1. Marketing Project
05BSP069
An Analysis Of
SONY COMPUTER ENTERTAINMENT inc.
BY
Ioannis Samaras
ID:A589718
Word count:9500

2. Contents
Introduction…………………….. …………………………...………… Page 4
Strategic Standpoint………………………………………...………… Page 4
Situation Analysis……………….…………...………………….….… Page 5
Environmental Analysis……….………...…………………………...… Page 5
Political factors………………………………………………… Page 5
Economic factors…………...……..…………………………… Page 6
Socio-cultural factors…..………………………………...…… Page 6
Technological factors…………………………………………… Page 7
Environmental factors………………………………………… page 8
Key Macro success factors……………………………………… page9
Porter’s Five Forces………………...………………………………..… Page 9
Intensity of Rivalry Among Existing Competitors……….. Page 10
Threats of new entrants……………………………………. Page 11
Threat of substitutes………………………………………. Page 11
Bargaining power of suppliers…………………………….. Page 12
Bargaining Power of Buyers……………………………….. Page 12
Downe’s Three Force........................................................................... Page 13
Digitalistion……………………………………………………... Page 13
Deregulation…………………………………………………….. Page 13
Globalisation…………………………………………………… Page 14
Strategic Group Analysis….…………….…………………………… Page 15
Sony…………………………………………………………….. Page 15
Microsoft……………………………………………………….. Page 16
Nintendo………………………………………………………… Page 17
2

3. Internal Analysis……………………………………………………… Page 18
Product Life Cycle………………………………………………. Page 18
Corporate Portfolio........................................................................ Page 19
BCG Matrix………………………………………………. Page 19
Market Attractiveness…………………………………… Page 19
Strategy Guidelines………………………………………. Page 20
Strategic Capabilities and Resources…………………… Page 21
SWOT Analysis……………………………………………………. Page 22
Strengths…………………………………………………….. Page 22
Weaknesses…………………………………………………. Page 23
Opportunities………………………………………………. Page 23
Threats……………………………………………………… Page 24
Marketing Strategy……………………………………………… Page 24
STP Approach to Segmentation………………………… Page 25
Strategic Options Analysis……………………………………….. Page 27
Implementation and Control…................................................... Page 28
Marketing Mix…………………………………………… Page 28
Organisation……………………………………………… Page 29
Control…………………………………………………… Page 30
Conclusion……………………………………………………… Page 30
Appendix………………………………………………………... Page 31
References ……………………………………………………… Page 34
Bibliography …………………………………………………… Page 36
3

4. Introduction
Sony Computer Entertainment Inc is the company which manufactures,
distributes, markets and sells Playstation . Sony Computer Entertainment is a division
of the Sony Corporation. Sony Computer Entertainment Inc is based in Tokyo, Japan
with subsidiary divisions in America, Europe, Korea, China and Japan.¹ Playstation is
the leader in market share and PlayStation 2 is the most popular gaming platform in
North America, Europe/PAL territories and Japan/Asia, the only gaming platform to
enjoy such widespread global success.²
Key competitors of SCE are Microsoft and Nintendo. Industry is facing the
change, that the new generation consoles will bring with Playstation 3, from SCE, the
already launched XBOX 360 from Microsoft, and REVOLUTION from Nintendo.
The electronic game industry is in the middle of a transformation as it has
evolved from a niche industry into one of the most dominant sector in the media and
entertainment business³. Capitalising on technological advances SCE can exploit this
spectacular growth that has the potential to continue through the end of the decade.
The aim of this project is to analyze the external and internal environment of
Sony Computer Entertainment and create a SWOT analysis to assess where marketing
strategies could improve SCE’s positioning and competitive advantage. BAP 1
coursework studied the video game industry more generally and gave an overview of
the environment in which the key players deploy their strategies. This study will take
a deeper view assessing the internal and external environment of one key player Sony
Computer Entertainment inc..
I chose the specific company because of its rich and unique brand personality
but also because of the growth the company can achieve exploiting and interpreting
the external environment, better than the competitors.
Strategic standpoint
Sony as a company has a very clear mission statement: “Sony is a company that
is deeply involved with culture, it is our mission to pursue the dreams and emotions of
our individual customers, in addition to bringing them advanced technology and
economic value
Individuals' creativity is an essential ingredient to realize these objectives” 4. The clear
4

5. nature of the statement helps Sony be consistent with its mission. Every decision it
makes and every business objective it sets, is based on this idea of pursuing the
dreams and emotions of consumers. The focus of Sony in these principles help it be a
market leader and innovator for many years and it should adhere to them in the future
as well.
Situation Analysis
Environmental Analysis
The remote environment of a company is the an area that a business has no
significant control over, but which heavily affects the way a company operates. 5 An
analysis of the remote environment of a company is really important because it can
bring changes to the way it operates. This is where trends and strategic issues start
from. PESTEL is a strategic tool, useful in modelling the macro-environment of SCE
and identify factors that can have influence on its strategic directions.
Political factors
There are two major political issues in the video game industry that create
implications for SCE. The first is the debate on whether video games are harmful for
children due to ultra violent content. There have been many efforts on the part of state
and local legislative bodies to regulate access to games. However, the courts have
ruled seven times in five years “that computer and video games are protected speech,
and efforts by these legislative bodies to ban or limit access to or the sale of games
they find objectionable will inevitably run afoul of the First Amendment of the United
States Constitution”.6 SCE and the industry as a whole tries to prove the unsoundness
of this accusation by promoting stats and debates that stress for example that the
average American video game player is 33 years old and The average game buyer
is 40 years old or that the Violent crime, particularly among the young, has decreased
dramatically during since the early 1990s while video games have steadily increased
in popularity and use. However this doesn’t seem to have affected the industry in
terms on sales at all. Additionally to my opinion, the broadening of the demographic
and the family targeted orientation of SCE and the rest of the industry leads to more
family-friendly game content with more socialization and less violence.
5

