Executive Summary Microsoft Canada is preparing its marketing plan for the Xbox over the coming year. The Xbox was launched the previous year and positioned as the complete home entertainment solution combining video gaming, the Internet and DVD playback. The Xbox is the most robust gaming console on the market, but faces stiff competition in its product category. The Sony Playstation 2 is the market leader with over 50% of the console market. Microsoft also faces competition from Nintendo and their Game Cube. Microsoft's goal is to become the market leader in the category by dethroning Sony.
In order to accomplish this goal Microsoft Canada must develop its marketing plan for 2002. Specifically, Microsoft must decide which target market to focus their efforts on. Specifically, they need to decide whether or not to continue focussing their attention on the male 16-24 year old "heavy gamer" which is also the target segment of Sony. Or, do they shift their focus to the lighter user and try to develop a niche strategy. The backdrop of the targeting decision is how to position the Xbox.
Microsoft could choose to position the system simply as the most powerful gaming console available, or they could also choose to focus on the complete functionality of the product including online gaming and DVD playback. Considering the various opportunities and challenges, Microsoft should continue to focus its campaign on the heavy male user since this demographic are typically the trendsetters when it comes to the industry and are best equipped to appreciate the gaming advantages of the system. By targeting this segment while focussing marketing efforts on the superior technology of the product along with the online gaming functionality, Microsoft should be able to differentiate itself from the Playstation by offering gamers a more technologically advanced gaming system with an online gaming feature not available from Sony. Problem Statement Microsoft is faced with a key decision on how to market the Xbox product in the second year of its launch in Canada. Specifically, Microsoft needs to determine how to position the Xbox and which market segment they should target. The goal is to gain market share versus their competitors and most specifically Sony.
Once positioning and target market are determined, Microsoft Canada must then decide how to best allocate their marketing budget to best reach goals. Situational Analysis Microsoft is currently one of the largest companies in the world with over $30 billion in annual revenues. Microsoft is also one of the best-known companies in the world, and its brand awareness is very high, as virtually everyone who has heard of a computer has heard of Microsoft. While Microsoft has virtually cornered the market on PC operating systems and office application software, they had little to no experience in the home video game console market. In 1998 they partnered with Sega Enterprises to develop a gaming console to try and grab a share of the US$20 billion video game industry. With the launch of the Xbox in 2001, there were several major issues facing Microsoft.
Mainly, they faced a very competitive landscape dominated by Sony's Playstation 2 with Nintendo's Game Cube also taking a share of the market. Microsoft needed to decide on its target market as well as the positioning for Xbox, and come up with advertising and marketing efforts that would help penetrate Sony's strong grip on the industry. The Canadian division of the Xbox team was faced with further challenges since their marketing budget was much less than that of the US division and considerably less than Sony's budget for the Canadian market place. With the launch year complete, the Canadian team must decide whether or not to reposition the Xbox and reconsider the target market here in Canada. Ultimately, the marketing plan will stem from these decisions. One of the challenges Microsoft faces is the decision that they made internally to disassociate the Xbox brand from the Microsoft brand.
Microsoft has a very strong brand and is known for secure and reliable software. When a company has such a strong brand, it can be very difficult to change that perception in a customer's mind for a particular product. The question the Canadian team needs to consider is whether they should leverage more off of the incredibly recognizable Microsoft brand in their advertising efforts. In order to have a successful second year for the product, Microsoft must choose its target market carefully.
Essentially, they have identified four target markets segments: committed, wannabees, fund seekers and time killers. Each one of these segments offers different benefits to Microsoft, but they may also differ in what they are looking for in terms of the features of the gaming console they choose. In order to be successful, Microsoft should target the segment that provides the most opportunity for the firm. Furthermore, Microsoft should leverage the unique and / or superior features of the Xbox to help differentiate it from its competitors in its marketing campaign.
Xbox, of the three major consoles (Xbox, PS 2 and Game Cube) is the most powerful system in terms of its processing power and speed. Also, it has built in Internet access and is the easier platform for software manufacturers to design games for. In order for long-term as well as immediate success of Xbox, the marketing campaign / budget must focus on these traits. The software manufacturing aspect of the marketing campaign is perhaps the biggest key to the success of the Xbox. The sale of the console is a loss leader for Microsoft as they actually lose money on each sale. The games on the other hand are where the large profit margins exist.
The fact that the operating system for the Xbox is similar to that of a PC gives Microsoft an advantage in that software manufacturers can more easily create games for the platform and can more modify existing PC titles over to the Xbox system with greater ease, and for less cost. There are some issues specific to the Xbox that needs addressing. First, Microsoft is marketing a product that has not historically been in its core business. As a result, while there are opportunities for increased profits for the firm, there is also a risk that they may tarnish their current image of the firm if the Xbox is not successful. Secondly, Microsoft, due to its size, can leverage the already strong relationship with their suppliers and retailers to help distribute of the product. The competitive landscape that Microsoft faces is very competitive as there currently is two other competing products on the market.
