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
2.1 Current marketing environment..............................................................2
2.2 Current Product Line...............................................................................2
2.3 Product Analysis......................................................................................3
2.4 Target Markets........................................................................................3
2.5 Competitive Analysis...............................................................................5
2.6 Product/Market Analysis Tools.................................................................5
2.7 SWOT Analysis.........................................................................................7
3 Objectives..............................................................................8
4 Competition...........................................................................8
4.1 Game console industry............................................................................8
4.2 Direct competitors...................................................................................9
4.3 Market concept of competition..............................................................10
5 Product - Unique selling proposition......................................11
6 Distribution..........................................................................12
6.1 Supply chain..........................................................................................12
6.2 Next generation supply chain................................................................13
6.3 Business Models....................................................................................14
7 Marketing Strategy...............................................................14

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 7.1 AIDA......................................................................................................16
8 Marketing Mix – Strategy of 4 Ps............................................17
8.1 Product..................................................................................................17
8.2 Price......................................................................................................17
8.3 Place......................................................................................................18
8.4 Promotion..............................................................................................18
9 Financial projections.............................................................18
10 Implementation controls......................................................19

1 Situation Analysis
2.1 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.

2.2 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 popular game console in
history, with over 110 million units shipped worldwide by November
2006.1
• 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,

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 viewing pictures and using Internet applications. Nowadays, the PSP is
the main competitor of Nintendo’s Game Boy and Nintendo DS.

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

2.4 Target Markets

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

2.4.1 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
main competitors.3

2.4.2 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 target segments
which it wants to attract.4

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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 young players and expands its business
vastly to a mainstream entertainment.5 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 video games.6
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.

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

2.4.4 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

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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.

2.4.5 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% compound annual rate.7

2.5 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 in November 2006 and November 2005
respectively.8
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 “4
Competition”.

2.6 Product/Market Analysis Tools

2.6.1 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 in the next years.9
The product life-cycle consists of four different stages:

- 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-ordered almost each 20 seconds
in Great Britain.10

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 - 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 in”7 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.

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 available in their shops.11 Although Sony sees the
reason for that in its optimized supply chain, the company has to consider
new marketing strategies to increase its sales.

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2.6.2 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 approach presented by Kotler.12
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 thousand) in
December 2006.13 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.

2.7 SWOT Analysis

The SWOT analysis is the overall evaluation of a company’s strengths,
weaknesses, opportunities, and threats.14 It is used as a framework to help an
organization develop 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.

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Figure 4: SWOT analysis for Sony’s PlayStation 3

3 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.
4 Competition
4.1 Game console industry
According to the industry concept of competition presented by Kotler15, 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.

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 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 years.16
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.

4.2 Direct competitors

The following section compares the direct competitors Nintendo, Microsoft
and Sony with regard to their products, prices, sales units and game range.

4.2.1 Product differentiation

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

Nintendo Wii Microsoft Xbox Sony PlayStation 3

360
First publication 19 November 2006 22 November 2005 11 November 2006 (Japan)
(USA) (USA)
Processor IBM Broadway Tri-Core Xenon PPC Cell PowerPC (3,2 GHz)
PowerPC (729 MHz) PowerPC (3,2 GHz)
Graphic chip ATI Hollywood (243 ATI Xenos (500 MHz) nvidia RSX (550 MHz)
MHz)
Drives Own format (Wii and CD, DVD (external HD- CD, DVD, Blu-ray
GameCube) DVD drive available)
Maximal video SDTV = 480p (NTSC) HDTV = 480p - 720p - HDTV = 480p - 720p - 1080i/p
quality or 576p (PAL/SECAM) 1080i/p (supports HDMI)
Back. yes yes yes
compatibility
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,
Extra feature: Wlan- Wireless Controller, IEEE
Adapter 802.11b/g (only premium
edition)

Furthermore, both competitors of Sony’s PS3 provide an internet platform:

• Microsoft: Xbox Live Arcade
Xbox Live Arcade (XBLA) is an online service that is used to distribute
video games to Xbox 360 owners. Thereby, Microsoft offers an Xbox
Live Marketplace, a virtual market place, where consumers can
download movie and game trailers, game demos, Xbox Live Arcade
games, gamer tag images, and Xbox 360 Dashboard themes.17 The
consumers can pay with Microsoft Points, which can be purchased by
credit cards.

