Marketing a Xbox 360 Games Console

Introduction

In this essay I shall advise a business client upon the best ways to market their new product; the Microsoft Xbox 360 games console. Using evidence from background research that covers the broad market of video games consoles I shall interpret the figures I find and use them to identify possible problems that can be overcome as well as positive approaches that have been successful in the past and can be implemented for this particular product launch.

I shall identify the role of marketing strategy in business, describe the product that I will advise the client on marketing, give an insight into the history of the games console market, describe my marketing plan in detail and end with my conclusion.

Marketing Definition

Marketing is part of the process of production and exchange that is concerned with identifying, anticipating and meeting the needs of customers in such a way as to make a profit for the organisation. Marketing includes the activities of all those engaged in the transfer of goods from producer to consumer; not only those who buy and sell directly but also those who promote the product. The marketing and branding of a product has become as important as the manufacturing of the goods. It is estimated in the United States that approximately 50% of the retail price paid for a commodity is made up of the cost of marketing.^[1] It is now accepted practice to hire independent companies to create and produce the marketing plan for a product or service. These marketing companies include BBDO, Saatchi & Saatchi and JWT (formerly J. Walter Thompson) who between them have marketed brands such as Pepsi (BBDO), British Airways (Saatchi & Saatchi) and HSBC (JWT)^[2]. Millions of pounds are poured into these companies (or the brand’s own marketing department) to identify the target audience for the product through market research and then advertise the product accordingly. This can be done on a global scale such as worldwide television advertising or through a narrow targeted campaign in specialist magazines.

This concept of marketing works on a principle that the consumer is persuaded that they need the new product even though the product (or service) that they currently own or subscribe to is satisfactory to them. The marketing company will try to tap into the consumer’s collective psyche and identify what they feel they are missing. The new product will somehow try to fill this void in the customer’s life; even though the customer does not yet realise they have this void. This can be demonstrated by Nicolas Hayek, the creator of the Swatch watch, in his vision of his product’s success: “We are offering our personal culture. If it were just a fashion item it could be easily copied, but Swatch have tapped deep into the roots of change, to respond to the feelings of wanting to be identified with what you do”.^[3]

Product Description

The Microsoft Xbox 360 will be the latest edition to the established world of video game consoles. Following on from the launch of the original Xbox in 2001 Microsoft have improved the technical specifications as well as the aesthetics in the product’s design. The new Xbox 360 shall rival modern personal computers with its three IBM 3.2 GHz computer processing units and 500MHz graphics processor. The console shall allow the owner the option of adding a 20Gb removable hard drive and will be ‘internet ready’ for online gaming. The design of the Xbox 360 has been made to appear ‘uncluttered’ and the hourglass figure seems to show the console “holding it’s breath before exhaling”.^[4] The fascia can also be swapped to customise the console and create a unique design (however, as there are only four different custom fascias currently available from Microsoft there is a distinct lack of personal ‘uniqueness’).

The Xbox 360 is set to replace the original Xbox but its creators Microsoft know that it will have to compete with the two other major rivals in the gaming industry; Sony and Nintendo. Sony is developing the Playstation 3 and Nintendo president Satoru Iwata has announced the development of a new console, codenamed “Revolution”.^[5]

The release date of the Xbox 360 in the UK has been set for 2 December 2005 (it is released in the USA on November 22 and in Japan on 10 December). This is at least two months before the Playstation 3 predicted launch and at least six months before Nintendo’s release. Speaking at the ELSPA International Games Summit in London in June 2005, Peter Moore, the corporate vice president of worldwide marketing and publishing of the Xbox 360, said that his target was to sell 10 million consoles around the world in the first twelve to sixteen months of launch. He has now triumphantly added that this figure will be closer to 11 million units. This is an exuberant claim considering that the original Xbox only sold 20 million in its first three years. However, this prediction could be accurate as the pre-ordered consoles have already sold out online, forcing the largest retailer in the United States, Wal-Mart, to state on their company website that consumers line up outside its stores at midnight on November 22, the date it will be released in the United States. Another major online distributor, Amazon.com, have also told consumers in the United Kingdom they may not be able to get an Xbox 360 before the Christmas holidays.^[6]

Taking these factors into consideration it appears as if the Xbox 360 definitely has a market around the world and in the UK. Microsoft is a globally recognised company and already dominates the personal computer (PC) market. This, their second entrant into the video games console market, will be a definitive blow to the current market leaders Sony and it is hoped that the shift in power will see Microsoft take a seat on the throne of video games consoles to sit alongside their PC throne.

