Apple Has Designed a New,

Apple has designed a new, mobile game console that it will market under the iPad brand, as iPad Game. This device will appeal to two main gaming demographics -- younger consumers for whom the purchase is a moderately involved one and older consumers for whom the purchase is a high involvement one. The latter demographic has more disposable income, the former is more impressionable with respect to Apple's branding. There are no significant differences with respect to gender or education within either target market.

The launch strategy will focus on saturation marketing and a strong brand emphasis. There is a major threat from the existing competitors within the industry, but Apple can counteract that with high levels of advertising expenditure and its powerful brand appeal. The company will utilize its existing distribution structure and price within the range of other consoles, slightly below the normal iPad price. As the device will not have many of the features of the iPad, no cannibalization is expected.

This product represents a major leap for Apple into a new business line, one with strong and wealthy competitors. However, the company believes that there is opportunity in consoles and that this business fits with Apple's traditional focus on consumer electronic devices and its more recent focus on the portable devices that consumers love. The iPad Game is going to be well-supported, and the company believes that even with these high costs it will contribute approximately $80 million in additional operating profit per year to the company.

II. The Challenge

The product that will be marketed is the iPad Game, a new product from Apple. Unlike most Apple products, the iPad Game will be test-marketed in Asia, as it was developed by the company's new Kuala Lumpur development office. The iPad Game is a portable video game console based on the iPad architecture. A typically revolutionary Apple product, the iPad Game fits into a new niche in consoles, delivering performance that is near that of a traditional console but in a portable format. Thus, it is vastly superior to PSP and other portable game systems, and the portability gives it an advantage over traditional consoles. The iPad Game is going to be the company's first foray into game consoles, a highly competitive industry with three major players already established. If the product is a success, Apple expects to proceed with the development of a full-sized console and a smaller portable console as well.

III Situation Analysis

Apple does not publicly state goals on its website, but the company is focused on designing, building and marketing consumer electronics products and on becoming a dominant company in the field. Apple is focused on consumer electronics such as computers, smartphones, tablet computers and mp3 players. The company is also focused on software, which it markets as complements to its hardware products.

Apple's corporate culture is a central element in its strategy. The company is highly secretive (Stone & Vance, 2009) and the culture is oriented towards promotion of the brand (Kahney, 2002).

Apple's market share varies considerably among its different products. In some instances, such as mp3 players and tablet computers, Apple holds a commanding share. The iPod has a market share in excess of 70% (Delahunty, 2009) and this is relatively stable. The iPad effectively launched its category, so while the market share is 73%, this figure is lower than historic levels and is dropping rapidly (Wilcox, 2011). The iPhone has a 25.2% share, good for third in the smartphone market and holding stable (the Independent, 2011). In computers, Apple's share is much lower, at 7.2%, trailing HP, Dell, Acer and Toshiba (Tilmann, 2010). While sales are growing, the MacOS has a microscopic share relative to Windows, and compared to the high market shares of other Apple products. Apple does not yet have a presence in game consoles.

The video game console industry is attractive, in part because of its high number of total customers. The console business in the U.S. is worth around $20 billion annually (Terdiman, 2010) and the Asian market is equally promising, driven by the strong Japanese market. The world market is expected to his $70 billion by 2015 (Takahashi, 2010). The market is divided among software (games) and hardware (consoles). The games users buy varies depending on whether the user is working with a console or computer, which has implications for the iPad Game in that its usage will vary depending on how it is perceived by customers (RocSearch, 2005). Two-thirds of households play video games; the average user age is 34 with a broad range at significant numbers. Sixty percent of the target market is male. Thus, the target market is broader than is often stereotyped, and this fuels sales in a wide variety of game types and strong growth on top of an installed customer base numbering in the tens of millions (ESA, 2010).

The key value drivers for console purchases are performance, game availability and other features. Thus, technological innovation and strategic partnerships with game producers are two essential keys to the successful launch of a new console concept. Users typically purchase the console that gives them the best access to the games that he or she wants, and will often use friends as a reference. Most gamers have tried the different consoles and chosen the one that he or she prefers.

There are three main competitors in the console business: Nintendo, Sony and Microsoft. The latter does not market the Xbox is Southeast Asia, but has a strong position in the U.S. market. While Nintendo is focused primarily on video games, the other two companies are large conglomerates that have vast financial resources from their other ventures that can be used to subsidize their console business. Nintendo has multiple products on the market and a long history of console excellence on which to draw. The three main companies lack significant weaknesses as each has made multi-billion dollar investments into their consoles. The market for consoles is roughly split along the following lines: Nintendo Wii (55% worldwide), Xbox 360 (25%), PS3 (20%) (Cavallaro, 2009). Devices other than consoles -- portables and iPhones among them -- account for a growing share of the video game industry (Appendix a) and this is where the iPad Game fits into the market.