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 • Nintendo: WiiConnect24
It allows distributing content such as software patches and updated
game contents while the Wii is on stand-bye.18

4.2.2 Price strategy

Nintendo offers the cheapest price in the game console market. Therefore,
the company dispense with some extra features such as DVD drives or HDTV
quality. Contrary, Sony’s PlayStation 3 offers the newest technology with a
plenty of accessories, but also the highest price. The following list shows the
current prices in January 2007:19

Nintendo Wii Microsoft Xbox 360 Sony PlayStation 3

Ca. 250 € 300 – 400 € (HDD-drive Basic edition: 500 €
costs 200 € extra) Premium edition: 600 €

4.2.3 Market share in Japan and U.S.

The following figures show how many game consoles each of the
manufacturers has sold in Japan and U.S. during the last months:20 21

Whereas Nintendo’s Wii was the market leader during the Christmas time in
Japan, Microsoft’s Xbox 360 could sell the most units in the United States.

4.2.4 Games
An important criterion for buyers is the volume of games which are available
for each game console. At the moment, Microsoft’s Xbox 360 consists of 82
exclusive games and 132 cross-platform games. In contrary, Nintendo offers
55 exclusive and 96 cross-platform games for its Wii. For Sony’s PlayStation
3, 43 exclusive and 77 cross-platform games are planned.

Figure 5: Available games for each console (Source GAMEZONE)22

4.3 Market concept of competition

Due to the fact, that the PlayStation 3 is more a multimedia centre than only
a game console, we have to consider more competitors as only game console
manufacturers. Therefore, we used the approach of Rayport and Jaworski to
identify direct and indirect competitors by mapping the buyer’s steps in using

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the product.23 The following figure shows the PS3’s direct and indirect
competitors:

Figure 6: Competitor Map – Sony PlayStation 3

Summarized, Sony’s PlayStation 3 competes not only with other video game
console companies, but also with PC manufactures and other high technology
producers.
Sony’s PS3 offers besides a Linux operating system a plenty of functionalities
such as Internet to attract previous PC users and to expand its market. This
approach is comparable with Coca-Cola which identifies milk, coffee, tea, and
water products as its main competitors.24
Finally, Figure 7 shows Sony’s market position with regard to technology and
price compared with its video game console competitors:

Figure 7 – Market position of the main video game consoles

5 Product - Unique selling proposition

The unique selling proposition is a marketing approach to promote a
product’s benefit and to convince customers that the company can deliver it.
For Sony’s PlayStation 3, the main benefit, especially compared with its
competitors, is its functionality as a multimedia centre and its state-of-the-art
technology. Nevertheless, Sony has to consider that its targeted consumers
are located in different market segments with different demands and wishes.
Therefore, the company has to develop different unique selling propositions.
First considering the video game hardcore fans segment, these costumers
want to have the best and newest technology. Due to the fact, that the PS3
fulfil these requirements at best compared with its competitors, Sony should
promote this in its advertisements, especially in game magazines.
Furthermore, Sony wants to attract also middle-age consumers and families.
The most benefit for these customers is to use the PlayStation 3 as a
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multimedia system which offers a variety of functionalities. Therefore, the
company should focus on its multimedia range.
Summarized, the company’s unique selling proposition should consist of
“newest technology” and “multimedia-functionality”.
To emphasize this, Sony uses a short slogan after every mention of its
products. In the United States, Sony evokes the following slogan: “Play
Beyond”. People should associate therewith that the PS3 is not only a game
console which enables playing video games, but also a system which allows
playing in High Digital quality and getting a feeling of reality. Furthermore,
the PS3 offers more than playing video games, it is a multimedia system that
can be used for different pleasures such as Internet surfing or watching
movies that can also be interpreted as a kind of playing.
However, Sony uses a different slogan for the European market. The reason
is that people with few English skills will not understand the impact of “Play
Beyond” or will be interpreted wrongly. Therefore, Sony uses the following
slogan in Europe: “This is living”. The slogan is really simple and uses words
which can be understood by not English-speakers. Consumers can associate
that the PS3 delivers a kind of living standard and ensures to enjoy living.
Furthermore, it’s a relation to PS3’s multimedia functionalities which are
desired for every household these days. It emphasizes that the game console
is the core of living room entertainment.

