Key Elements of the Marketing Mix of Sony's PlayStation - Term Paper Example

 Table of Contents 1.0Executive Summary 2 2.0Organisation 3 3.0Sustainable Competitive Advantage 4 3.1The Competitive Environment 4 3.2The Threat of New Entrant 5 3.3The Bargaining Power of Suppliers 5 3.4The Bargaining Power of Buyers 6 3.5The Threat of Substitute Products 6 3.6Rivalry among Existing Firms 7 4.0Consumer Buying Behaviour 7 4.1Factors Influencing Consumer Behaviour 9 4.2Personal Factors Influencing Consumer Behaviour 10 4.3Psychological Factors Influencing Consumer Behaviour 11 5.0Marketing Communications Strategy 11 5.1Advertising Strategy 12 5.2Sales Promotion Strategy 13 6.0Conclusion 14 7.0References 16 Bahn, Kenneth D. (1987). ‘How and When Do Brand Perceptions and Preferences First Form?’ A Cognitive Developmental Investigation’. Journal of Consumer Research: An Interdisciplinary Quarterly, 13 (3), pages 382-93. 16 Festinger, L. (1956). When Prophecy Fails: A Social and Psychological Study of A Modern Group that Predicted the Destruction of the World, by Leon Festinger, Henry Riecken, and Stanley Schachter. Harper-Torchbooks, Jan. 1956. 16 Roberts B, (2009). ‘The Global Mobile Gaming Market Will Grow at a 16.6 Percent CAGR to Reach $18 Billion in 2014’ Abstracted from Research and Markets ‘Mobile Gaming in Emerging Markets: Five-Year Forecast and Impact Analysis’. Retrieved November 7, 2009 from Gomo News: http://www.gomonews.com/the-global-mobile-gaming-market-will-grow-at-a-166-percent-cagr-to-reach-18-billion-in-2014 17 1.0 Executive Summary This report presents a detailed discussion on how Sony has been able to identify and use Key Elements Of The Marketing Mix to build and maintain its market position in the fiercely competitive world of video games consoles. The market is basically an oligopoly dominated by its three main players – Sony’s PlayStation, Nintendo’s Wii and Microsoft’s Xbox 360. It is marketing driven organisations that put their customers first and are ultimately the most successful businesses. This is the classic marketing practice of producing the right product at the right price and in the right place – three of the four ‘Ps’ of marketing – the other, of course, being promotion. Timing is also critical. If all of this can be achieved when the customer needs or desires the product then the formula for success is complete. Of course marketing is not as simple as the ‘four p’s’. There are many subsets to the broad headings of product, price, place and promotion. This report does not attempt to cover all of these headings and subsets but rather it focuses on three distinct but interrelated areas that are crucial to a) understanding the marketplace in which the Sony PlayStation product is operating and b) implementing strategies in that marketplace to both enhance customer value and improve Sony’s business performance. This report focuses on the three strategic areas, namely, competitive advantage, consumer buying behaviour, and marketing communications strategy. It examines how Sony has used and managed them to improve its market understanding and performance. The understanding of these three strategic marketing areas and their integration at the planning and execution stages of the marketing process will be shown to be capable of delivering positive benefits to Sony. 2.0 Organisation Sony is a multinational corporation with headquarters in Japan. It is one of the world’s leading manufacturers of electronics. Its annual revenue exceeded US $78.88 billion for the financial year ended 2008 (Sony financial results, 2009). With the global recession taking hold in the first two quarters of 2009, the company reported losses and the third quarter is expected to follow a similar pattern (iStockAnalyst, 2009) Sony Corporation is the electronics business unit that is responsible for the production and marketing of its video games consoles including the Sony PlayStation. The history of the PlayStation began in 1988 when Sony and Nintendo worked together on a product called the Super Disc. However, Sony and Nintendo parted company and the Super Disc was never launched by Nintendo. In 1991, Sony modified the Super Disk as part of its development of the first Sony PlayStation. Sony launched the long awaited PlayStation 3 in the USA in 2006 just two days before the launch of the Wii from Nintendo. These two new consoles proved to be immensely popular and most retail shops sold out of both within days. Soon afterwards both of the consoles appeared for resale in large numbers on the auction website eBay. The asking prices for some of these resale consoles were up to five times the original retail price. Microsoft’s Xbox 360 console had a one-year lead in the market and enjoyed buoyant sales as a result. Nintendo’s Wii positioned itself away from its main two competitors through the deployment of its ground-breaking motion-sensing controller (Cheng J, Mark Freeman-Aloiau M, Xin Guo, Pullen A. 2007) Now in 2009, the PlayStation 3, helped by a $100 price cut, has outsold Nintendo’s Wii console for the first time. Sales of the PlayStation 3 more than doubled to 491,800, while those of the Wii fell 33% to 462,800 (Satariano, A. 2009). The PlayStation 3 is expected to give a further boost to Sony’s earnings in time for Christmas this year when the latest version of the blockbuster role-playing game for the PlayStation, ‘Final Fantasy’, is launched in December (iStockAnalyst, 2009). 