Case Analysis: GameStop
Group 4:
Elisha Colvin
Lance Bobby Dike
David DeBlanc

University of Houston - Downtown
MBA 6208 Marketing Management

November 6, 2015

Table of Contents

Executive Summary 3
Situation 4
Questions: 4
Hypothesis 11
Proof and Action 11
Alternatives 15
References: 17

Executive Summary

GameStop became the world’s largest video game retailer in 2005 with its merger with Electronic Boutique (EB). However, the company’s leadership team was concerned with how to address future challenges with competitors and changing consumer desires and preferences for product acquisition. This analysis provides an assessment of the case study, GAMESTOP, and offers answers to the pressing questions faced by GameStop’s leadership team.

Our review and analysis supports that GameStop is well positioned to continue its aggressive growth and retail presence. We provide four primary recommendations listed below to facilitate the company meeting their growth goals and strengthen their ability to maintain their leadership position in the video game marketplace.

GameStop should: * Focus efforts on building a larger presence in the European and emerging markets. * Consider varying its product mix, with a larger focus on used items, within its mall stores to drive higher profitability and enhance differentiation in those customers’ settings. * Align with a software developer to establish a presence in the online gaming and social gaming market. * Focus on gaining US market share by establishing more customer loyalty from new purchase to used trade-in or purchase.

Implementation of these recommendations should provide sales growth, enhanced market diversification, and position them well to support the growing trends toward online gaming and video game downloading.

Situation
GameStop began as a small software retailer named Babbage’s in Dallas, TX in 1983. Babbage’s would later merge with Barnes and Noble in 1999 and Funcoland stores in 2000. Babbage’s would soon change its name to the name that we are now familiar with – GameStop, Inc. In 2005, GameStop became the world’s largest video game retailer. GameStop’s core business was the sale of new and used software and hardware. The store operated in 4,490 retail stores worldwide in 14 countries. GameStop has been extremely successful with its retail model, but in recent years, there sales have been declining. The risk that new technology and evolving tastes by new gamers threaten the company’s successful retail model attacking their core competency.
Questions:
1. What is GameStop’s value proposition and who are GameStop’s segments and target markets?
GameStop’s value proposition is that they offer a convenient and fast way for customers to purchase new/used gaming merchandize and trade-in used items due to their large number of retail locations and online presence.
GameStop’s segments were defined primarily by the length of time spent playing video games. These segments are: * Devoted Gamers - played video games six to seven days a week for long period of time * Social Gamers – played four or five times a week for shorter periods * Casual Gamers – played video games once or twice a week for short periods of time.

GameStop’s target market was structured in a similar way to the video game market. Their categories are: * Electronic Game Enthusiastic (Devoted) - who demand the best and newest games * Value Oriented Casual Gamer (Casual/Occasional) - who demand used and less expensive games * Seasonal Gift Givers – who demand promotional deals during peak seasons. 2. What are the expectations of the target market(s) and what core objective(s) does GameStop use to meet these expectation(s)? The various target markets have very different expectations. Those potential customers that GameStop refers to as Electronic Game Enthusiasts were typically not concerned with price and had a strong preference for specialty retailers like EB Games/GameStop. This segment expected a wide variety of games and access to the newest games on the market. In the case of the Value Oriented Casual Gamer price was more of a factor, and they typically were attracted to the used games and special offers. This segment expected savings and are price sensitive. Seasonal gift givers were usually new game buyers but more often shopped at competitor locations. This segment expected to find new games in a convenient location perhaps while shopping for us gift ideas.
GameStop utilized a host of core objectives to meet the various demands of their various market segments. To meet the demands of the Devoted (Electronic Game Enthusiast), GameStop would offer store openings at midnight to provide these customers first access to the latest games and products. They also provided a wide range of products and accessories that typically couldn’t be found in the big box retailers. GameStop recognized that these customers are price insensitive and based their loyalty and spend on accessibility and ability to purchase specialized products. To address the demands of the Casual (Value Oriented Gamer), GameStop sought to provide the widest array of used titles at their strip mall locations. They recognized that these purchasers preferred used games and were value shoppers. To meet the needs of the third segment, Seasonal Gift Givers, GameStop invested heavily in seasonal advertising campaigns to attract holiday shoppers and had a retail presence in many malls.

3. Does GameStop’s value chain differentiate it from its competition? If yes, how? If no, is this a potential problem?
It is important here to first define what a company’s value chain consists of. Porter defines the value chain as being comprised of primary activities and support activities. Primary involves inbound logistics, operations, outbound, marketing and sales, and service. The support functions which feed into all the primary functions are the firm’s infrastructure such as human resources, IT department, etc. In the case of GameStop, there value chain does provide differentiation from its competition. Specifically, the differentiation lies within GameStop’s ability to attract inbound inventory (used games and hardware) and profitably distribute these items across multiple platforms. Most of their competition focused on only a portion of the potential avenues to meet customer demands. GameStop was able to reach all three of the customer market segments by its sizable retail presence, both within strip malls and traditional malls, as well as online via its various company web sites. Again, there differentiation lies in their ability to source, market, and distribute both new and used games.