Specifically, Sony has the Playstation 2 and Nintendo has the Game Cube. Playstation is the biggest competitor as they currently enjoy a 56% market share going into 2002. Sony's target market is the 16 to 24 year old male "committed" gamer. This is the same target market that Microsoft targeted in their year one marketing plan. Nintendo on the other hand has targeted the younger (8 to 12 year old) gamer and focussed specifically on video games. The Xbox, after its first year has a 27% market share.
As mentioned, there strategy was to target the same market segment as Playstation. Microsoft needs to decide targeting the same segment as Sony is the correct course of action as well as how to position itself given that choice. As mentioned, from a financial sense, Microsoft will not make any money on the console sales. Instead, Microsoft will generate its revenue from the sale of game titles.
Microsoft uses both an in-house development team and "third party" developers to create games for the Xbox. The in-house developers would create exclusive titles while the "third party" developers created games compatible with multiple systems as well as exclusive titles. The challenge for Microsoft is that developers prefer to develop games for the market leader (Sony) to reduce market risk and create the greatest opportunity for profit. In order for Xbox to truly be successful they will need to overcome, or at least minimize this obstacle since a highly successful game title could drive millions of gamers to buy the console on which it is played. In order for this product to be successful and gain more ground on the Playstation 2, Microsoft will need to be specific on how they position the product and the market they " re targeting.
Without a clear target market and marketing strategy, the Xbox will fail to become profitable. The Xbox has some unique features and superior functionality, which Microsoft has to leverage with customers as well as software developers. Alternatives Microsoft must consider both how to position the Xbox, as well as at whom they should target their efforts. Furthermore, Microsoft must determine how best to implement their strategy.
Microsoft has the option of targeting one of 4 groups as outlined in Appendix 1: the committed, the wannabees, the fun seekers or the time killing gamers. The question Microsoft really needs to address here is whether their initial strategy of targeting the same segment as Sony is the correct one, and if not which segment they should target. Secondly, Microsoft must decide on how to position the product. While the Xbox has by far the greatest processing power in the category, should Microsoft focus their efforts on that feature? Conversely, the fact that the Xbox is Internet ready and plays DVDs could allow Microsoft to position itself as a complete entertainment solution (as was their initial positioning in Year 1). Microsoft could also choose to focus on both aspects and position the Xbox as the most powerful, complete system on the market. Once Microsoft selects their target market and positioning, they must then decide how to allocate their marketing budget and perhaps consider the pricing for the product.
Evaluation of Alternatives Positioning of the product is the first question that needs to be addressed. The reason for this is that the position will help determine the target market. Should Microsoft position the Xbox as the most robust gaming system on the market, should they focus on its unique feature of Internet ability, or should the plan be to focus on both features and position the product as a complete gaming and entertainment solution. All the alternatives have certain advantages and disadvantages.
In today's world, people who play video games are demanding more advanced and sophisticated games and presentations. The fact that the Xbox is about twice as powerful as the Playstation 2 is a huge advantage in attracting gamers. If the message of superior gaming could be communicated to consumers, Xbox may greatly increase its market share. The shortcoming of this strategy is that many of the features of the Xbox are ignored. You would be ignoring the Internet readiness of the product along with the DVD functionality. Furthermore, this strategy is heavily reliant on the titles the system has.
Xbox could be the greatest system ever, but if they don't have the games to support it, they will not sell a single console. By focussing instead on the increased functionality of the console, Microsoft would be able to take advantage of a unique benefit. While superior "power" is a nice selling feature, will consumers fully appreciate the difference in advertising? Internet playability and surf ability on the other hand is an easy message to get across, as well as unique benefit to consumers. Internet gaming is a growing phenomenon and Microsoft could choose to position itself at the forefront of this trend. The major issue with this strategy is that Microsoft may be introducing itself to new competitors. By focussing on the Internet capabilities along with the DVD functionality, Xbox would now be competing not only with Nintendo and Sony, but also with PCs and DVD manufacturers.
With increased competition comes a bigger risk that Microsoft may not want to take. Perhaps Microsoft should position the Xbox as a combination of the two. Just as they did in year one, they could focus on the complete entertainment solution for the home aspect of the Xbox. This is strategy would allow Xbox to leverage of all of the distinguishing features it has and really differentiate itself for its competitors in their consumers' minds.
The disadvantages of focussing on this broader message is that it is more expensive to market multiple features. Furthermore, by focussing on more than one differentiator, Microsoft runs the risk of not properly getting any one part of their differences across to consumers. And again, as mentioned above, they may be introducing themselves to new competitors via this strategy. In terms of target market, of the four possibilities mentioned (committed, wannabees, fun seekers and time killers) they can really be divided into two categories: the heavy gamers, which include the committed and wannabee gamers, and the light users, which are the fun seekers and time killers.
