After the acquisition of EB Games, GameStop rose as the leading video game retailer in its industry. In an effort to sustain their position, GameStop will have to tackle several technological and sociocultural issues that have arisen from its competitive environment. The strategic objective we wish to accomplish in this analysis is to formulate a viable strategy that will continue GameStop’s growth in the industry to remain as the go to video gaming store for the video gaming enthusiast. The retail gaming industry is a relatively new industry but GameStop has shown tremendous growth since 2002. An external analysis of GameStop’s general environment will show threats to the industry that include age restrictions for rated games, weak copyright laws in foreign countries, and the emergence of substitute gaming options.
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An internal analysis of GameStop’s resources capabilities will show GameStop’s marketing and brand capabilities that gives them a sustainable competitive advantage. GameStop’s value creating activities are often superior or equivalent to that of their competitors. Its business strategy of having a wide selection of products allows them to market to a wide range of customers, which positions the firm as a broad differentiator in its industry. GameStop has several problems when trying to obtain their strategic objective. These include the low level of barriers against new competitors and a dependence on supplier’s goods to succeed in the marketplace. I would recommend GameStop to contract with their suppliers to create stronger barriers to limit new entrants into the market and utilize technology by creating online accounts for their customers to track their trade in points, which will increase the switching cost to other companies for these customers.
GameStop’s external analysis of its general environment shows a variety of threats as well as opportunities (Exhibit 1). The threats and opportunities that the industry faces include economic, political, technological, sociocultural, and global changes in the industry. With a closer look, we can see that the retail gaming industry is rather unattractive due to the high bargaining power of suppliers and buyers.
Technological advances in the industry also increase the amount of competitors in the industry as well as low barriers that will not restrict new entrants from taking a share of the market. (Exhibit 2) The general analysis shows several key problems that the gaming industry faces. Economically, if the standard of living were to decrease, retailers like GameStop will suffer a loss in profits since more people will turn to cheaper methods of gaming, such as online social media games. Additionally, the political and legal aspect of the environment poses as a threat when regulations made to protect the consumers, such as age restrictions for rated mature games in the U.S., limit the reach that GameStop market. When expanding globally, the risk of intellectual property to be stolen is high since many foreign countries do not have strict copyright laws. Technological advances can be seen as both a threat and an opportunity for the industry since advancing technology can open doors to new forms of gaming such as app games and online social media games. This allows for competitors to create alternate methods of gaming that appeal to customers. However, technological advances also allows for suppliers to create new games and consoles, which will benefit GameStop since they experience the highest sales volume during new release periods. Culturally, the numbers of households that have been actively using two or more game consoles have been steadily increasing over the years.
This cultural shift from outdoor activity being replaced by indoor entertainment is a tremendous opportunity for the industry. (Exhibit 1) The industry analysis will show how the retail gaming industry in the U.S is unattractive due to the high powers from suppliers, buyers, potential entrants, and substitute products. Most of the competitors within the industry do not have a strong market presence and tend to work at a local level. However, GameStop is still at a disadvantage, because there are such a large number of competitors in the industry. Buyer’s bargaining power are high, since there is no brand loyalty in the industry. Customers are very well aware of the market price of a product and will look for the best deals they can find. Suppliers have high bargaining power since suppliers can choose to integrate forward and sell their products themselves. The success of the retail gaming industry is very dependent on the availability of supplier’s goods. Additionally, since there are low barriers of entrance, substitute products and new entrants often appear in the market. Since most competitors in the industry do not have a strong presence, the expected retaliation towards new entrants is low. An increasing popularity of smartphone games and social media games such as Farmville on Facebook, allows customers to play against friends. Although these social media games do not offer the same experience as a video game, the fact that virtually no switching cost is associated with switching to a competitor’s game and since they are so cheap compared to video game disk and consoles, can easily drive customers from video gaming to online gaming. (Exhibit 2) Internal Analysis
The internal analysis of GameStop’s resource capabilities indicates a strong brand and marketing position that give the firm a sustainable competitive advantage. (Exhibit 3)
GameStop’s business level strategy of offering the widest selection of games to a variety of different consumers along with its distinct policy for exchange and returned products, positions the firm as a broad differentiator. (Exhibit 4) GameStop’s value creating activities indicate that the company operates at a superior or equivalent level than that of their competitors by marketing through their magazine and website as well as their recruitment process of selecting employees who are devoted gamer themselves. (Exhibit 5) GameStop has had a well know brand image since 2005 when they became the world largest video game retailer.
In the case study, it was mentioned that GameStop planned on changing all of their EB branded stores to GameStop stores by 2007 so that they can expand their reach even further. GameStop seeks “to be recognized as the destination for new and used video games and gaming systems” (Chatterjee 6), which took many years to accomplish. It is this kind of reputable image that will drive customers to go to GameStop store rather than competitors with a lesser brand image. Additionally, GameStop’s marketing strategy also gives the firm a sustainable competitive advantage with above average returns. GameStop is the owner of Game Informer, the leading gaming magazine that they use as a tool to market new games to their customers, which many of their competitors do not possess. They also have their own website where customers are able to research and buy games based on their interest. (Exhibit 3) In the business level strategy, I’ve positioned GameStop as a broad differentiator since GameStop is known for selling a large selection of new and used games and consoles, while its competitors only offer limited sections of games. Competitors like the box store retailer tend to sell popular games targeted at seasonal gift givers. Used video game retailers do not offer newly released games and thus will only appeal to the casual gamers. Since the type of games offered
directly influences the type of customers, GameStop offered the largest selection of games to cater to devoted gamers, casual gamers, and seasonal gift givers. Additionally, GameStop differentiates itself form its competitors by offering a return and exchange policy that has proven to drive sales during off seasons when there is a shortage of newly released games. (Exhibit 4) Lastly, the value chain analysis of GameStop showed that the firm’s value creating activity performed at a superior or equivalent rate than its competitors. The activities that GameStop does well in are its marketing and sale, after sales services, human resource management, and technological development.
