Microsoft's Diversification Strategy - Essay Example

 Microsoft's Diversification Strategy Introduction Microsoft Corporation was started way back in 1975 by Bill Gates and Paul Allen. They started the company and named it as Microsoft. Both of them had great plans to grow the business in a huge way and increase the level of business to great heights managing people and the resources in the most optimum way. The company has grown at a good pace over the last few decades and has continued on its journey to be the leader in global market in the field of computer software developing and has got the maximum market share. The company has its vision of setting up a computer in every home across the globe. It has looked to provide the best quality service to the customers at cheaper rates and also the service been provided is in the best condition. In 1980, IBM selected the company to build the operating system for its computers and in 1986 the company went public and in the same year the company became the first billionaire company in the country. In this report the various strategies used by Microsoft to tackle the growing competition in the global market can be see using various marketing theories. The way in which the company has looked to diversify from its core business to get competitive advantage and also to explore new markets can also be seen by studying various articles and books to understand the importance of diversification for the current competitive global market. Main body Diversification is a marketing strategy that is been explained in the Ansoff’s matrix, the diagram showing the Ansoff’s matrix is been shown below. (Source: Peng, 2013. p. 123) As per this the diversification strategy is the type of strategy used by the companies to have a growth in their business process. The companies look to launch new products while entering the new markets to capture the maximum market share and also for increasing their sales volume and also the profit margin by huge percentage compared to earlier times. In 2001, the company entered in the market of video games and launched its video game Xbox console in the market. But by then the company found it lacking way behind as other companies like Nintendo, Sony has already entered this market and also had a good market share in the global competitive market zone (OaShaughnessy, 1995, pp. 56-63). The company is now present in mostly all the countries across the globe and has looked to provide the best facility service to the customers by developing most reliable and also high quality software’s and operating system for the computers both for personal and official use. Microsoft had strong competition from the latest innovative videogames that were launched by other companies and mainly by Sony and Nintendo. Xbox console was been launched with the target customers as the customers who are hard-core gamers and love playing various video games and are addicted to it. Microsoft came up with this idea to compete with the Sony PlayStation 2 and with its expertise in PC it looked forwards towards capturing most of the market (Kotler, 2001, pp. 98-104). The company had clear idea of not to market this product in the same way as they used to do for their software’s so they tried to come with latest strategies to market the Xbox console in competition with Sony PlayStation2. The operating system that was used to run every game in Xbox was kept the same as the operating system that is been used in every personal computer. As a result of which customers also had huge advantage as mostly all the games were supportive and did run successfully in their computers. The company analysed the way the retailers would sell the product and the margin that the retailer needs based on which the company did price the profit in a way that it is affordable for the customers. The retailers are also kept happy and encouraged more and also the company gets good profit. The company was even ready to incur a loss of certain amount before it achieved the break even so that it can capture the market at first and get more and more number of customers. The marketing strategy used by the company to get success in the videogames industry is been understood using the Porter’s generic mode, Porters five forces model, VRIO model, strategic capability and PESTEL analysis. These theories are been explained one by one below. Porter’s generic strategy According to Porter’s generic model, he has explained three generic strategies which are been implemented by the companies to grow their business and to increase their sales volume also. The three strategies explained by him are been listed below and also these strategies with respect to Microsoft can be seen. Segmentation strategy Microsoft has looked to segment its videogame product that is Xbox in a way so that it can focus upon particular customers and look to increase its sales volume. The company has launched and focused more on the customers who are addicted to video games and are hard-core fans of playing video-games. The segmented market included the geographical locations which preferred playing games more like Japan, US etc. as a result of which it was able to attract more customers. They looked to segment and launch the products mainly for the young generation who are very much into playing video games and prefer to get the best quality videogames at the cheapest price available in the market (Jobber, 2012, pp. 45-52). Differentiation strategy The differentiation strategy is the one which the companies look to implement by brining entirely new product in the market which is not at all available in the market. But in case of Xbox the company was able to differentiate the product from the other products present in the market only in the operating system that the company used for this product which is been very user friendly and also of high quality. The only competitive edge that the company had was the highly skilled employees that the company had for developing the games and also the game developers that were brought in to produce the best quality games for the customers. Cost leadership strategy Companies look to have high economies of scale and thus keep the price of the products less so that they can attract most of the customers. In case of Microsoft the company launched the product at a low price to get the competitive edge over the competitors and also to attract more customers, but not by achieving economies of scale as a result of which the company incurred loss for first few years before it achieved the break-even (Handy, 1996, pp. 76-85). Porter’s Five Forces Model The five forces explained by Porter’s which affect the strategy implemented by the company in the competitive market can be seen with respect to Microsoft. Bargaining power of Suppliers For Microsoft this threat is very low as the company is a huge brand and the suppliers look to have a good relation with such huge brand to maintain their own reputation in the market as a result of which the suppliers don’t look to bargain so much. Thus for the company the bargaining power of the suppliers is much less (Kotler and Keller, 2006, pp. 47-55). Bargaining power of the customers The threat for the bargaining power of the customers is moderately high as the customers can look to bargain for the Xbox as they have other options also like Sony PlayStation. The customers have lots of options in the market for videogames as a result of which they look to get the best gaming console at the cheapest rate so the bargaining power is moderately high in this case. Threat of substitutes Substitutes are the similar type of products that are available in the market which can replace the original product. In this case this threat is very high for the company as they have high competition from the substitute products as there are many video games found in the market made by many companies which can be taken by the customers for playing games. Threat of New Entrants The threat