JUNE 2014 MAIN EXAMINATION MODULE: MARKETING MANAGEMENT PROGRAMME: POST GRADUATE DIPLOMA IN MANAGEMENT

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1 JUNE 2014 MAIN EXAMINATION MODULE: MARKETING MANAGEMENT PROGRAMME: POST GRADUATE DIPLOMA IN MANAGEMENT DATE: 13 June 2014 TIME: 13h30 16h30 DURATION: 3 hours MARKS: 100 EXAMINER: A Sangham MODERATOR: D Veerasamy INSTRUCTIONS TO CANDIDATES: 1. Candidates are required to answer ALL questions in Section A and ANY THREE (3) questions in Section B. 2. This is a closed book examination. 3. No written material may be brought into the examination room. 4. Write legibly and neatly. 5. Do not turn over this page until permitted by the Invigilator. This question paper consists of five (5) typed pages excluding the cover page.

2 SECTION A COMPUSLORY [40] QUESTION ONE [40] Read the following and answer the questions that follow: The Battle of the Games Consoles The video games console war was launched between the two giants of the industry Microsoft Xbox 360 and Sony PlayStation 3. Both companies placed billion-dollar gambles on their machines becoming the dominant platform in the industry. The video games industry in 2010 was worth an estimated $46.5 billion. Video games are big business, with blockbuster games like Tomb Raider bringing in sales of between $200 million and $300 million, showing the lucrativeness of the industry. Every five years or so, games console makers release their latest consoles, luring gamers with the latest technology improvements on previous iterations. Now Sony, Microsoft and Nintendo are contending the next generation games consoles battle, vying for the highdefinition gaming market. These latest consoles utilise technological advancements promising pin sharp photo-realistic environments and improved game play. In the previous battle for dominance, Microsoft was last to arrive in the market with its Xbox device, and it was a first-timer in this hyper competitive industry, with no video-gaming or hardwaremanufacturing experience. This time it hopes to have an edge on its rivals by launching its latest platform a full year ahead of its nearest rivals. Games have been transformed over the last two decades; visuals have come a long way from Atari s Pong and Pac-Man. Now games possess photorealism, astonishing 3D graphics, accompanied by Dolby Digital bombastic surround sound. The gaming industry is characterized by five-year cycles, where a games console has roughly a five-year life before being replaced with a new and improved device, making the old hardware obsolete. Many industry giants have come and gone in this very competitive arena. The pioneering firm Atari had enormous financial difficulties in themed-1980s and went out of business. Sega, with its all conquering Sonic the Hedgehog and Sega Megadrive, has retrenched from the games console market, and is now concentrating solely on becoming a games developer. Its last foray, the Sega Dreamcast machine was an unmitigated failure despite being the most powerful console of its time and the company spending a huge marketing budget. Having the most advanced technology does not always guarantee industry success. After this five-year cycle ends, the next generation of consoles is launched, with advanced technological features, usually faster processing speeds or larger memories. In 2006, the 1

3 five year cycle began with the launch of the Microsoft Xbox 360, Sony s PlayStation 3 and Nintendo s Wii. The following table illustrates past video games console and their product life cycles: Launched Game console Atari Video Computer System (VCS) Sinclair Spectrum Commodore 64 Nintendo Entertainment System (NES) Commodore Amiga Nintendo Gameboy Sega Megadrive Sony PlayStation Sega Saturn Nintendo 64 Sega Dreamcast Sony PlayStation 2 (PS2) Nintendo Gamecube Microsoft Xbox PlayStation Portable (PSP) Microsoft Xbox 360 Nintendo Wii Sony PlayStation 3 In the last round of games console wars, Microsoft Xbox captured the number two position with 18 per cent of the market, but it was way behind leader Sony PlayStation 2, which held 67 per cent; and Nintendo held just 15 per cent of the market. Sony s dominance was attributed to its superior games portfolio and its strong brand image. To counter this Microsoft engaged in a price war with Sony. It slashed the price of its console on several occasions, in a bid to boost market share. Microsoft entered the games console market in 2002 with the Xbox. This was Microsoft s first time involvement in hardware manufacturing. With the Xbox it received many industry plaudits, creating a very powerful games console, developing a strong online gaming experience with its Xbox Live service, and had a strong portfolio of games. Microsoft invested a colossal $3.8 billion into its Xbox project. The rationale for entering such a highly competitive industry, fraught with risks and huge costs, was puzzling for many. Microsoft is estimated to lose at least $150 on each Xbox. The industry sells it consoles at below cost, hoping to get its money back on the sale of games for the consoles. Microsoft dominates its core markets of operating systems and desktop application software, with monopoly status. Its revenues and profits are steady. However, PC software revenues 2

