Situation Analysis and Macro-Environment Situation of Playstation 3 - Case Study Example

Executive Summary Products these days need a good strategy so that they can compete with their competitors. Sony is household name in electronics but like other brands it too faces a lot of competition, Sony has always great with technology especially even it come to hi tech games. One such creation is the Playstation series, in which it’s latest brand is the Playstation 3. This report shall give a detailed situation analysis which will consist of the economic factor, demographic and social factor, technological trends and industry analysis. In order to study the macro-environment situation Porter 5 forces will be used. SWOT analysis will also be used. In order to formulate a strong market strategy a detailed marketing mix will also be given. Thus the paper will give clear picture of the entire market situation of Playstation 3 and how much threat it faces from it’s competitors, it will also highlight it’s strengths and weakness. Playstation 3 Situation Analysis & SWOT Introduction Sony specializes electronics, it manufactures it’s products for five operating segments: Electronics, Games, Entertainment Financial services (World wide digital distribution 2009 p1) This makes Sony one of the biggest electronic manufacturing companies in the world. Sony has always great with technology especially even it come to hi tech games. One such creation is the Playstation series, in which it’s latest brand is the Playstation 3. However big an organization is, and however famous their products are at times they need a clear understanding of the market situation and how to get an edge from their competitors. Ho ever it is quite clear that their target market i.e. mostly teenagers and young adults seem to be loyal to the brand. But marketing mix in which the description of the product, the promotion which it will use, where it will be distributed, what will be the price and how will it be positioned is also important. In order to analyze it’s position in the market this report shall give a situation analysis and SWOT of Playstation 3. Part from this porter 5 analysis and marketing mix will also be used. Analysis Marketing Mix Product Playstation 3 has a classy design; each and every high definition game can be played on it. It has the following features: PSP-like user-friendly interface; plays high-def Blu-ray movies built-in Wi-Fi and flash media reader; 60GB hard drive HDMI output with 1080p support; no external power supply Backwards compatibility is hardware based. (Game spot staff 2006 p1) Positioning Sony has experienced huge financial success with the Playstation 3 gaming system and it is important to clearly differentiate the new Playstastion3from the product of other competitors. This should allow Sony, which is the oldest, largest and most renowned company in console manufacturing, to obtain a competitive advantage. Positioning is the strategy used to impart the play station 3 and with a distinct and unique identity. This should allow the target market and customers to be able to easily recognize the product. Because positioning applies to all of Sony’s offerings, positioning is about making Playstastion3 available at the right time, to the right people, and at the right place. By making the consumer or target market conscious of the Playstastion3 game, and at the same time avoiding information overload, Sony can use the dynamics of positioning to sustain a leadership position. The Playstastion3 may require a different positioning strategy, as it may appeal to a niche market, in order to achieve projected sales. This unique game may pose different challenges, opportunities, and problems for Sony’s marketing strategy. Sony, which has had success with previous offerings such as Playstation 2, is an organization that is knowledgeable of positioning and differentiating strategies and should be able to gain insight into ways Playstastion3 can be managed to enhance sales and profitability through the entire process. Pricing Strategy For the Playstastion3, the most efficient pricing strategy will be market or price skimming. This will allow the company to set premium pricing on our high-demand product in the initial stages of the products life cycle. The high tech new product will also allow a maximum profit gain maximum from the market. Sony’s pricing strategy will be profit oriented, particularly in the introductory phase. They charged a higher than normal cost for a short time when they launched the Playstastion3 (Gallagher & Charny 2009 p14). Sony realizes the fact that customers may be willing to pay more for our product sooner. Later on Sony may plans to reduce the prices. The premium pricing will be expected to produce high profits in the short term. The price will lower because competition is expected to increase as profitability for video games increase and we have to maintain our position in the market. The main objective of market skimming, premium pricing strategy is to gain advantage from profits which are extremely short term , which are this is what Sony did with the Playstastion3 they also made use of well panned market segmentation. If they sell the palystastion3 at high prices at the time of introduction and then reduce them when the competitors do will be extremely helpful to them. Also, price skimming strategy will allow them to get some return on start up costs, which may be a little costly due to the innovation of our product. Initially, though, Sony will be able to gather a share of the video game market rather quickly with our profit oriented goals and maintain that share with a shift towards being sales oriented. Place Sony uses does not offer direct sales online or in a nation wide retail store, instead Sony uses retailer middlemen stores to distribute products. These stores are listed on the website and accessed when customers click on a button to locate where games can be purchased. Among some of the listed retailers are Target, Wal-Mart, Best Buy and Amazon.com, providing customers with a variety of online and physical venues to purchase products (Hall 2008 p12). As The Playstastion3 will be distributed primarily via indirect channels the highest cost is the difference in the retail price of the product and the wholesale. The cost of placement would be shouldered by the middle man however; the vendor may require that Sony covers the cost of moving