of new entrants in this case is quite low as for new company to have such huge capital and also such nice skilled employees as Microsoft has is very difficult. Microsoft also has a good global presence and as a result of which it is very difficult for the new companies to enter and create a threat for Microsoft (Coade, 1997, pp. 123-134). Threat of existing Rivalries This threat for Microsoft is very high as the company has huge number of competitors in the market like Nintendo and Sony. They have strong market share with their gaming console products and also have high capital with them along with a good presence in the global market. Thus for the company the threat from the existing competitors in the Japan market is very high. VRIO Framework The VRIO framework helps to understand the wider scope of the strategy been used by the company. Question of Value The company has been able to see the opportunity in the gaming business and has utilised its resources in the best way to come up with the Xbox game console to come in competition with the competitors in the Japan market. Question of Rarity The expertise and skill of producing such high quality gaming console is a rare thing in the market and only Nintendo and Sony has got such high expertise other than Microsoft to come up with such high quality and also innovative video games in the market of Japan (Kozami, 2002, pp.87-96). Question of Imitability It is highly difficult to imitate the technology used by Microsoft for the Xbox gaming console as the company has its own expertise in developing and also has highly efficient and capable game developers in its team. Question of Organization Microsoft as an organization is very capable and also utilises its resources in the best possible way. Thus it makes sure that the company has high productivity and also reduces the wastes in any form and gets highly efficient and quality products produced. Strategic capability The company has high strategic capability in the form of strong technology know-how and also produces high quality products which gives the company a huge competitive advantage in the market and also makes sure that the company can capture the maximum market share in Japan. The company has a strong capability of launching new and innovative products in the market. With the strong leaders the employees are highly motivated thus enhancing them to work at their best efficiency. The way the company utilises its resources in the best possible way makes them able to explore new markets and also diversify its business and still achieve huge amount of success and have a strong competitive advantage over the competitors (Mazzucato and The Open University, 2002, pp. 34-48). PESTEL analysis This analysis helps to understand the external forces which affect the company’s strategies in a huge way. Political and Legal The company has followed all the legal rules that are been built by the government of Japan but sometimes the company has failed to follow all the rules as a result of which it has faced certain problems like in 1998, the US justice did file a case against the company on the basis of antitrust charges. Economic forces The company has looked to enter the markets of middle east as the economic conditions of the middle east countries is highly stable and also it is looking to diversifying its assets to other countries also specially in the developing countries where the economic conditions are constantly growing at a good pace. It has explored the market of Japan because of its fast growing economic condition. Social The company looks to enter different countries by keeping the social conditions like the religion, rituals of the particular country. Like in case of launching the Xbox gaming console in japan the company did see that the young generation in the country is highly addicted to video games and they prefer high quality games a lot. Technological Microsoft does looks to adapt the latest technology that is been in the global market as soon as it is been launched and also it targets those countries which is technically highly equipped compared to other countries like Japan. Environmental The company looks to maintain a good environmental condition in the country it operates and also looks towards launching and diversifying towards those countries which are highly environmental friendly and have good work culture and also the market environment is well maintained (Rogers, 2001, pp. 223-227). Conclusion The company looks to diversify in other directions to explore new markets and also to grow its business line in other areas so that the number of customers that the company aims to provide service increases and it can increase its revenue and have more profit. In the same line Microsoft also has diversified its business from producing only software’s and operating systems to producing videogames, mobile phone software, music entertainment, on-line services and many other services. The company has looked to diversify its business to enter new markets by launching such new products which are new in the market and also of high quality at an affordable price. This can attract huge number of customers and also provide the best facility of service and products to the customers which have their unique selling proposition. The strongest point that Microsoft had was that the development team it had for the games was highly skilled and because of the expertise in developing computer software’s the company had already the strength of developing good quality games for the customers. The company had got some of the best game developers in its team to get the best quality from them and it was been thought that Microsoft’s produced gaming console is far better than the competitors’ products. Thus looking at this case it can be seen how diversification can help a particular country in growing and expanding their business in the global competitive market to get more sales volume and also increase their profitability. Recommendation Looking at the diversification strategy that Microsoft has implemented to grow its business it can be recommended to the company that they can conduct a quality functional deployment to understand the exact needs and requirements of the customers based on which they can produce the gaming consoles which will allow the company to utilise the resources in better way and also allow it to achieve customer satisfaction at higher rate. This technique will help the company to know the exact needs of the customers also based on the location and their preferences thus the customers will be highly satisfied and also the company can provide the products to the customers beyond their expectations. They can implement the blue ray technology in their Xbox gaming console to make it even more efficient and also get the competitive advantage in the global market. The company should also look to diversify its business to other areas which are still not been explored and look to attract as much customers as much possible which will help it to increase its sales volume and also increase the profit for the customers. References Coade, N. 1997. Managing International Business. UK: Cengage Learning EMEA. Handy, C. 1996. Gods of Management. Oxford: Oxford University Press. Jobber, D. 2012. Principles and Practice of Marketing. New York: McGraw-Hill Education. Kotler, P. 2001. Marketing Management. London: Prentice Hall. Kotler, P. and Keller, K. L. 2006. Marketing Management. London: Prentice Hall. Kozami, A. 2002. Business Policy and Strategic Management,2e. India: Tata McGraw-Hill Education. Mazzucato, M. and The Open University. 2002. Strategy for Business: A Reader. UK: SAGE. OaShaughnessy, J. 1995. Competitive Marketing: A Strategic Approach. New York: Routledge. Peng, M. 2013. Global Strategic Management. London: South-Western College Publishing. Rogers, S. C. 2001. Marketing Strategies, Tactics, and Techniques: A Handbook for Practitioners. USA: Greenwood Publishing Group. Read More