Marketing the X-Box

Introduction The main aim of this project is to help me understand the marketing process, which is required to launch a new successful product. The new product I will be marketing is the Microsoft X Box. Millions of new products are launched every year worldwide. Most are unsuccessful and are taken off the market after a while. Without marketing a new product is very likely to fail. Microsoft needs to market their products because there is so much choice in the market. Marketing will give Microsoft a better understanding of the market and customers needs and wants. I will be acting as the marketing director within this company. Marketing is basically the management process, which is responsible for identifying potentially profitable products and them selling them to customers. Microsoft is a multi-national successful company with substantial profits and is aiming at a mass market with the X Box rather than a niche market. Microsoft will want to sell to as many places as possible. A marketing plan would help improve the company's performance and increase sales. There's a lot more to marketing than just advertising, marketing involves†¦ > Researching the market and finding out what customers want. > Developing and designing a product that satisfies customers and consumers. > Producing the right amount and to the right quality of the product. > Making sure that the customer is aware of the product and what its about. > Getting the price right so that the product is affordable to customers, but also allows the business to be profitable. > Ensuring that the product is on sale in places convenient to the customers. This can be summed up using a term called the marketing mix or the 4P's, place, product, price and promotion. Place A product is unlikely to be successful if customers find it difficult to purchase. So place is a vital part of the marketing mix. Microsoft needs to consider how to get their products to the customer. Channels of distribution need to be efficient and effective. For a product to sell it must be in the right place at the right time for customers to buy. Microsoft needs to find out where it's convenient for customers to buy the X Box. The X Box is likely to sell more in Electronics Boutique rather than New Look because people go into New Look to buy clothes not games consoles, but people do go into Electronics Boutique to buy computer games or games consoles. I will need to look at: > Where to sell the X Box and why? > Channels of distribution. > Selling to places that wont tarnish the company's good reputation. > Where it's convenient to sell to customers. > Selling to as many places as possible (mass market). > Disadvantages and advantages of selling the X Box in certain places. Product Microsoft have to decide what product or range of products they are going to sell. They also have to decide what quality of product they wish to make and sell, what name to give the product and how it is to be packaged. Another decision is whether to attempt to brand the product. I will have to look at: > The product life cycle and how it could affect the X Box. > Why is the product is called the X Box. > Product range. > Does the product satisfy the needs and wants of the customers? > Research and development of the X Box. > Is Microsoft product orientated or market orientated? > Importance of quality. > Product differentiation. > Disadvantages and advantage of the X Box. Promotion Microsoft needs to decide how best to promote the products they make and sell. The decision involves weighing up the relative cost of each form or promotion and how best to target their customers. They also need to consider the use of advertising agencies. Promotion is all about communicating with potential customers, if the public isn't aware of the X Box then they are not likely to go out and buy it. Microsoft will also have to be careful not to offend potential customers with advertising that discriminates against certain people, e.g. race or gender. When looking at the promotion part of the marketing mix I will have to consider: > Different types of advertising, where to use them, why, the cost and will they be effective. > Different types of promotions, where to use them, why, the cost and will they be effective. > Stages of the product life cycle and how the affect the promotion of the X Box. > Disadvantage and advantage to promotion. Price Price is another element of the marketing mix. Microsoft must decide how to price its product. In making this decision Microsoft has to consider, what are the prices set by competitors, how price can be used to increase sales of the product, whether the price will cover costs of production, whether customers are willing to pay that set price and different pricing strategies such as skimming or penetration pricing. When looking at the price section of the marketing mix I will have to consider a number of things: > Prices set by competitors. > How price can increase or decrease sales. > Does that price cover cost of production? > Are the customers willing to pay that price? > Different pricing strategies such as skimming and penetration. > Disadvantages and advantages to setting that price. If the marketing mix is wrong, for example, the price of the X Box is too high and it is not selling in places convenient to customers, the X Box wont be as successful as it could be. The marketing mix is a vital part of ensuring a new products success, without it the product will fail. Market