Value Creation and Marketing of Video Games - Case Study Example

Value creation and marketing of video games Name: Tutor: Course: Date: Table of Contents Table of Contents 2 1.1 Background of the Problem 3 1.2 Objectives of the Study 4 1.3 Research Questions 4 1.4 Significance of the Study 5 2.0 Literature Review 5 2.1 Value creation in video games 5 2.2 Marketing video games in new markets 7 2.3 Supporting technologies 8 2.4 Demand and distribution of video games 8 3.0 Methodology 9 References 10 Title: Value creation in the video games market: Consumer perceptions and demand 1.1 Background of the Problem Over a 25-year period, the video game industry has experienced enormous growth with annual figures ranging between 9 percent and 15 percent (Zackariasson and Wilson 2010). The past twenty years has witnessed the entertainment industry contributing to the global economy through the video game industry establish itself as key stake. There is a shift in video game’s economic value has transformed into a blockbuster business from a niche industry. The gaming industry is exemplified by a high degree of dynamics and innovation and also growth (Marchand & Hennig-Thurau, 2013). Video gaming apart from consoles takes place on mobile devices like tablets and smartphones and within interactive networks. While video games has spurred innovation in other sections of the entertainment industry, some products such as Lord of the Rings act as movie, game or other products to provide hybrid experiences. Video game players can buy expansions and virtual goods within games or earn money from e-sports on live TV or carried out in front of crowds. Consumers in a virtual environment can change and manipulate their world through exciting motion sensor controllers and realistic animation. Moreover these games educate children, train employees and also offer capabilities to tackle social issues (ESA, 2012). Games have pioneered technology which is applicable from virtual showrooms for new product presentations to molecular biology and to military training programs (The Economist, 2011). Despite the remarkable growth in empirical research on games, scholars in the marketing field are still giving more consideration to music, television or movies, and less interest to this field of gaming (Park & Lee, 2011). This study spurs further research on games by offering a new perspective on features both products and key players and the emergent tasks of ever changing industry of video gaming. The study identifies means for value creation and success, relationships among players and the industry's main business models. Mobile games especially smartphones and tablets have shown strong growth but the financial success for console games is relatively higher than individual mobile game titles. Game systems that are handheld always have lower memory, resolution, and processing power than consoles. This cannot be compared to smartphones which have put greater pressure on the handheld business and fanned cannibalization. Limited scholarly marketing research on value creation on video games using multiple channels such as retail and online and also multiple devices like mobile phone, portables and consoles has been done. The aim of this study will be to examine the effect of value creation on the video game industry especially companies and their consumers. 1.2 Objectives of the Study a) To establish the effect of new platforms on perceptions of customers and demand video games b) To assess the market switch between advertisers financed low-end games and expensive high-end consoles c) To examine the cause of decline in demand for consoles d) To find out the reaction of producers of consoles and games to decline in demand 1.3 Research Questions a) How has customers' perceptions been affected by the rise of new platforms and the demand for console games and hardware? b) How will the market divide between advertiser financed low-end games and expensive high-end consoles? c) Does the recent decline in demand for consoles signal switching from consoles to smartphones or a reflection of a standard demand cycle? d) What should be the reaction of producers of games and consoles? Avoid cannibalization risks or generate versions of low-end with game titles at high-end. 1.4 Significance of the Study This study is important in highlight areas of research that have been neglected in the past. Value creation in the video game industry will raise brand awareness of producers and distributors of game consoles and help to integrate into new technologies for rapid distribution. This research will be beneficial to consumers with greater interest in video games, academics and firm managers. It will not only help to derive research in future opportunities but also help to develop marketing and related fields. 