due to the first mover advantage Microsoft has withXBOX 360 .However Microsoft’s on-line service is on pay whereas PS3’s 24
  25. 25. forthcoming on-line service will be free and this will make the product mix of PS3more appealing to customers.Marketing Strategy Marketing Strategy matches the activities of an organisation to the environmentit operates in and its own capabilities, it is used to determine how a company shouldposition itself in the target markets in order to gain a competitive advantage.STP approach to segmentation STP approach to segmentation is used to ensure that a product is positioned inthe correct manner depending on the market segment is targeting. Sony’s strategywithin the Second video game cycle and its marketing objectives was to persuadecasual gamers to buy PS2. With PSP Sony wanted to transfer the same experience inthe handheld market. Sony positions its console as entertainment centers and asunique gaming experience. Both positioning statements are duly supported by ProductMix elements and the efforts of software developers. The most appropriate method for identifying market segments in the video gameindustry is the age criteria but also very important is the adoption basis forsegmentation. This two criteria blended with behavioral criteria is the best approachto segmentation. The major objective for PS2 is to attract late majority and laggardadopters to buy consoles. Hence target customers are segmented not only on thedemographic basis, but also on the basis of adoption basis. The profile of PlayStation 2 gamers is constantly changing as PlayStation tries tobroaden its appeal to a wider audience. Although the majority of gamers are male, thepercentage of female gamers in growing, as is the average age of gamers 25
  26. 26. Average age 23.5 yrsAge profile upto10 11-14 15-17 18-24 25-34 35+ 7.5% 16.8% 11.3% 22.2% 25.1% 14.9%Females 8.7%Sony Computer Entertainment Inc: http://www.scee.presscentre.com/Content/Detail.asp?ReleaseID=2294&NewsAreaID=17As we can see the most attractive segment and bigger of all is the 18-34 segment andtheir characteristics are that they are casual gamers who would like to explore videogaming experience, prefer to play famous game titles and enjoy community andonline community. Sales figures indicate that there is clearly increased usage of game systemswithin households. This means more households have several users, own multiplesystems and have a tendency to purchase more software per system (higher tie rates).It also means that the system targeted to the broadest demographic may be the mostattractive to the growing number of households with multiple users. The broadeningof the demographics must be towards the family. Sony must achieve the broadeningof the target market through its software titles which should be made to attract all agesand all types of players. the demographics are changing profoundly. In the USA,across all platforms (including online and mobile) 43% of gamers are now female;72% are over 18 (19% are over 50). Married females in their 30s-40s easilyoutnumber hard-core gamers playing online and mobile games. So the new femaleplayer is becoming increasingly important to the industry. The female gamer wantsshorter, kid-friendly lifestyle games with more socialisation. To meet growth targets Sony must broaden its appeal further, and learn lessonsfrom truly mass media such as television and film. If the industry fails to broaden theaddressable market of console owners, growth rates of games software will not besustainable, and investment in the industry will dry up. Over the next decade, 26
  27. 27. recognising and exploiting these fundamental changes will become not just a criticalsuccess factor but possibly also a survival factor for every games company. So if Sony wants to expand the gaming audience it has to target specificaudiences .The most attractive audiences for this marketing objective are, except the18-34 male target group, the female segment which is continuously growing but alsothe older consumers, baby boomers, people who never thought of playing a videogame. This objective should be achieved through matching the marketing mix withthe needs of this to big target markets.Strategic Options Analysis Ansoff’s Matrix is a useful framework for thinking about the ways in whichgrowth can be through product strategy (David Jobber, Principals and Practice ofmarketing, 2004, Pg 325) and it will be used to assist Sony strategic decision .theresults are shown in Appendix 1.Sony has a portfolio of products and it has to makedecisions of how to achieve growth. Growth can come from 4 different strategies andthese are market penetration or market expansion, market development, productdevelopment and diversification. The first strategic option for Sony is market penetration. This can be donethrough strategic cut prices of PS2 in order to convert customers to buy PS2 and not acompetitor’s product. Casual gamers are price sensitive and bargain –seekers (Mintel,2004)26 so there is a basis for strategic cut prices. This can be done in order to protectthe position and share of PS2. Another option for PS2 is to increase usage rate whichmeans that it should aim for households to have several or own multiple systems andpurchase more software per system (higher tie rates). Concerning PSP Sony canfollow a market penetration strategy in order to build the market share of PSP moreand make it a market leader. This can be done through more effective advertisingand the increase in promotional expenditure. Product development is another strategic option for Sony. The productdevelopment option involves.This can be done by the development of Product Mix for 27