Employees of GameStop are often devoted gamers with an extensive knowledge of the games that they sell. Since 2003, GameStop has also improved its inventory turnover rate by introducing a better inventory management system. With this system, GameStop is able to manage their inventory at an individual store level as well as provide customers with faster transactions and up-to-date quote on the games they wish to trade. Although GameStop performs really well in the industry, they can still improve their activities by selecting more strip center locations, which were proven to be more successful than other locations. They can also create online accounts for customers to manage their store credit, which will increase sales, since customers will be inclined to visit GameStop’s website more often. This will ultimately create a stronger switching cost for the customer when they decided whether or not to buy from a competitor. (Exhibit 5) Key Issues and Problems
The key issues that arise from the general external analysis are the threats of technological advances, which allows for the emergence of new competitor to create substitute products and a cultural shift in consumer taste towards social media games, which offers a
cheaper alternative to video gaming. In the industry analysis, it was concluded that the retail gaming industry is unattractive because of the high bargaining power that suppliers and buyers possess. Suppliers are able to integrate forward into the retail market and sell their products directly to customers without help from third party distributors like GameStop. The risk of potential entrants and substitute product into the market are also high due to low barriers in the industry. Competitors within the industry are numerous with only a few that have a strong market share. In GameStop’s resource and capabilities analysis, GameStop’s well-known brand image and marketing strategy gave the firm a sustainable competitive average.
However, GameStop‘s research and development offers a competitive parity for the firm because its research and development is not costly or rare to find in the industry. GameStop is the leading broad differentiator in its industry. Its business strategy, although successful can also have some negative attributes. Seasonal gift givers are likely to be overwhelmed by the extensive selection of games that GameStop offers and will often turn to box stores like Wal-Mart who offer the most popular games currently in the market. Lastly, GameStop’s value creating activities, although superior to that of its competitors, also has some minor issues. These include the firms marketing and after sales activities that do not fully utilize its capabilities by tying its customers to its brand and creating more switching costs. Available Strategic Options
In order to address the key problems in the industry, GameStop can choose to go into a contract agreement with its suppliers that will prevent suppliers from selling their product to competitors. This is a common practice in Japanese firms that require loyalty between supplier
and buyers. GameStop will reap the benefit of stronger entrance barriers against potential new comers in the industry since they will not be able to obtain the products they need to succeed in the market as easily. The downside of this option is the increase in price that supplier are likely to impose on GameStop and the conflicts that can arise from contractual disagreements. GameStop can also choose to integrate backward into the suppliers industry by acquiring well-known game developers. The downside of this option consists of large initial cost to acquire a company. Since GameStop is currently performing well in the industry, financing this option is a good investment for GameStop’s long-term success. GameStop will benefit from this option because they will no longer be dependent on suppliers products. This will reduce the bargaining power of suppliers and give GameStop an advantage over other retail gaming stores that do not have this type of competency at their disposal.
The final option I recommend GameStop to consider is to utilize the technology we have today. GameStop can do this by creating online accounts for their customers to manage their trade in points, expand into online gaming products, and market their products through social media companies like Facebook. The initial cost of implementing online accounts for their customers is relatively low. If GameStop chooses to expand into online gaming products, they can reach the percentage of customers who prefer online gaming to video gaming. Finally, by using social media platforms, GameStop will be able market to millions of potential customers who regularly visit these sites. There are virtually little to no disadvantages that this option possesse since initial costs are so low. If this strategy fails to promote sales, GameStop will not suffer a huge loss and can move on with what they have learned from the experience. Recommendations
I recommend that GameStop implement all the options above to receive the best results. GameStop should begin with the option with the lowest risk of loss. This is the utilization of technology. This option is simple yet it can impact sales growth tremendously by making consumers more aware of the games that are out in the market. GameStop can hire an independent contractor who is experienced in technological marketing to make changes in GameStop’s website and create a fan page on Facebook to better promote their brand. The second strategy I would recommend GameStop to implement is to contract with its suppliers to limit entrance of new competitors in the industry. GameStop would have to contact a supplier that they frequently purchase from. This would be either Nintendo or EA games, which consist of 25% of GameStop’s purchases. GameStop and its supplier will then have to come to a mutually beneficial agreement.
However, conflicts between the two companies are bound to occur occasionally. To prevent this from happening, a contact lawyer should be hired to create an ironclad contract that specifically states the requirements and duties of each party. Finally, after the two options above have been successfully implemented, GameStop can choose to take a huge leap and acquire an existing supplier so that they can expand into the suppliers industry. This will limit GameStop’s reliance on it suppliers to perform well in the market. GameStop will have to wait until their contract with suppliers end before implementing such an option. However, since GameStop will be working closely with suppliers during the time they are tied by the contract, GameStop can learn as much as they can from its suppliers and take what they’ve learned to successfully expand into the new industry. With the completion of these strategies, GameStop can continue its exponential growth in the market and sustain their position as the largest video game retailer.