3.0 Sustainable Competitive Advantage Competitive advantage is an advantage of a company over its competitors that is gained by offering greater consumer value on its products in the market. The competitive advantage can be acquired either through a lower market price or through a well differentiated product that justifies a higher price (Kotler, Brown, Adam, & Armstrong, 2007). 3.1 The Competitive Environment An organisation needs to know what is likely to happen in the markets in which the organisation delivers its products and services as well as know its competitors in a particular industry structure. The competitive environment of Sony PlayStation 3 is discussed using Porter’s Five Forces that drives competition. 3.2 The Threat of New Entrant The first player in the marketplace tends to secure an advantage and this is certainly true of the games console market where Microsoft’s Xbox 360 console had a one-year lead on its main rivals. With market now dominated by three very strong brands it is very difficult for any potential new entrants to make an impact. Other factors which will act as barriers to new entrants in the games console market include a steep and long learning curve which requires highly experienced people and a lack of technical knowledge. The potential threat will come from those with experience in the market such as games developer. However games developers do not generally have the experience in electronics manufacture or the marketing strength to compete with the three dominant players. 3.3 The Bargaining Power of Suppliers Suppliers of everything from raw materials to expertise can exert pressure on a business in different ways. For example hey could charge premium prices for a unique, high quality or difficult to obtain ingredient or service. Sony limits the bargaining power of suppliers by making all of the PlayStation's critical components itself and employing its own experts in the necessary technologies. However, it does have to rely on certain outside help. For example the drives for the console are supplied by Seagate. This organisation, together with a small number of others, does wield some bargaining power. However, the smaller suppliers who provide low-tech components such as cases, cables etc. have little bargaining power. Also, of course, Sony has a worldwide reputation for the quality of its products and, consequently, component manufacturers are constantly striving to become suppliers to Sony, which places them in a weak bargaining position. All of this helps Sony to maintain its sustainable competitive advantage over its two main competitors 3.4 The Bargaining Power of Buyers This refers to the ability of customers to put pressure on a business to reduce its current prices and to not increase prices. This pressure can manifest itself in different ways such as consumers switching allegiance to other brands based on price sensitivity. Consumers of games consoles have no bargaining power in terms of their collective ability to secure lower prices. However, the consumer buying trends in the market can affect price as was evidenced by Sony’s decision, borne out of need, to reduce the price of its PlayStation as described in part 2. Game licensing buyers, however, do have a significant bargaining power as buyers. Companies such as market leader Electronic Arts (EA) produce some of the most popular video games in the world. Games console providers like Sony need to establish a large base of consumer owners in order to attract games manufactures like EA. So the way forward for Sony, in terms of lessening the bargaining power of these games manufacturers is to increase its subscriber base. 3.5 The Threat of Substitute Products This threat relates to the propensity of consumers to switch, not to direct competitors but to substitute products. There are alternatives substitute products available to consumers. The personal computer is an obvious one. The PC games market was valued at $970 million in 2006 and had over 200 million worldwide users (Haskins, W. 2007). In addition there are handheld games consoles such as the Nintendo DS and mobile gaming on mobile phones and other mobile devices is also becoming increasingly popular. The number of worldwide mobile gamers