The focus of the analysis is GameStop Corp., which is a company within the video game retail industry. The firm works as a retailer in the market, selling games, gaming products, and PC entertainment software. The firm markets video game software, new and used gaming hardware, and accessories. GameStop also sells other merchandise, such as strategy guides and trading cards to other companies and individuals. The firm had 6,450 stores in the US, Europe, Canada, and Australia as of January 30, 2010, which have continued to grow over the years. The firm markets its product under the brand name GameStop and EB Games (Market Publishers 2020). GameStop is well-known for operating physical stores but has slowly entered the e-commerce world through a website like www.gamestop.com. The company is also Game Informer’s publisher, which is a US-based multi-platform video game magazine. Although the company has performed well in the market over the years, the current analysis reveals significant challenges, such as competition and declining market share due to technological threats, which the management should address to build a competitive advantage.
Macro Environment Analysis
Political factors are government actions that affect the firm’s performance, such as tax policies, trade tariffs, and tax policies (Bass et al. 2019). The company operates in the US and other countries, such as in Europe, Canada, and Australia, meaning that local and international political factors affect it. The company should comply with taxation policies and tariffs that affect global business operations. So far, GameStop has complied with most policies, explaining its success in the US and globally. Furthermore, the management should understand the contractual, legal, and ethical obligations, such as corporate social responsibility that informs success, video games ratings, and intellectual property.
The video game retail sector is a billion-dollar industry. While the industry performs exceptionally the economic performance in which a firm operates can significantly affect its financial performance, such as revenue and profitability. When the economy is performing well, the company will perform better than when a country faces economic shocks, such as a recession (Bass et al. 2019). Besides, disposable income and willingness to spend also affect its performance since it is a source of entertainment and not a basic need. The firm should understand major changes in the economy to create relevant strategies to avoid negative effects of economic shocks, such as recession or inflation.
The entertainment culture plays a key role in the video game retail industry since it reflects its revenue source. Video gaming is pervasive among children, teenagers, and young adults in middle-income strata, who are the industry’s leading spenders. The popularity of video-gaming is the cause of success for companies such as GameStop. The company should understand the effect of the change from the traditional gaming environment to an Internet culture that includes the use of mobile devices. The play anywhere concept is affecting how businesses should operate to meet the needs and demands of customers.
Video games are a by-product of technology, meaning that trends in this aspect affect the performance of companies in the video game industry. Technological changes have affected performance in different industries globally. The new media (Internet) facilitating e-commerce is one of the changes in the market that influences the way companies are meeting the needs of their customers. Most of GameStop’s competitors, such as Blockbuster, Inc. capitalize on technology, especially game downloading capability. The increase in the use of the Internet in the market has affected firms operating in the brick-and-mortar industry, such as GameStop (Morford et al. 2014). The company needs to change its strategy to overcome the technological changes in the market and become more competitive. The company should take advantage of technological advances to succeed in the retail market and avoid failure.
Environmental issues, such as climate change, affects all businesses globally in the modern world. Companies are expected to operate to cut down their carbon emissions to reduce climate change (Huisingh et al. 2015). They should market energy-efficient products to reduce the problem and use proper disposal and recycling waste to prevent environmental degradation. The management should ensure ecological protection across its supply chain by ensuring customers and suppliers are mindful of the environment.
National and international legislation affects the performance of companies in the video game retail industry. For example, GameStop must comply with laws, such as not to sell video games with prohibited content, such as sexual and violent, to children. The company should observe other laws and policies, such as taxation and registration, especially when setting up new operations.
Industry Competition Analysis
Porter’s Five Forces Analysis helps to understand a target market’s competitive nature to help companies make strategic decisions. The analysis focuses on the operation’s industry and helps the firm establish new ways to create competitiveness (Dobbs 2014). The analysis focuses on five major questions:
Power of Buyer
The video game retail industry has a high bargaining power of buyers due to the ease at which they can switch from one company to another. Buyers in the industry include children, teenagers, individuals, students, and other businesses. Although they all demand different entertainment elements, they can easily switch to a firm that offers minimal price. They lack control over price, but the low switching cost can cause discounts, hence lowering the long-term price.
Power of Suppliers
The video game retail market has the medium bargaining power of suppliers due to PC and mobile device manufacturers, radio and television parts vendors, and software suppliers in the supply chain. Many businesses in the sector obtain their parts from numerous suppliers and suppliers with a dominant position, leading to a decline in GameStop’s profit margins. The medium level of bargaining power does not have a significant impact on the firm’s profitability.
The Threat of New Entrants
The threat of newcomers in the video game retail industry is relatively high due to enablers, such as technology and e-commerce platforms. New firms bring in new and innovative ideas, driving prices down. Besides, they can put pressure on current firms, such as GameStop, to also innovate to remain operational and sustainable amid the competition. The company will have to market new products and services to remain successful, competitive, and retain the market share.