6. The second issue that the industry has to confront is the piracy issue. SCE has won
a landmark case in the British High Court, with a judge ruling that “the sale of mod
chip devices for the Playstation 2 is illegal under the UK's implementation of the new
European Union Copyright Directive”. 7The chips circumvented the built-in protection
of the PS2 and allowed the console to play pirate and imported games. According to
the president of SCE, “SCE is sending a clear message to manufacturers and
distributors of mod chips throughout the PAL territories that it will continue to pursue
legal action against them”8. Furthermore the industry has shown will and
effectiveness in dealing with piracy issues which had, since now, very little impact
on sales and industry rather acts proactively and wisely.
Economic factors
For Sony Computer entertainment it is imperative to analyze macroeconomic
and micro economic factors to analyze key strategic issues, problem areas, and
opportunities. The economic factors determine the nature of the competition within
local and global markets.
Macroeconomic stability - Macroeconomic stability is the major factor that affects
the potential of console sales and console game sales. Low interest rate creates a
strong stimulus for consumer spending, whereas high interest rate creates a strong
stimulus for saving. Long term macroeconomic stability leads to a strong consumer
confidence and this is one of the major sales drivers. The gaming industry depends on
economic state as it affects inflation rate, interest rate and disposable income of the
consumer. In terms of marketing strategy the economic factors determine the future
market value and might influence the budget allocation for promotion activities and
new product development of SCE.
Socio- Cultural factors
In my opinion the first element of the industry that changed over the years is that
video games is not a niche market any more. Video games are now standard part of
6

7. our culture. Twenty years of video game history behind us forged a huge video game
generation (90 millions in U.S alone), supporting an industry which is in the centre of
the new mainstream and not the “geek haven” as many might have assume. Video
games has become a central ,defining part of growing up for many millions of people
.I believe that this realization is very important for the industry to understand ,as
Porter notes, not only “the competitor’s assumption about it self “ and the
competitor’s assumption about other companies” ,but in sociological terms ,to
understand the huge impact that it has to the society.
Price sensitivity –Price has become a key determinant of purchase choice. Various
consumer groups have used to various offers and always look for the best price
opportunities.
MMO games - The recent vast development of Massive Multiplayer Online games
shows that games become the new communication media. At the same time, both
game publishers and PC and console hardware companies might use various
opportunities to maximise sales and increase the customer loyalty.
Fashion - More and more consumers are becoming fashion conscious. Their choice of
product strongly depends on the appeal of product mix and its congruence with their
self-concept.
Broadening of demographic - A marketing refocus by Sony with greater emphasis
towards club culture and "twenty-somethings" resulted in a much older initial
PlayStation user-base than pervious consoles had achieved and this resulted in a
broader social acceptance. This led to a broadening of demographic with appeal to
female gamers and baby boomers.
Technological factors
Next generation consoles – The introduction of new generation consoles will change
the preferences of different customer segments. At the same time, is certain that it will
require certain time till the proper market adoption of new generation consoles will
7

8. take place. Not only it will have to do with the process of market adoption of new
product, but with mere availability of sufficient range of games for new consoles.
New distribution channels - The continuous technological development, especially
in the area of digital and communication technologies create new operating
opportunities such as new marketing mix channels, new service encounter
environment (online sales) and new market research tools. According to Mintel
(2004)9 more and more retailers and switch to new cost-saving distribution channels.
Internet usage – The current penetration of Internet creates the stimulus for the
increase use of Internet as information and transaction zone. The major issue is the
current tendencies towards Internet consumption which vary respective of a country
of operations. For instance Internet transactions in EU countries account for 10%,
while in US it is 30%. It means that with the further increase of Internet as transaction
area distributors with well-developed e-capabilities will have increased sales and
market coverage.
New information requirements - The introduction of new technologies have
changed the nature of customers’ expectations, creating new zones of tolerance.
Today, customers expect more flexibility, speed and dependability from retailers, than
before the introduction of web-based technologies.
Cheapness of Computing Power- As processors have dropped in price, both
consoles and PCs have added high-end CPUs and graphics chips. All gaming
hardware is now fast enough to meet any requirements that game developers may
have .Processing power is no longer a restraint in the development of more advanced
graphics and sounds in games.
Environmental factors
Two environmental concerns are commonly associated with console games:
Health related concerns First is a general perception that impact of frequent gaming
on young people’s health. Players have complained of eyestrain, headaches, chest
pain, fatigue and mood swings (Tazawa et al. 1997). However this perception may
8

9. subject to change as research shows contrasting outcomes that there is the view that
considers such side-effects to be ‘relatively minor or temporary’ (Griffiths 2002) and
that finds playing computer games is comparable to a mild intensity exercise: with
normal use, playing may neither improve nor harm physical fitness (Emes 1997).
The compliance with safety requirements– Sony Europe shall resolve the issue
regarding the possible threat of fire hazards and overheating of PlayStation 2
Adapters. Sony plans to counter this ecological factor by not only ensuring heat
resistant technology but also continuous recalling of complained adapters all from
everywhere possible to assess the potential effects and respond to this problem
effectively by renewing adapter technology.
Key macro success factors
On the basis of the macro environmental analysis the following key macro success
factors can be defined:
-The importance of price as the important determinant of the positive sales
decision,
-The importance of fashion trends for Product Mix,
-The impact of Internet in terms of MMO games as Product and Promotion Mix,
and the importance of new distribution channels for Place Mix,
-The compliance with censorship regulations especially when doing co-marketing
activities with leading game publishers,
-The consideration of ecological issues when developing both Product and
Promotion Mix. Sony needs to make sure that it products comply with the health
and safety standards and that consumers are aware about that.
Porter’s Five Forces
When studying a company in an industry it is very important to asses its operating
environment,10 industry structure has a strong influence in determining the competitive
rules of the game as well as the strategies potentially available to a firm this area will
analyze the five key forces that porter highlights and affect SCE‘s strategies. These
9