research is a major part of this project. It can help me to find out the customers needs and wants, which will enable me to create the right marketing mix. The product needs to be affordable, make a profit and to be promoted and sold in the right places. It is also very important that the X Box is aimed at the right segment of the market. The market can be split into different categories: Age Age can be separated into years or stages of life e.g. child, teenager, adult or pensioner. Microsoft mainly targets adults with their existing products. With the X Box Microsoft is likely to target younger people such as teenagers because they are more likely to buy the X Box rather than a pensioner. Gender Different products can be aimed at different genders e.g. make up is aimed at women and beer is aimed at men. Some people could say this is sexist but men are more likely to buy beer than make up. Businesses have to be very careful when advertising to certain genders as not to offend people. Microsoft are likely to aim the X Box more to males rather than females because boy tend to buy games consoles and computer games more than girls. Income/Occupation The population can be segmented according to their salary or occupation. Microsoft mainly targets people with above average income because their products can be slightly expensive, but they have to be careful not to advertise this because people could get offended. Microsoft also has to make sure their product is affordable to as many people as possible but not lower the price too much in case they lose profits. Area The area in which people live can divide the population. People in the northeast of England may have a different lifestyle to people the south of England, therefore their needs and wants will differ. Microsoft will need to promote the X Box in different ways according to location as to satisfy a mass market. Ethnic, cultural and religious groups Businesses need to be careful with the production and promotion of its products when it comes to different religions. If a business decides to produce its products in Asia because of cheap labour, people from Asia could refrain from buying that business' product because they are offended. Equally businesses have to be careful when advertising its products as not to offend people of certain ethnic, cultural or religious groups. Socio – economic groupings One of the most important ways of separating the population is the use of socio-economic groupings. Socio-economic groupings work like this: Social Grade Social Status Head of household's Occupation % of total UK population A Upper Middle Class Higher managerial, administrative or professional such as doctors, lawyers and company directors. 3.5% B Middle Intermediate managerial, administrative or professional such as teachers, nurses and managerial. 12-13% C1 Lower Middle Class Supervisory or clerical and junior managerial administrative or professional such as shop assistants, clerks and police constables. 22% C2 Skilled Working Class Skilled manual workers such as carpenters, cooks and train drivers. 32-33% D Working Class Semi – skilled and unskilled manual workers such as fitters and storekeepers. 19-20% E The Poorest In Society State pensioners or widows, casual or lower grade workers, or long-term unemployed. 10% The Product Life Cycle The Development Stage Products start life in the development stage. This is where the product is designed and also where the majority of the marketing is done. There are no profits at this stage, only costs. Microsoft will have to make up for the money lost in the growth stage of the product life cycle. The Introduction Stage This is the stage where the product is launched. Profits and sales are minimal in this stage, but it doesn't last too long if good advertising is used to make the customers aware of the product. The Growth Stage Sales and profits are increasing rapidly in this stage. Microsoft will have to consider what pricing strategies and promotions to use to keep the X Box in this stage as long as possible. Maturity In the maturity stage, the product reaches a peak in terms of sales. Research and development costs are likely to be paid off. The product could be profitable enough to be financing the development of new products. Saturation Towards the end of the maturity stage the market becomes saturated. Competitors bring out products to try and take sales away. It is likely that Microsoft will not be able to sell any more of the X Box at this point. Decline Eventually a product is likely to go into decline, sales will drop dramatically. Microsoft could try extension strategies at this stage to try and increase sales slightly or they could just withdraw the product from the market. The product life cycle can affect a lot of the marketing mix, for example, which promotions and pricing strategies to use at certain stages in the product life cycle. A Business would like to be in a sellers' market where customers have little choice but to buy from them. In a buyers' market though, business have to be market orientated and the greater is the need for effective marketing. I think Microsoft is in the buyers' market. Although they are a major company with substantial profits, Microsoft still have competition such as smaller software companies. The product ‘X Box' is a slightly different product from what Microsoft usually sells. Microsoft specialises in software and hardware for PC's, the ‘X Box' is a games consol, and so the main competition