  28. 28. existing customer segments to match the current popularity of MMO games. This willbe done with the new PS3 which will aim the further broadening of the demographicand it will be positioned as the “one stop digital centre” of the modern living room. Market development is the third option and is where existing products are soldin new markets. New market areas in the video game industry is the targeting offemale gamer and the male group of 35-55.This can be done by the broad range ofsoftware titles and the aiming of software titles specifically to these demographics.Furthermore Sony can add new characteristics to PSP and PS2 in order to make themappealing to new segments with different buying criteria such as status, style ,fashionetc. For example the development of fashionable PS2 (slim type, new colours anddesign elements) to maximize mass market appeal. For a company to be successful in the interactive entertainment business it mustoperate on a worldwide basis. Sony, with the PlayStation, was the first company tobuild a solid business in all three core regions (Japan, North America and Europe).The next growth challenge for Sony will be to expand into emerging markets whilemaintaining growth in core markets. Emerging markets include South Korea, Taiwan,Singapore, mainland Asia, Australia, Eastern Europe and others.Implementation and controlAccording to Hooley27 there are three elements of implementation: marketing mix,organization and control.Marketing Mix Sony must develop and implement a marketing mix that will match the needs ofthe target market better than the competitors. The development of the Marketing Mixshould be based on the understanding of the customers. Product, price, place andpromotion are the 4P’s areas marketers must manage (Jobber, page 18)Product: The environmental analysis revealed the importance of Product Mix as astrong appeal to customers. Casual gamers are looking for enhanced gamingexperience. At the same time, the influence of fashion trends set specific requirements 28
  29. 29. for the development of new designs. To attract casual gamers, Sony shall strive tomaximise overall customer experience by offering attractive bundles and enhancingentertainment capabilities of all its consoles. Additionally, the development of MMOgames will attract hardcore gamers and might enable certain gamers to switch fromother consoles.Price: The SWOT analysis revealed that the price is one of the weaknesses. Hence,to attract casual gamers Sony needs to make the Price Mix of its products becompetitive against direct competitors.Place: Pratten & Scoffield (2003) name location as one of major competitivestrengths. Sony shall maintain the strong relationships with major distributors tosecure the availability of its products.Promotion: According to Kotler (2002) promotion decisions encompass the range ofcommunication and motivation instruments needed to raise awareness and precipitatepurchase of the product. Sony shall use various mass media tools, including celebrityendorsement and events to increase the overall hardware and software sales. Mintel(2004) stresses the importance of POS promotions such as price reductions, specialoffers and special editions and the importance of word of mouth communication.People & Process & Physical evidence:Provided that the Sony’sproducts aremostly goods rather than services it is very hard to define Process Mix, People Mixand Physical Evidence Mix components. At the same time, C2C online activities andgaming experience create various opportunities for Sony to manage People Mix andProcess Mix. Using Game mastering, holding tournaments and online competitions,supported by game communities Sony Entertainment can make use of People Mix,Process Mix and Physical Evidence Mix. In this case the involvement of other gamerswill create additional emotional benefits for customers and create the tangibleadvantages of Sony’s products. 29
  30. 30. Organisation In order to succeed a marketing plan should have the full commitment andentrepreneurial will of the marketing department .Additionally the business shoulddesign an organization that has the capability of implementing the marketing planand resources must be managed correctly ,to ensure that they are used correctly acrossthe entire strategy and are integrated appropriately. Sony has very competent humanresources and especially the marketing department is accordingly organised with thetarget objectives set each time. To reflect the importance that Sony places to itsproducts and brand names the marketing department is product-base organised anddivided to brand managers for each product so that issues of each product can bemanaged more thoroughly and effectively.Control According to Hooley ( Pg 55) as the marketing strategy is being executed themarketing department must monitor and control the effort. The performance ismonitored on the basis of marketing and financial performance. Sony must monitorthe appeal it has to the targeted demographic of female gamers and males 35 to 55 andtarget sales must be set for the software titles aimed at this target market. AdditionallySony must monitor the appeal it has in the family as a whole in its pursuit to conquerthe living room and measure the increase of usage rate since its aim must be toincrease the software titles ratio per console. . The collection of the feedbackinformation will be done on the monthly basis to evaluate the effectiveness of thesuggested marketing strategy. In case no or flat response to promotional activities,contingency measures will be employed.Conclusion This report has studied the external and internal environment of Sony ComputerEntertainment Inc. using the tools that I think are the most appropriate for the specifictask. The findings showed that Sony faces a very challenging external environmentwhich is in the stage of great changes. A childrens market until the early 90s, the 30
  31. 31. mainstream computer and video game user-base is now well into the 18-35 market,thanks to an ageing base of gamers, game aesthetics which a broader range of peoplecan associate with but perhaps most importantly, Sonys novel concept of targeting anolder demographic when PlayStation launched. Moreover Software plays aconsiderably more important role than hardware in determining the long-term successof a console. Few people buy consoles based on hardware alone; most buy consolesbased on software releases and a regular flow of high quality software is thereforeessential. Sony’s internal environment analysis showed that Sony has a great potentialfor the future if it continues to show the same novelty in marketing, relationships andtechnology.Appendix 1 New entrants Low Suppliers Competitors Buyers (bargaining Low High power) High Substitutes HighAdopted from Porter (1990) 31
  32. 32. Appendix 2Video Game Industry Primer Piper Jaffray Equity Research, May 2004 32
  33. 33. 33
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