was about 183 million in 2008 and the global revenue was $6.9bn. (Roberts, B. 2009). However, these potential substitute products are generally regarded as a separate market segments to the games console market and have not, as yet, had a major impact on the size and growth of the video game console market. Of course, there are countless other potential substitute products outside of electronic games per se. The list is almost endless and includes TV, books sports etc. 3.6 Rivalry among Existing Firms As has already been shown, the market is under oligopolistic control in terms of the supply of the games hardware. Also, the three main games consoles are not compatible with each other and require different software in the form of games. Also, there is no direct pricing competition between the three market players as each console is different from the others. Price cutting is used as a competitive strategy but usually only on introduction of a new model or as a tactic to artificially boost sales. 4.0 Consumer Buying Behaviour Consumer behaviour refers to consumer activities in selecting and buying products. It is the buying behaviour of individuals and households when they purchase a product. The buyer’s black box model of consumer behaviour demonstrates how the impact of marketing stimuli, in Sony PlayStation’s case i.e. price, together with the buyer’s inherent characteristics and decision making process, can lead to the purchase of the PlayStation games console. (Kotler, Brown, Adam, & Armstrong, 2007) Figure 1. PlayStation 3 Buyer's black box model Gamers can be categorised into hardcore gamers, casual gamers and young gamers. These consumers have different buying behaviours. Hardcore gamers are influenced their perception and lifestyle for wanting game consoles with greater capabilities and high performance technology. Casual gamers are influenced by the price and availability of video game programs. Young gamers are mostly motivated by their peers and children video games. With the current economic downturn, buyers are looking for more value for their money and sales of PlayStation 3 has slowed down (Sony, 2008). Sony exploits the different marketing stimuli in order to influence the behaviour of consumers in buying their product. Sony uses the newest and cutting-edge technologies in their PlayStation 3 console in order to appeal to their customers. The product is attractive to hardcore gamers, casual gamers as well as younger children through bundling their products with best-selling video games. The high definition Blu-ray movie playback is an added advantage for PlayStation 3 because it influences movie fans as well as families (Ault, 2007). PlayStation 3 becomes a total entertainment package. However, their high quality gaming console also comes in a high price. Initially, the product was priced in the market close to $600, which was not widely accepted by consumers. However, when the company discounted its selling price by $100 and introduced another model called PlayStation 3 Slim, sales of the consoles has increased (Satariano, 2009). The price cut influenced the consumers to purchase the PlayStation 3. Furthermore, sales promotion of the company focused on influencing the consumers. Their slogan for PlayStation 3 is tagged “This is Living” where different sets of seductive ads attracts different age groups (PS3 Ad Campaign: "This is Living", 2007). Their promotion strategy includes early advertisement and pre-launch campaigns on different media that centred on the new capabilities and perks of the game console. They heavily campaigned on their very powerful machine and on upcoming releases of several games both for hardcore gamers and young gamers. In order to tap gamers and movie fans in all ages, they introduced PlayStation3 blog where customers can write anything and comment on everything about the PlayStation and PlayStation Network where owners can play and download games as well as videos online (Sony, 2009). The company also takes full advantage of marketing opportunities in social networking sites and other digital outlets in addition to traditional advertising and press releases (Carter, 2007). 