2.0 Literature Review 2.1 Value creation in video games Platforms and content represents a unique feature of the business model within the gaming environment in the larger game industry. While two-sided systems generate interest for managers and researchers, they help create revenue streams for games like in-game advertising (Corts & Lederman, 2009). To encourage ubiquitous gaming formats, there has been monumental growth and spread of innovative platforms such as smartphones (Thomson, 2013). The role of the game platform itself and issues of distribution that relate to both digital channels and retail outlets that is still traditional in nature. In the gaming industry, Marchand and Hennig-Thurau (2013) suggest that use of traditional media in producer-initiated communication exploits one-directional communication such as television advertising. In addition, bi- or multidirectional communication in the game or gaming platform uses social media channels like Facebook and Twitter (Kelly, 2013). Automated recommender systems have emerged as available game titles continue to grow immensely as well as provide consumers with information on the ‘right’ game (Vorderer & Bryant, 2006). Theoretically, consumers can influence the decisions of other individuals on the value derived from games through behavioral or communicative recommendations. This can be through observational learning, mere adaption of the game or word of mouth. It has been argued that games impact on the personalities of consumers like stimulation of violence despite the findings shown the in to the society as a whole, it is multi-faceted and complex (Roquilly, 2011). Communications platform firms in a bid to counter technical assimilation between smartphones and handhelds have added new features like Nintendo’s three-dimensional displays (Corts & Lederman, 2009). This value creation failed to trigger strong consumer interest. However, the emergence of Android operating systems and social media tools like crowd funding has improved the diffusion of the games. On one hand, plans are underway to exploit smartphone technology which also comes at lowered prices for the consoles. Kelly (2013) observes that to compete with standard high-definition consoles, Android operating systems utilizes the new Ouya consoles. Great research potential is possible given the growth of smartphone-based games and the competition among different platforms. 2.2 Marketing video games in new markets Oligopolistic structure characterizes the video games market as well as the indirect network effects between providers of content and platform and consumers (Rysman, 2009). According to Liu (2010), the direct network effects among advertisers and actors have great influence on the success of online games. Games traditionally generate revenues in their business models via consumer sales, but it has emerged that alternative and complementary revenue models have come up. Sony, a hardware producer, not only sells game licenses to game producers but also sells consoles to consumers (Rysman, 2009). By engaging two market segments, the company earns from the game platform meaning that consumers are attractive for producers of the games (Liu, 2010). Increased variety of one product, also dubbed indirect network effects, such as game software titles tend to increase the product value of another item such as a console like PlayStation 3. With increased attractiveness for game producers and customers, the effect can also boomerang to the first product, game software titles (Kelly, 2013). For hardware with lower margins, penetration pricing strategy has been recommended by Clements and Ohashi (2005) at the start of the life cycle of a console. This helps the provider of hardware to enhance its success in the long-term for the platform, and harness suitable software titles while building strong installed base. Conversely, when prices are fixed, consumers get unlimited play time and in a way it assigns to traditional business models for games. An alternative business model for online games depends on subscription service. This is when players are made to pay regular fees, could be monthly or annually, in order to take part (Roquilly, 2011). Consumers in a hybrid version play it online by purchasing the game and then keep paying periodic fees as in the case of Star Wars: The Old Republic. Anderson (2010) notes that games just like other digital services and products have adopted ‘freemium’ pricing strategy, especially those played on social networks and smartphones. This model, through in-app sales, also generates revenues in area like better virtual weapons, decorative, and faster virtual cars which enhance user gaming experience and boost their performance. 