Sony Next Generation Portable (NGP)

2011/4/13
BUS 343

EXECUTIVE SUMMARY

Recognized as the global leader and responsible for the progress of consumer-based computer entertainment, Sony Computer Entertainment Inc. (SCEI) distributes and markets the PlayStation game console, PS2 computer entertainment system, the PSP handheld entertainment system and the PS3 system. Headquartered in Tokyo, Japan, SCEI is an independent unit of business of Sony Corporation, which was founded in 1946 (Sony Corporation, 2011). SCEI, along with its subsidiary divisions Sony Computer Entertainment America Inc. (SCEA) and Sony Computer Entertainment Europe Ltd. (SCEE) develops, publishes and distributes software. It also manages the third party licensing program for these platforms in the respective markets worldwide.

The SWOT Analysis examines the internal and external environment that Sony is facing. According to Appendix exhibit C, the market share of Sony’s gaming industry has decreased by 9% after the maturity of Apple’s iPhone. Also, Nintendo has launched its latest product, 3DS. It is necessary for Sony to evaluate these competitors, so we can find the factors that contribute to the decrease. We have come up with two major marketing objectives: increase product awareness and increase market share while still maintain profitable.

Through segmentation, we can better identify and group our potential customers. Since consumers have different wants and needs, by segmenting the market, we have decided how NGP could compete with others, and how it would be perceived by customers. To prepare for NGP’s launch, we have designed the marketing mix to create product offers that is uniquely appealing to the target group.

Contingency plan serves as a backup if we face any unexpected situations after the launch of NGP. Finally, we set our financial goals for NGP such as achieving rate of equity by 10% in the following year by analyzing the company’s financial situation.
TABLE OF CONTENTS

EXECUTIVE SUMMARY …………………………………………………………………. 2

SITUATIONAL ANALYSIS……………………………………………………………….. 4

SWOT Summary ………………………………………………………………… 4 Competitor Analysis ……………………………………………………………... 5

MARKETING OBJECTIVES ……………………………………………………………… 6

MARKETING STRATEGY………………………………………………………………… 7

Segmentation …………………………………………………………………….. 7 Target Markets……………………………………………………………………. 7 Positioning………………………………………………………………………... 7

MARKETING MIX…………………………………………………………………………. 8

Product …………………………………………………………………………… 8 Price ……………………………………………………………………………… 9 Distribution ………………………………………………………………………. 9 Communication…………………………………………………………………… 10

CONTINGENCY PLAN………………………………………………………………. ...… 11

FINANCIAL ANALYSIS …………………………………………………………………... 11

APPENDIX …………………………………………………………………………………. 12

REFERENCES………………………………………………………………………………. 16

SITUATIONAL ANALYSIS

SWOT Summary (see Appendix exhibit A)

Strengths

Loyal customers are the biggest potential for NGP as PSP gamers would like to continue their games like the Final Fantasy series on NGP. The innovative design of having rear touch pad is a unique feature for game companies to develop new games as well as provide more excitement to gamers. Advance technological specifications like using a quad-core processor is a revolutionary breakthrough for existing handheld console. As NGP is compatible with PSP downloadable games, exiting PSP users can play their games using this new console.

On the other hand, Sony is a multi-national corporation that has established goodwill in its products’ quality for years. Also, Sony has a strong global market positioning because it has developed different branches worldwide. Last but not least, due to Sony has succeeded in a wide range of electronic innovations, this brings plenty of resources to back up and support company’s new product development.

Weaknesses
Sony offers very limited selection of games during their launch of NGP and among the games; they are quite similar to PS3 games. Many users complained about Sony’s PSP and the UMD games are expensive. NGP is not compatible to PSP UMD games, in other words, UMD games that can be played in PSP cannot be played in NGP. There is a relatively low awareness among potential consumers. NGP is perceived by customers as a luxury, but not a necessity as people who already own an iPhone will be less likely to buy this new console.

Opportunities
A graph showed that there is an increase in revenue in portable games (see exhibit B). This is an opportunity for Sony since this increase in revenue implies boom in sales. Because PSP adoption rate is low in North America, if NGP meets the North American consumers’ needs, it is possible that NGP would capture the North America market hence increase its market share. Since Sony has already had many loyal customers, there is a high expectation from its loyal customers. If the product is unique and innovative enough, the loyal customers from Sony would be the first ones to purchase. Since Sony only offers limited selection of games, partnering up with game companies would increase Sony’s comparative advantage and thus would attract more customers.

