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6B3401 PlayStation 3 - Marketing Plan (Daniel Ling and - Kungliga

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6B3401 PlayStation 3 - Marketing Plan (Daniel Ling and - Kungliga

    Kungliga Tekniska Högskolan

    Carl-Axel Engdahl

    Semester 2006/2007

    Period 3

    Marketing Management IT (6B3401)

    Marketing Plan Sony PlayStation 3

Authors: Daniel Ling

     Person-Nr.: 820610-0292

     Sandhamnsgatan 10, 115 40 Stockholm

     Patrick Wild

     Person-Nr.: 811226-A758

    Vasagatan 9 - 233, 17267 Sundbyberg

    Delivery: 27.02.2007

Executive Summary

    The video game console market is a fast growing market. Sony’s PlayStation 3 competes

    together with Nintendo’s Wii and Microsoft’s Xbox 360 for the market leader position.

    Compared with these competitors, Sony’s PS3 includes the newest technologies and provides the highest variety of functionalities. Therefore, Sony’s strategy is to target

    customers who focus on high technologies and multimedia-entertainment. However, this involves that the PS3 competes not only with console manufacturers, but also with other multimedia producers such as PC manufacturers. Due to the fact, that the Sony’s

    PS3 will be quite expensive, the console will be available in a premium edition and in a cheaper basic edition.

    Considering the distribution of its PS3 games, Sony tries to change its traditional supply chain by providing an Internet platform, where users can download games. This results in saving costs and a faster distribution.

    Furthermore, the most important marketing tool is the Internet for promoting the PlayStation 3. Blogs, MySpace, YouTube and other kind of websites enable an area-wide promotion of the game console and especially, it is done by consumers. Another important tool is the official website, which offers among others information about the console and about available games.

    Additionally, Sony promotes its PlayStation 3 together with a meaningful slogan, which differs between Europe (This is living) and U.S. (Play Beyond).

    Finally, Sony’s financing objectives are to sell 15 million exemplars in the first-year and

    to achieve total sales revenue of $8.25 billion. Its marketing goals are to sell more than 100 million exemplars in the long-run and to become the market leader.

Table of Contents

Executive Summary ............................................................................................................ 1

    1 Situation Analysis .................................................................................................. 2

    1.1 Current marketing environment ........................................................................ 2

    1.2 Current Product Line ........................................................................................... 2

    1.3 Product Analysis .................................................................................................. 3

    1.4 Target Markets ..................................................................................................... 3

    1.5 Competitive Analysis .......................................................................................... 5

    1.6 Product/Market Analysis Tools .......................................................................... 5

    1.7 SWOT Analysis .................................................................................................... 8

    2 Objectives ................................................................................................................ 8

    3 Competition ............................................................................................................. 9

    3.1 Game console industry ........................................................................................ 9

    3.2 Direct competitors................................................................................................ 9

    3.3 Market concept of competition ......................................................................... 11

    4 Product - Unique selling proposition ................................................................ 12

    5 Distribution ........................................................................................................... 12

    1

5.1 Value chain ......................................................................................................... 12

    5.2 Next generation value chain ............................................................................. 14

    5.3 Business Models ................................................................................................. 14

    6 Marketing Strategy ............................................................................................... 15

    6.1 AIDA ................................................................................................................... 16

    7 Marketing Mix Strategy of 4 Ps........................................................................ 17

    7.1 Product ................................................................................................................ 17

    7.2 Price ..................................................................................................................... 17

    7.3 Place .................................................................................................................... 18

    7.4 Promotion ........................................................................................................... 18

    8 Financial projections ............................................................................................ 18

    9 Implementation controls...................................................................................... 19

1 Situation Analysis

    1.1 Current marketing environment

    The video game console market is highly influenced from its demographic and technological environment. The worldwide population is growing and more and more people have a strong need for entertainment. Many people require something against boredom in their free time. Furthermore, the technology environment creates a variety of new functionalities which are almost unlimited. According to Moore’s Law, processor speed and memory capability reduplicate almost every 18 months by constant prices. Additionally, technologies such as High Definition TV provide a new way of entertainment consumption. Finally, another important influence in people’s behavior is

    enabled by the Internet. Its introduction was a milestone of the new economy. It allows finding almost any required information and enables worldwide communication as well as interaction and it simplifies doing business.

    1.2 Current Product Line

    Before we describe the features and functionalities of Sony’s new video game console, the PlayStation 3, we would like to give a short overview of the company’s current home video game line:

    ; PlayStation (PS1)

    The Sony PlayStation is the company’s first video game console and was

    produced in the mid-1990s. It belongs to the fifth generation of video game

    consoles and provides a 32-bit processor. Furthermore, the PlayStation was the

    first game console that reached the 100 million mark.