Console History

The history of video games consoles can be traced back to the United States. In 1977 Atari launched their first games console, the Atari 2600. Originally known as the Atari VCS (Video Computer System) the console’s sales peaked in 1982 with around 9 million units sold. In 1983 the Nintendo Entertainment System (NES) was launched in Japan. This 8-bit processor unit became the most successful games console of its time in Asia and North America and introduced Mario and Donkey Kong to the world. In 1985 the Sega Master System was released in the United States to compete in the 8-bit console market. These two machines fought head-to-head until their 16-bit successors were introduced; the Super Nintendo Entertainment System (SNES) and the Sega Mega Drive (or Genesis) in the early 1990’s. The mid-nineties saw the introduction of the new 32-bit machines; Sony’s Playstation, Sega’s Saturn and Nintendo’s N64. Sony’s Playstation had become the market leader and eventually forced Sega completely out of the console race. The next generation of consoles released at the end of the 1990’s and beginning of the new millennium saw Sony’s PS2 (Playstation 2), Nintendo’s Gamecube and Microsoft’s Xbox enter consumer’s homes. Sony was still the brand leader with the largest number of software titles available for their machine.

The global market for games consoles accumulated just under a staggering £2000 million in 2002.^[7] With sales of the new generation consoles such as the Xbox 360, PS3 and Revolution these figures could very well soar even higher. According to their company websites, at the end of 2004 Sony had sold 81,390,000 PS2 units, Microsoft had sold 19,900,000 original Xbox units and Nintendo had sold 18,020,000 Gamecube units. That is a combined total of almost 120 million consoles.^[8]

Marketing Plan

The research into the actual product and the history of video games consoles as a whole has cemented the fact that there is definitely a market for the Xbox 360; and this is a growing market. With that knowledge I would create a market research campaign that would provide me with the information on who the target consumers were. This could be done with researchers carrying clipboards in high streets but I feel that the best way to receive information would be to target potential customers on a larger scale. This could be done with questionnaires within competitions in specialised video game magazines or websites; a concealed direct response marketing campaign. The prize would be a brand new Xbox 360. To win this prize the entrant would answer questions about their age, their job, where they live, etc. There would be specific questions which would allow the results to show the different type of consumer. Based on personal knowledge I would categorise the customers into three distinct groups: the ‘dedicated gamer’; the ‘must-have new technology’ buyer; and the ‘children’ that have the product bought for them by their parents. Using this information I would know who the marketing and advertising would be aimed at. It would then be a case of working out how to sell it to them.

The main advantage the Xbox 360 has over its competition is the release date. This has to be its unique selling point (USP). Whereas Sony are still finalising the microchip for their PS3 and Nintendo are still in the first prototype stages, Microsoft have a product that is completely ready for the market. The timing of the launch is deliberate for Christmas and it is expected to be this year’s ‘must have present’. The fact that the competition will not be releasing their consoles until the New Year means that Microsoft have the entire Christmas period almost to themselves (apart from Sony’s handheld console, the PSP). This marketing strategy is a masterstroke as it relies on the fact that people will always make luxury impulse buys around Christmas and that with the lack of any alternative sales should be extremely high.

The second most important factor with the Xbox 360 is the fact that it is the first of the new generation of consoles. These new consoles are superior to the current models and even beat PCs with their hardware specifications. The Xbox 360 will allow the customer to plug it into their broadband network and play online with other gamers. In a recent NTL press release it was reported that “46% of broadband users have a games console – of these a third is interested in connecting their console to the broadband network.”^[9] With the increase of sales of online-capable consoles this figure will dramatically rise. This rise in online gamers will also be boosted by more accessible broadband networks and fees. In April 2004 there were more than eight million homes with broadband connections in the UK and 250,000 new households were signing up for broadband each month.^[10] This means that at the current rate there will be over 13 million homes with broadband by the end of 2006. Taking NTL’s estimation into consideration there will be around 2 million gamers playing online by Christmas next year. This should only be the tip of the iceberg for the online gaming market and the release of the Xbox 360 will be the first of the new consoles to tap into this market.

The third most important factor in the marketing plan is to use the Microsoft brand as a positive selling point. Brand advertising like this is something that a global company like Microsoft can afford with annual profits of £45 billion predicted for June 2006.^[11] However, this is a double edged sword in terms of company identity. The negative side is that the company is faceless (or in this case run by egomaniac Bill Gates) and cares more for its profits than its customers. The other side of the argument is that the company can fall back on its vast amount of knowledge and background in the industry; this is the side of the company that will be marketed to the public.

Taking these three aspects as the spearhead of the marketing strategy for the Xbox 360 I would instigate an aggressive and extensive television and cinema advertising campaign. These commercials would follow the AIDA principle (Attention, Interest, Desire and Action). The first campaign will be aimed at the grabbing the attention of the serious gamer showing off the impressive graphics of the most popular games and creating an interest in the product (titles including Lara Croft Tomb Raider: Legend, Superman Returns and King Kong would certainly whet appetites); another campaign designed for the ‘must have the newest toy’ audience focusing on the design aspect of the console will create the desire to own it (specifications as well as the styling); and the third campaign will express the importance of the Xbox 360 as the ‘must have’ Christmas present. This last advertising campaign will be aimed at children and will feature advertisements running on weekends and after school on weekdays and motivate the parents into the action of buying the product. The combination of the serious gamer, the house-proud family and the wide-eyed children shall certainly create a ‘buzz’ of the product before Christmas. After Christmas the commercials will adapt to these new customers and the potential customers who are waiting for the release of the Sony product. Extensive television advertising of the games currently available (promoting the software to sell the hardware) shall identify the fact that the consumer could still be waiting a long time for the competitors to release their consoles.