The heavy users may be the most profitable in the sense that they buy the most games, and are the trendsetters for the light users. Typically, the heavy user and are the brand champions since if they use the product they will typically spread the gospel to other users. This group may be the easiest to promote the power benefits of the Xbox, as they will be able to fully appreciate the differences from Playstation. The opportunity, if this segment could be catered to would be the greatest for Xbox.
The drawback of this group is firstly that their business is heavily contested. Sony already markets to this segment, so penetration would be much more difficult. Furthermore, these gamers are very game title oriented so Microsoft would need to ensure that the best titles were available on the Xbox. The light users are advantages to target since they currently aren't being targeted. Microsoft could choose a niche strategy whereby this group was targeted. The advantages here is that this group may be more interested in the DVD and Internet surfing functions since gaming is not their primary pastime.
The disadvantage of this group is that of the gamers, the light users tend to be followers. They will typically purchase the most popular console. Furthermore, because they are light users, they may not be a receptive to the "power of Xbox" marketing since they will be somewhat indifferent and acknowledgeable about the differences. Recommendation Microsoft has built its brand as an innovator and world leader in the software, services and Internet markets. The Xbox is an extension of that brand by being the most powerful and complete video gaming system. The Xbox has two main differentiating features: its sheer power, and its Internet capabilities.
The Xbox marketing campaign should focus on positioning Xbox as the most powerful and complete gaming console on the market focusing on the online gaming ability and its superior graphics, speed and experience. Microsoft should focus its marketing efforts of this positioning at the heavy video game user for two reasons. First, this segment is the trendsetter for the rest of the gaming community and secondly, this group is sophisticated and knowledgeable enough to understand and find value in the differentiators of the Xbox. The side benefit of this segment is that it is the core segment of Sony, so any gain in this segment would be at Sony's (the main competitor) expense. Implementation Plan For 2002, Xbox needs to start their advertising and marketing early, while peaking in the months leading up to the holiday season, since historically over 50% of console sales occurred in December. Microsoft Canada's marketing budget is slightly less than last year, with 2002 budget set to $11.
Since the Xbox was launched last year there already is some brand awareness, so the decreased budget shouldn't be that much of a hindrance as compared with last year. Specific tasks for the various segments should be as follows: Public Relations. Budget should be cut in half from last year as product has launched. PR should be almost exclusively devoted to new video game releases since as mentioned earlier, popular game titles drive sales of consoles. Mass Media Advertising. Biggest budget expense...
Advertising should focus on the value proposition of superior gaming experience (power) of the Xbox as well as promotion of the online gaming capability and Xbox. ca. Where possible, leverage the US advertising, but more realistically, look to the European advertising as there are many cultural and philosophical similarities between European and Canadian peoples. Specifically, advertisements from England could in theory be leveraged in Canada...
Advertising needs to be persuasive in nature as product knowledge exists... Due to the target market, advertising should focus on radio and television, since it has the greatest reach with the target market (16 to 24 year olds). Bulk of advertising should be done in the fall as a lead-up to the holiday season. Ensure ample advertising in gaming magazines as heavy user gamers tend to read these publications Promotions. This budget should be dropped slightly from last year, as brand awareness exists... In store demos should still be a major expenditure however, since purchase after trial is key.
Xbox. ca. The budget here should be dramatically increased... Since positioning Xbox as an online gaming conduit, Xbox. ca needs to be robust enough to support this positioning... Xbox.
ca tagline should be on all advertising to raise awareness... Site should include articles, advanced demos, hints and online gaming message boards... Should also include section for online gamers looking for others to play online with. This will help promote the online ability of the Xbox, which is one of its key differentiators. Marketing Team. Beyond the scope of this evaluation The backdrop of all the marketing efforts must be the positioning of Xbox as the most robust gaming system along with the online gaming functionality.
Advertisements showing males of the target age playing online from different locations with each would be a key message. In store demos at the various retailers, especially over the holidays should be a priority. Since purchase after trial is highest, this needs to be a core tenet of the marketing plan. The holiday season, as mentioned, is key.
So during September to December, advertising spending and frequency in all aspects should be at its highest level. Double the advertisements at the very least should be considered. Furthermore, continued bundling with other retailers is another key strategy. Microsoft could also consider bundling services closer to the holiday season such as free membership to the Xbox.
ca "Gamers Zone" for a year with the purchase of an Xbox to drive sales, and further promote the online abilities of the system. The end result, if the campaign is successful is that consumers will see the key benefits / differentiators of the Xbox versus Playstation and will choose to purchase the superior product.