will be Sony and their Playstation. Although the Playstation is a very successful product it may be entering decline in the product life cycle because the Playstation has been around for a while. When the Sony Playstation started to enter the maturity stage Sony launched a new product the Playstation 2, this would be the ‘X box' main competition. I think Microsoft could afford a very large budget because the company's profits are very large, the fact that they have spent a lot of money developing the product could affect the budget for marketing the product. I estimate that the budget would be somewhere around à ¯Ã‚ ¿Ã‚ ½20 million. I'm going to cover various areas of marketing, which will include†¦ * Analysing the market, finding out what customers want, where best to sell it and find out about the competition and target market. * Market Research, desk research and field research. * The Product, product differentiation, ways of differentiating the product, branding and retailing. * The Product Life Cycle, look at what similar products have gone through in the five main stages. Development, introduction, growth, maturity and saturation, and decline. * Pricing, competition, costs of making, affordability and pricing strategies. * Demand and Supply, what people want, how much they want and what they are willing to pay. * Promotion, advertising packaging, direct mail etc†¦ * Place, channels of distribution. * Retailing, how retailing within the company would affect marketing. * Constraints on Marketing, the law, ethics and the market and pressure groups. They are many disadvantages and advantages of marketing. Disadvantages include things such as, cost and constraints on marketing. Constraints on marketing are ethical considerations, the law (Trade Descriptions Act 1968), codes of practice (Advertising Standards Authority) and pressure groups. Ethical considerations include things such as labour, many multinational companies have been criticised for using workers in the Far East because they are relatively cheap, and the business want to take advantage of the lower costs of production. Nike was once criticised by the press because of the high prices they charge for their goods and the low wages paid to workers and low costs of production. Microsoft will have to ensure that they don't put too much of a profit mark up on the X Box, and also make ensure their workers are treated fairly. Other ethical considerations are the use of promotions and advertising such as the use of images in adverts. Many companies have been attacked by pressure groups because of the content of the adverts they use, such as images of beautiful woman that lure men into buying the product and information included in the adverts. For instance should a washing powder manufacturer claim in an advert that its washing powder ‘washes whiter' than other powders on the market when there is no scientific proof that it does? Should tobacco companies promote their products when they damage peoples health? If people are really shocked by an advert they may consider not buy the products produced by that company, therefore Microsoft will have to be careful when choosing methods of promotion. The law ensures that advertising does not fool the public. The Trade Descriptions Act 1968 states that is illegal for products to be incorrectly described for example Microsoft couldn't advertise the X Box as if it comes with a free TV if it doesn't. The government has encouraged businesses to adopt a code of practice as an alternative to passing laws. Codes of practice are rules, which businesses voluntarily agree to keep, but have no legal status. Advantages of marketing include†¦ Helping the business to get a better understanding of the market, marketing also lets the business to know what price, to set where to sell the product what promotions to use and what the potential customers want from the product. Market research will also tell the company whether there is a demand for the product in question. Marketing will change across different countries because different countries have a different way of life. For instance people in America can afford to pay a lot more for the X Box than people in the poorer parts of Africa and Asia. Market Research Microsoft needs information if they are to make good decisions. They need information about their target market to help them create a successful marketing mix. One way of gaining that information is by carrying out market research. Market research is a cost-effective way of finding out what people believe, think, want, need or do. There are various types of market research. Microsoft needs to decide what market research methods are most likely to give them the information they need. Businesses, which are mainly product, orientated risk spending a large amount of resources launching a product, which proves to be a failure. Researching the market helps reduce the risk. Microsoft should focus research and design effort onto products, which have a chance of success in the market place. When the product is launched a carefully researched product stands less chance of failing. Stages of Market Research Market research will help Microsoft to find answers to questions about the market. * What is the target market for the X Box? * How can Microsoft use the X Box to increase market share? * What is the right price to set that will maximise profits and be affordable to as many people as possible? * What are the right promotions to use that will