    ; PlayStation 2 (PS2)

    Sony’s PlayStation 2 is part of the sixth generation era and was released in 2000.

    Besides its 128-bit processor, it was the fist video game console that provides

    DVD playback functionality. It placed first in number of units sold in its sixth

    generation of video game consoles and it became the fastest selling and most

    2

    popular game console in history, with over 110 million units shipped worldwide

    1 by November 2006.

    ; PlayStation Portable (PSP)

    Sony’s PlayStation Portable was the company’s first handheld game console

    released in 2004. Besides playing games, it also provides different functionalities

    such as playing music, watching videos, viewing pictures and using Internet

    applications. Nowadays, the PSP is the main competitor of Nintendo’s Game Boy

    and Nintendo DS.

    1.3 Product Analysis

    The Sony PlayStation 3 (PS3) is the seventh generation video game console and the third in Sony’s PlayStation series. The console was launched in North America and Japan in November 2006 and is yet expected to be launched in Europe by March 2007. The reason for its delay in Europe is a shortness of supplies with parts of the Blu-ray drive. The console offers high-end technology and it has been described as an engineering

    2masterpiece because of its promising specification and use of new technology.

    Furthermore, the PS3 will be available in two different editions - on the one hand, a basic edition with a 20 GB hard disk drive (HDD), and on the other hand a premium edition with 60 GB HDD. Nevertheless, both editions will have key elements such the Blu-Ray Disc for High Definition movies, the Cell chip, Giga-bit Ethernet for high speed Internet-connection, and an HDMI connection for optimum output on HDTV. Compared with the basic edition, the premium edition will provide some extra features like support for multiple external memory storage devices (Memory stick, SD) and Wireless connectivity.

    More information about the specification can you find in the Appendix. Furthermore, Sony’s newest game console provides a Linux operating system and some Internet applications such as an Opera Web browser and multiplaying functionality. Finally, another feature of the PlayStation 3 is the backward compatibility to Sony’s

    previous video games for PS1 and PS2.

    1.4 Target Markets

    The following section should provide an overview of Sony’s target market and of its targeted customers.

    1.4.1 Target market approach

    In our opinion, Sony should use a segmentation approach as their general strategy to reach targeted customers. Although mass-marketing would create the largest potential market, which leads to the lowest costs and results in lower prices or higher margins, we propose segment marketing because it can create a more fine-tuned product offering and price for the target segment. Moreover, this approach enables to select more easily the best distribution and communication channels, and to have a clearer picture of the

    3main competitors.

    3

1.4.2 Segmenting consumer markets

    Cultural distinctions, different needs and demands of individuals, and diversities in customers’ buying behaviours require market segmentation of companies to satisfy their customers effectively. Thereby, the market can be divided in geographic, demographic, psychographic and behavioural segmentation variables and the company can focus on

    4 target segments which it wants to attract.

    According to Sony, the main geographic segments of the PlayStation 3 consist of the Northern America market, the Japanese market and the European market. When Sony released his first video game console PlayStation in 1994, the company’s

    main focus was on the marketplace from 12- to 17-year-old boys. But nowadays, Sony’s

    demographic segmentation divides the market of the PS3 in male and female, old and

    5young players and expands its business vastly to a mainstream entertainment. The PS3

    offers a multifaceted repertoire of video games which includes something for everybody. There’s not merely one game to ultimately define the PS3 platform, but rather different

    must-have games for different segments of consumers. Additionally, an important and profitable demographic segment could be the college market because according to a study by Anderson Analytic’s GenX2Z only 26 percent of students report not playing

    6video games.

    Furthermore, Sony concentrates on a strong customer loyalty status in the behavioural segment. Besides its popular brand and the high reputation of its products, the company tries to win over its former consumers by the implementation of a backward compatibility which enables to play video games from its previous video game consoles (PlayStation 1, PlayStation 2).

    Finally, one of the important target segments of the PS3 involves consumers who require high technology. The company is convinced that its consumers desire and want to get the best out of the best.

    1.4.3 Characteristics of the targeted customers / product uses

    As already mentioned, Sony’s targeted customers want to have the newest technologies

    and functionalities. Moreover, they need an entertainment system which provides functionalities such as viewing pictures, movies or listening music.