Threat of Substitutes
Substitute products in the video game retail industry include magazines, books, theater, non-computer games. The threat of such products is low, but new media is increasing alternative entertainment sources, such as video streaming by Netflix, competing for the same customers as GameStop. Increasing the product offering by video content providers will increase competition for the company and force it to restrategize or risk failure. The firm should also ascertain the customers’ needs and become service-oriented to counter the competition.
The Threat of Competitors
GameStop operates in a highly competitive market, especially following video games that consumers can download online and play. Technology has also increased the ease with which video game retailers can create successful businesses in the market. As a result, GameStop should realize the high threat and create strategies to make it competitive and successful.
GameStop operates globally, meaning that it experiences competition locally and internationally from major video game retailers. The company, in the United States, competes with Wal-Mart Stores, Inc., Best Buy Co., Inc., Target Corporation, Blockbuster, Inc., and Movie Gallery, Inc. competitors in the market have an assortment of video games in the physical and online settings. Outside the United States, the company competes with European rivals, such as Game Group plc and its subsidiaries. The rivals operate in various European countries, such as the UK, Spain, Scandinavia, Ireland, France, and Portugal. Other rivals in the region are Media Markt and Carrefour, operating across the European continent. In Canada, GameStop competes with Wal-Mart, Best Buy, and Future Shop, while K-Mart, Game Group, Target, and JB HiFi stores are Australia’s competitors. The competitor analysis reveals that the video game retail market is highly competitive, creating a need to transition of risk failure.
Video games have become an essential part of the way people seek entertainment and pass-time, especially in middle-income families. Customers are the most important stakeholders for GameStop because they drive their performance. The industry segments customer into core and casual players (Scharkow et al. 2015). The first group comprises of players who spend at least 20 hours every week and are among the main buyers, purchasing four games in the last half a year. Casual players play less often and can buy only one movie in six months. Video gaming is accepted in society, explaining the impressive performance of companies in the market. The company has historically targeted diverse customers, including children, adolescents, young adults, students, and other businesses. However, the company is minimally differentiated in terms of the nature of its offerings to diverse customers. The company has always generated its revenue from traditional consumers who buy and use consoles to play their games. Thus, brick-and-mortar speciality has been important for GameStop, which has been reluctant to change to the online setting due to the claim that their customers are late adopters. Over the years, the company has met its customers’ needs by providing the preferred products and services. However, the firm is experiencing changes in how consumers buy their products, creating the need for change to digital platforms. Game Stop has to move from physical gaming to digital downloading to survive in the increasingly competitive video game retail market.
Since the onset, GameStop has focused on video gamers who use the console to play. The company operated in the physical retail market, which made up about 48% of the market share in the gaming market and capitalized on consumers’ experience. The firm worked as a middle man in the video game retail industry as an electronics store and offering minimal differentiation. The company also sold games and accessories, which were the leading sources of its revenue. Regardless of changes in the market, such as growth in digital media that supports game downloading, GameStop has maintained its original strategy and succeeded in the changing market since users of gaming consoles are late adopters. Video gamers have proven to be slow in accepting changes in the market, such as downloading and playing games online. However, the company should accept changes in the market or risk failure.
Strong brand name
Late adapters among loyal customers
Closing up its physical stores
Ineffective strategy, brick-and-mortar
Technology, such as e-commerce platforms
Opportunity for diversification
New unexplored markets
Increase in technology, especially digital downloads
Increasing digital competition
Question 1: Alternative Strategies Proposition and Justification
GameStop will face considerable challenges associated with its current segmentation, targeting, and positioning (STP), which should address to remain afloat in the highly competitive business environment. The first strategy involves positioning as a physical retailer in the gaming industry, while most competitors have transitioned to online operations. The company’s sales have been declining because of the limitation in segmentation, such as marketing to only consumers seeking physical products instead of including those who download theirs online or stream them live through the Internet. Besides, targeting consumers through brick-and-mortar settings is affecting the company’s sales and profitability. The management should recognize that the company operates in an environment where it competes with firms that have acknowledged the new media’s role to improve segmentation, targeting, positioning, market reach, and share. Therefore, the company might be unable to compete effectively and continue witnessing a decline in its market share and revenue.
Another challenge that GameStop might face using the current segmentation, targeting, and positioning strategy is the inability to counter the growing competition in the video game retail market, especially from the highly innovative companies, such as Target Corporation, Blockbuster, Inc., and Movie Gallery. The current strategy is uncompetitive and fails to achieve customer value. The physical store strategy that GameStop uses is highly ineffective in the current environment, where the target consumers seek more innovative ways to meet their entertainment needs. The company might close down shortly if it fails to change the strategy to use more innovative channels, such as marketing its films online. The company is already closing down most of its stores worldwide due to the inability to remain afloat in the highly competitive industry. The trend might continue due to the current and new competitors entering the market, which has a high threat of new entrants through technology and digital platforms.
