Microsoft Canada, Xbox

Executive Summary

Microsoft Canada is preparing its marketing plan for the Xbox over the coming year. The Xbox was launched the previous year and positioned as the complete home entertainment solution combining video gaming, the Internet and DVD playback. The Xbox is the most robust gaming console on the market, but faces stiff competition in its product category.

The Sony Playstation 2 is the market leader with over 50% of the console market. Microsoft also faces competition from Nintendo and their GameCube. Microsoft's goal is to become the market leader in the category by dethroning Sony.

In order to accomplish this goal Microsoft Canada must develop its marketing plan for 2002. Specifically, Microsoft must decide which target market to focus their efforts on. Specifically, they need to decide whether or not to continue focusing

their attention on the male 16-24 year old "heavy gamer" which is also the target segment of Sony. Or, do they shift their focus to the lighter user and try to develop a niche strategy.

The backdrop of the targeting decision is how to position the Xbox. Microsoft could choose to position the system simply as the most powerful gaming console available, or they could also choose to focus on the complete functionality of the product including online gaming and DVD playback.

Considering the various opportunities and challenges, Microsoft should continue to focus its campaign on the heavy male user since this demographic are typically the trendsetters when it comes to the industry and are best equipped to appreciate the gaming advantages of the system.

By targeting this segment while focusing

marketing efforts on the superior technology of the product along with the online gaming functionality, Microsoft should be able to differentiate itself from the Playstation by offering gamers a more technologically advanced gaming system with an online gaming feature not available from Sony.

Problem Statement

Microsoft is faced with a key decision on how to market the Xbox product in the second year of its launch in Canada. Specifically, Microsoft needs to determine how to position the Xbox and which market segment they should target. The goal is to gain market share versus their competitors and most specifically Sony. Once positioning and target market are determined, Microsoft Canada must then decide how to best allocate their marketing budget to best reach goals.

Situational Analysis

Microsoft is currently one of the largest companies in the world with over $30 billion in annual revenues. Microsoft is also one of the best-known companies in the world, and its brand awareness is very high, as virtually everyone who has heard of a computer has heard of Microsoft.

While Microsoft has virtually cornered the market on PC operating systems and office application software, they had little to no experience in the home video game console market. In 1998 they partnered with Sega Enterprises to develop a gaming console to try and grab a share of the US$20 billion video game industry.

With the launch of the Xbox in 2001, there were several major issues facing Microsoft. Mainly, they faced a very competitive landscape dominated by Sony's Playstation 2 with Nintendo's GameCube also taking a share of the market. Microsoft needed to decide on its target market as well as the positioning for Xbox, and come up with advertising and marketing efforts that would help penetrate Sony's strong grip on the industry. The Canadian division of the Xbox team was faced with further challenges since their marketing budget was much less than that of the US division and considerably less than Sony's budget for the Canadian market place. With the launch year complete, the Canadian team must decide whether or not to reposition the Xbox and reconsider the target market here in Canada. Ultimately, the marketing plan will stem from these decisions.

One of the challenges Microsoft faces is the decision that they made internally to disassociate the Xbox brand from the Microsoft brand. Microsoft has a very strong brand and is known for secure and reliable software. When a company has such a strong brand, it can be very difficult to change that perception in a customer's mind for a particular product. The question the Canadian team needs to consider is whether they should leverage more off of the incredibly recognizable Microsoft brand in their advertising efforts.

In order to have a successful second year for the product, Microsoft must choose its target market carefully. Essentially, they have identified four target markets segments: committed, wanabees, fund seekers and time killers . Each one of these segments offers different benefits to Microsoft, but they may also differ in what they are looking for in terms of the features of the gaming console they choose. In order to be successful, Microsoft should target the segment that provides the most opportunity for the firm. Furthermore, Microsoft should leverage the unique and/or superior features of the Xbox to help differentiate it from its competitors in its marketing campaign.

Xbox, of the three major consoles (Xbox, PS2 and GameCube) is the most powerful system in terms of its processing power and speed. Also, it has built in Internet access and is the easier platform for software manufacturers to design games for. In order for long-term as well as immediate success of Xbox, the marketing campaign/budget must focus on these traits.

The software manufacturing aspect of the marketing campaign is perhaps the biggest key to the success of the Xbox. The sale of the console is a loss leader for Microsoft as they actually lose money on each sale. The games on the other hand are where the large profit margins exist. The fact that the operating system for the Xbox is similar to that of a PC gives Microsoft an advantage in that software manufacturers can more easily create games for the platform and can more modify existing PC titles over to the Xbox system with greater ease, and for less cost.

There are some issues specific to the Xbox that needs addressing. First, Microsoft is marketing a product that has not historically been in its core business. As a result, while there are opportunities for increased profits for the firm, there is also a risk that they may tarnish their current image of the firm if the Xbox is not successful. Secondly, Microsoft, due to its size, can leverage the already strong relationship with their suppliers and retailers to help distribute of the product.