10. forces determine the intensity of the industry competition and profitability. (Porter,
1980, Pg3).
Intensity of Rivalry Among Existing Competitors
Rivalry occurs when one or more competitors either feels the pressures or sees
the opportunity to improve position and this can be done by products introductions,
advertising battles or price competition (Porter, 1980, Pg.17). Video game industry is
marked by an oligopolistic control over hardware (consoles) by the three key players
and tremendous competition. Sony and Microsoft seem to follow the second path of
competitive strategy through offensive strategic moves in an attempt to differentiate
its products with innovations in marketing and technology. Nintendo seems to have
lost its competitive edge and sheets back and waits the moves of the two players since
it is the weakest of the players. However each firms core strategy is based on the same
basic business principle: the money is in the software because development and
manufacturing costs keep consoles at a break-even sale price in most consumers price
points. The incentive to sell consoles below cost is created by the need of a large
installed user-base. In order to generate the required profits to compensate for the
losses from the console sales manufacturers must have a critical mass of possible
users to take advantage of significant network effects.
Despite the findings of H-H index measurements that the US market benefits
when there are more viable players (Dimitri Williams, the international journal of
media management, vol. 4,p. 44), The proprietary nature of the console market
decreases the chance for any spirit of cooperation between the oligopolistic firms.
Video games are now a standard –based industry, with the expected importance of
first mover advantage, mass acceptance of the product and technical innovation.
(Gallagher and Park,2002).On this Microsoft hopes to exploit the first mover
advantage with its launch of XBOX 360. The only common interest the players have
is not in each other but in the health of the industry. In fact they have a disincentive in
doing this because their fighting over the same potential user base. One firm’s gain
in network effect is likely another’s loss, so the drive to acquire the consumers first is
of defining significance.
10

11. Threats of new entrants
The console market segment is highly competitive and requires significant
capital for entry. In fact since Nintendo and SEGA popularized consoles in the late
80’s, only SONY and MICROSOFT have been able to enter the market successfully,
Sony technology know-how and marketing resources gave them the advantage to
enter the market and dominate it. Technology changes with each generation of
consoles, so relationships with suppliers such as CPU and graphics chip makers are
critical. Without similar resources, it will be difficult for a new player to repeat such
an entry. New entrants would also have to face the battle of an installed base of users
and software that current players possess. Sony and Microsoft also had arguably
weaker rivals (Nintendo and Sega) to defeat than an entrant today would have. On the
other hand the three players have posed significant brand barriers by building their
brands through marketing and advertising. Additionally new entrants will have to
confront long-term relationships of the players with the retailers and matured
distribution channels.
.The dynamics of the handheld market are similar to those in console gaming,
where significant capital and infrastructure are needed to challenge the market
entrants. Sony will have to base its strategy in this segment on the positioning of the
product in that to aim a different target market through software titles or content of
the games since NINTENDO DS aims the a broader segment with no appeal to hard-
core gamer.
Sony has a very strong product differentiation Which means that it has a very
strong brand identification and customer loyalty, which comes from past advertising,
customer service, product differences or simply being first into the industry.
(Porter,1980, Pg 9) .This means that there are very strong barriers to entry for new
companies that will have to create a new brand from scratch and risk their
investments.
Threat of substitutes
Sony competes in two different areas. The first area is the direct competition
with the rest of the players where Sony tries to persuade new customers to buy its
consoles (handheld or normal) rather than a substitute and broadens its installed base
11

12. (market penetration). The other indirect competition occurs in broader context where
Sony competes on the entertainment consumer expenditure for substitute products as
CD’s, DVD’s and PC games. Substitute products limit the potential return of the
industry by controlling the prices that can be charged. People will buy substitute
products if they are cheaper and have a similar effect (Porter, 1980, Pg 23). Sony
however, with great amount of investment in marketing and advertising has achieved
an outstanding level of brand loyalty. Along with the cutting–edge content of its
software titles and strategic price cuts in consoles have achieved to eliminate the
impact of other substitute and gain a huge market share in all markets.
Bargaining power of suppliers
Suppliers can exert bargaining power over participants in an industry by
threatening to raise prices or reduce the quality of goods or service (Porter, 1980, Pg
27). In the video game industry the most important suppliers are the suppliers of
processor chips because there lays the power of each machine to handle more
information and richer content. With the advance in the specific field of the last years
the success of each machine will depend upon the power of the chip every machine
wears .Sony Microsoft are trying to develop the quantum leap in computer power
and graphics that gamers have come to expect with each new generation of console
Technology. Given the massive investment required in the new generation of console
technology is unlikely more than two will survive. Sony plans to take the lead in the
new generation with and along with Toshiba and IBM created a new chip called “cell”
which it is said that it will revolutionize the industry. These kind of collaborations
will significantly increase the cost of Sony’s cost over the life of the product but it
will keep making money from software titles. The high technology nature of the
industry and the cost inducted tend to favour rather a collaborative way of working
with supplier’s because they of unique importance for the life of the industry.
Bargaining Power of Buyers
There are two main buyers of SCEE products: retail outlets that buy consoles
and software titles to sell into the second section of buyers ,consumers. In the light of
12

13. the fierce competition and wide variety of substitutes consumers enjoy a strong
bargaining power. At the same time, Game Industry specialists claim that the
development of specific game communities might create strong consumer attachment
both to a specific game title and to a game platform.
Downe’s Three Forces
Downe’s identifies three new forces that require a new strategic framework and
a set of very different analytic and business design tools: digitalization, globalization,
and deregulation. This will be a compliment to Porter’s Five Forces as the changing
environment of the world demand a more up-to-date analysis.
Digitalization
As power of information technology grows, all players in a market will have
access to far more information, thus, totally new business models will emerge in
which even players from outside the industry are able to vastly change the basis of
competition in a market.11 The internet as a new distribution channel has a significant
impact in the industry. On line retailers have put a great pressure in the regular
retailers as they see the consumer moving towards the internet for purchases
.Furthermore the adoption of high speed Internet through DSL or Cable modem
connection. Services will increase the accessibility of on-line gaming, such as
massively multiplayer online gaming (MMOG). According to a study from ABI
Research12 the video game market will expand from $32.6 billion in 2005 to $65.9
billion in 2011 as a result of its fast-growing online and mobile gaming segments.
Sony is committing considerable resources to the development of online services for
their respective machines
13

14. Deregulation
Deregulation occurred over the last decade with governments removing their
influence in many industries due to industries to restructure. 13 In video game industry
there was not a great deal of change in terms of restructuring but SCEE has seen the
possibility of transferring the video gaming on the internet enhancing its product by
exploiting the tastes of the gamers and advantages of playing online.
Globalization
Improvements in distribution logistics and communications have allowed nearly
all businesses to buy, sell and cooperate on a global level. 14For a company to be
successful in the interactive entertainment business it must operate on a worldwide
basis. Sony was one of the pioneers in that sense and was the first global company in
the industry to have strong footholds in the three core markets: Japan, North America
and Europe. Sony’s performance till this moment shows that Sony will be able to
cope with the factor of globalisation in the future and even take advantage of it using
its valuable know-how.
14