    The Playstation 3 can fulfil all this particular requirements and reach therewith a lot of different customers. First of all, video game players can use the console, because it provides high technology and a lot of different available games. Furthermore, movie lovers can use the PS3 because it involves a DVD drive and also allows watching movies in High Definition with its Blu-Ray drive. Moreover, customers can use the game console to see pictures from their last holidays easily by inserting their memory card in the included card-reader. Finally, customer can use the console to surf in the Internet or to use it instead of a computer, because its Linux operation system provides similar functionalities.

    Summarized, all members of a family can use the PlayStation 3 for different needs. For instance, children play video games during the day and when the father arrives, he uses the PlayStation to read his emails. Thereafter, the mother inserts the SD card in the PS3 and shows him the pictures from her trip to Stockholm last weekend. And at the

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    evening, the whole family watch a movie together. This multimedia functionality provides the biggest benefit for the PS3’s consumers.

    1.4.4 Purchasing process

    Some customers make their decision which game console they want to buy dependent from the number of available games. Not only the functionality and technology, but also the variety of games can be important for the decision-making process of customers. Therefore, the company has to offer information about the games which will be available for its game console. The primary channel for providing such information would be the official webpage.

    Furthermore, the final end-user of the game console is not always responsible for the purchasing process. For instance, sometimes parents purchase the game console for their children, and therewith another party is involved in the purchasing process. 1.4.5 Market size estimations

    The number of consumers in the video game console industry increased continuously during the last years. Due to the fact, that game consoles of the newest generation are comparable with an entertainment system, we estimate a market size of 400 million potential users in Europe if everybody would buy the product. Considering that one product would be enough for a family, our final estimation of potential consumers will be 100 million in Europe.

    Furthermore, a forecast report of PricewaterhouseCoopers has shown that by 2010, the worldwide video game market will grow to $46.5 billion, at an average 11.4%

    7 compound annual rate.

    1.5 Competitive Analysis

    Nintendo and Microsoft are the main competitors of Sony in the video game console industry. Considering the seventh generation, Sony’s PlayStation 3 compete with

    Nintendo’s Wii and Microsoft’s Xbox 360. These two consoles were released world-wide

    8in November 2006 and November 2005 respectively.

    According to a study of the NPD Group about the best-selling video game consoles for December 2006, the Xbox 360 sold 1.1 million units, the Wii 604.2 thousand units and the PS3 490.7 thousand units. However, the PS3 sales figures include only the U.S. and Japan market, where it is released already.

    More details about the competition situation will be discussed in chapter “3

    Competition.

    1.6 Product/Market Analysis Tools

    1.6.1 Product Life Cycle

    According to Sony’s previous game consoles, the PlayStation 3 should have a 10-year product life-cycle. Its state-of-the-art technology involves that the usage of the PS3 resources and technology are just at the beginning and can fulfil all game requirements

    9in the next years.

    The product life-cycle consists of four different stages:

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    - Introduction: At this stage, the sales growth increase slowly when the product is

    introduced to the market.

    In Europe, the PS 3 is already located in the middle of this stage, because many

    game-console lovers and fans have ordered the PS 3 in advance to become one of

    the first consumers after its release in March 2007. For instance, a new PS 3 is pre-

    10 ordered almost each 20 seconds in Great Britain.

    - Growth: At this period, a market acceptance of the product is recognizable and

    the number of sales units increases. First-users report about the product

    positively and other consumers are becoming curious.

    - Maturity: A slowdown in sales growth will be at this stage because the product

    has achieved acceptance by most of the buyers.

    - Decline: Most of the potential buyers have already the product and therewith the

    number of sales declines.

Figure 1: PlayStation’s Product Life-Cycle

    Different marketing strategies are necessary for each stage of the product life-cycle. We will discuss our recommended strategies in6 Marketing Strategy.

    Due to the fact, that the PlayStation 3 was already released in Japan and U.S., Figure 2 shows that the PlayStation 3 is located in a higher position compared with Europe.

Figure 2: PS3’s Product Life-Cycle in Japan and U.S.

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    After shortness of supplies and an enormous rush demand in Japan and in the United States after the release in November 2006, a kind of stagnation is visible in these both markets today. Vendors report that a large contingent of the PlayStation 3 is still

    11 Although Sony sees the reason for that in its optimized supply available in their shops.

    chain, the company has to consider new marketing strategies to increase its sales. 1.6.2 The Boston Consulting Group’s Growth-Share Matrix

    In the following section, we would like to analyse and classify Sony’s game console product portfolio by profit potentials. Therefore, we used the Boston Consulting Group

    12approach presented by Kotler.

    Due to the fact, that the PlayStation 1 is not be sold anymore, we didn’t regard it in our analysis.

