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Microsoft (MS) Xbox Project Mist 8990 - Revenue Management. Presented by: Earl James Gobin Kishore Jayaraman Sara McMahon Veena Paidipalli March 29, 2002. Agenda. Background Market and Competition Analysis of the Problem Major Challenges Market Problems

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Microsoft ms xbox project mist 8990 revenue management l.jpg

Microsoft (MS) Xbox ProjectMist 8990 - Revenue Management

Presented by:

Earl James Gobin

Kishore Jayaraman

Sara McMahon

Veena Paidipalli

March 29, 2002


Agenda l.jpg
Agenda

  • Background

  • Market and Competition

  • Analysis of the Problem

    • Major Challenges

    • Market Problems

    • Competition/Market Segmentation Analysis

  • Understanding the Value Cycle

  • Solution: Demand Based Supply Planning

  • Major Recommendations

    • Revenue Management Core Concepts

    • Implementation


Background l.jpg
Background

  • Microsoft plans to transform its new Xbox console into a general home device that handles everything from e-mail to video recording to analysts who follow the company. Xbox was launched on November 15, 2001.

  • Why did MS want to enter the Video game industry?

    • 20B$ Industry

    • Penetration strategy in the home market

    • 2001 Forecast - 10M

    • 2002 Forecast - 15M

  • Why did MS only produce 1.5 Million units?

    • Production constraints

    • Increase demand & visibility


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Market & Competition

  • Hottest Markets:

  • North America - Buys both!!

  • Europe - Buys more hardware

  • Japan - Buys more software

  • Target Markets:

  • Southeast Asia

  • Mexico

  • Targeted Customers:

  • Existing Nintendo & Sony Customers

  • Older Males & Aged Gamers

  • Major Competitors:

  • Nintendo - Gamecube

  • Sony - Playstation


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Major Problem:When Xbox was launched;there were huge shortages all over North America!!!!

Product Flow

Retail

Store

Distribution

Center

Manufacturer

Plant

Carrier

Consumer

Information Flow

Distribution Challenge


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Major Challenges

  • Microsoft (MS) is unknown in the Games World

  • Console is big and bulky

  • Anti Microsoft sentiments

  • Retailer frustration with Microsoft

  • Microsoft (MS) tried to create a unique brand with Xbox

  • Current Microsoft Litigation

  • Pricing

    • $299 is perceived very high!!

    • $100 Unit loss for MS

    • MS forecast to breakeven in 2004

    • A standalone computer with Xbox’s features - $700


Market problems l.jpg
Market Problems

  • Demand was there, the product was not

  • A Black Market was created

  • Customers were dissatisfied

  • Manufacturers and Retailers suffered

  • Lost sales would go to competitors

  • Loss of market and mind share

  • Advertising campaigns did not match shipments


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Competition/Market Segmentation analysis:

  • Xbox hit the market at $299

    • 15 Games

    • 30 Games at the end of the year

    • 1.5 Million Units - 2001

    • 10 Million Units - 2002

  • Nintendo GameCube priced at $199

    • 7 Games

    • 20 Games at the end of the year

    • 1.3 Million Units

  • Sony Playstation (market leader) priced at $299

    • 240 Game Titles

    • 8.5 Million units shipped - 2001

    • 10 Million Units - 2002


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Understanding the Value Cycle

  • Break the business into submarkets

    • Techies

    • Adults

    • Professionals

    • Families

  • Project Revenue Trajectory by stage

    • Stage 1 - Xbox Launch Completed

    • Stage 2 - Product Launch - Global markets

    • Stage 3 - Market Domination through Optimal Timing and price!!

  • Determine Optimal Time to Launch Subsequent Stages

“Generate Maximum revenue by understanding the value cycle

and optimally timing the availability and price of the product to each micro market segment”


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Solution: If MS had implemented business processes and systems

  • High Customer Service Levels

  • Significant return on investment

  • Market penetration

  • Stolen market share from competitors

  • Retailer loyalty

  • Increased Revenue and Profits

Demand Based Supply Planning

Supplier

Manufacturer

Manufacturer DC

Forecasting Engine

Retail DC

Store

Consumer


Slide11 l.jpg

  • Market-based pricing

    • Use Price Balancing

    • Focus on customer’s perception of value

    • Test market to find price points that are acceptable to consumers

    • Maximize Revenue through optimal timing

      • - e.g event based – Xmas

  • Sell to segmented micro-markets, not to mass markets

    • Determine the value of Xbox to each segment of the market

    • Focus on the segments which value Xbox highly

Major Recommendations:


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Major Recommendations:

  • Save Xbox for the most valuable

    customers

    • Scarcity of Xbox make owners elite

    • If supplies are limited

      - Pre-sell for a higher price

      - Guarantee delivery for high-demand periods (Xmas)

  • Continually re-evaluate your revenue opportunities

    • If demand continues to outrun supply, increase the price

      -Include accessories along with the game system; adding ‘apparent value’ to the product.

      - Adding additional functionality

      • Xbox can become more than a gaming system

        - Expanding the product line

      • Software games for all gaming systems including Playstation and Nintendo


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Implementation:

  • Appoint an Internal “Revenue Management Champion” at MS

    • Decision Support Systems Analysts to help the Internal “Revenue Champion” with choices about information systems

  • Talk to customers who have used revenue management concepts successfully to drive more revenue for the company

  • Engage the services of a consulting firm with experience in:-

    • Identifying Revenue Management Opportunities

    • Best In Class Forecasting and replenishment Systems

    • Collaborative Planning Forecasting and Replenishment (CPFR) between Retailers and Manufacturers

    • CRM Strategy

    • Appropriate Technology Architecture and Infrastructure



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Top Line growth through

customer behavior

prediction at the micro

market level and optimized

product availability and

price without comprising

the bottom line targets!!



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