Competitive Markets and Marketing Strategies

Solution Preview

KEY ELEMENTS OF MICROSOFT'S MARKETING STRATEGY FOR Xbox 360.
1. "Side step the industry shindig and talk directly to potential consumers": Given what we know about the expected timing of the Xbox 360 release (November), it's early to be putting this product directly in front of consumers. The direct-to-consumer marketing hype generally occurs a few months prior to console launch. Microsoft's early launch risks "killing its existing hardware line sales and stunting software sales" as consumers begin to delay purchases in anticipation of the $300 to $400 they'll have to shell out later this year. In other words, Microsoft appears willing to jeopardize first-generation Xbox sales in order to ensure the success of the Xbox 360. They're hurting themselves, but they hope to hurt Sony and Nintendo even more by locking consumers into an affinity for the Xbox 360 earlier than either of these competitors.
2. "Reduce the classic five-year game console cycle": We have to disagree with Forrester on this one. Microsoft doesn't want to shorten console lifecycles. That would be suicidal, as manufacturers tend to lose money on hardware in order to reap big rewards on software sales. A 5-year console lifecycle allows Microsoft, Sony and Nintendo to milk those software revenues before they have to shell out again on costly console development and production. What Forrester really meant to say is that Microsoft doesn't want to be the last one out of the gate this time around. They made that mistake by releasing the Xbox in 2001 giving Sony a huge lead in living room penetration.
3. "Build a frenzy of community speculation and support": Well, duh. Which console manufacturer doesn't want this? Still, Forrester gives Microsoft's marketing machine deserves props for building "a frenzy" over the past six months "carefully fed by occasional press quotes from Bill Gates, leaked images, and viral messaging spread via Microsoft's "ourcolony.net" site."
4. "Offset some of its negative branding in the PC market": According to Forrester, Microsoft's approach with this gamers-first approach should win them the goodwill of the consumer market which tends to view Microsoft as the intractable monopolist.
5. "Break the new console out of the gaming ghetto": Microsoft has signed an agreement with Samsung to "co-locate next-generation Xboxes with [Samsung's] high-definition TVs in retail stores" which helps the company's product escape the crowded gaming aisles and sit on shelves free of Sony and Nintendo consoles. The MTV launch is also an attempt to broaden the gamer market by changing the "games are for geeks" stereotype that still tends to plague the industry and depress sales. Microsoft's taking the Xbox 360 to MTV is like that seminal moment in Bill Clinton's 1992 campaign in which he played the Sax on MTV and answered questions about his underwear. He became hip and made politics an acceptable activity for the cool kids. Clinton's campaign credited that appearance with giving the campaign a boost, and you can bet that the MS marketing gurus were thinking the same thing when they put this event together.
MOST OF THESE ELEMENTS ARE DIFFERENT FROM THE EARLIER MICROSOFT ROLLOUTS
IN THE PAST MICROSOFT HAS USED THE POWER OF COMPLEMENTS
The power of complements is best described by the Microsoft example: At the time of the U.S. Justice Department's landmark antitrust case against Microsoft, the software firm was selling its Windows operating system to computer manufacturers for an extremely low price given the company's dominance in the market. At the same time, it was charging significantly more for its Microsoft Office application suite. Given that both products had comparable market shares, why did Microsoft charge only about $60 for Windows - its "base" product - instead of the $1,800 that many estimate it could have demanded, and why did it choose to price Office - the "complementary" good - at nearly four times as much? Firms ...