PESTEL Framework - Computer Games - Case Study Example

Running head: COMPUTER GAMES Computer Games [Writer’s name] [Institution’s name] Computer Games Introduction Every new business which enters the global market has to first analyze the targeted market. For this micro and macro analysis of the environment has to be carried out. This paper is also based on such an analysis. The papers is based on the idea to open a computer games shop on the fact that more and more people are becoming computer literate, own computers at home, and computers games are becoming a hobby for most people, which mean there is ready market for the services. This shop would provide outstanding services to all clients. It will base the competitiveness of its services on sophistication and distinctiveness of the services provided. The business hopes to enter the international market in line with the growth in the use of computers. Micro environment PESTEL Framework The PESTEL is something extremely important in the globalization process. Since the every new venture has to apply a PESTEL analysis before they enter an unknown market. As for this new video game shop it has to also analyze it’s potential in the video game market of London. Political A lot of factors like tax policies, foreign trade regulations and social welfare policies all have an effect on the video game market of London. Video games usually affect the customers psyche. Since London is a multicultural city influence the player’s actions as well and thus they may have a negative effect on peace and law. Thus Government has the power to ban games which they think are unfit for the market. Like they have the right to ban games which promote extreme violence or racism. They also have the right to rate games according to the age of the customers. However the government even funds this sector a lot. It gives more then 5 million pounds for it’s development. This makes London a strong market for video games. The UK games industry is to get a £2 million government funding boost. The news follows the coalition government's move to scrap a proposed 20% tax break for UK games companies in last month's budget announcement (Lynch, 2010). Thus if a new video game shop is to be introduced in such a market it will have to have extremely selected games. Economic Places like London are famous for their huge and fast moving video game business. Thus this also has a positive effect on their GDP. The fluctuating Interest rates do not have an effect on the video game business as they are produced or sold in different units (Datamonitor, 2010). The disposable income of the buyers in the video game market has an effect on the buying behaviour. For instance, customers who do want have a lot to spend they will prefer to buy less costly games. An good example could be that, Nintendo’s low manufacturing cost helped it’s sales to increase as it’s games were of a normal price. (Weber, 2010) Thus the above graph shows that video games are brought quite frequently in UK. Thus, to flourish in this market it is quiet essential that the video game shops have games of different prices. So that all kinds of customers can buy their games form the shop. Purchasing power In this marketing strategy, the business would be seeking a country with a per capita GDP of above $40,000 per year because would ensure that the target population has enough income to support the operation of the business. As per Gross Domestic Productivity (GDP) and Purchasing Power Parity (PPP), UK is Ranked 6th largest in the world. Among the countries of European Continent, United Kingdom is ranked 2nd as per the Purchasing Power Parity and ranked 3rd as per the Gross Domestic Productivity (Altius Directory, 2010) Thus, this market could be an extremely suitable choice for the new computer store. Potential Market 2011 is predicted to be a very exciting years for video game sales. New and more developed games will be introduced at low prices .not just children will be affecting positive sales in this market, young males have a keen interest in video games also enhancing sales in the sector (Tait, 2004). Labour Labour in London is not that costly. Especially for stores. The young look jobs in such places. They are usually students who want to get a job which will not affect their studies. Thus, if labour is required for the shop then good yet average labour can be found in London. Social There are a lot of social factors which have an effect on the video game industry of London. They are population demographics, distribution of wages, changes in standard in living changes, social mobility, attitude towards work, level of education and buying behaviour of the population. (Korotayev, Malkov, Khaltourina, 2006). Thus, the new video game shop should open it’s showroom in such manner that it influences customers by fulfilling their needs. These needs may be the price of variety of games. Meaning there should be something for every one. This will satisfy all kinds of customers. Population The total London's estimated population was109, 000 in 2008, 123,000 in 2009 and 138,000 in 2010 (London's population, 2010). Thus since it is a highly populated city, a lot potential customers for the shop can be expected. Technological Technology is something very important for the video game market. London is quite high on such kind of technology, so it gives their video game market a competitive edge. As systems get graded, so do the video games. Their configuration also increases to fit the computer or console. London is quite fast at introducing new technology However, it does have a set back, the technological up gradation increased the cost of hardware in the global market, and thus innovation in gaming industry became slow. However, this not much of an issue. Environmental The fact that video games due to use up a lot of electricity; people usually don’t consider them as something which could damage their environment. However the shop should keep more games on their selves which take up less power. A lot of people want to teach their children that keeping their environment clean is something good. So the selves should have a different section for such games. A good example of such a game is sunshine Mario. Legal The legal issue which may have an effect on London’s video game market are issues regarding trademarks and copyrights, fake or illegal licensing and demands of intellectual property. Health safety is also considered as a legal issue in this industry (Irish 2005). If the shop is to flourish, then it will have to keep games which meet all the legal criteria. If any game does not do so it may lead to legal action, like a penalty or closing down of the shop. However, such legal issues are apart of the entire global video gamer market. Five Forces Framework The five forces will help in analyzing the competitors present in London’s video game market. The Industry rivalry in London as a well the entire global video game market is usually based on strategic alliances. Basically competitors try to take control of the entire market. The industry has competitors like Sony, Nintendo and Microsoft. The threat of entrants in London’s video game market is something really difficult as it ahs big players i.e. Sony, Nintendo and Microsoft. Their