4.1 Factors Influencing Consumer Behaviour Philip Kotler and Gary Armstrong (2008) have explored the non-marketing influences in more detail. Their model for consumer behaviour identified four key influences – psychological, personal, cultural and social factors. There are a number of distinct but interrelated factors that influence consumer behaviour as shown in the diagram below. Figure 2. Factors influencing consumer behaviour 4.2 Personal Factors Influencing Consumer Behaviour The personal factors include the age demographics, occupation, education and economic situation of consumers. Most gamers are men aged 15 to 30 years old and boasting with years of experience behind the joystick. This is the age group that PlayStation 3 is targeted. These people are most likely to be interested in staying up-to-date with the newest gadgets and technology. To further tap this market segment, Sony also makes games that are attractive to them such as shooters and high action games (Steinberg, 2007). Aside from being a very powerful gaming technology, the PlayStation 3 is also marketed as a family entertainment package with Blu-ray movie playback, Internet games and videos, and featured games for all ages. The family games would appeal to moms, dads and sisters. According to a manager of the team behind PlayStation 3, the company’s goal is to widen the target base and not be so niche. Casual and pop culture gaming would be promoted for family audience (Ault, 2007). The PlayStation 3 is marketed as a well rounded entertainment hub where an average family can receive value for its money. 4.3 Psychological Factors Influencing Consumer Behaviour The psychological factors that induce consumers to buy the PlayStation 3 include perception, beliefs, and personality. Hardcore gamers perceive the PlayStation 3 as a must have entertainment system. With the success of PlayStation and PlayStation 2 consoles, gamers have been exposed to the quality performance of the system as well as the quality games that played with it. When the console was scheduled for launching, gamers around the world await for its release in their retail stores (Palmer, 2007). Beliefs and attitudes involve the brand image. Sony is a world recognised brand that provides quality technologies in the market. Being another product from Sony, PlayStation brand is easily accepted by most gamers. They believe in the capability of Sony to produce a gaming console that definitely meets their expectations and surpass their gaming needs. 5.0 Marketing Communications Strategy Marketing communications is a strategy that companies uses to coordinate its many communications channels in order to provide information about their products in a clear, consistent and compelling message. The goal of each message is to inform, persuade and reinforce the consumers’ behaviours, perceptions and attitudes. The major communications strategies used by Sony in promoting PlayStation 3 are advertising and sales promotion. All of their communications centred on their slogan, “This is Living.” 5.1 Advertising Strategy The advertising strategy of includes the traditional advertising in different media such as print, television and radio. In 2006, the PS3 was launched with a campaign ad that was known as the “White Room” where the campaign contained provocative demonstrations of the PS3’s gaming power. A year later, the TV ad included Blu-ray movie capability and online gaming in the PlayStation Network. Each ads feature highly anticipated game titles (Dille, 2007). Aside from those mentioned above, Sony takes advantage of social networking sites such as MySpace and Bebo, websites and blogs. This campaign strategy would adequately communicate the features, functionalities and appeals of the PlayStation 3. The social networking sites and blogs would inform, entertain and encourage interaction and debate between consumers. It will also provide the company a pulse of consumer acceptance (Carter, 2007) PlayStation 3 gamers debated and exchanged ideas through blogs about the product and its features. It was estimated that 86,000 users contributed to the activity each month. Aside from games bloggers, more than 40,000 websites were linked through the PlayStation 3 site in order to disseminate information, comments and commendations. Technorati, an online researcher, tracked down 150 independent games blogs about PlayStation 3 which generated another two million viewers, months after the launching of the product. (Carter, 2007) 5.2 Sales Promotion Strategy Sales promotion during the launching of PlayStation 3 includes different strategic launching dates on different strategic locations around the world. It was first launched in Japan on November 11, 2006 and released 81,639 PS3 systems. It was then launched in US on November 17, 2006 and released at least 400,000 game consoles that day. The launching of PlayStation 3 was delayed in Europe due to technical incompatibilities. However, the delay has attracted more consumers who waited for the console. On March 16, 2007, PlayStation went on sale in Europe and released 600,000 consoles in the first two days. The company also utilised multimedia art, design and fashion magazine such as KCTV for a diverse ray of live entertainment events. The audiences for the events were carefully selected by KCTV for their interests in digital technology and experience. A variation of people from fields of journalism, art, design and fashion as well as ordinary consumers with passion for digital technology were invited