Apple is a vertically integrated company, so there are few collaborators. To enter the video game business in a serious way, Apple will need to partner with game producers, however. The relatively simple games that are used on its current portable devices are not going to help the iPad Game capture market share away from traditional consoles and portables -- Apple will need partners to develop games specifically for the iPad Game that will serve to attract consumers to the iPad Game concept.

Apple has a number of strengths to work with. The company has cultivated a high degree of brand loyalty (Kahney, 2002) and this results in a ready-made market for new Apple releases (CBC, 2010). In addition, Apple can finance the venture with its ample war chest -- the company currently has $26 billion in cash and no long-term debt obligations (MSN Moneycentral, 2011). The company's ability to deliver innovative products that consumers want over the past ten years is a matter of public knowledge. It is hard to find weakness in Apple. There is informal debate about an abundance of corporate hubris or a dependence on CEO Steve Jobs (no author, 2010) but there is little of substance with which to work. Apple's financial statements and market cap over the past five years shows a company that has more than tripled sales (MSN Moneycentral, 2011), increased near-exponentially in value and has launched one hit product after another. Apple's dominance is evidence that it has few serious weaknesses at the present moment.

The external environment is generally favorable for Apple. The company faces few major political or legal risks, as evidenced by the lack of major legal actions taken against the company, including a lack of antitrust or other major political risk factors. While the prevailing economic environment in the U.S. is difficult, Apple's income statements indicate that the company has been completely recession-proof. That recovery is much stronger in China and Southeast Asia is a positive for Apple, as the corresponding per capita GDP increases will bring the company new customers.

The social environment has been a source of strength for Apple in recent years. The company's products are highly congruent with social trends towards mobile electronic usage, increased usage of devices for personal tasks, social networking and other broad trends on which Apple's products are built to capitalize. The social environment looks to continue to be favorable for Apple in the foreseeable future, with demographics indicating a large influx of young buyers from the baby boom echo generation in North America (Cordes, 2010). The technological environment is also favorable, primarily because Apple is an innovator at the front of changes in technology. Initiating technological change has been one of Apple's key success factors over the past decade. There is a risk, however, that the company begins to lag the pace of technological change, and in such a situation would see reduced relevance in its industries. What the PEST analysis shows is that in general the external environmental forces have either a favorable or neutral impact on Apple's operations. Traditional sources of external risk (political/legal) are minimal and the other key risk source (technological change) has traditionally been an area of strength for Apple. The trends for the future are positive, so Apple is likely to continue to succeed simply by staying the course.

In the external environment, a firm like Apple has innumerable opportunities. The ones most appealing are closely related to either Apple's technology or media properties. Extensions of Apple TV to compete with Netflix could be an opportunity. Video game consoles are a related business where Apple can succeed, just as rival Microsoft has. There remains significant room for growth both in personal computers and in many overseas markets, where Apple remains a niche product. The external environment contains many threats, however. Apple faces intense competition and many of its competitors can match its wealth, brand power and R&D capabilities. An example would be Google's Android, which has surpassed the iPhone in market share (the Independent, 2011). Samsung and other firms are a threat to the tablet business, and while a credible threat in mp3 players has yet to emerge, the possibility puts Apple's market share at risk. If Apple enters the game console business, all three competitors can be expected to react swiftly and strongly to keep Apple out of the market. There are potential threats to the company's trade secrets and there is the threat that brand power is diluted by a series of weaker products or backlash against the company's hubris by partners.

Based on the SWOT analysis, it is clear that Apple is a very strong competitor and its prospects are in general bright, given the plethora of strengths and dearth of weaknesses. However, competition in almost all of its businesses is intense, and the competitive landscape can shift quickly. This implies that Apple needs to consistently reinforce its strengths. The company has long thrived on its brand image (Kahney, 2002) and has recently thrived on technological innovation as well. If Apple can maintain industry leadership in both of these categories, it should be able to maintain its current status within the industry and enter new markets successfully. That is does not need to guard against significant threats beyond competition or shore up major weaknesses gives Apple the freedom to pursue a strategy based on reinforcing its strengths in order to exploit the opportunities that exist for it in the marketplace.

IV Market Segmentation

There are a number of segments within the video game console industry. Mainstream consoles are the largest segment (70%) with PCs and mobile devices being minor segments. With 67% market saturation, video games are distributed widely both in terms of age and gender, and in terms of geography as well with games popular in the Americas, Europe and Asia. The mobile gaming concept is expected to have two main market segments.

The first such segment consists of users who trade up from mobile devices. These consumers are expected to skew younger demographically, as younger consumers are more likely to use their mobile devices for gaming. They will be both male and female and will not have a significant skew in terms of education -- the product is expected to be fairly mass market. This group is expected to be roughly 60% of sales. They want more sophisticated games for mobile, and to be able to take their gaming systems with them to visit friends, or keep them entertained at school or on public transport. These consumers will use the console primarily for entertainment. They will not need significant support as they are very technologically savvy. These consumers are well familiar with the Apple brand -- word of mouth and traditional media promotions will be sufficient to raise awareness. This consumer group is going to be moderately price-sensitive -- gaming is important for them but they sometimes have low levels of disposable income. Despite this, the console is a moderate involvement purchase.