6 Distribution
6.1 Supply chain
With the video game industry being the fastest growing sector of the growing
entertainment industry, the industry’s revenue has now reached $26 billion in
annual revenue and there is currently no indication of decline in the industry.
So, in order to identify how the revenue is distributed, it's essential to look at
the supply chain of the entire PS3 business. As seen in the supply chain,
there are opportunities in many aspects of the console business, coming from
the actual console sales as well as extras such as games.

Figure 8: Original supply chain for video games.25

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The customers, as identified by our segmentation analysis table, are at the
end of the supply chain, and their consuming of video games are distributes
across several actors.
Additionally, the most known among the actors are of course the hardware
manufacturers, which include Sony, Nintendo and Microsoft. Except for the
revenue coming from the console sales, they also get about 20% of the
market price for the games, which are mostly sold in the growth level of the
product life-cycle. The additional revenue in the supply chain is split among
the other actors.
Looking more closely at the publishers and developers, we realize that the
publishers are likely to take a large portion of the revenue. Those are the
large international companies that have sufficient funds to build a distribution
network and employ developers to pull off new best-selling games for the
consoles. Hardware manufacturers usually try to pull off deals with these
companies when they identify potential best-selling games because the top
3.3% of the games bring in 55% of the sales revenue. For this reason, some
hardware manufacturers, most notable Microsoft, tend to buy top-creative
publishers to secure exclusive rights of new games for their console.
Because of the complexity with world-wide game launches, there are almost
always distribution partners in the chain, those accounts for an estimate of
10% of the shelf price.
Next are the retail channels, which include online stores as well as retail
stores. However, they are becoming increasingly bypassed in the supply
chain, as discussed in the next generation supply chain (described in detail
below). When they do exist in the supply chain though, they take an estimate
of 30% of the shelf price.
Developers are a mix of artists and engineers that create the actual games
played on the console. Typically, they are funded by the publishers and
together they take between 40 to 60% of the shelf price.
Notably, in recent years another actor have also entered the supply chain as
the industry have grown. Those are the middleware actors. Those create
reusable software that is used by developers to increase their productivity in
creating games. The reason for the shift towards middleware providers has to
do with shifting the focus away from technology, and re-using the technology
that is already out there.

6.2 Next generation supply chain

As discussed previously, there is a change in the supply chain taking place
due to the connectivity and Internet capabilities that are becoming an
increasingly integrated part of the console business. As illustrated in Figure 3,
we can see how several actors in the supply chain are suddenly not present.
Because of using Internet as an enabler of distributing and selling games, the
need for distribution and retail is almost gone, whereas a larger piece of the
revenue pie can be shared between the manufacturer (e.g. Sony) and the
publishers of the games. At the same time, the manufacturer can act as a
distributor because it’s the technology and technique they provide that will
actually distribute the game over the Internet to the customer. At the present
moment, it remains unclear how much Sony will charge for their part in this
supply chain, but it’s possible that it may be around 47%.