Another major marketing ploy would be to physically demonstrate the Xbox 360 to as many people as possible. This would use direct response marketing and would mean organising a full tour of the country with demonstration models of the console. This would include, at its basic level, shop demonstration models where the customers could sample the console for a limited time. However, for something as important as the UK launch of the Xbox 360 there should be an equally important demonstration. This would take place at designated areas around the country that potential customers would be able to reach; and there should be as many potential customers as possible present allowing the company to receive a direct response from the public. Organised events such as computer shows will include a large number of prospective buyers. But the demonstrations could also be held for different sectors of society; a football match, a music festival, shopping centres, etc. The idea will be not only try and persuade video games players to buy the console but people who do not fall into the three categories I have mentioned. By allowing a ‘floating’ customer (that is someone who would not necessarily feel the need to buy a console) the opportunity to discover the Xbox 360 firsthand the campaign will access more potential customers. Where the Sony Playstation (and later on the PS2) succeeded was to approach the non-gaming public with titles that were not all about football, cars or guns but about dancing, singing and interaction. This idea of including non-gamers could be the difference between the 81 million sales of the PS2 and the 20 million sales of the original Xbox. This countrywide demonstration should be used alongside the television and cinema advertising campaign wherein the dates and places of the ‘demonstration road shows’ are mentioned at the end of the advertisement.

The final part of the marketing strategy will take place on the internet. A high percentage of customers who own a video games console will also use the internet regularly. The internet can allow the potential customer to find out more information on the product in their own time; they do not need to be sat in front of a television at the exact moment that the advertisement is shown, nor do they need to be at the demonstration show. They can download images of the console or demos of the games on offer. They can read the literature or the specifications online. This is a passive form of advertising, but it is one that compliments the other two campaigns perfectly. This is where the more level-headed customer will compare products and work out how and where to buy one. The website can also direct the consumer straight to the till. This is something that the television and cinema campaigns can not do; they can only persuade the customer that they want one. The demonstration shows can include representatives (or sales people) who can get people to pre-order a console but this could be seen as being high-pressure sales tactics. Therefore the internet is a perfect place to get people to watch the advertisements, review the demonstrations and be gently nudged to buy in their own time. It is also an ideal arena to adjust the pricing of the product in relation to the competition. Because the Xbox is the first new generation console to be released the original price can reflect this, however, when Sony and Nintendo launch their consoles the price of the Xbox can be lowered to scupper the competitors launch; this would allow for more sales and hopefully take a generous percentage of customers away from the competition.

Conclusion

I believe that my marketing plan would cater well for the client. I have taken into consideration a SWOT analysis which has allowed me to analyse the strengths, weaknesses, opportunities and threats to a business from the competition. I have also researched the Marketing Mix of product, price, promotion and place to carry out my business marketing strategy. I feel confident that the combination of market research, product identity, competition examination and strategic marketing planning will allow the client to launch their product to a receptive consumer base before the competition can release their product and, with a tactical price cut, after the competition release their product. This will make the Xbox 360 the market leader well into the next year.

Bibliography

Blois, Keith (2000) The Oxford Textbook of Marketing Oxford University Press

Boone, Louis & Kurtz, David (2004) Contemporary Marketing South Western College Publishing

Taken from Xbox 360 press release www.xbox.com

Taken from Broadband Press Release by NTL (3 March 2004)

Taken from the Ofcom Internet and Broadband Update Report (April 2004)

Ad Brands www.adbrands.net

Bloomberg www.bloomberg.com

DFC Intelligence website www.dfcint.com

Microsoft www.microsoft.com

Nintendo www.nintendo.com

Sony www.playsation.com

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Footnotes

^[1] Louis Boone & David Kurtz (2004) Contemporary Marketing South Western College Publishing

^[2] Taken from AdBrands website www.adbrands.net

^[3] Blois, Keith (2000) The Oxford Textbook of Marketing Oxford University Press

^[4] Taken from Xbox 360 press release www.xbox.com

^[5] Satoru Iwata speaking at a Nintendo press conference in 2004.

^[6] Taken from a news report from Bloomberg website www.bloomberg.com

^[7] According to market research analysts DFC Intelligence website www.dfcint.com

^[8] Taken from company websites www.playstation.com www.microsoft.com/xbox www.nintendo.com

^[9] Taken from Broadband Press Release by NTL (3 March 2004)

^[10] Taken from the Ofcom Internet and Broadband Update Report (April 2004)

^[11] Taken from Microsoft Annual General Meeting press release on www.microsoft.com