15. Strategic Group Analysis
Sony
As it strived to do with the original PlayStation, Sony has built up a considerable
support base of developers and publishers. Indeed, strong third party publisher
confidence underpins Sony's continued success and since most development projects
during the last two cycles have been PlayStation-led, Sony has been guaranteed a
consistent flow of software releases which in turn has lead to consistent hardware
sales. This momentum has given Sony doubtless leads during these cycles.
Despite having predicted the advent of online console gaming in 2001, and with a
many years of trials and service development behind it, Sony has been remarkably
slow to evolve its online proposition to a commercial stage, especially in Europe
where Microsoft beat them to a full launch and is widely acknowledged to maintain a
technical and strategic lead. Sony certainly views online as critically important to its
overall console business strategy but has not yet developed a commercial strategy.
Sony's PlayStation 3 console is expected to ship in mid or late 2006 and online
is expected to be a greater priority for the next cycle .”Sony is expected to lose market
share in the next cycle with its 67% peak market share of hardware sales in the last
cycle reduced to around 50% in the forthcoming cycle. Microsoft is expected to be the
sole beneficiary of this with its share of the overall market forecast to increase from
around17% to 36 %”.( Games Investor )15
Sony has also now made its first major assault on the portable games market
with PlayStation Portable (PSP), launched in late 2004 (Japan) and 2005 (North
America and Europe). Third party publishers have rallied behind PSP as well as
movie companies looking to provide PSP-compatible versions of its major DVD
releases. PSP has already impacted the handheld market with 2005 shipments of the
15

16. product just below direct competitor Nintendo's DS. According to Games Investor
PSP will take as much as 50% of the total handheld market in 2006-200716.
Nintendo
Nintendo has consistently failed to secure meaningful third party publisher
support alienating publishers either by using high cost/risk media or by offering
unattractive third party licensing terms and conditions. In addition, its restricted
support for third party developers and relative unwillingness to court third party
publishers is in contrast to Sony and Microsoft and has certainly contributed to its
console market collapse. A key tactical error has also been its failure to re-establish a
full publishing office in Europe (rather than just a sales and marketing department)
which has resulted in the underperformance of the territory relative to others.
Nintendo's decision is bizarre as the European games software market is now similar
in size to the North American market and considerably larger than the Asian market.
However, Nintendo shows no sign of changing its strategy.
Indeed, in the face of increased competition and further forecast market share
declines, Nintendo appears intent on retaining most of its major home console
strategies for its next-generation console, the Revolution. Revolution is due at some
point in 2006 and is not expected to compete directly with Xbox 360 and PS3. Whilst
Sony and Microsoft intend to use processing power as a key marketing battleground,
Revolution is relying upon a combination of low hardware price, innovation (such as
its movement-sensitive controller) and software to sell. Nintendo aims to capture the
children and casual gamer market as a result. The problem with this approach is that it
will further alienate third party publishers and make Nintendo even more reliant on its
own software than with previous consoles. Most third party publishers are focused on
the hard-core male gamer and regard new demographic targets as being of high risk.
At the same time, Revolution's relatively restricted processing power will likely limit
the porting potential for publishers creating multi-platform titles for Xbox 360 and
PS3. However, such is the strength of Nintendo's software, Revolution will
16

17. undoubtedly sell although I believe it will come a clear third in the new cycle.
Following the 10 year shelf-life of its original Game Boy handheld console,
Nintendo has released five different handheld platforms over the last six years. The
most recent machine, the Nintendo DS, a dual-screen, touch-sensitive and wireless
enabled handheld, launched in Japan and the USA in November 2004 and Europe in
early 2005 and was clearly designed to counter the threat posed by Sony's multi-
functional PSP. Nintendo's DS is currently outselling the PSP in most major territories
although according to DFC intelligence Sony will overtake the DS in 2006/2007.17
Microsoft
Microsoft has learned from the mistakes made with the original Xbox and has
created a console that can properly benefit from manufacturing economies of scale
and efficiency redesigns (which Microsoft struggled to do with the original Xbox) and
has improved the support it provides to third party developers and publishers. It is
expected for Microsoft to make some substantial market share gains, primarily at the
expense of Sony but also Nintendo. Xbox 360 is expected to double the market share
gained by Xbox to reach around 36% in 2009. (DFC Intelligence). It is believed that
Microsoft will surpass Sony primarily due to the continued underperformance of the
Xbox 360 in Japan.
One market in which Microsoft does have something of a lead over Sony and
Nintendo is the online console gaming market with Xbox Live enjoying a successful
US launch in late 2002 and a European launch in March 03. Microsoft has been first
to offer a revenue-generative online service with both subscription revenues as well as
micro-billing enabled premium content downloads. Third party publishers are already
generating useful incremental revenue from Xbox Live and this looks set to grow
substantially with Xbox 360.
17

18. Internal analysis
The internal analysis of a company enables managers to observe how the
company is functioning. This analysis is focused on the internal environment and
helps understand what are the strategic capabilities of the company ,what are the
recourses that can base its competitive advantage and what future strategies should be
pursued.
Product life cycle
Product life cycle is a useful tool for conceptualising the changes that may take
place during the time that a product is on the market 18 and its phases are, introduction,
growth, maturity and decline. SCE in general follows the “video game cycles”. The
video game industry is characterised by cyclical patterns which are referred as “video
game cycles”. These cycles last 5 to 6 years and re-start when the new-generation of
hardware is introduced. The exhibit below depicts the video game hardware cycles.
Internally SCE has to manage two products that are in the second “video game
cycle” and it prepares it self for the launching of the PS3 .The two products that has to
manage at this point of time is PS2 and PSP (Portable Sony Playstation). The
cumulative worldwide shipment of PlayStation®2 had reached 100 million units as of
November 29th, 2005, breaking the record as the fastest computer entertainment
platform to reach this remarkable figure. This achievement comes within 5 years and
9 months since its launch in Japan in March 2000 with 37.14 million units (launch
date: November 24, 2000) in Europe/PAL territories only. 19
PS2 is in the maturity stage since sales hasn’t fall only a couple of months
before the final stage of anticipation of PS3. But SCE makes still money from it by
introducing new software titles since PS3 is going to be backward compatible.
18