The second major segment of users is expected to comprise around 30% of the market. This group will be older gamers 35+ (adults over 50 comprise 25% of the total gaming market). This group also seeks entertainment, but will have less heavy usage than the first segment. This group is familiar with the Apple brand but is less likely to own an Apple product aside from perhaps an iPod. For this group, the video game console purchase is a high involvement purchase, even though this group has more disposable income. Once the purchase decision is made, however, this group tends to be less price sensitive because of its higher levels of disposable income.

V. Alternative Marketing Strategies

There are a number of marketing strategies for the iPad Game. As this is a new product, it could replace an existing product in the Apple lineup, it could be launched as an entirely new product or as a brand extension, and there is a decision that needs to be made with respect to how this product will be positioned within the context of the video game industry.

Replacing an existing product in the lineup is an option that appeals under two different circumstances, neither of which applies to Apple. The first circumstance is if there is an existing product that is at the end of the product life cycle and the new product represents an opportunity to renew growth. This is not the case with Apple -- all of its products are strong sellers and all appear to have years of useful life ahead of them. The second circumstance is if there is a shortage of resources for marketing products. With Apple's $26 billion cash balance, there is no shortage of resources for launching a new product -- funds need not come at the expense of existing products.

The branding alternatives are more complicated. Apple could launch the game console as a standalone product, for example the iGame, or it could launch it as a brand extension of an existing product such as the iPad. As a standalone product, this console would have to carve out its own niche in the industry but it would still have the strength of the Apple brand, which is more powerful than any of the individual product brands within the Apple family. A new brand essentially signals to the market that Apple is creating a new category for this product, and that has a certain allure. However, it takes more work to build the brand from scratch than to leverage the strength of an existing brand. The existing iPad brand is dominant in its category but is struggling with new competitors using the Android operating system from Google. Apple surely must expect iPad market share to fall considerably over the next couple of years. Introducing a version built specifically for gaming would strengthen the iPad brand at a time when it is vulnerable and would also lend brand power to the new product. This mutually beneficial situation may tip the scales towards what is effectively a co-branding arrangement between the iPad line and the new console.

The final set of alternatives that Apple needs to consider relate to the positioning of the console within the video game industry. In this, it is similar to the iPad in that it fits in a new niche that is yet unoccupied. This niche lies in between the 10% or so of game consumers who use mobile devices for their games and those consumers who use PCs or traditional consoles. The iPad Game fits in between these groups, combining advantages and disadvantages of each type of product. If Apple positions the new device as an alternative to existing mobile gaming, it would benefit from technological superiority but would suffer in terms of its price point. If Apple positions the new device vs. existing consoles it might match price but will deliver a slightly inferior gaming experience, albeit with mobility. If Apple positions the product as an extension of the iPad console, it would truly occupy new territory and it would be difficult to determine without a test market program how video game users would respond.

VI. Selected Marketing Strategy

The selected strategy is to position the new console as a gaming version of the iPad, called the iPad Game. This takes advantage of the mutually beneficial branding opportunity and highlights to consumers the unique nature of the product, distinct from either a gaming on mobile devices or traditional consoles. This strategy therefore offers the most upside for the device, and given Apple's strong brand loyalty and massive marketing budget capacity, optimism is a good approach for the firm to take -- failure is something the company has not experienced in many years.

The product itself is going to be based on the iPad hardware so will maintain a look and feel similar to the current iPad, but with remote controllers that interact with the device for gameplay and a couple of keys on the device that will help facilitate more complex gameplay. The product will have a proprietary operating system designed specifically to handle RAM-intensive games and the need for exceptional graphic capabilities. The product will come close to the existing capabilities of the current generation of consoles (PS3, Xbox 360, Wii) but with mobile capabilities. A standard one-year warranty will be offered, and only one product will be offered initially, as gamers will inherently need a high level of performance (the traditional differentiating factor between different versions of Apple products).

Apple does not traditionally price in line with the prices of its competitors. For the most part, its products are priced at a significant premium to those of competitors, but are backed by strong brand loyalty and other differentiating features. However, given the price point at which iPads are currently offered and the loss of market share that Sony suffered with its high price point on the PS3 -- it was forced to cut prices in recent years in order to restore lost share (Cho, 2007) -- pricing is going to be important. The iPad game will need to be priced at the low end of current iPad prices, or perhaps lower, in order to gain entry into the market. It is expected that a price point between $400-500 will give the iPad game a fighting chance. There will be no discounts of any sort offered, and no bundling will be required as the device will not have online capabilities, eliminating the need for a data plan.