PS3 Introduction to Sony Corporation Research Proposal

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This represents a risky move in this oligopolistic industry. The price of the PS3 was set at $499 for the 20 GB model and $599 for the 60 GB model. The Xbox360 is $200 less and the Wii was priced at $250 (Ono, 2006). Sony's goal with the pricing strategy was twofold -- to connote the premium nature of the product and to cover the costs. The cost structure of the Wii is less well-known, but Nintendo's business is game consoles. They are dependent on gaining market share, and their involvement in the Wii games indicates that console diffusion may be a loss leader to spur games sales. With the Xbox360, it is widely known that Microsoft is selling the product below cost. They were a late entrant into the console business and as a result have kept prices low in order to gain market share.

With respect to product, the PS3 has high-end technology to match its high end price tag. But the consumer perception of the technology is that it is not so superior as to justify the price of the console. This is one of the main reasons for the relatively slow diffusion of the PS3 into the marketplace. The other major product aspect of marketing video game consoles with respect to the games themselves. The most popular games can drive console sales. In part because of the PS3 trailed the Xbox360 in launch, the Microsoft console was able to secure better games, particularly in the early months of the seventh generation. Sony continues to lag its competitors in games -- as late as 2008 the best-selling Sony console games were all for the PS2 (Entertainment Software Association, 2008).

In terms of distribution, strategies within this industry are complicated. The firms involved are reticent to reveal the precise nature of their strategies, but the seventh generation has seen some interesting tactics. Microsoft apparently limited availability of the Xbox360, either on the production side or the distribution side, in order to feign the appearance on pent-up demand. Sony had its own distribution problems, and there were difficulties with availability during the launch period. In general, however, and certainly for all of the consoles presently on the market, availability is wide. The consoles are sold through a variety of mass market channels, including both bricks and mortar retailers and online. Most retail channels are through existing game stores, electronic entertainment outlets and major retail operators. In contrast to the Xbox360, the PS3 (along with other Sony and Nintendo products) is widely marketed in Asia and the rest of the world.

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Microsoft primarily markets its console in North America.

The final element of the marketing mix is promotion. The three main seventh generation consoles were each positioned differently in the marketplace, and these different positions were reflected in both the pricing and the promotion. Sony positioned the PS3 at the high end of all consoles currently on the market. They appeared to target the hardcore gamer, believing that this was the major segment within the gaming market. The Wii has since demonstrated that this was not as much the case as Sony may have believed. Nevertheless, the PS3 continues to be promoted as a high end product. Promotion today is mainly comprised of targeted ads, partnerships with different games and publishers, and with the Sony website and the PS Network.

Summary

The video game console industry is highly competitive. There are three firms in the industry, two of which are heavily involved in other lines of business and one of which (Nintendo) is primarily in the console business. Development in the industry is characterized by technological leaps known as generations, and the PS3 occupies the seventh generation along with the Xbox360 and the Wii.

The PS3 has been slow to gain traction in the industry. It lags its competitors in the seventh generation, and sells fewer units that its predecessors the PS2 and the PSP. Part of this can be attributed to the marketing strategy that Sony undertook. Sony priced the PS3 high in order to develop a premium position. This is matched with excellent technology, but consumer perception is that the PS3 is overpriced relative to the Xbox360. The Wii entered the market and found customers that were not hardcore gamers. The development of this market is not only giving the Wii substantial sales but is generating substantial goodwill for Nintendo.

Overall, the PS3 does still have some competitive advantages. But it has a high price and this has hampered sales. The PS3 is competing strictly in the video game console industry, as is the Xbox360. The Wii has succeeded in superceding both of those consoles by competing in the entertainment industry. The PS3 may be able to utilize its technology platform and Blu-Ray compatibility to move into a more mainstream market, but at present Sony seems determined to build the installed base slowly. Industry observers feel that the PS3 will not overtake industry leadership until at least 2011 and by then the eighth generation could once again alter the competitive landscape.

Appendix A:

SWOT Analysis

Strengths:

PS Network

Quality of console

Blu-Ray

Weaknesses:

High price

Weak sales

Games

Opportunities:.....

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