GameStop has some alternative solutions to address the current challenges and remain in the market regardless of competition. The company has a strong brand name and reputation that can help it become a competitive firm in the video game retail market. One of the company’s alternatives is to close most current stores and operate a few to reduce the operation cost and improve profitability. The second option for the company is to enter the online gaming market to become more competitive against innovative firms. GameStop can begin selling its games through digital media instead of focusing only on physical settings. The strategy will help the company to diversify its product offering and target more consumers in the online market. As a result, it will have new revenue streams and become more profitable by adding value to its customers. The new media will also make it more creative in meeting the entertainment needs of its customers.
Question 2: Alternative Strategies Proposition and Justification
Various competitive dynamics and emerging trends are evident in the video game retail industry that GameStop should consider when making any strategic change. Some of the changes have been increasing the presence of video game companies in the online market, providing consumers with the opportunity to download or stream videos live through the Internet. GameStop can transform some of its threats into competitive resources to remain profitable and survive in a highly dynamic environment. One of the firm’s threats can change into a competitive advantage is the highly dynamic world of technology. Instead of viewing technology as a threat, the company can take advantage of beginning online marketing and selling its products and services to attract a higher number of customers. Another threat that the company can transform into an advantage is introducing new resources in the video game retail market, such as new consoles. The management can remain ahead in the market by ensuring that it acquires the new resources faster to keep customers entertained. The strategy will help the firm to remain competitive in the physical video gaming environment regardless of the emergence of new technologies. While other companies are entering the new world, GameStop can still add customer value and create a competitive advantage in the physical environment.
GameStop needs to integrate offensive and defensive competitive strategies as the video game retail market becomes more competitive, and new players emerge with innovative strategies. Offensive strategies involve a direct attack on competitors, while a defensive one turns back or discourages a direct attack on rivals (Joshi, Reibstein & Zhang 2016). In GameStop’s case, some of the offensive strategies that it can pursue include cutting prices by reducing the cost by moving online and reducing the number of physical stores or acquiring a competitor with an online presence to increase competitive advantage. The firm can also pursue defensive strategies to reflect competitors’ attack, such as matching price reduction by competitors with similar reductions, using strategies, such as after-sales service or warranties, or moving to the competitor’s market such as in digital platforms. GameStop can blend the strategies to address the competitive threat in the market and become more productive and profitable.
GameStop might have succeeded in the video game retail market for a long time. Its current strategy cannot stand the current pressure from competitors unless the management creates a new business model. As things stand, the company has already closed 150 out of 7,500 stores to reduce operational costs to maintain market share and profitability. Still, the management should save the firm. The company needs to build a competitive advantage by finding untapped markets and being more creative in the new media world to diversity and target more customers. The management can take advantage of its reputation in the market to change the current model into a more competitive one, such as shifting into the digital environment. The firm could transition to marketing its video games online and allowing consumers to download through a paid app. Although technology presents unique challenges, such as information security and piracy, it might be the only way for GameStop to survive in the market where most of its competitors have transitioned online.
Bass AE, Pleggenkuhle-Miles EG, Winchester CC & West T, 2019, ‘GameStop’s next play: reconfiguring the value offering’, The CASE Journal, Vol. 16 No. 1, pp. 7-33.
Dobbs ME, 2014, ‘Guidelines for applying Porter’s five forces framework: a set of industry analysis templates’, Competitiveness Review, vol. 24, no. 1,
Huisingh D, Zhang Z, Moore JC, Qiao Q, & Li Q, 2015, ‘Recent advances in carbon emissions reduction: policies, technologies, monitoring, assessment and modeling’, Journal of Cleaner Production, vol. 103, pp. 1-12.
Joshi YV, Reibstein DJ & Zhang ZJ, 2016, ‘Turf wars: Product line strategies in competitive markets’, Marketing Science, vol. 35, no. 1, pp. 128-141.
Market Publishers, 2020, GameStop Corp. Fundamental Company Report Including Financial, SWOT, Competitors and Industry Analysis. Available: https://pdf.marketpublishers.com/bac_swot/gamestop_corp_swot_analysis_bac.pdf
Morford ZH, Witts BN, Killingsworth KJ, & Alavosius MP, 2014, ‘Gamification: the intersection between behavior analysis and game design technologies’ The Behavior Analyst, vol. 37, no. 1, pp. 25-40.
Scharkow M, Festl R, Vogelgesang J, & Quandt T 2015, ‘Beyond the “core-gamer”: Genre preferences and gratifications in computer games’, Computers in Human Behavior, vol. 44, 293-298.