4. What was the pricing strategies involved in the trade-in process and how does GameStop’s marketing support customer perception and sales? GameStop’s pricing strategy involves placing great value, in terms of dollars, on trade-in credit with the store over just taking the market value of the item. They would enter the used games or consoles into their system to find the trade in and monetary price of the product. The trade in value is always higher than the monetary value, and customers are given a choice to accept the monetary or the trade in value. With the trade-in price, you’d get more money back that you can apply to your next purchase at GameStop. This is a way for GameStop to get people to continue to purchase other products from their store.

5. How do GameStop’s internet sales contribute to its strategy? GameStop’s website allowed customers to purchase games from the comfort of their homes. They could have their games mailed to them and also reserve games at any retail store. Like taking your game to the store, GameStop let people check out the monetary and trade-in value via the internet. GameStop’s internet presence gave people the opportunity to write reviews about their experience with GameStop and that served as a marketing tool for the company.

6. What is GameStop’s growth strategy in 2006? We believe in 2006 GameStop will continue to open up strip centers throughout the U.S in order to take advantage of the video game industry and to continue growing. After reading this article, we discovered that used games and gaming systems could make up as much as 85% of GameStop’s margin. GameStop had over 4,490 retail stores at the time throughout the world. The stores were primarily placed in mall and strip centers. Malls carried most of the new product, with very little used inventory, and the strip centers carried the majority of their used inventory. Strip centers were more profitable because of their lower operating costs and just a better variety of products. Strip centers made up 55% of GameStop’s stores because that’s where they made the most money. With the company expanding every day, we believe most of their growth strategy will lean more towards opening more strip centers.

7. Who are the key competitors for GameStop and what advantages and disadvantages does GameStop have over each? Who do you think are the biggest threats to GameStop and why?

GameStop's sales largely depend on consoles made by Sony Corp, Microsoft Corp and Nintendo Co Ltd, which increasingly must compete with games available on tablets and smartphones in the $90 billion videogame market. GameStop's used-game business, historically its most profitable, is facing new competition from retailers such as Walmart, which allows shoppers to trade in used games for anything from groceries to gadgets. Sony also plans to launch a service to sell older games online. As more games are sold online and it faces increased competition from big retailers offering trade-ins for used games GameStop is losing more of its market share to competitors. The other major competitors for GameStop are Best Buy, Walmart and Amazon. The advantage that GameStop has over each of these retailers is that GameStop is marketed toward the true hard core gamers. They have exclusive title games that are not easily found in the large chain locations. GameStop also has the advantage of having staff that is well acquainted with the games and consoles and can answer detailed questions from this specific population of gamers. However GameStop does have some disadvantages as don’t sell other items like Walmart where you can purchase multiple items in one store. Stores like Walmart also have a competitive advantage as they are open twenty four hours a day. Amazon also has the advantage of being easily accessible since they are an online retailer they are available twenty four hours seven days a week as well.

8. What are barriers to entry is GameStop trying to create? Will these barriers keep significant competitors out?

Some of the barriers to entry that GameStop was trying to create was through their focus on the niche market that focused on their core business and core patron which are hard core gamers. GameStop took the approach of catering to these customers by providing the best selection of hard to find games, and other specialty genre games that are not as mainstream as the games often found at big retailers like Walmart. Because of their number of stores and size, GameStop has been able to create a barrier to entry in the sheer offering of product. Competitors will find it difficult to compete with the volume of products offered by GameStop.

GameStop has a relatively exclusive share of the market for the used games that make up the majority of their sales. Unfortunately as time has shown that offering used games, and providing exclusive games for those true gamers has not prevented others from entering the market. Walmart now offers trade in for used games, and Amazon allows customers to buy and sale games as well. There also has been an additional venture that has recently developed that has rental of games online through an online service.

9. What are future issues for GameStop? How should they be addressed?

Some of the future issues for GameStop is how to prevent others from entering the market and thriving in the video gaming world that has been exclusively held by GameStop since the early 2000s. How can GameStop remain relevant in the current market and what should they do to keep up with the times? What should be the company’s next move to keep the company growing instead of declining when others enter into the market? How can the company leverage its position as the best retailer to purchase games from when other companies offer games, as well as other items? All of these topics can be addressed by the company taking a closer look at the demographics and see who are they targeting, and what is most important to their customers. As gaming evolves so should the method that gamers receive their games. It should be closely monitored and a plan developed that would address the new competitors that are entering the market. GameStop should continue to differentiate themselves by making sure that their staff have knowledge of games, and customer service far exceeds anything that they could possibly be received from Walmart or Amazon.