to each event. However, PlayStation has not insisted on any particular distinction for their name during the events. The company has given autonomy to KCTV to create the content of each show. It was unique strategy where KCTV used Sony’s platform to promote their products and Sony used KCTV to promote theirs. The strategy was deemed as user-generated content. (Carter, 2007) The aim of user generated content was to create a digital echo or a ripple effect to the consumers. This unique communication strategy was unlike traditional brand communication where ad agencies were employed. The rising popularity of social networking sites and blogging has created a seismic shift in online advertising. Sony exploits this opportunity by tapping the potential benefits of the sites even if the content were not controlled by the company where comments may be good or bad. The enormous viewer traffic alone would indicate a positive result on product communication. The company wanted PlayStation 3 to be recognised as an enabler for creative talent and a platform for cultural content. Furthermore, these creative partners have created an effective brand marketing campaign for PlayStation 3. (Carter, 2007) Aside from these, the company also utilised PlayStation Patrol Trucks. These trucks sported the PlayStation 3 on a locality and allow non-PS3 adopters to try out the console. This type of promotion created a unique communication as it directly interacts with potential customers who might require technical assistance and tips. (Ault, 2007) 6.0 Conclusion To maintain dominance in the video game industry with its PlayStation and to improve its market share and sales Sony should ensure that its promotional messages provide enough information to consumers for both stages of the evaluation process i.e. ‘evaluation of alternatives’ and ‘post purchase evaluation’. The latter, as has been seen, is crucial to the future success of the product and can have a positive impact on the sales of other Sony branded products. This information provision needs to be consistent across all communications activity and such activity needs to be integrated to provide synergistic benefits to Sony and communicate consistent value to consumers. It is important for Sony recognises acts on changes in the media marketplace with relation to the media consumption habits of all of its potential consumers, not just its traditional market of young gamers but also now older gamers and those with families, all of who are avid internet users. In terms of the non-marketing influences on buyer behaviour then Sony must recognise that the market has matured and broadened beyond the adoption solely by members of the ‘youth culture’ to include older users aged 18 to 24 and families in the 25 to 36 years age group. Sony also needs to focus on building a large user base so that it can lessen the bargaining power of the video games suppliers and, at the same time, increase its sales and profitability. 7.0 References Ault, S. (2007, May 4). New ads will promote family games, Blu-ray functionality. Retrieved November 14, 2009, from Video Business: http://www.videobusiness.com/article/CA6439199.html Bahn, Kenneth D. (1987). ‘How and When Do Brand Perceptions and Preferences First Form?’ A Cognitive Developmental Investigation’. Journal of Consumer Research: An Interdisciplinary Quarterly, 13 (3), pages 382-93. Carter, M. (2007, January 29). Creating a digital echo. Retrieved November 14, 2009, from The Guardian: http://www.guardian.co.uk/media/2007/jan/29/mondaymediasection6 Chartered Institute of Marketing, (2009). Buyer Behaviour. Retrieved November 7, 2009 from CIM: http://www.cim.co.uk/marketingplanningtool/tech/tech1.asp Cheng J, Mark Freeman-Aloiau M, Xin Guo, Pullen A. (2007). Sony: Maintaining Dominance with PlayStation 3. Retrieved November 6, 2009 from McAffee: http://www.mcafee.cc/Classes/BEM106/Papers/2007/PS3.pdf Dille, P. (2007, October 31). New PlayStation 3 TV Ad Campaign. Retrieved November 14, 2009, from Playstation.blog: http://blog.us.playstation.com/2007/10/new-ps3-tv-ad-campaign/ Festinger, L. (1956). When Prophecy Fails: A Social and Psychological Study of A Modern Group that Predicted the Destruction of the World, by Leon Festinger, Henry Riecken, and Stanley Schachter. Harper-Torchbooks, Jan. 1956. Fill, C. (2006). Simply Marketing Communications, First edition 2006 Haskins, W. (2007). Branson Embarks on Web Gaming Adventure. Retrieved November 7, 2009 from CRM Buyer: http://www.crmbuyer.com/story/gaming/55744.html?wlc=1257601070 iStockAnalyst, (2009). Sony Corp (NYSE: SNE): Second Quarter Earnings Preview 2009. Retrieved November 6, 2009 from iStock Analyst: http://www.istockanalyst.com/article/viewarticle/articleid/3590234# Jones, KL. (2009). Social Influences on Consumer Behaviour. Retrieved November 11, 2009 from : Read More