the game from the production facility to retail vendor’s distribution hubs. The Indirect channel would indicate a macro marketing campaign for the product with possible cooperation with select vendors to help consumer know where the product can be found. Promotion The most appropriate strategy for the Playstastion3 would be the push strategy. Because this game is created for the Sony, an already successful game console, there is no need to spend a lot of money on advertisement, which is usually the case in a pull selling strategy. A push promotional strategy completely utilizes company’s sales team along with trade promotions in order produce immense consumer demand for a product. In this case, Sony is the company to which the push strategy is making use of its sales force. One month prior to launching the Playstastion3Sony will start a trade sales promotion campaign. This plan will inform dealers and cause thrill for the Playstastion3 that will be available the following month (The World's Most Innovative Companies 2009 p52). Resources and Capabilities; Competitive and Macro-environment Situation Porter’s Force 5 Barriers to Entry Threat of entry from prospective competitors is close to zero. A new competitor can only set foot in this market, if it has a huge investment – is extremely competitive and innovative enough to come up with new and costly products and has strong marketing plans for their product as well as their company. Only a competitor who has the top of the line engineers can beat the PlayStation 3 (Hall 2007b p19). As only Sony have top class engineers. Bargaining Power of Buyers Bargaining power of buyers is generally influenced via the economic condition of market thus effecting consumers ability to purchase. For instance, if the spending power is lesser because of economic decline, Sony is required to reduce prices of their PlayStation 3 so that their profit can remain the same. Individuals desire and want what they can't have, just the mere thought that some product is scarce and hard to find makes it desirable and much more valuable. Products of low supply are in high demand and individuals are willing to pay over the retail price just to own it. The demand for these scarce products such as the Playstation 3 has nothing to do with necessity or need for the product; they just want to own it at any cost. A high demand do to a low supply leads to high prices. It is safe to believe that if Sony released larger amounts of the game console there wouldn't have been such frenzy and buying war or the reselling of the product at double the price on online actions (Hudson 2008 p25). Once Sony releases more consoles next year the demand for the Playstation would lower and prices will stablelize. The Threat of Substitute Products There is one major substitute products Wii and Xbox 360 These product should threaten the Sony PlayStation's position via aggressive pricing strategies, radical improvement in performance and functionality, or a blend of all of these factors. Also, there is a threat of new competitor entering the market with revolutionary product (as mentioned in Barriers to entry example). The threat of substitute products continues to be high. The Bargaining Power of Suppliers Sony's self-reliance and capability to provide its own parts as well as extremely flooded market of chip makers as well as suppliers lessens the bargaining power of suppliers. Thus the bargaining power of Sony is extremely high; thus, resulting in a decrease in the bargaining power of suppliers. Rivalry among Existing Competition Competition as well as rivalry amongst 3 of the gaming companies i.e. Sony, Microsoft and Nintendo is extremely strong. Companies are contending by means of their technological skills along with their improvement in performance. They now also use extremely intense pricing strategies. It seems that PlayStation is playing the prime position with its competitive strategies focused on the development, pricing, quality and performance of the graphics technology as well as more refined ways to target gaming community (The 100 Top Brands 2007 p60). Product Sales PlayStation 3 – 62 527 PSP – 40 065 Nintendo DSi – 38 287 Wii – 13 221 Xbox 360 – 8 652 Nintendo DS Lite – 6 438 PlayStation 2 – 4 230 (Mark 2009 p12) Economic Factor Due to the extremely costly production of PlayStation 3 and slow sales of PlayStation 2 (Terrell, 2007), Sony found it’s self in a financial crisis which led to downsizing of the workforce. It had to fire sixteen hundred employees. Sony claimed that this would help to reorganize the main produces followed in production, to could even help in cutting down labor costs, and thus they concluded that this could help increase their competence. (Taylor, 2007). However this had a negative effect on Sony and their sales reduced due to which they had to reduce 100$ on each PlayStation 3. It also had to improve their marketing strategy and stopped using a crying baby doll, eggs, and ravens along with an oozing PlayStation 3 console in their advertisements (Hall, 2007a). This helped in increasing their sales in the last fiscal year. Demographic and Social Factor In Sony’s key target markets, the population is aging. Now electronics and entrainment are now flooded with teenagers and young adults. This may be something which may reduce Sony’s sales. Consumers now pay more attention to digital entertainment and a new trendy standard of living increasing. Moreover, now even the female population has an interest in gaming. Technological Trends Now that technology has become something ordinary for people around the world PlayStation 3 seems to take advantage of this and has increased its popularity. The Internet has become an important means of distribution of digital entertainment. It is an inexpensive means for Sony so that they can target all age groups and penetrate all possible markets. Frequent technological innovations via Sony give rise to more electrifying experiences thus increasing market demand. Industry Analysis An essential point in evaluating an industry is that one should realize the limitation it faces. The next part gives a detailed analysis of the competitive forces that Sony to have confronted in gaming console market. Sony’s demand in this market completely depends on 2 major factors, first of all, the kind of configuration of the playstation 3, and the kind of games that can be played on it (Ricadela 2007 