Figure 3: BCG’s Growth-Share Matrix for Sony’s game console product-line

    First, we placed the PlayStation Portable in the “Question marks sector”, because the market of game handhelds is still growing and as the strongest competitor of the market leader Nintendo DS, the relative market share of the PSP increases. Therefore, Sony has to spend a lot of money in the development and advertising of the PSP to keep up with the fast-growing market, and to overtake the market leader.

    Additionally, we also placed the PlayStation 3 in the “Question marks sector”, because the market of the seventh generation video game consoles is still increasing and it is not visible already if the PS 3 will take the position of the market leader. Finally, we located the PlayStation 2 in the “Cash cow sector”. The PS2 has a falling

    market growth rate after the release of the next generation game console. Nevertheless, it is still the market leader in its generation and it achieved higher sales units (1.4 million) as the Xbox360 (1.1 million), Nintendo Wii (604.2 thousand), and the PlayStation 3 (490.7

    13thousand) in December 2006. According to the 10-year product life-cycle, the PS2 is in the decline stage and will stay in the market for the next 3 years yet.

    7

1.7 SWOT Analysis

    The SWOT analysis is the overall evaluation of a company’s strengths, weaknesses,

    14 It is used as a framework to help an organization develop opportunities, and threats.

    its marketing strategy. Thereby, strengths and weaknesses are internal factors which can be controlled by an organization, whereas opportunities and threats consist of external factors which are uncontrollable by an organization.

Figure 4: SWOT analysis for Sony’s PlayStation 3

2 Objectives

    Sony’s financial objectives are to:

    - Achieve first-year total sales revenue of $8.25 billion, based on an average price of $550 per unit.

Sony’s PlayStation 3 marketing objectives are to:

    - Achieve a first-year unit sales volume of 15 million, which represent a projected

    market share of 25 percent.

    - Increase second-year share to 40 percent and become the market leader.

    - Sell more than 100 million units in the long-term.

    - Arrange for distribution through the leading electric, video games and computer

    retailer in the top 100 and establish an Internet platform.

    8

    3 Competition

    3.1 Game console industry

    15According to the industry concept of competition presented by Kotler, an industry is a

    group of firms that offer a product or class of products that are close substitutes for

    another product.

    The structure type of the video game console industry is an oligopoly, because the

    Japanese Nintendo and Sony, and the U.S. Microsoft dominate the market. Particularly,

    the structure is a differentiated oligopoly, because only few companies producing

    products partially differentiated along lines of price and features.

    Furthermore, the console industry is characterized by large cost of barriers to entry

    according to Porter’s model of five competitive forces. It may cost up to $2 billion to

    develop a competitive console platform and returns on investment may take several

    16 years.

    Furthermore, these three console manufacturer’s have a similar business model

    consisting of the following three income flows:

    ; Hardware sales

    ; Sales of own software/games

    ; Licences fees from other software/game developers that use the console platform

    Finally, Nintendo, Microsoft, and Sony compete on a global basis with core markets in

    Japan, Europe and in the United States.

    3.2 Direct competitors

    The following section compares the direct competitors Nintendo, Microsoft and Sony

    with regard to their products, prices, sales units and game range.

    3.2.1 Product differentiation

    First of all, the following table shows the particular specification of each game console:

    Nintendo Wii Microsoft Xbox 360 Sony PlayStation 3

    First publication 19 November 2006 (USA) 22 November 2005 (USA) 11 November 2006 (Japan)

    Processor IBM Broadway PowerPC Tri-Core Xenon PowerPC PPC Cell PowerPC (3,2 GHz)

    (729 MHz) (3,2 GHz)

    ATI Hollywood (243 MHz) ATI Xenos (500 MHz) nvidia RSX (550 MHz) Graphic chip

    Drives Own format (Wii and CD, DVD (external HD-CD, DVD, Blu-ray

    GameCube) DVD drive available)

    Maximal video SDTV = 480p (NTSC) or HDTV = 480p - 720p - HDTV = 480p - 720p - 1080i/p

    quality 576p (PAL/SECAM) 1080i/p (supports HDMI)

    Back. compatibility yes yes yes

    HDD - 20 GB 20 GB / 60 GB

    I/O USB 2.0 (x2), SD USB 2.0 (x3) USB 2.0 (x4), PE: MemoryStick,

    SD CompactFlash

    Communication IEEE 802.11b/g Ethernet Ethernet, Bluetooth 2.0, Wireless

    Extra feature: Wlan-Controller, IEEE 802.11b/g (only

    Adapter premium edition)

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