4 are not going to grow continually like they have over the past decade. Microsoft had to look for new avenues of future growth. It decided that the video-gaming industry was this avenue. The company wants to be in the centre of people s living rooms, and use this position as the platform for future home entertainment where consumers can play games, watch DVDs, listen to music, display photographs, record television programmes and browse the Internet. Sony has the exact same ambition. Microsoft poured millions into the development of its first Xbox. This games console was the most sophisticated ever released, allowing DVDs to be played and possessing broadband gaming capability. This is the real reason why Microsoft entered the games console industry: as a distribution platform. However, this proved problematic. By launching titles online through its Xbox Live service, it risks alienating retailers, which are crucial to the Xbox360 s ability to build market share. The traditional retail channels cannot be compromised. Instead, Microsoft used Xbox Live to distribute content unlikely to upset retailers, such as interactive demos, games footage, minor arcade titles and digital videos. It planned to use the Xbox 360 as a platform through which to distribute other Microsoft products and gain subscription fees from subscribers. The company sells its games console at a loss, hoping to build a large customer base of future potential subscribers and make money from licensing arrangements with games developers. The manufacturers make their money through the amount of games sold, not the hardware. Microsoft launched the Xbox 360 simultaneously in the three core markets of the USA, Europe and Japan, with 20 titles initially available. Microsoft has learnt a lot since its initial foray into the gaming market. Its first console was large and chunky; its later iteration had a more aesthetically pleasing design, and came with interchangeable covers. Gamers can now play games while listening to their favourite music. Microsoft s wireless controllers were an industry first, and a key selling feature. Sony never envisaged how successful or important to the firm its PlayStation brand would become. The PlayStation brand is over 10 years old, and over 100 million PlayStation 2 consoles were sold. Nearly 60 per cent of Sony s profits have been attributed to the success of the PlayStation brand. The development of the PlayStation games console series showed that adults were a very lucrative segment in the gaming market, and that video games were not just toys for kids. Sony spent four years and close to $1 billion in developing the PlayStation 3. Sony banked on its brand appeal and technological features to entice gamers. PlayStation 2 incorporated DVD playback into its games console. Play Station 3 incorporated cell processor technology and high definition Blu-Ray disc drives. Sony wanted its proprietary Blu-Ray disc technology to become an industry standard. 3

5 During a machine s five-year production cycle, component prices fall rapidly, due to manufacturing improvements; more profit is earned in the later stages of the product life cycle. Subsidizing prices, particularly launch prices, is nothing new in this market. All the games consoles are sold at a loss. Manufacturers hope to make profits from licensing and royalties from game software titles in the future, online subscriptions and even online advertising with real-time online gaming. Japanese firm Nintendo is also in the fray. Its last console, the Gamecube, failed. It launched the unusually titled Nintendo Wii, hoping it will win the hearts and minds of gamers. The Wii was not aiming to be the most powerful games console, but hoped to be a unique product offering that will entice both young and old with a unique gaming experience. Nintendo developed groundbreaking motion-sensor technology, so that by physically moving the controller it interacts with the game play. This unique feature has wooed audiences and is deemed to be a killer feature. In the wake of this, Sony responded by copying the idea and placing a similar feature in its PlayStation 3 (PS3) console. Nintendo is targeting a slightly different market, however. Many of its games are targeted towards children, utilising kid friendly game franchises such as Pokemon and SpongeBob. The Nintendo brand and its game catalogue are extremely popular with both males and females ranging from 7 to 18 years of age, whereas both Microsoft and Sony target the exact same year old male audience, promising sophisticated game play and high graphics performance. PS3 is regarded as having the edge in terms of technology; however the quality and number of games developed will ultimately decides who wins in the console war. Luring games developers to develop games for a particular platform is vital for any platform to succeed. Finding the right formula of great technology, with great features, a collection of great games, at a price that attracts gamers can prove an elusive mix. Adapted from: Jobber D (2007) Principles and Practice of Marketing Fifth edition London. McGraw-Hill. 1.1 Discuss the marketing of games consoles using the marketing mix (4-Ps) framework. (16) 1.2 Discuss the concept of a product life-cycle using games consoles as an example of a product (10) 1.3 Discuss the marketing strategies that could be deployed as products enter their decline stage, using PlayStation 2 and the original Xbox as examples. (14) 4

6 SECTION B ANSWER ANY THREE QUESTIONS [60] QUESTION TWO [20] 2.1 Using relevant examples explain the concepts of market segmentation and target marketing. (6) 2.2 You are asked to address new staff at a retail store about branding. Your task must include a discussion on what branding is, how to brand and manage brand equity, and brand extensions. (14) QUESTION THREE [20] 3.1 Describe the consumer decision-making process with regard to buying products of services. (10) 3.2 Discuss the marketing implications of this process and explain why marketing managers should understand consumer behaviour in general and decision-making in particular. (10) QUESTION FOUR [20] Discuss the elements of the marketing communication mix in terms of nature, benefits and limitations. QUESTION FIVE [20] 5.1 Describe the stages in the marketing research process and discuss the ethical issues in marketing research. (10) 5.2 Explain the characteristics of products and discuss how they can be classified and provide examples. (10) END OF QUESTION PAPER 5