games and shows room are top notch. Recently the he Power of Buyers is not that strong as there are not many innovative games. Where as, the Power of Suppliers is quite high as there are many suppliers of games to shops. Thus, the supply of a particular game never runs short. Micro Environment Suppliers Since nowadays video game companies have become suppliers of their games. The supply chain is usually very strong. They send their supplies to a list of registered video game stores in London. Apart from this, game stores like saga’s showroom usually even have the right to supply games to stores who are interested in retailing their games (Laramee, 2005). Distributors Distributors are an extremely important component of any Video game market. In London there are a lot of local store distributors. Currently even online distributors have become important component of the industry (Laramee, 2005). Customers The customer of London’s video game industry is a very active buyer. The average age of the customer in London is 35 years. However the teenage population is also quite high on video games. Males and females in London both equally enjoy playing video games (Wesley & Barczak, 2010). People of all profession have started playing video game according to their own interests. Due to the fact that there is an increase in customers the games have also become more developed. Competitors due to the fact that Sony and Microsoft Nintendo all have their own showrooms , they will be to the top contenders of the video game shop .in other to become the to be the market leader video game industry in London the shop will have t keep a low price on it’s hardwires. It will also have to be on good terms with outside parties, so it can get more information regarding new games. The main competitors in the industry are well established global operators. Major players in the industry include Sony, Microsoft, Nintendo, Game Body Advance, Xbox and others (Farago, 2010). The main players are multinational companies. They have large scale of operation with well established distribution network. Their market share according to total sales (Weber, 2010): Microsoft - $12,000 million Nintendo - $10,000 million Sony - $7,000 million Sega - $1,000 million Oligopoly Although computer games industry is considered a perfect competitive market, it is oligopoly in reality. There are few computer games developers like Sony who dominate the industry although there are many small players who have not been able to break the industry (Farrell, 2010). Since oligopolistic industries like the video game industry can not increase their sales through price competition, they usually depend on nonprice competition to gain a top position in the market. If the computers shop wants to become the leader in the market it must apply the following strategies: Advertising product differentiation Barriers to entry. The objective for the majority oligopolistic markets is to attract consumers and increase market share, at the same time offering reasonable prices (Baumol & Blinder, 2006). Such a market is hard to break, however the trick is to make place for the video game shop by giving the customer variety and highly developed graphics. The video game player usually carves for god graphics and capability at a reasonable price. If this provided to the customer then there is a chance that the market monopoly can be broken. Video Game Markets: Niche marketing The analysis of customer’s buying behaviour is an important part of the marketing plan. It helps the marketer to design a good and strong strategy. The decision making of videogame buyers in London is of high involvement and usually is driven n by options given by others. The decision mad to buy a particular video game is usually based on social or personal factors. So a friend could recommend a game to a buyer, and it could also be the customer’s own personal interest which made him purchase the game. Segmentation plays an important role in selecting a niche market in London’s video game industry. It can be divided in to three segments demographic, psychographic and behavioural (Hongju, 2010). The demographics and behavioural segments are based mostly on children and women of all classes. However the games they purchase depend on the kind of mental set as to which option they value more i.e. personal or social. The psychographic notion can be based on Maslow’s theory in which the video games turn into a person’s social and esteem need. Thus video games have become a part of people’s lives. London’s video game industry marketing strategy is mostly based on the word of mouth, as it is an extremely strong communication strategy. The different marketing strategies which can be utilized include frontal attack and the Guerrilla strategy. For this the shop will have to do a lot of advertising in every form. They will have to create abuzz regarding the new video game shop. Pamphlets, print ads, and even television primetime will have to be used. Conclusion Thus, by the above given analysis it can be said that London’s computer game market is an extremely competitive one. However, the fact that it has a high GDP and good purchasing power chances may be bright for the new shop. As mentioned above the shop will have to keep a large variety of games. The games will have to be of various price ranges, so that there can be something for every customer. Thus, if above given micro and macro analysis is considered then the new shop does have a good chance to flourish. In order to do so it must follow the recommendations given. References Altius Directory (2010). UK Economy 2010. Retrieved from http://www.altiusdirectory.com/Business/uk-economy.php on 9 January 2011 Baumol W and Blinder A (2006). Economics Principles and Policy. Abhishek Publications Daniel Irish (2005). The Game Producer's Handbook. Premier Press; illustrated edition David Wesley, Gloria Barczak (2010). Innovation and Marketing in the Video Game Industry: Avoiding the Performance Trap. Gower Farago, P. (2010). Apple iPhone and iPod touché capture U.S. Video game market share Retrieved from http://blog.flurry.com/bid/31566/Apple-iPhone-and-iPod-touch-Capture-U-S-Video-Game-Market-Share on 9 January 2011 Francois Dominic Laramee (2005). Secrets of the Game Business. Charles River Media; 2nd Revised edition Hongju Liu (2010), “Dynamics of Pricing in the Video Game Console Market: Skimming or Penetration?” Journal of Marketing Research, 47 (3), 428-443. London's population (2010). London's population and the 2011 Census - London Regional Committee. Retrieved from http://www.publications.parliament.uk/pa/cm200910/cmselect/cmlonreg/349/34907.htm on 9 January 2011 Lynch Gerald (2010). UK games industry to receive £2 million funding boost. Retrieved from http://www.techdigest.tv/2010/07/uk_games_indust.html on 9 January 2011 Tait Leonie (2004). Europe’s leading video game market. Retrieved from http://www.euromonitor.com/UK_Europes_leading_video_game_market on 9 January 2011 Weber, T. (2010). Game industry renters new level. Retrieved from http://news.bbc.co.uk/2/hi/6523565.stm on 9 January 2011 Korotayev A., Malkov A., Khaltourina D., 2006. Introduction to social macrodynamics: compact macromodels of the World System growth. M.: URSS. 128 p. Read More