Threats
With Apple’s iPhone and iPad, there is a decrease in Sony’s market share in the portable gaming industry (see exhibit C). This is a threat because Sony is losing customers and it can explain why Sony is losing its market share and profit. In addition, Apple and Nintendo compete with Sony by producing their products with relative low costs and still maintain a good brand image. Many users think that Sony’s online service is poor while the other competitors have strong online customers support. This may cause customers to switch to other brands.
Competitor Analysis

According to Flurry Analytics’ total US portable game revenue market share as shown in Appendix exhibit C, market leader in the portable gaming market, Nintendo DS, was holding 75% and 70% in 2008 and 2009 respectively. Sony’s PSP was having the second highest holding, 20%, in 2008. However, in 2009 PSP’s holding had sunk to 11% and Apple gadgets had overtaken PSP by 8% (Farago, 2010). Flurry Analytic also reported that both iPhone and portable games have raised their share in U.S. game software by revenue as shown in Appendix exhibit B (Farago, 2010). Therefore, we have identified Nintendo 3DS and Apple gadgets will be NGP’s main competitors.

Nintendo 3DS
Sony’s number one competitor, Nintendo, has released its latest handheld gaming console 3DS in U.S. last month. Its U.S. day-one sales record was the highest portable system in their history (Albanesius, 2011). Also, researcher IHS forecasts that the global installed base of 3DS will be around 70 million units by 2015 (Harding-rolls, 2011). Nintendo gains its competitive advantage from leading 3D technology in portable gaming console. As a result, Nintendo can be fully engaged in the 3D gaming features. However, Nintendo suggested that the 3D contents would have potential impact for children (Albanesius, 2010). Hence, it may affect its sales in future.

Apple gadgets (iPad, iPhone, iPod touch)
Over 30,000 games have been released in App Store for Apple gadgets (Farago, 2010). A prominent video game analyst, Michael Pachter, claims that iPod touch is “dangerous” for game publishers as its prices come down, people may switch to Apple gadgets over other portable gaming systems (Schramm, 2009). Besides, from exhibit D, the pie chart shows that 19% of Apps game developers come from the traditional gaming industry like EA. It implies that Apple has already established extensive game publisher support (Farago, 2010).
MARKETING OBJECTIVES

Based on the report from Flurry Analytics, the decrease in market share value could be attributed to economic recession, fierce competitions with other competitors especially with Apple gadgets, and an inefficient marketing strategy. Sony’s portable gaming console sales suffered greatly during the recession as the company is highly reliant on the US market which was hit the strongest.

In order to restore Sony’s second highest holding in the “U.S. portable game software by revenue” and share the increasing revenue in portable gaming industry, the marketing objectives of Sony NGP should focus on the following five aspects:

1. To increase NGP’s awareness by 80% before its launch at the end of the year
2. To expand customer base that who are non-gamers
3. To increase NGP’s market share in North America by 5% by the end of the following year after its release
4. To encourage audience to interact with products and increase customer loyalty
5. To achieve 10% rate of equity by the end of the following year after its release

MARKETING STRATEGY

Segmentation

The market segmentation for NGP will mainly focus on teenagers and young adults who age 14 – 28, especially on male consumers with high disposable income. Due to the gaming category in NGP are male-oriented sports games as well as RPG games that contain high violence contents, males are more likely to enjoy playing these types of games. This segment has a common characteristic that is seeking excitements from their playing experience.

Target Markets

Exclusively focusing on Sony’s loyal customers is not an ideal marketing strategy for expanding Sony portable gaming market share, because it will alienate non-gamers that are fitted in our segment groups and significantly restricted their profit potential. From our perspective, it is in Sony’s best interest to promote their wide array of games and other non-gaming features like GPS to attract new customers who never experienced handheld gaming before but currently own a handheld entertainment device. Also, NGP will target in absorbing new gamers who only have experience in Apple Apps games. As people have realized that Apple Apps games are cloning each other’s (Liau, 2010).

Positioning

According to NGP’s superior specifications, Sony is positioning NGP as a more “high tech” portable gaming system. Sony wants to differentiate itself from its direct competitor, the Nintendo 3DS, by having a high resolution OLED touch screen and a powerful processor that can provide high quality as well as complex playing experience to its users. Besides, NGP is also a multi-purposes gadget such as having GPS, rather than just a portable gaming system. This is because Sony wants to compete with its new competitor, Apple, as well.
MARKETING MIX

Product

Objectives
The launching of iPhone applications and Nintendo NDS had decreased the market share and profit of Sony in the portable gaming industry significantly. Sony believes that by including the key features of the iPhone and NDS into the PSP can address this problem. By introducing NGP, this advanced gadget can increase market share as well as profit within the portable gaming industry. However, different kinds of video games and applications have to be developed to attract new markets if Sony wants to increase its market share in the long run.