19. Moreover at this stage PS2 is supported by price cuts and introduction of new
enhanced models that keep the momentum of sales till the end of the cycle.
The PSP is in the growth stage of the product life cycle and had a record
penetration speed for SCE of 10000 Shipments worldwide 10 months after its
launching20 .
It has to be noticed that SCE since now never leaves a product to fall in the
decline stage before the introduction of a new generation console and finds ways for
keeping the momentum of sales.
Corporate Portfolio
Key decisions regarding corporate portfolio involve decision of choice of which
brands/product lines to build, hold, harvest or divest. 21 At this point of time SCE has
to Strategic Business Units which are the PS2 and the PSP. These two SBU’s have
different market shares and the markets that are in are in different phases.
BCG Matrix.
The Boston Consulting Group Matrix highlights the relationship between market
share and market growth (Jonshon et all, Pg 315).PS2 is considered a ‘cash cow’ as it
is in the maturity stage, it has a very high market share of the console market but the
market growth is low. However the market is affected by the moves and the standards
of the new generation console of Microsoft, XBOX 360. PS2 loses market share from
XBOX 360, competes directly with it as it has the first mover advantage in the third
video cycle and creates new potential for market growth.
PSP is considered a ‘star’ product as it holds already a 28% 22 of the handheld market,
albeit second in market share after Nintendo DS .However the PSP is a younger
system, and has been out less than a year, while Nintendo has been in the handheld
market for over a decade. PSP is in the growth stage with high market share and high
growth of the market. PSP is expected to eat into Nintendo’s handheld dominance.
19

20. Market attractiveness
The directional policy matrix categorises business units into those with good
prospects and those with less good prospects.23 In this analysis we will consider PS3
as well to show the relative strength pf the whole portfolio.(According to new
announces PS3 will be launched with delay in march 2007).Appendix is used to
show the prospects of the two SBU’s of Sony, PS2, PSP and PS3. PS2 has a very
strong installed user-base but its already loses market share from XBOX 360.As an
SBU is in very strong position since it is the market leader in market share, it has
established relationships with distributors and a powerful brand name. In the market
attractiveness axis PS2 lies in the low market attractiveness as it is a ‘second video
cycle’ cosole and has a low profit potential ,it lacks in chip power and graphics in
comparison with XBOX 360 and it seems les attractive not only to XBOX 360 but
also to the forthcoming PS3.
PSP, in the SBU strength matrix has a very strong position because it has a market
share of around 30% and it is only a 1.5 year machine in comparison with Nintendo
which is in the handheld market for around 10 years. It has the potential to develop a
differential advantage through positioning and strong brand name and can also base
its ascendant in market share. In the market attractiveness axis PSP holds equally a
very high position as the market is in the growth stage and has a great profit potential
since it is a much more powerful machine than Nintendo DS, albeit DS is a highly
innovative and puts efforts to be the leader in handheld sector.
The new PS3 console is a very highly anticipated console in the market since it
will be the most powerful in the market. PS3 with a history of a market leader brand
expects to have a great appeal on the consumers and high sales. In the SBU strength
axis PS3 will be very high as it will be the console that it will revolutionize the market
with real-life graphics, great investments in R&D and an established distribution
network. Moreover it has a high market attractiveness as the market in the beginning
of a new cycle with high market growth.
Strategy Guidelines
The directional policy matrix provides a way of considering appropriate
corporate-level strategies, depending on how the business units are positioned in the
matrix (Jonshon et al, Pg 319). PS2 falls into the ‘cash cow’ category in the BCG
20

21. matrix and in the low market attractiveness- high SBU strength zone in the directional
policy matrix. Therefore Sony should defend PS2 and hold sales and market share
with new software titles and introduction of product improvements, for example PS2
ceramic white. The excess cash generated should be invested in ‘star’ PSP or in the
new PS3 whose R&D was supported by PS2 cash flows.
PSP falls into the ‘star’ category in BCG matrix and the high market
attractiveness- high SUB strength in the directional policy matrix so the strategic
objective should be to build sales and market share through advertising, promotions
and brand building. At this point of time PSP is second in the market but has great
potential to outsell Nintendo DS and that’s the strategy Sony should follow.
PS3 probably will be the new ‘star’ of Sony although it may find difficulties due
to the first mover advantage of Microsoft’s XBOX 360.Gradually Sony should start
focusing in the substantial marketing investment in PS3 after its launch and start
divesting PS2 .
Strategic Capability and Resources
Strategic capability is the adequacy and suitability of resources and
competences, of an organisation, for it to survive and prosper. Resources enable a
company to have competitive advantages depending on how resources are employed.
(Jonshon et al, Pg 117) this is more likely to happen when companies have unique
resources and core competences that others is difficult to imitate and are deployed in
such a way as to achieve competitive advantage.
Physical resources of Sony is the consoles that it produces and the software
titles for its consoles (some of them produced internally, some from other companies).
Sony since the beginning of its computer entertainment division set a very high
standard of computing power and appealing game content. As it strived to do with the
original PlayStation, Sony has built up a considerable support base of developers and
publishers. Sony has been guaranteed a consistent flow of software releases which in
turn has lead to consistent hardware sales. This ability to produce appealing software
titles based on effective networking is a competitive advantage. Software plays a
considerably more important role than hardware in determining the long-term success
of a console. Few people buy consoles based on hardware alone; most buy consoles
21

