MICROSOFT

CORPORATION

Entertainment Marketing

Table of Contents
P&G selling format .......................................................................................................................... 3 Company and industry analysis ........................................................................................................ 4 External environment ................................................................................................................... 4 Internal environment .................................................................................................................... 5 Corporate objectives ......................................................................................................................... 5 Marketing strategy............................................................................................................................ 6 Targeting, segmenting and positioning the product. .................................................................... 6 4Ps ............................................................................................................................................... 7 Product ..................................................................................................................................... 7 Price .......................................................................................................................................... 8 Distribution (Place) .................................................................................................................. 8 Promotion ................................................................................................................................. 8 Budget ............................................................................................................................................ 10

P&G selling format

Situation

Microsoft is a leader in the software and hardware development industry. We will focus on the entertainment division of their operations, as it is a growing segment within their company. The games consoles industry is also projected to grow until 2016 and has a good entry potential, as the threats of new entrants, substitutes, buyer and supplier power and industry rivalry are moderate. The Idea

The company wishes to launch a new game console including a virtual reality helmet, as well as additional differentiated content such as on-demand movies, TV shows and music. How it works

The new Xbox system (console and helmet) is a revolutionary product making the gaming experience as realistic as possible. It provides the customer with a unique, customised experience, which makes it very valuable in todays entertainment industry. Why its right Outside the box is where the future will be created1: virtual reality is finally accessible thanks to the recent rise in technology. The use of on-demand music, TV shows and movies through partnerships, alliances and licensing with companies such as ITunes and Netflix will also help further differentiate the product from its competitors and appeal to many different customers. The new Xbox system will show convergence: uniting audio, video and data communications into a single source, on a single device, delivered by a single connection. Previous game consoles have been very successful, and sales of Microsofts Xbox 360 overtook Sonys PS3 sales in 2011, this new innovative console will be very successful amongst its target audience of young adults, families and gamers in general. Next steps and timing

The next steps will be building an advertising campaign for the new game console, through the use of offline and online levers. The campaign should begin in the year preceding the launch of the console, with new advertisements released periodically, both online and offline.

Intergalactic thinking

Company and industry analysis

The Microsoft Corporation develops hardware, as well as software products and services, and is one of the leaders in the industry. For the purpose of this assignment, we will focus on the entertainment division of the companys activities, and more specifically, games consoles. In 2011, Microsoft recorded a 40% increase in revenues from its entertainment and devices division compared to 2010, totaling $8,716 million in revenues. Key products of this division are the Xbox 360 and Kinect, which provide children, families and individuals in general with entertainment.

External environment
There has been 5% growth in the games consoles industry in year 2011, and the growth rate is expected to increase to more than 6% in year 2016. Market value was estimated at more than $26 million in year 2011 (see appendix 1). The main countries in which Microsoft and competitors operates regarding games consoles are: North America (42%), Europe (40%) and Asia-Pacific (14%), (see appendix 2). The market is attractive, especially for Microsoft, as they entered the market in 2000 with the first Xbox model, and are now one of the three main players on the market, alongside Sony and Nintendo. Recently, Xbox 360 sales overtook Sonys Playstation 3 sales. However, the Wii still boasts most overall sales. Overall, there is a moderate degree of rivalry within the industry, new entrants should not be considered as a threat to companies such as Microsoft, and buyer and supplier power are limited. Diversifying, especially through the development of online sales is essential for all leaders in the industry who wish to maintain growth.

Internal environment
Microsoft has vertically integrated offerings: the company offers content, distribution and platform in one console. Sony could take the d-entertainment world by storm if it could () complete the chain of content, distribution and platform. The same concept applies to Microsoft, and it is one of their major strengths. The company also benefits from strong margins and cash flows. However, the cost of revenue in the entertainment division has also increased.

Corporate objectives
Keeping all this information in mind, Microsoft needs to formulate its corporate objectives: The entertainment industry is now the driving force for new technology, as defense used to be, and it is true that Microsoft should focus on innovative products, especially in the games consoles industry. Innovation is a strategic imperative: by innovating, Microsoft is taking the lead and comparative advantage against its competitors Sony and Nintendo. The company should make breakthrough innovation a strategic and cultural priority. Successful companies, no matter what the source of their capabilities, are pretty good at responding to evolutionary changes in their markets, that is exactly what Microsoft is doing: taking advantage of new opportunities, we refer to it as sustaining innovation rather than disruptive innovation. Even though launching this new console might be considered as a disruptive innovation, it should not be, as the product will be providing something better than had previously been available. That is why a new game console with a virtual reality (VR) helmet, and increased functionalities, such as movies, TV shows and music on demand is the perfect fit. It follows both a product development (improvements and product-line extensions) and diversification strategy (concentric diversification, new product into a related business), according to the Ansoff matrix. If we take the Cirque du Soleil example, we see that they were quite distinct from the others in

the business, and following a differentiation strategy. A business model likely to be successful opens the media experience, opens content reserves, opens content creation and distribution, opens content packaging, bundling and sales strategies. Microsoft could develop a blue ocean strategy: competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space. Kinect already changed the way gamers interacted with the gaming console, and the virtual reality helmet will completely revolutionize the gaming process, thus creating new market space for Microsoft to enter, and making the competition irrelevant. Furthermore, they need to pursue both a low cost and differentiation strategy. This might be difficult at first, but with economies of scale, costs will be reduced over time.