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Figure 9: Next generation supply chain with Internet as a distributing channel

6.3 Business Models

There are several business models contributing to the revenue income for the
PS3. Obviously, sales of the actual console initially generate the biggest
revenue. But, as reported by several news agencies, Sony actually makes a
loss on each console bought by a consumer. 26 As reported by several
sources, a PS3 costs between $725 and $905 to manufacture, but is sold for
$599 in the US market. The reason for the high manufacturing price is the
high cost of components such as the Blu-Ray DVD, XDR memory etc. (More
on that chapter 8).
To support several streams of revenue there are three business models for
distribution supported by the PS3. Since the console is making a loss per sold
unit, there are other ways for Sony to catch up on the income and make a
profit in the console business through other business models. The business
models are:
Business model Revenue Profit Potential
Profit
Console Sales Big Loss Low
Game sales Big Big Big
Developer license Likely to be quite Possibly big Big
sales big
PlayStation Unknown Unknown Big
Network (Internet
Gaming)

However, comparing the business models for the PS3 tells us that there are
several possible models for generating revenue and profit for the console.
Most notably, the Internet Gaming via the PlayStation network and the
developer licenses are possible sources of potential profit.

7 Marketing Strategy
The Playstation 3 has a broad marketing strategy set by Sony. Launched with
slogans such as “This is living” and “Play beyond”, Playstation 3 is aiming for
a large audience.

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Thereby, Sony will have to apply a different marketing strategy depending on
which level of the product-life-cycle the product currently placed in. For
example, at this initial state of introduction the most evident need is to
market the console itself, to make sure that it reaches as many customers as
possible. A suitable strategy for the first year is to get the message out about
the capabilities with the console, and a suitable channel for this message is
the kind of Internet forums and channels that teenagers and game-players
regularly visit, including MySpace, YouTube and Gaming magazine websites.
The greatest benefit from using MySpace as a communication channel is that
they reach potentially millions of interested customers and can thus get the
message out about the console and its possibilities in gaming and
entertainment.

Figure 10: MySpace website promotes the PS3

The idea with this way of communicating through marketing is to “inform,

entertain and encourage interaction and debate about all the different things
the PS3 can do” according to a marketing director at Sony. With this
particular way of communicating a marketing message, Sony hopes that the
PS3 will be the natural choice not only for hardcore games enthusiasts but
also anyone interested in the broad capabilities covered by the digital media
and content creation that the PS3 offers.
So far, the blog approach seems to be successful because an estimate of
86,000 users interacts on the official PS3 blog.
For the second year, there is big need to start marketing the games more
actively, to make sure the console owners buy as many games as possible.
This stage is characterized by growth and Sony needs to put a lot of effort
into taking advantage of the growth in the PS3 business. As seen in the
financial projections, there is a big need to get the largest parts of the
revenue from the game sales.
Throughout both years of the product life-cycle, there is a potential growth
level, which can be boosted by getting the message out about the games and
the game console. In both case the official webpage for the PS3 also works as
an important channel for communication to the customers.

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Figure 11: Official PS3 Website

By customizing the website to the customers depending on their country

origin, Sony makes sure they have a clear message customized for each
potential customer by letting the customer specify their region and as well as
country to get the information in their local language etc. The website
provides information about the PS3 specification, advertisement spots and a
list of all available games. Furthermore, users can sign in to get the newest
information about the PS3 via newsletter and they can also find answers for
Frequently Asked Questions (FAQ).

7.1 AIDA
By looking at the AIDA model that is suitable for the PS3, we’d expect it to
look like this:
A – Attention: Presentation of PS3 at exhibitions etc. Also activity on the
Internet attracts attention to gamers.
I – Interest: Demonstration of features and games on videos in blogs, on the
Internet etc.
D – Desire: People are impressed by the games and have a desire to own
the console to play the games.
A – Action: To lead customers toward taking action and buying the console
is an essential part, but in this case Sony may lag somehow because there is
a lack of consoles on the market right now. However, the possibility to pre-
order the console makes it possible for customers to take action without the
console being available yet.