22. based on software releases and a regular flow of high quality software (original
products and existing brands/licenses) is therefore essential. For console
manufacturers, the most effective software is that provided on an exclusive basis. By
securing the exclusive platform rights to key brands such as Tomb Raider and Gran
Turismo, Sony provided significant incentives for gamers to choose a PlayStation
over other consoles.
Alongside with software titles Sony has a core competence in creating the most
powerful consoles in the market by creating more advanced chips than competitors
and thus more compelling graphics .This competence gives the ability to Sony to
differentiate its product and gain a competitive advantage.
Intellectual capital and human resources is a very strong resource of Sony. The
video game industry is a knowledge-intensive, userbase-led industry which has
technology in its core. The innovatory capacity and commitment to high performance
is a competitive advantage. Another core competence of Sony based in the
organizational knowledge is the ability to create marketing strategies that match the
needs and aspirations of target markets but also the capability to create a world wide
admired brand whose value is essential for the future success for the company.
Financial resources at present are good considering that Sony hasn’t yet
launched its next generation console PS3. Sales in the SCE fell 6.5% 24 due to fall in
hardware sales of PS2 and strategic cut prices but also due to start up costs for
Playstation Portable. Is very important for SCE to have a balanced portfolio so that it
can minimize risk. Finances of SCE are directly affected by sales in software and
Hardware but also from the Product Life Cycle each of its products is.
SWOT Analysis
SWOT analysis summarises the key issues from the business environment and
the strategic capability of an organisation that are most likely to impact on strategy
development (Jonshon et al, Pg148). SCE can see how its strengths can be exploited
and assess future courses of action.
22

23. Strengths
SCE has a great number of strength .One of the most important of these is that it
has great potential for the future .SCE have a very strong brand name which gives it
brand loyalty and credibility in business relationships. Its new console is anticipated
with great amazement and this imminent product launch gives SCE confidence for the
future.PS2 is a ‘cash cow’ but its software units hit a record high for PS2 25,something
which is very good because software tittles give SCE far greater profits than
hardware. Moreover SCE have a wide selection of software titles that can support the
widening of the demographics and a great number of exclusive titles based on the
effective support base of the publishers and developers.
With regards to the running of the company and the resources it possess, SCE
have a committed and competent management which can lead SCE to long- term
future success. Furthermore SCE have a highly innovative R&D department whose
relationships with hi-tech industry can lead to long term technical superiority. Finally
SCE have a balanced portfolio with a ’cash cow ‘ and a ‘star’ but also a strong and
successful parent company which is committed to create value for it.
Weaknesses
One of the most obvious weaknesses of SCE at the launching of all its products
prices are higher than that of competitors. Provided the price sensitivity of casual
gamers, the price is a certain competitive weakness of Sony and this might alienate
casual gamers and the importance of price as the important determinant of the positive
sales decision should not be underestimated. Moreover , despite having predicted the
advent of online console gaming, and with a many years of trials and service
development behind it Sony has been remarkably slow to evolve its online proposition
to a commercial stage, especially in Europe where Microsoft beat them to a full
launch and is widely acknowledged to maintain a technical and strategic lead. Sony
certainly views online as critically important to its overall console business strategy
but has not yet developed a commercial strategy. The underdevelopment of massively
multiplayer online gaming (MMOG) solutions is an important weakness for Sony.
23

24. Opportunities
There are a number of opportunities for Sony, which could help them improve
their position in the market. Firstly, it is the winning of the battle for the living room.
Sony has already realized that the biggest battles in the electronic game market will
take place for the living room –and not only for the TV screen. The objective of the
next generation consoles for Sony should be, not only dominance in the game market
but also to be a leader in the digital convergence that takes place in the living rooms
around the world. This opportunity should be matched and interrelated with the
broadening of the demographics so that can incorporate the whole family and the
industry will keep expanding. There would be fierce competition from Microsoft but
Sony can exploit its delay of PS3 to work better on this direction.
The adoption of high speed Internet through DSL or Cable modem connection.
Services will increase the accessibility of on-line gaming, such as massively
multiplayer online gaming (MMOG). Sony is already committing considerable
resources to the development of online services for their respective machines but this
should be done to comparison to Microsoft in order to benchmark and offer more
appealing solutions to the customers.
Threats
There is a number of influences from the external environment that can pose a
threat on Sony. The most obvious threat at this point of time is the first mover
advantage it has with its new generation console XBOX 360. There are a number of
reasons this advantage exists. Microsoft will be able to increase sales quickly and
reduce the average cost of the product, over Sony. This allows Microsoft to have more
flexibility with pricing, either reducing the price to make it less attractive for new
entrants (increasing barriers to entry) or increasing the margin and therefore profit
while prices remain fixed, this additional profit can then be used for further
innovation. If Microsoft is able to achieve a lock-in of its installed-base. It will be
more difficult for Sony to attract those customers away from Microsoft.
Moreover Sony has a disadvantage in online services which will bring various
MMOG solutions to customers due to the first mover advantage Microsoft has with
XBOX 360 .However Microsoft’s on-line service is on pay whereas PS3’s
24

25. forthcoming on-line service will be free and this will make the product mix of PS3
more appealing to customers.
Marketing Strategy
Marketing Strategy matches the activities of an organisation to the environment
it operates in and its own capabilities, it is used to determine how a company should
position itself in the target markets in order to gain a competitive advantage.
STP approach to segmentation
STP approach to segmentation is used to ensure that a product is positioned in
the correct manner depending on the market segment is targeting. Sony’s strategy
within the Second video game cycle and its marketing objectives was to persuade
casual gamers to buy PS2. With PSP Sony wanted to transfer the same experience in
the handheld market. Sony positions its console as entertainment centers and as
unique gaming experience. Both positioning statements are duly supported by Product
Mix elements and the efforts of software developers.
The most appropriate method for identifying market segments in the video game
industry is the age criteria but also very important is the adoption basis for
segmentation. This two criteria blended with behavioral criteria is the best approach
to segmentation. The major objective for PS2 is to attract late majority and laggard
adopters to buy consoles. Hence target customers are segmented not only on the
demographic basis, but also on the basis of adoption basis.
The profile of PlayStation 2 gamers is constantly changing as PlayStation tries to
broaden its appeal to a wider audience. Although the majority of gamers are male, the
percentage of female gamers in growing, as is the average age of gamers
25