p20). The PS3 is usually targeted at children and teenagers, even thought is the parents who them it for them., parents are also the ones who play on it as a lot of analyst suggest that these are that those who have played such games in their youth and thus PS3 is something they enjoy . A statement from Interactive Digital Software Association showed that sixty percent of American adults play playstation 3; furthermore the average age of a console consumer is currently 28 years of age. Playstation 3 have, through supplying additional features, placed themselves as mass-entertainment centers utilized for a extensive variety of operations. However PS3 sold 20 million less products this year as compared to last. SWOT Analysis Strengths Sony’s major strength is it’s assets. As Sony is a huge company, it has a lot of investment and thus can try new marketing strategies. Due to this Sony has made a record number of sales of the PlayStation 3. Due to this, Sony can even attempt their skills in other markets as they have the investment to do so. Sony strength is also it’s customer’s undying loyalty, apart from this it also has a major lead in research and development. Sony leads the entire consumer electronic market and for that reason it currently stands unshaken in a quite a few different international markets. Lastly, Sony also has a competitive lead in both the area of quality as well as innovation, although innovation is controversial in a number of cases. Weaknesses Even though these are ground-breaking ideas and might have a few positive qualities in the years to come, Sony has not been paying much attention to other areas such as the internet. Thus with a huge empire like Sony it shows that they have left gaps in their research and thus they have not paid much attention to using the web for their purposes. Sony has also made lot of bad market decisions like flooding their PS3 into markets. The mistake it made was that when it launched a lot of PS3 in the market the recession was building up, thus casing less sales and ending up in a loss. Sony has not learned by it’s mistake it still lets dealers flood the market with sub-par games of PlayStation3, they do not chosen titles like Nintendo does (PlayStation 2009 p55). They should launch specific titles like their competitors do. By these moves it looks like they do not have very organized strategies. Opportunities The Internet is currently still the most used source of information. In spite of the fact that Sony was left behind, they at present have ample opportunities to use the internet for their marketing purposes. As Sony has been doing a good job in moving its game show as well as music products onto the internet, Sony can be just as successful in moving PS3 onto the internet with streaming media. PS3 digital convergence may also severe as a good opportunity for Sony as it proves that it is a huge electronic domain. As almost every electronic equipment is now incorporated in Internet, Sony can simply join the crowd by introducing the PS3 games on the internet and with its ground-breaking research and development department, it would make it quite easy for them to do so. Threats Along with opportunities Sony also has to face a lot of threats, and in 1998 the first threat face Sony had to face was that it’s competitors in its latest market entry into the video game industry. Both Nintendo and Microsoft currently may take the lead and thus have a bigger share of the market, Nintendo with its hi -tech graphic games and Microsoft with it’s wonder game box, the xbox 360 (Margaret 2009 p14). Secondly, Sony had issues as entire world was facing an recession. Conclusion To conclude it can be said that Sony's unintentional entrance in to the gaming market has turned out to be one of the best opportunities in the Sony’s entire history. Whereas the Sony has to confront many threats which are evidently coming from the strong competition in the industry and thus altering entire demographic trends, it is also taking advantage of the opportunities that has risen from technological trends as well as market demand. It is fact that Sony has to confront a gaming industry which completely follows an oligopolistic model of competition, currently the competition is amongst Nintendo, Microsoft and Sony. All three keep a close eye on the prices of each other’s products and when one drops the price so does the other. Competition is furious and Sony has to make sure that their Play station 3 is always available in the market or it will be are run of what it faced a few years ago when it produced less and the demands was more then the supply. Thus as mentioned above Once Sony releases more consoles next year the demand for the Playstation would lower and prices will stablelize. The fact that they may be considering a market skimming strategy is more then prefect for them as this will help them to lead the market. Youngsters who love to play such games seem to be enjoying PS3, they crave for more realistic entertainment experience thus this gives the essential market pull which in turn gives a technology push which may be the cause of Sony’s success. References Gallagher Dan & Charny Ben (2009); Sony Drops Price of PlayStation 3. Wall Street Journal - Eastern Edition, Vol. 254 Issue 42, p14 Game spot staff (2006); play station 3 inside and out p1 retrieved from http://www.gamespot.com/features/6125429/index.html on 12 October 2009 Hall Kenji (2007a); How Good Was Sony's Stellar Quarter? BRW p7 Hall Kenji (2007b); Stringer: Sony Won't Go It Alone. BRW, p19 Hall Kenji (2009); Sony Moves to Solve Its PS3 Woes. BRW, p8-8, Hall, Kenji (2008); Sony Launches PlayStation Home [Finally!]. BRW, p12 Hudson Kristina Erickson (2008); fostering the business. Economic Development Journal, Vol. 7 Issue 3, p20-26 Margaret Linley (2009); Games consoles The next generation. Geelong Advertiser, p14-14, Mark Prigg (2009); Gadget wars are Go with new Sony PSP. Evening Standard, p12. PlayStation (2009); Marketing p55-55 Ricadela Aaron (2007); Console Wars: Sony Fights Back BRW, p20 Taylor, Colleen. (2007). Sony cuts 100 jobs at U.S. PlayStation headquarters. ElectronicNews Vol. 53 Issue 24, p32-32 The 100 Top Brands (2007); BRW, Issue 4045, p59-64 The World's Most Innovative Companies (2009); Fast Company, Issue 133, p52-97 World wide digital distribution (2009) p1 retrieved from http://www.wddistribution.com/products.shtml on 12 October 2009 Read More