Hypothesis GameStop will continue to dominate the video game industry, primarily used games, if they expand their internet presence while opening up more retail stores to reach more consumers in the US and expanding their presence abroad. Proof and Action

Game Stop’s success was built upon its retailing of used games and hardware platforms
(Playstation, Nintendo, and Xbox). The company’s leadership team was facing three specific questions related to the future of the company from investors:

* Can you continue your aggressive store growth? * What about digital downloading? * Will the used business continue to grow?

The GameStop team believed that any decisions moving forward should leverage their existing strengths. They also believed that it was vital to defend its core business and only then expand.
Our group offers the following recommendations regarding the challenges faced by GameStop

Action to Take 1.
Focus aggressive store growth efforts on building a presence in the European and emerging markets

Proof:
The case details that the sales in the secondary markets for these types of products (Europe, South Korea, and Mexico) were increasing at a slightly faster rate. Game Stop had few competitors in the US with a national presence and competed against more regional players. GameStop could use their size and resources to establish a larger presence in several of the secondary markets primarily focusing on used games via organic growth or via acquisition of existing businesses in the regions. It is probable that the new game market was more established in these regions, and GameStop had a proven strategy around developing the more profitable used game and hardware business. Following this investment in the secondary markets, GameStop should begin a staged presence in India and China. Growth in these countries was expected to be exponential, and GameStop’s could establish a market presence and name recognition early on and begin developing customer loyalty ahead of other competitors entering the market.

Action to Take 2.

Game Stop should consider varying its product mix within its mall stores to drive higher profitability and enhance differentiation in those customers’ settings.

Proof: The case discusses that Game Stop’s had roughly 45% of its 4,490 stores in mall locations. These mall stores carried new items and few used items. The shift in product mix to offer more used items has two-fold benefit. The profitability was significantly higher on used items which help to offset the high cost of operating these locations. Second, the main competition in the mall settings were big box retailers such as Best Buy, which only carried new and the most popular games. By offering a broader product mix, GameStop could likely attract customers from the larger retailers in the mall settings. Two of the three market segments are price sensitive (Casual Gamers and Gift Givers). These customers likely enjoy the convenience of shopping for games while handling other shopping activities. They would be less likely to travel to a strip mall GameStop location to save on price and may settle for less of a selection. However, with Game Stop in the mall location, some percentage of customers would likely be inclined to visit the GameStop store to save on their purchase or to achieve a larger amount of variety in selection.

Action to Take 3.

Game Stop should align with a software developer to establish a presence in the online gaming and social gaming market.

Proof:
The trend in gaming appears to be shifting somewhat to digital downloads and online social media gaming. GameStop has an established web presence and market name recognition. By partnering with a software developer, the company can leverage its core business while offering this new type of experience and product to the market. GameStop could offer discounts and promotions on its used games as part of this online gaming strategy. The company could market to the players of these games and entice them to shop with GameStop’s traditional product mix by offering these incentives. While most of the online gaming or social gaming is free, GameStop could monetize this investment by directing traffic and sales to its core business base.

Action to Take 4:

Focus on gaining US market share by establishing more customer loyalty from new purchase to used trade-in.

Proof:
The case provides that the US gaming market is valued at $11.5B with Game Stop owning 21%. There continues to be significant opportunity for GameStop to grow in their most established market. The case offers that their most significant competition is from the local, smaller companies and big box retailers such as Wal-Mart and Best Buy. GameStop could leverage its size and product mix by offering enhanced trade in value for games that were purchased new from GameStop and are being redeemed at GameStop. This “cradle to grave” strategy would provide incentive for customers to purchase their new games with Game Stop understanding that when they want to trade it in that they would receive a higher credit or trade in value. This strategy could potentially help GameStop pull market share in the new game space from the big box retailers without having to invest in more mall based stores. The chart below shows the projected US sales revenue and market share required to achieve this level of sales.

GameStop has projected to continue to grow at their historical rate of 20%. If they are to achieve this rate of growth in the US market, they will need to increase their market share from the present 21% to 35% by 2011. This projection assumes a growth rate of the US gaming market of 10% per year.

Alternatives
As an alternative to the current business model that GameStop is using the company should also consider a much broader online presence. There are services present today that have made accessibility to the products much easier such as Netflix. GameStop could transition into an online market offering digital downloads of games. This will keep the accessibility to their core business strong, but also allows for the customers to have convenience in their busy lives’. This online market will rival the services already provided by competitors but they could also establish flagship stores that provide specialized services from the expert sales associates.
Another alternative is that GameStop should also branch out into other retail markets such as movie downloads or monthly memberships for unlimited downloads of select titles. We also think that this new model would attract more customers while also fulfilling the needs of their current customers.

References:

Charrerjee, S. & Yee, T. (2012) GAMESTOP. Harvard Business Review, 1-11