26. Average age 23.5 yrs
Age profile upto10 11-14 15-17 18-24 25-34 35+
7.5% 16.8% 11.3% 22.2% 25.1% 14.9%
Females 8.7%
Sony Computer Entertainment Inc: http://www.scee.presscentre.com/Content/Detail.asp?
ReleaseID=2294&NewsAreaID=17
As we can see the most attractive segment and bigger of all is the 18-34 segment and
their characteristics are that they are casual gamers who would like to explore video
gaming experience, prefer to play famous game titles and enjoy community and
online community.
Sales figures indicate that there is clearly increased usage of game systems
within households. This means more households have several users, own multiple
systems and have a tendency to purchase more software per system (higher tie rates).
It also means that the system targeted to the broadest demographic may be the most
attractive to the growing number of households with multiple users. The broadening
of the demographics must be towards the family. Sony must achieve the broadening
of the target market through its software titles which should be made to attract all ages
and all types of players. the demographics are changing profoundly. In the USA,
across all platforms (including online and mobile) 43% of gamers are now female;
72% are over 18 (19% are over 50). Married females in their 30s-40s easily
outnumber hard-core gamers playing online and mobile games. So the new female
player is becoming increasingly important to the industry. The female gamer wants
shorter, kid-friendly lifestyle games with more socialisation.
To meet growth targets Sony must broaden its appeal further, and learn lessons
from truly mass media such as television and film. If the industry fails to broaden the
addressable market of console owners, growth rates of games software will not be
sustainable, and investment in the industry will dry up. Over the next decade,
26

27. recognising and exploiting these fundamental changes will become not just a critical
success factor but possibly also a survival factor for every games company.
So if Sony wants to expand the gaming audience it has to target specific
audiences .The most attractive audiences for this marketing objective are, except the
18-34 male target group, the female segment which is continuously growing but also
the older consumers, baby boomers, people who never thought of playing a video
game. This objective should be achieved through matching the marketing mix with
the needs of this to big target markets.
Strategic Options Analysis
Ansoff’s Matrix is a useful framework for thinking about the ways in which
growth can be through product strategy (David Jobber, Principals and Practice of
marketing, 2004, Pg 325) and it will be used to assist Sony strategic decision .the
results are shown in Appendix 1.Sony has a portfolio of products and it has to make
decisions of how to achieve growth. Growth can come from 4 different strategies and
these are market penetration or market expansion, market development, product
development and diversification.
The first strategic option for Sony is market penetration. This can be done
through strategic cut prices of PS2 in order to convert customers to buy PS2 and not a
competitor’s product. Casual gamers are price sensitive and bargain –seekers (Mintel,
2004)26 so there is a basis for strategic cut prices. This can be done in order to protect
the position and share of PS2. Another option for PS2 is to increase usage rate which
means that it should aim for households to have several or own multiple systems and
purchase more software per system (higher tie rates). Concerning PSP Sony can
follow a market penetration strategy in order to build the market share of PSP more
and make it a market leader. This can be done through more effective advertising
and the increase in promotional expenditure.
Product development is another strategic option for Sony. The product
development option involves.This can be done by the development of Product Mix for
27

28. existing customer segments to match the current popularity of MMO games. This will
be done with the new PS3 which will aim the further broadening of the demographic
and it will be positioned as the “one stop digital centre” of the modern living room.
Market development is the third option and is where existing products are sold
in new markets. New market areas in the video game industry is the targeting of
female gamer and the male group of 35-55.This can be done by the broad range of
software titles and the aiming of software titles specifically to these demographics.
Furthermore Sony can add new characteristics to PSP and PS2 in order to make them
appealing to new segments with different buying criteria such as status, style ,fashion
etc. For example the development of fashionable PS2 (slim type, new colours and
design elements) to maximize mass market appeal.
For a company to be successful in the interactive entertainment business it must
operate on a worldwide basis. Sony, with the PlayStation, was the first company to
build a solid business in all three core regions (Japan, North America and Europe).
The next growth challenge for Sony will be to expand into emerging markets while
maintaining growth in core markets. Emerging markets include South Korea, Taiwan,
Singapore, mainland Asia, Australia, Eastern Europe and others.
Implementation and control
According to Hooley27 there are three elements of implementation: marketing mix,
organization and control.
Marketing Mix
Sony must develop and implement a marketing mix that will match the needs of
the target market better than the competitors. The development of the Marketing Mix
should be based on the understanding of the customers. Product, price, place and
promotion are the 4P’s areas marketers must manage (Jobber, page 18)
Product: The environmental analysis revealed the importance of Product Mix as a
strong appeal to customers. Casual gamers are looking for enhanced gaming
experience. At the same time, the influence of fashion trends set specific requirements
28

29. for the development of new designs. To attract casual gamers, Sony shall strive to
maximise overall customer experience by offering attractive bundles and enhancing
entertainment capabilities of all its consoles. Additionally, the development of MMO
games will attract hardcore gamers and might enable certain gamers to switch from
other consoles.
Price: The SWOT analysis revealed that the price is one of the weaknesses. Hence,
to attract casual gamers Sony needs to make the Price Mix of its products be
competitive against direct competitors.
Place: Pratten & Scoffield (2003) name location as one of major competitive
strengths. Sony shall maintain the strong relationships with major distributors to
secure the availability of its products.
Promotion: According to Kotler (2002) promotion decisions encompass the range of
communication and motivation instruments needed to raise awareness and precipitate
purchase of the product. Sony shall use various mass media tools, including celebrity
endorsement and events to increase the overall hardware and software sales. Mintel
(2004) stresses the importance of POS promotions such as price reductions, special
offers and special editions and the importance of word of mouth communication.
People & Process & Physical evidence:Provided that the Sony’sproducts are
mostly goods rather than services it is very hard to define Process Mix, People Mix
and Physical Evidence Mix components. At the same time, C2C online activities and
gaming experience create various opportunities for Sony to manage People Mix and
Process Mix. Using Game mastering, holding tournaments and online competitions,
supported by game communities Sony Entertainment can make use of People Mix,
Process Mix and Physical Evidence Mix. In this case the involvement of other gamers
will create additional emotional benefits for customers and create the tangible
advantages of Sony’s products.
29