Concepts
Since NGP is an improved PSP, it has higher image resolution and better audio, faster processor, and more methods of connectivity. It also captures some of the key features of iPhone and NDS, such as microphone, camera and touch screen. In addition, the two analog thumbsticks, touch panel on back and vibrator are the key features of NGP. Before, these features are only available in PS2 and PS3. By combining the functions of different gaming gadgets, Sony hopes that customers can perceive NGP as the most advanced gaming gadget.

Moreover, NGP is not only for entertainment purposes. It includes other useful applications such as GPS and TeleConnect (NGP Software, Inc., 2011). By using the name “New Generation Portable” instead of “Play Station Portable”, it shows that NGP is a multi-functional device rather than a gaming gadget.

However, some disadvantages of NGP have to be addressed. Since there is no built-in UMD reader in NGP, an external UMD-reader has to be developed so that the UMD games are still playable in NGP. Also, the safeguard of PSP is poor. ISO, torrent and other cheat programs can decode the video games so that people can play them without purchasing the UMDs (PSP ISO, 2010). This reduces the profit of video games a lot. Sony has to ensure that this will not happen for NGP. Furthermore, there is no English version for some famous Japanese video games. Sony should produce the English version of these games to suit North America users.

If Sony wants to increase its market share in long run, it should target new customers. This can be achieved by developing new nature of games that are suitable for all generations. For example, Sony tried to target young customers by including characters that children like in the games, such as harry Potter.

Price

Nintendo 3DS is the biggest competitor to NGP. In North America, the retail price of a 3DS is 249.99 USD (Ewalt, 2011). It is reasonable to set the price of NGP at the same price as 3DS because, according to a survey conducted by Ubisoft (Rosenberg, 2011), this is what people expected. By setting at the same price as 3DS, the brand image of NGP will not be affected by Price-quality Heuristic. It also allows them to compare NGP with 3DS before buying and may find that NGP is a better choice because it has other functions that 3DS does not have. In addition, this price is not too high comparing to the retail price of PSP, which is 199.99 USD. This can attract the loyal PSP owners to purchase this more advanced PSP. Therefore, higher sales can be triggered by setting at this reasonably low price.

On the other hand, Sony can use captive pricing. It can charge the related products and applications at a higher price to compensate the low price of NGP. Since video game is a complement of NGP, Sony can charge higher price on each game. For example, popular game series like Final Fantasy can charge for 34.99 USD.

Before, PSP does not have any applications. Now, Sony can charge the applications of NGP such as GPS and dictionary extensively. For example, Apple charges its applications from 0.99 USD to 109.99 USD (iPhone Application List, 2011). Therefore, NGP can charge its games in variety prices.

Place

Sony, being a global company, positions itself as a seller of durable and high-end products. It has rich experience in distributing its products. It can use a similar market strategy to distribute NGP. In order to maintain its premium image, Sony should practice selective distribution of NGP from selective dealers. Sony distributes NGP in multi-channels to increase its market share. As usual, SCEI, SCEA, SCEE and subsidiaries in Asia market distribute NGP entertainment hardware and related software (Sony Corporation, 2007, p. 23).

Also, Sony can distribute NGP indirectly by selecting channel partners such as Best Buy and Future Shop. Since they can provide display, sales support, repair services and even more for the customers, it can lower costs of distribution and help increase NGP’s market share.

Giving license to online retailers, such as amazon.com and eBay, is also an effective way to sell NGP and increase its availability. The use of various discounting offers and prices cutting techniques can create intense rivalry between distributions with the use of bundling offers to drive sales in order to increase NGP’s market share.
Communication

The following ways can be used to achieve the marketing objectives:

Advertising
During the introduction stage, Sony should use traditional approaches of advertising to increase the awareness of NGP such as TV commercials, newspapers, magazines ad prints, and the Internet. Through advertising, we introduce the new features of NGP and its advantages compared to other similar products. With an increase of product awareness, we will expect a raise in Sony’s market share.

Direct Marketing
Due to the massive customer base Sony has, it can use direct marketing to promote NGP by sending personalized mails and emails to loyal customers. By direct mailing, loyal customers will be the first ones to know the news of NGP and the related video games. Through their word-of-mouth, more people will know the existence of the product, and ultimately awareness will be increased and so do market share and profit.

Exhibition/ Trial
Before NGP’s actual launch date, Sony can host trail events by inviting media and people around the world. At these events, customers will try out NGP and if they like it, they can buy it at the events. Personal selling can take place during exhibitions so that sales representatives from Sony can answer consumers’ questions during the events and it serves as a communication tool for customers to better understand NGP.
CONTINGENCY PLAN

There are many uncertainties and difficulties that NGP may experience if proper precautions are not taken. The major risk factors in which NGP may encounter are listed below.

