Assessed Xbox 360 against PlayStation 3

¶ … marketing audit is to analyze marketing strengths and weaknesses of major players in the video game console industry. The two competitors that will be analyzed are the Xbox 360 and the PlayStation 3.

The video game console industry is a growth industry with three major players. It runs in cycles called generations and is currently in the 7th generation, with the 8th due sometime around 2010. Over 64 million units of 7th generation consoles have been sold. The Xbox 360, PlayStation 3 and Nintendo Wii are the major entries. Other consoles still exhibit strong sales as well - PS2, PSP among them - but they are all from the major manufacturers. There is competition from PC-based games. The economic factors that drive the industry include general economic health. Gaming competes with all other forms of entertainment for disposable income, therefore is subject to fluctuations in the amount of disposable income. Social factors such as demographic shifts, the physical isolation of suburbia and rise in sedentary lifestyles have contributed to the development of the market for video games.

The strengths of the Xbox 360 are its price point, its games and the financial backing of Microsoft. Weaknesses are its lack of profitability. There is an opportunity if Microsoft can develop 8th generation technology that changes the game the way that Wii did, or if it can again be a leader in securing the most desired games at the outset of the 8th generation. Its lack of profitability continues to threaten it, as does the likelihood of a strong Sony response to their loss of market share.

Strengths of the PS are its use as a Blu-Ray player and Sony's reputation. One of its weaknesses is its high price point, which has convinced many gamers to stick with the PS2. That, however, presents an opportunity for Sony because many PS2 users will be eager to trade up when the 8th generation arrives. A key threat, however, remains the high price point. This indicates a premium positioning strategy that has otherwise not been effectively communicated to the market.

III. Sony is pursuing a differentiation strategy. They are targeting the avid gamer who wants a superior machine and is willing to pay a premium for that. This market represents the top 25% or so of gamers, but is too large to be a niche market. The potential growth of this market is large. Technology is one of the key drivers in the industry. The gaming community continues to grow, moving more users into the high-end segment that Sony is trying to create. Sony also targets overseas markets. Xbox is pursuing a mass market strategy. Microsoft is selling the Xbox at a loss in order to increase its market share. The gaming market is the mass market, with a high degree of penetration in society at large. This represents the target market for Microsoft. It remains a growing market. The Xbox is not marketed overseas.

IV. The PS3 is positioned as a premium product, based on its technology. The Xbox is positioned more towards the mass market. Both are in the middle of their respective life cycles. PS3 is a significant technological upgrade over its predecessor; such that both are marketed simultaneously Xbox 360 was released too quickly and cannibalized sales of its predecessor. Both firms are expected to launch new consoles with the arrival of the 8th generation - this is the standard industry approach to innovation. In terms of pricing, PS3 is priced at a premium to its competitors, while Xbox 360 is priced within the standard range. Pricing strategy is related to the life cycle of the product - the old technology of the PS2 is still on the market, but at a discounted rate. Top prices are only used for the newest products. The central message of the promotional programs for both companies relate to the quality of the gaming experience that the console delivers, and the caliber off the games available for that system. Both firms use an array of distribution channels, focusing on large retail stores. There is an Internet strategy for both, focused on the presentation of information. Xbox also allows users to plug their system into the Internet and play games online. Sony runs a similar program called PlayStation Network. Both of these networks feed into the customer service strategy through the use of memberships. Beyond this, there is little in the way of relationship management.

V. The target of the Xbox website is the mass market. Images typically show families and multi-player scenes to reinforce the idea that the Xbox is for everyone. The main benefit being promoted is fun. There are few specific benefits listed and no testimonials on the website. There is only limited contact information provided. The PlayStation website is more focused on graphics and gameplay - indicative of their premium strategy and targeting of hardcore gamers. The main benefit promoted is a superior gaming experience. There is limited information touting the benefits and there are no testimonials. There is very limited contact information available.

Microsoft is very strong financially. They enjoy incredible margins on their products and have very strong returns on their equity, investment and assets. They are reasonably liquid, but have increased their debt significantly in the past couple of years. Sony, traditionally having been focused more on hardware than software, does not enjoy the same margins. Therefore, they are in a weaker financial position. They earn more modest returns than does Microsoft and are less liquid. They have, however, improved their bottom line in the past few years through incremental growth and cost controls. Sony has a higher debt-to-equity ratio than does Microsoft but has kept its debt ratio stable over the past five years.