30. Organisation
In order to succeed a marketing plan should have the full commitment and
entrepreneurial will of the marketing department .Additionally the business should
design an organization that has the capability of implementing the marketing plan
and resources must be managed correctly ,to ensure that they are used correctly across
the entire strategy and are integrated appropriately. Sony has very competent human
resources and especially the marketing department is accordingly organised with the
target objectives set each time. To reflect the importance that Sony places to its
products and brand names the marketing department is product-base organised and
divided to brand managers for each product so that issues of each product can be
managed more thoroughly and effectively.
Control
According to Hooley ( Pg 55) as the marketing strategy is being executed the
marketing department must monitor and control the effort. The performance is
monitored on the basis of marketing and financial performance. Sony must monitor
the appeal it has to the targeted demographic of female gamers and males 35 to 55 and
target sales must be set for the software titles aimed at this target market. Additionally
Sony must monitor the appeal it has in the family as a whole in its pursuit to conquer
the living room and measure the increase of usage rate since its aim must be to
increase the software titles ratio per console. . The collection of the feedback
information will be done on the monthly basis to evaluate the effectiveness of the
suggested marketing strategy. In case no or flat response to promotional activities,
contingency measures will be employed.
Conclusion
This report has studied the external and internal environment of Sony Computer
Entertainment Inc. using the tools that I think are the most appropriate for the specific
task. The findings showed that Sony faces a very challenging external environment
which is in the stage of great changes. A children's market until the early 90s, the
30

31. mainstream computer and video game user-base is now well into the 18-35 market,
thanks to an ageing base of gamers, game aesthetics which a broader range of people
can associate with but perhaps most importantly, Sony's novel concept of targeting an
older demographic when PlayStation launched. Moreover Software plays a
considerably more important role than hardware in determining the long-term success
of a console. Few people buy consoles based on hardware alone; most buy consoles
based on software releases and a regular flow of high quality software is therefore
essential. Sony’s internal environment analysis showed that Sony has a great potential
for the future if it continues to show the same novelty in marketing, relationships and
technology.
Appendix 1
New entrants
Low
Suppliers Competitors Buyers (bargaining
Low High power)
High
Substitutes
High
Adopted from Porter (1990)
31

32. Appendix 2
Video Game Industry Primer Piper Jaffray Equity Research, May 2004
32

33. 33

34. References
1 http://www.us.playstation.com/News/PressReleases/338
2http://www.scee.presscentre.com/Content/Detail.asp?
ReleaseID=2294&NewsAreaID=17
3http://www.deloitte.com/dtt/cda/doc/content/DR_Moore%27s%20Law
%20Final_May2004%282%29.pdf
4 http://homepages.wmich.edu/~e2oquist/PROJECT3.htm
5Finlay, P.N Strategic Management : An Introduction to Business and Corporate
Strategy. Financial Times: Prentice hall.2000.
34

35. 6http://www.theesa.com/archives/EF%20Courts%20and%20Rulings%20Final%20--
%20August%202006.pdf
7http://www.gamesindustry.biz/content_page.php?aid=3832
8http://www.gamesindustry.biz/content_page.php?aid=3832
9http://academic.mintel.com/sinatra/academic/search_results/show&&type=RCItem&
page=0&noaccess_page=0/display/id=68221
10 Michael E. Porter. 1980. COMPETITIVE STRATEGY TECHNIQUES FOR
ANALYZING INDUSTRIES AND COMPETITORS. New York: Free press
11http://www.themanager.org/Strategy/BeyondPorter.htm
12 Video Game Business to Double by 2011, Driven by Online and Mobile Gaming
Press Release ABI Research.htm
13 http://www.themanager.org/Strategy/BeyondPorter.htm
14http://www.themanager.org/Strategy/BeyondPorter.htm
15http://www.gamesinvestor.com/Thinkpieces/Next-gen_PC_market/next-
gen_pc_market.html
16http://www.gamesinvestor.com/Thinkpieces/Next-gen_PC_market/next-
gen_pc_market.html
17http://www.dfcint.com/game_article/feb04article.html
18 David Jobber, Principals and Practice of marketing, 2004, Pg 308
19 http://playstation.about.com/b/a/227872.htm
35

36. 20http://www.sony.net/SonyInfo/CorporateInfo/qfhh7c000000lpn1.html
21David Jobber, Principals and Practice of marketing, 2004, Pg 318
22http://www.sony.net/SonyInfo/CorporateInfo/qfhh7c000000lpn1.html
23 Jonshon , scholes and wittington, Exploring Corporate Strategy: Seventh Edition,
Prentice Hall, 2005, Pg 319
24http://www.scee.presscentre.com/content/default.asp?NewsAreaID=22
25http://www.scee.presscentre.com/content/default.asp?NewsAreaID=22
26http://academic.mintel.com/sinatra/academic/index/&letter=22/display/id=68221&
anchor=a68221
27 Hooley, Saunders and Piercy, Marketing Strategy and Competitive Positioning,
London, Prentice Hall, 1993
Bibliography
• Bob de wit & Ron Mayer, Strategy: Process, Content, Context, 2 nd Editoion,
1998
• Fill Chris, Marketing communications: Contexts, Strategies and Applications,
Pearson Education Ltd: London, 2002
• Hooley, Saunders and Piercy, Marketing Strategy and Competitive Positioning,
London, Prentice Hall, 1993
• Jobber, Principles and Practice of Marketing,4 th Edition, McGrow Hill, Berksire,
2004
• Jonshon, Scholes and Whittington, Exploring Corporate Strategy: Seventh
Edition, London :Prentice Hall,2005
36

37. • Kotler P., Marketing Management: Analysis, Planning, Implementation and
Control, Prentice Hall,1988
• Michael E. Porter. 1980. COMPETITIVE STRATEGY TECHNIQUES FOR
ANALYZING INDUSTRIES AND COMPETITORS. New York: Free press
Reports
• Anthony N. Gikas, Stephanie M. Wissink, T H E V I D E O G A M E
I N D U S T R Y P R I M E R, Equity Research, May 2004 for Pipper Jaffrey
• Daniel Lord.2003.Targeting The Individual: Understanding consumer needs,
drivers and marketing opportunities to 2010 Copyright © 2003 Business
Insights Ltd
• Dimitri Williams.2002. Structure and Competition in the US Home Video Game
Industry. The international journal on Media Management, p. 41-54
• Japan’s Video Game Industry, Japanese Economy Division, Market overview
• Mintel Reports, Video, Computer and Internet Games, Leisure Intelligence,
September 2004
• Mintel Reports, Massively Multiplayer Online Games (MMOG) and Mobile
Video Games, Leisure Intelligence, November 2005
• Nik Shah, 2005, MBA Fellows Project, The Video Game Industry: An Industry
Analysis, from a VC Perspective, Tuck Darmouth, Hanover
37

38. 38