16
8 Marketing Mix – Strategy of 4 Ps
The marketing mix is a set of marketing tools a company uses to pursue its
marketing objectives in the target markets. According to McCarthy, these
tools are classified in four groups called the 4 Ps of marketing: product, price,
place, and promotion.
The following chapter shows, what different marketing tools Sony uses in
each group to influence its buyers.

8.1 Product
Sony’s product strategy is to deliver the best quality and technology.
Therefore, the Sony PlayStation 3 supports features such as Blu-Ray Disc for
High Definition movies or HDMI connection for optimum output on HDTV.
Sony has to spend a lot of money in innovation and R&D to use all resources
which are included in its game console. For instance, the company has to
focus on the development of High Definition games to take advantage of the
fact that this new technology is possible with a PS3. Moreover, Sony’s
multimedia functionality is another characteristic to meet the needs of its
customers.
Furthermore, Sony holds on to its brand name PlayStation. The name stands
for Sony’s quality, technology, and market leadership which could be
achieved with its previous game consoles. Moreover, the name has a good
reputation and is associated with a high customer loyalty.
Additionally, the design of the Playstation 3 is modern and is available in
three neutral colours black, white, and silver. The size is like a common
entertainment device such as a DVD Player or Video recorder that
emphasizes the console’s variety of application possibilities. It can also be
placed horizontal or upright.
Finally, Sony offers a one year long warranty for its PS3.27

8.2 Price
Sony’s price strategy is adapted to its product. Due to the fact, that the PS3
offers the best technology and a plenty of functionalities, the price for it is
more expensive as the game consoles of its competitors. Nevertheless,
Sony’s high price is a character for its high product quality and the company
has to proclaim its high price together with its high technology.
Furthermore, Sony tries to adapt its price to the particular environment and
region. Whereas the PS3 premium edition costs only US$497 in Japan and
US$599 in the United States, the price for a PS3 in the Euro zone is about
US$787. Additionally, Sony adapts the PS3 price to different factors such as
income situation, taxes and currency conversions. For instance, its game
console will be more expense in Scandinavian countries and Great Britain,
and cheaper in countries such as Taiwan or Singapore.
Furthermore, Sony pursues a versioning price policy. According to Shapiro
and Varian, it involves offering a product line and let users choose the
version of the product most appropriate them.28 Consumers can decide if
they want to pay a higher price for the premium edition with some extra
features, or prefer a lower price with fewer extra features.
Additionally, Sony has to allow credits to its major retailers and to offer
discounts according to the quantity of sales.

17
8.3 Place
One part of Sony’s place strategy is to be the last one to release its game
console on the market. Sony has pursued this strategy already with its
previous consoles and it ensures that the product will be the product with the
newest technology on the market. Furthermore, Sony offers only a limited
quantity of products at the beginning of its rollout. This is a really powerful
marketing tool, because it ensures that early adopters really want to have
the product. Following such an approach, such people stand in lines for hours
in front of shops just to get one exemplar of the new PS3. It is important to
convince and get early adopters, because the long-term success of a new
product can be based on how those feel about it. A limited of products
creates a passion to get one and it results in communication about the
product. Early adopters speak about the product and promote it. They write
about the product in blogs, create web-sites and connect the product to
others in a way that other people will follow.
In contrary to its previous game consoles, Sony also provides the opportunity
to download games directly from an Internet-based platform accessible via its
PS3. Therewith, distribution costs can be reduced and Sony can offer a
customized variety of games. By using data mining, Sony also can collect
user data about downloaded games, create rankings and establish a market
research about players’ wishes.
More information about the distribution of the PS3 can be found in chapter “6
Distribution”.

8.4 Promotion
Sony’s most important promotion tool for its PlayStation 3 is the Internet. The
company offers a customized Webpage for each country. Furthermore, it
uses an approach to create social networks such as MySpace and blogs to
promote its product.
Additionally, Sony’s promotion strategy includes sponsoring. For instance, the
PlayStation 3 is an official sponsor of the UEFA Champions League. Thereby,
Sony’s PS3 is promoted by perimeter advertising boards and TV spots.
Finally, another important marketing tool is to present its product by
computer and video games trade shows. Chapter “Marketing Strategy”
includes more information about Sony’s promotion strategy.