2.3 Supporting technologies Michaud (2012) argues that gaming advance originates from cloud technology using dedicated servers through a web browser. Requiring massive amounts of computing power, this enables consumers to play games directly such as OnLive and Agawi. As cloud games are not downloadable, the software industry intends to clamp down technology pirates. Nonetheless, it remains vague whether systems like pay-per-use service, in given conditions, can become established in the market (Liu, 2010). This considers the support for cloud gaming requirements based on the diffusion of very high-speed internet. 2.4 Demand and distribution of video games Hennig-Thurau et al. (2010) observes that many players have been turned into (amateur) game retailers through the rise of markets in digital retail such as Amazon Marketplace and eBay. Companies involved in gaming cooperate with other producers in the entertainment industry, and have channeled their efforts substantially to come up with strategies in distribution to bars consumers not to resell their games. While the music industry has been focusing legal suits and litigations against reselling of games, reselling restrictions have been made even stronger through sole online distribution (Kelly, 2013). However, it is still unclear whether it is a smart move to eliminate resale options. There is a possibility that consumers' willingness to pay and value perceptions might be reduced by the inability to resell a game (Zackariasson & Wilson, 2010). On the contrary, flat rates as new pricing models might be enabled through digital distribution platforms (Anderson et al. 2010). In that respect, console games like the case for MMOGs e.g. World of Warcraft may then represent services that can be played or rented through monthly or weekly subscription fees. 3.0 Methodology This will be a qualitative study that exploits thematic analysis of various online repository sources and library articles in marketing and strategic management discourse. With research sources mainly from articles and books, common terms as ‘value creation’, ‘consumer perceptions’ and ‘demand for video games’ will be highlighted. The articles will then be filtered to obtain the best data that can respond to the research questions. The study will use thematic analysis to analyze data and it will involve three case studies. The first case study will provide information regarding value creation in video games. The second case study will attempt to understand the changing consumer perceptions with regard to gaming technology. The third case study will look at producer demand and value to customers. A coding frame will be used to generate and apply the themes and sub-themes from both verifiable and unverifiable references on the topic of study. This qualitative study will provide underlying issues on value creation and consumer perceptions in the video gaming industry. Qualitative data is more flexible and easier to understand. References Anderson, et al. (2010). Violent Video Game Effects on Aggression, Empathy, and Prosocial Behavior in Eastern and Western Countries: A Meta-Analytic Review, Psychological Bulletin, 136, 2, 151–73. Clements, M. T. & Ohashi, H. (2005). Indirect Network Effects and the Product Cycle: Video Games in the U.S., 1994–2002. The Journal of Industrial Economics, 53(4): 515–542. Corts, K. S. & Lederman, M. (2009). Software Exclusivity and the Scope of Indirect Network Effects in the U.S. Home Video Game Market, International Journal of Industrial Organization, 27(2): 121–36. ESA (2012). Industry facts. Entertainment Software Association (accessed May 5, 2012), [available at http://www.theesa.com/facts/index.asp]. Kelly, T. (2013). What Games Are: The Reviewers Are Wrong About OUYA. TechCrunch. http://techcrunch.com/2013/04/06/what-games-are-thereviewers-are-wrong-about-ouya/). Liu, H. (2010). Dynamics of Pricing in the Video Game Console Market: Skimming or Penetration? Journal of Marketing Research, 47(3): 428–443. Marchand, A. & Hennig-Thurau, T. (2013). Value creation in the video game industry: Industry economics, consumer benefits and research opportunities. Journal of Interactive Marketing, 27(2): 141-157. Park, B.W. & Lee, K.C. (2011). An Empirical Analysis of Online Gamers' Perceptions of Game Items: Modified Theory of Consumption Values Approach. Cyberpsychology, Behavior and Social Networking, 14(7–8): 453–459 Roquilly, C. (2011). Control over Virtual Worlds by Game Companies: Issues and Recommendations, MIS Quarterly, 35(3): 653–71. Rysman, M. (2009). The Economics of Two-Sided Markets. Journal of Economic Perspectives, 23(3): 125–143. The Economist (2011). Special Report Video Games, 404, December, 10, 3–12. Thomson, S. (2013). Become a PlayStation Mobile Publisher for Free. PlayStation.Blog. http://blog.us.playstation.com/2013/05/08/become-aplaystation-mobile-publisher-for-free/) Vorderer, P. & Bryant, J. (2006). Playing Video Games. New York: Taylor & Francis. Zackariasson, P. & Wilson, T.L. (2010). Paradigm Shifts in the Video Game Industry, Competitiveness Review, 20(2): 139–151. Read More