• Sony may need to recruit more experienced salespersons and train them to become the expert of the product

Solution: Sony may provide extra training program to educate the salespersons.

• NGP may encounter difficulties in generating brand awareness

Solution: Modify the strategy and tactic of advertising and promotion

• Target awareness is not reached by the end of the first 5 months.

Solution: Conduct market research to determine if there is a communications issue.

FINANCIAL ANALYSIS

Sony achieved operating income of ¥31.8 billion by the end of March 2010, comparing to a daunting operating loss of ¥227.8 billion (See exhibit E). The Networked Products & Services segment reported sales of ¥ 1,575.8 billion, which took 21% of total sales, down 10.2% year-on-year (See exhibit F). The deterioration of segment sales was attributable largely to decrease for the game business primarily in unit sales of PSP hardware and PS2 software. The unit sales of PS2 hardware decreased 8% and the PS2 software declined 57.25% on unit sales by the end of March 2010(See exhibit G). This not only decreased the sales and revenue of game division by 15%, but also declined Sony’s market share in the gaming industry and its total profit.

APPENDIX

Exhibit A

SWOT Summary
|Strengths |Weakness |
|· Loyal Customers |· Limited selection of games |
|· Innovative product design |· Similar games with PS3 |
|· Backwards compatible to PSP |· Expensive games and hardware |
|downloadable games |· Incompatible to PSP UMD games |
|· Good reputation |· Low awareness |
|· Strong global market positioning |· A luxury, not a necessity |
|· Product diversification within the | |
|brand | |
|Opportunity |Treats |
|· Raising portable games consumption |· Decreasing in market share |
|· Low PSP adoption rate in North America |· Low cost competitors |
|· High expectations from loyal customers |- Apple |
|· New innovative games |- Android OS |
| |- Nintendo |
| |· Online service from competitors |

Exhibit B

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Exhibit C

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Exhibit D
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Exhibit E
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Exhibit F
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Exhibit G
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REFERENCES

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Albanesius, C. (2011, March 29). Nintendo reports record first-day 3DS sales. Retrieved from http://www.pcmag.com/article2/0,2817,2382771,00.asp

Ewalt, D.M. (2011, January 19). Nintendo announces 3DS launch date, price. Retrieved from http://blogs.forbes.com/davidewalt/2011/01/19/nintendo-announces-3ds-launch-date-price/

Farago, P. (2010, March 15). Flurry Smartphone industry pulse, February 2010. Retrieved from http://blog.flurry.com/bid/31376/Flurry-Smartphone-Industry-Pulse-February-2010

Farago, P. (2010, March 22). Apple iPhone and iPod touch capture U.S. video game market share. Retrieved from http://blog.flurry.com/bid/31566/Apple-iPhone-and-iPod-touch-Capture-U-S-Video-Game-Market-Share

Harding-Rolls, P. (2011, April 8). Nintendo 3DS sales expected to be strong—but won’t match previous-generation DS. Retrieved from http://www.isuppli.com/Media-Research/News/Pages/Nintendo-3DS-Sales-Expected-to-be-Strong%E2%80%94but-Wont-Match-Previous-Generation-DS.aspx

iPhone Application List . (2011). iPhone Apps, iPad Apps, iPhone 3GS Apps, iPad games, iPod Touch games, app reviews and forum. Retrieved from http://iphoneapplicationlist.com/apps/

Liau, Y. Q. (2010, September 28). Portable console may not regain market share. Retrieved from http://www.zdnetasia.com/portable-console-may-not-regain-market-share-62203230.htm

NGP Software, Inc. (2011). NGP phone services: Teleforum and TeleConnect. Retrieved from http://www.ngpsoftware.com/products/teleforum

PSP ISO. (2010). Provide full direct downloads to both PSP and PSX ISO & CSO Games. Retrieved from http://www.ffinsider.net/psp-iso/

Rosenberg, A. (2011). Sony NGP price rumored at $350 with 3G, $250 without it. Retrieved from http://www.digitaltrends.com/gaming/sony-ngp-price-rumored-at-350-with-3g-250-without-it/

Schramm, M. (2009, October 17). Pachter: iPod touch is "dangerous" for game publishers. Retrieved from http://www.tuaw.com/2009/10/17/pachter-ipod-touch-is-dangerous-for-game-publishers/

Sony Corporation. (2007). Annual Report. Retrieved from http://www.sony.net/SonyInfo/IR/library/FY2006_20F_PDF.pdf

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