9 Financial projections
Based on the cost of manufacturing the PS3 as well as figures reported by
news agencies, combined with our own estimations, we believe the financial
projections of the PS3 to be within the range of this data. Because a
prediction beyond the first year is difficult because of external attributes, we
have compiled the financial projections for the first year, which is usually the
year that defines the success or failure of a console.
Expenses Amount Volume Total For Sony
Research & $8bn $8bn $7bn
Development
Cost of Producing a ~$800 2mn $1.6bn $1.6bn
Unit
Marketing Expenses ~$90mn $90mn $80mn
Total: $8.68bn
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Income
Console Sales ~$550 15mn $8.25bn $4.95bn
Playstation Network ~$199 0.5mn $100mn $50mn
Developer licenses $90,000 8,000 $720mn $720mn
Sales of games $399 30mn $11.9bn $2.3bn
Total: $8.47bn

Profit: Income – Expenses: $8.68bn – $8.47 = -$200mn loss

As we can see from the table, Sony makes a loss of at least $200 per sold
unit. However, because of big incomes in sales of games most notable, it’s
possible to catch up on that loss. On the other hand, the research and
development cost expenses that Sony have had to invest to actually make
the console a reality are big, and the income need to cover for that as well,
but one need to keep in mind that this cost will be covered be several years
of sales, so the relatively small loss for the first year of $200 million will
easily get covered the next year when there are only small research and
development costs.

10 Implementation controls

IT systems, most importantly SCM and ERP systems can play an essential role
in ensuring that the sales and distribution channels of the PS3 are on track.
This way, managers at Sony will be able to monitor the sales on a day-to-day
basis, making sure that it meets expectations.

19
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Appendix

PS3 - specification
The following table provides an overview of the PlayStation 3 specifications
considering the two different editions:

Basic EditionPremium EditionCPUCell ProcessorCell

ProcessorGPURSX™RSX™SoundDolby 5.1 Ch, DTS, LPCM etcDolby 5.1 Ch, DTS, LPCM
etcMemory256MB XDR Main RAM, 256MB GDDR3 VRAM256MB XDR Main RAM, 256MB GDDR3
VRAMHDD2.5" Serial ATA (20GB)2.5" Serial ATA (60GB)I/OUSB 2.0 (x4)
USB 2.0 (x4)
MemoryStick
SD
CompactFlashCommunicationEthernet (x1/100BASE-TX, 1000BASE-T)
Bluetooth 2.0
Wireless ControllerEthernet (x1/100BASE-TX, 1000BASE-T)
Bluetooth 2.0
Wireless Controller
IEEE 802.11b/g AV OutputScreen Size 480i, 480p, 720p, 1080i, 1080p
HDMI OUT - (x1 /HDMI NextGen)
AV MULTI OUT (x1)
DIGITAL OUT (OPTICAL) (x1)Screen Size 480i, 480p, 720p, 1080i, 1080p
HDMI OUT - (x1 /HDMI NextGen)
AV MULTI OUT (x1)
DIGITAL OUT (OPTICAL) (x1)BD/DVD/CD Drive
(Read Only)Maximum Read Speed BD 2x (BD-ROM)
DVD 8x (DVD-ROM)
CD 24x (CD-ROM)
SACD 2xMaximum Read Speed BD 2x (BD-ROM)
DVD 8x (DVD-ROM)
CD 24x (CD-ROM)
SACD 2xDimensionsApprox. 325mm (W) x 98mm(H) x 274mm (D)Approx. 325mm (W) x
98mm(H) x 274mm (D)WeightApprox. 5KgApprox. 5Kg
Sony PlayStation, “http://eu.playstation.com/ps3/index.html?locale=en_GB”, accessed on
22.02.2007