Gamestop Case Study

Case Analysis:  GAMESTOP

Situation

Gamestop the world’s largest retailer of new and used video game products and PC gaming software in the world has executed successful growing business strategies that after few years have positioned the company on top of the gaming industry worldwide.  

GameStop market consolidation was the result of several merges but the most significant was the one made with ED in 2005.  It allowed GameStop to control over 21% of the videogame industry worldwide.  The company currently has a VPN value of $9,240,645.  This has been the result of implementing strategic market plans characterized for establishing dynamic external and internal competitive advantages.  External competitive advantages includes the variety of products, type locations (lease mall locations and strip stores), brand awareness (stores, website, and magazine), strategic market segments (electronic game enthusiasts, the value-oriented customers, and social game giver), and store-level point of sales.  The company internal competitive advantages includes its integrated inventory rotation system, efficient distribution system, trade-in game process (as one of the greatest way margin of capitalization), and the determination of its target customers (devoted gamers).

Besides this information it is also important to highlight the company strengths and weaknesses in order to establish what the company’s current situation is.  The most important strengths are that GameStop offers the largest selection of used and new video game products in the world and that the company has low debt.  The company weaknesses are GameStop only focuses its sales-points on geographic locations, the company underestimates the use of its website to allow the customers to shop online, and its innovative offerings depend on its supplier’s products. On the other hand, the gaming industry is growing and changing which open everyday opportunities for the company.  The company is threatened by new innovative competition in the digital programs.

GameStop has beating its competitors by executing a strategy based on lowering the price of its products through its trade-in process which brings customers to the store.  This allows customers to exchange their videogames given them credit for new purchases or money.  The store assures monetary price is lower than the trade-in value. The traded videogames are totally inspected.  Thus, the trade-in system allows the company to acquire old video games in excellent conditions that are on demand and are unavailable in other retail stores which represents sales increments.  In addition, the old video games have significant greater gross margin value than the new video games for the company.

GameStop owns more than 4,490 retail locations worldwide.  Some locations are lease in malls and others are strip centers.  The two different locations are tailored according with the different target segment needs. The leasing locations carried a lot of new items and few used items. These locations focus on the social gift givers customers who mainly shop during high peak seasons.  The strip stores carried a balance mix between new and used item. The strip stores focus on the electronic game enthusiasts who demand the latest merchandise and the value-oriented customers who want a wide selection of value-priced used video game products.

GameStop target segments are related with the length of time users spend playing video games.  As the chart shows, the devoted gamers are 41% of the targeted customers.  They play video game for long periods for up to seven days in a week. They prefer action games, role playing games, sports and simulation games.  They are attracted to new games and hardware. They play in more than 3 consoles.  “Social gamers represent 31% of gamers and play video games for short periods four or five time a week. They mostly play sport and fighting games categories. They use either one or two consoles. The last segment is the casual gamers who represent 28% of gamers and play video games twice a week for short periods. They prefer puzzles and strategic games and use only a single console” (Ivey).

The chart shows how 59% of GameStop base customer is a price sensitive group that demands cheaper and used products.  However, the store does not offer yet downloadable video game versions.  

Questions

GameStop has reported exceptional growth rates since its beginnings.  The company business strategies have consolidated its leadership in the videogame industry.  The company share holders concerned is not GameStop current growth rate but its capacity to make it sustainable in the future which brings the question if GameStop business strategies will be strong enough to remain almost without competition? Do these strategies need to be changed?

GameStop has too much capital tied up into used games that customers can stop buying because they could start playing in another devises.  This brings to question another ways how GameStop should probably plan on diversifying its products to its specific social and casual customers because it is very likely that advances in technology can cause GameStop profit coming from used videogames to get terminated sooner rather than later.

On the other hand, GameStop performs serving a very different and dynamic market segments.  This dynamism challenges the company to change according to its customers preferences.  GameStop base customers are being distracted by internet and digital downloading video games, they have to be stimulated with something more than new releases and a big range of used video games.   Otherwise, competition can take advantage providing digital products that could satisfy these costumers in a cheaper and more innovative way that satisfies the demand of its most important customer segments the devoted gamers and the casual gamers.  These facts bring up another question about what other products besides new and used videogames should the company start investing on? What other reasons beyond videogames can GameStop give its base customers?  What new videogame category or technology GameStop can introduce to its mainstream customers that they cannot resist?  GameStop responds to a transformed gaming environment will forge its vision by fostering new business strategies to grow.

Hypothesis

                In 2005 GameStop had a 21% market share of a11.5 billion dollar video game industry. From there GameStop has enjoyed an average growth rate of 20% each year and by the close of 2011 they had done over $7.5 billion in sales. An important question that must be analyzed is whether or not the entrance barriers GameStop has created will be strong enough to stave off competition. If not, they can expect their growth to significantly deteriorate. As of now, the organization is in a unique position with its minimally significant competition in its key business strengths.

        GameStop is perhaps the most well recognized video game store in the United States and with 4,490 locations worldwide, chances are you’re not far from one of their stores. They have a reputation, as a store that has a knowledgeable gaming staff with the most current games and consoles available for purchase. When a gamer becomes bored of one of their games or consoles they can return it to GameStop to either trade in towards a new product or for cash back. They have done a superior job of servicing the current needs of the video gaming industry. It would be extremely difficult for a new competitor to break into the market under the same business model as GameStop. GameStop has established itself as a trusted place to gamers with great geographical coverage where they know they can buy, sell, and / or trade the latest video game products.