appeal to Microsoft's target market? * Where's the best place to sell the X Box? * What do customers want and need? * What is the demand for the X Box? * What are existing patterns of sales for other games consoles? I then need to decide what information might help answer the questions, then I need to decide how best to collect this information. The information is then collected and analysed. Finally Microsoft has to make a decision about what to do in the light of the information gained. Desk Research Desk research involves the use of secondary data. This is information that is already available both within and outside the business. Information within the business Microsoft collects information routinely. Invoices for instance will tell them how much they sell and who they are selling to. Information outside the business Businesses can also collect information, which is available from sources outside the business such as: * Internal sources – such as sales invoices, reports and accounts. * Government – published statistics such as consumer spending figures, reports such as monopolies and mergers commission reports. * The Media – reports in newspapers, magazines on radio and on TV. * Trade associations – statistics or reports published by national organisations such as the TUC, the CBI or chambers of commerce or industry associations such as the Engineering Employers Federation. * Research organisations – reports prepared by specialist market research organisations such as Mintel or Mori; articles published in academic journals such as university journals. Field Research Field research involves the collection of primary data, information that no one has yet collected. It is collected specially for the particular piece of research. Primary data is collected through direct investigation, usually through observation, survey or experiment. To help me create my marketing mix I used both secondary and primary research. I collected primary data in the form of a questionnaire that I asked 50 people. I used secondary data from the Internet. I used the Internet to find out about Video Game sales and I found a report by PC Data about home Internet users planing to purchase console or PC games during the 2000 holiday season, and that PC and console gaming is no longer a male-dominated domain. This was very useful research and it helped me a lot when putting together my marketing plan. I didn't find any information from the media or the government because of lack of time. Quantitative and Qualitative Research There are two main types of survey data – quantitative, and qualitative. Quantitative Quantitative research provides numerical data. At the completion of a quantitative project it is possible to say (for example) what proportion or percentage of the population fall into different groups – those that want something, those that would be likely to buy something, those that are in favour of a particular policy or plan, etc. The essence of quantitative research is that every respondent is asked the same series of questions. Quantitative research can be done in various ways: By face-to-face interviewing, either in the street or, for more complex projects, in people's homes. This was the traditional approach to data collection, and remains important. In-home work is particularly suitable for lengthy interviews, or for some sensitive subjects. The understanding that can be established between the interviewer and the person being interviewed (the respondent) can help to ensure that detailed and thorough information is obtained. By telephone. This is a fast-growing form of data collection, is somewhat less expensive per interview than face-to-face, and can provide data more quickly – in some cases, overnight. Telephone research would rarely be suitable for lengthy interviews, but it can be ideal for smaller-scale, fast turn-round projects both amongst the public and for business research. Both face-to-face and telephone research involve the most basic form of data gathering, talking to people. There is one other form of quantitative data collection that should be mentioned – postal and self-completion research, which is the cheapest form of quantitative research, though it can take a relatively long time to gather data by post. Self-completion questionnaires can be handed out, for example, at exhibitions, on aircraft, or in town centres, to get peopleà ¯Ã‚ ¿Ã‚ ½s views. Self-completion questionnaires must be kept simple and the researcher has little control over whom, or how many people, return the form. Another form of quantitative research is omnibus surveys. These are useful for those with small budgets and relatively few questions to ask. Qualitative Research Qualitative research, though it cannot provide numerical data, provides understanding of how or why things are as they are. It can be used on its own or to help in the development of a questionnaire for a quantitative study. There is no fixed set of questions and therefore no assumptions about what is, or is not, important. Instead there is a list of topics, problems, or possibilities to be explored. The form and nature of the discussion is heavily influenced by the informants' own concerns or assumptions. Qualitative research is the way in which typical or relevant peoples' attitudes and beliefs can be explored, and ideas can be generated. It can be used for everything from testing reaction to a potential new advertising campaign, to exploring staff attitudes to a new management