Marketing strategy
Targeting, segmenting and positioning the product.
The new Xbox system will provide a realistic gaming experience that might appeal to young adults, rather than young children, as the immersive play will be more in line with FPS (first person shooter games), or RPGs (role playing games), usually aimed at an older, more mature audience. However, many family games will also benefit from the virtual reality helmet: sport games, dance and music games, etc. The product will target both these segments, and also rely on geographic (USA and Europe mainly), demographic and behavioural criteria. In order to appeal to fans and customers, Microsoft need to consider how their brand can reflect the way their targets express a virtue, the new Xbox system aims at being the coolest game console on the market. Furthermore, the company needs to understand its fans, calculate the number of people who buy games and games consoles (find a representative sample, collect data, target and customize

the product to their needs). In the end, mass appeal is what show business is about Moreover, social networks such as Facebook and Twitter have to be taken into account, as the value of a Facebook fan is estimated at $136.38. The Xbox has over 19 million fans on Facebook and over 700,000 followers on Twitter, who will all spread the word once the console is advertised.

4Ps
Product As previously mentioned, the new product will be a new games console with increased and new functionalities, including a virtual reality helmet.

The new Xbox will sell an experience, rather than a good or a service. However, it will not be a traditional experience, such as going to a theme park. Instead, customers will be able to create their own experience with the product: from now on, leading-edge companies-whether they sell to consumers or businesses-will find that the next competitive battleground lies in staging experiences, and that is exactly what the new virtual reality console aims at doing: creating a unique gaming experience for each of its customers. In addition, selling experiences enables the company to charge more money, thus increasing profits. Furthermore, new technologies, in particular, encourage whole new genres of experience, such as interactive games (), and virtual reality. The quality of the new game system (console and virtual reality helmet) will be very high, superior to that of its competitors, and will provide new features (on-demand movies, music and TV shows) to its customers. The new system will aim at creating convergence: it will combine TV, movies, internet video and music: one stream of d-entertainment: accessible on a cloud

through a single connection. Microsoft (and Xbox) already have a strong brand image and equity, which will only be reinforced by the product launch. The packaging and labeling will remain relatively similar to what was previously done: a cardboard box containing console, joysticks and helmet. Finally, after-sale services will also be available for the customer (product guarantees, help with setting up and using the VR helmet). Price Pricing the product is another important step for the company, the cost-oriented method of pricing would be the best, at least at the launch of the product. Seeing as the product is very innovative, Microsoft cannot yet base its prices on that of the competition (although it should adopt this strategy in the long-term). The company will add a certain mark-up to the production cost of the product in order to obtain the final selling price. In our case, the price should be slightly higher than the latest console released by Sony and Nintendo: about $600. Microsoft will also launch games for the new console, and some of them (especially indie-type games), might benefit from a pay what you want system, providing there is a minimum fee. Distribution (Place) In order to increase the availability of the product, it will be available through multiple channels: a variety of retailers, both online: on Amazon for instance, and offline: various game stores and electronics shops, as well as in department stores such as Wal-Mart and Carrefour. A number of trained professionals will be sent to shops to organise demonstrations and to explain how the product works, in order to ensure consumer satisfaction. Promotion The promotion mix will be made of advertising, sales promotion and public relations. We have previously defined the target audience as mainly teenagers, young adults and families.

Advertising will be mainly done through TV, radio and billboards (offline levers) and online advertising (YouTube could play a very important role, as well as social media sites such as Facebook and Twitter: Our survey suggests personal PC time now rivals TV time, with 71 percent of respondents using the Internet more than two hours per day, versus just 48 percent spending equivalent time watching TV.) Sales promotion will be achieved through the use of bundles: Game console with specific games, as well as free use and demonstrations of the new system in shops. Public relations (mainly sponsorships) will also play an important role: sponsorship deals (especially for the games released on the new system), in which celebrities from the sport industry could endorse the product would be an efficient way to advertise the product. There are also three main stages to the promotion of the product: awareness, exploration and commitment. First, awareness means making the customers aware that a new Xbox system will be released: in our case, the Xbox system is an innovation, as it comes with the VR helmet, it will instantly interest fans of the brand and gamers in general, that is why reach (the % of people in the target, who see the spot at least once) is more important than frequency. Second, exploration: making sure customers have a notion of what the new system is about, how it works and making them want to buy the product. It will also enable word-of-mouth or growing buzz, especially online. Finally, commitment: potential customers want to buy the product, know exactly how it works and can recommend it and pre-purchase it. Online marketing will also play a major role in the promotion of the new system: a website will be created specifically for the new product, with interactive games, explanations on how it works and demonstrations. Products that are seen as cutting-edge, for example, match up well

with the environment of the Web. A competition will also be launched online, to win free game consoles and to be able to try them out before the general public. Microsoft will also license online content from Netflix and ITunes, so users can enjoy ondemand movies, TV shows and music. Microsoft will be the licensee in this case, or it could create its own platforms. However, licensing content would reduce the risk and cost of establishing a brand and ITunes and Netflix are already meaningful to consumers. On the other hand, Microsoft will also license its own video game content (characters, logos, etc.), as that is a sizeable portion of their entertainment revenues. The company will have to make sure licensees agree to the following responsibilities: product manufacturing and packaging, marketing commitments, payment of royalties and advances. The company might even create strategic alliances with sponsorship partners, as long as both companies are strategically compatible. Finally, creating a loyal customer base is also very important to Microsoft. Loyalty and reward programs such as the Xbox Live Rewards enable players to accumulate points and spend them on goods in the Xbox Live Marketplace, thus creating loyalty to the brand and game console.

Budget
The aim of any business is to make money now (financial) or in the future (strategic). However, the product is still in its experimental stages, and costs are very hard to estimate. We can assume that the game console will not yield profits for Microsoft until it reaches sufficient economies of scale and can recoup its losses. Most of the profits will be made through licensing agreements with other companies, and software development.

Appendices Appendix 1: Market value forecast for the games consoles industry, source: MarketLine

Appendix 2: Geography segmentation