structure or procedure. There are various sorts of qualitative research, including the following. * Unstructured interviews with a single informant, based on a framework of themes and topics. The interview is adapted to the individual, and the interviewer feeds off and responds to the respondents' replies. * Focus groups (or group discussions) involve a similar approach but bring together a number of relevant people – typically about eight – and therefore benefit from the interaction between the different personalities and experiences in the group. I used quantitative research because I needed to find information quickly and easily, I think qualitative research would have been a lot more time consuming and will have used a lot of resources. I decided the best way to collect information about the market was to use a survey. A survey can't ask customers for their opinion. Only a fraction or sample of customers can be surveyed. To be useful, the sample chosen must be a representation of all consumers. In a random sample, every potential respondent has an equal chance of being chosen. Random numbers can be used to do this or it could be done by ‘picking people out of a hat'. It is often quite difficult to construct a truly random sample. So a cheaper and quicker method is to use systematic sample. This is where every 100th or 1000th person on a list such as the telephone book is chosen. A systematic sample is not truly random though and therefore the results may be less reliable. In a quota sample, the sample is broken down or stratified. One problem with a quota sample is that any people who fit the description can be asked to complete the survey. So Microsoft wanting to find 50 people aged 13 – 30 to complete a survey could ask the first 50 13 – 30 year olds who came out of Electronics Boutique in Bedford. This may not be very representative of all 13 – 30 years olds nationally. A stratified random sample may get round this problem. It is a quota sample where all the respondents, the people being interviewed, must be chosen at random. Microsoft would have to find some way of selecting people aged 13 – 30 through pure chance. I used a quota sample, I asked 50 people in Electronics Boutique my questionnaire. I used Electronics Boutique because a lot of people go in there to buy game consoles and other computer related products, and asking this people would give me a good idea of the target market. I think my data is quite reliable because the people I asked my questionnaire to are the people that are most likely to buy Microsoft's products. Price Pricing Strategies The product should be launched in November ready for the Christmas rush. The pricing strategy skimming should be used in the introduction and the growth stage of the product life cycle. Skimming is setting a high price initially and then lowering it later on. This is almost always used for products that incorporate new technology such as new DVD players and PCs. Some people are willing to pay high prices for new technology, the price of the X Box will be set high at first to catch this end of the market. By doing this Microsoft can maximise their profits and cover the costs of developing the X Box. When sales start to slow down Microsoft should lower the price and use a different pricing strategy. To ensure sales keep increasing half way though the growth stage Microsoft should change the pricing strategy from skimming to market orientated. This is where the price charged is based on analysis of the market and its characteristics. Market research might need to be undertaken again at this point to ensure that Microsoft knows what the customers are willing to pay. Market orientated pricing should be used at this point because the top end of the market is likely to be saturated, Microsoft will need to lower the price of the X Box slightly to provide for the people that aren't willing to pay as much. Using market orientated pricing will therefore help keep sales rising and the X Box will appeal to a broader market. When the sales of the X Box are slowing down it could be because of competition. This is when Microsoft will need to use competition based pricing because new games consoles will be being launched and the X Box wont be new technology anymore. Microsoft will need to lower the price a lot to compete with the new technology and keep people interested. Psychological pricing could be used throughout the life cycle. This is when a product is priced at 99p instead of a pound so that the customers automatically think it's cheaper. I don't think Microsoft will need to use cost based pricing with the X Box because Microsoft makes so much money off existing products going into debt wont be a problem. The X Box will soon make up for the research and developing costs in the growth stage of the life cycle. Penetration pricing also isn't appropriate for the X Box because new technology doesn't rise in price as it becomes more popular it starts off at a high price because of the cost of development. Price to be Set In the introduction stage of the life cycle the X Box should be priced at 299, in the growth stage the price should be lowered to about 249, when the market has been saturated the price should be lowered again to 199 and when the product goes into decline it should be priced between 99 and 149. Factors Affecting the Price > Cost of promotions and advertising > Cost of research and development > Customer's needs and wants > Competitors > Demand > Costs of distribution