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Strategy of Activision Blizzard Inc Term Paper


Introduction

Activision Blizzard Inc which was previously known as Activision Inc is based in California, USA, and mainly engages in provision of entertainment software and peripheral products to its customers across the globe.

The company provides a wide range of video games which include PC based games, Microsoft Xbox 360 and Nintendo Wii among others. Globally, the company’s portfolio stands out as one of the best selling products (Christensen 77). The company has its network spreading across many countries from Europe, America and Asia.

The company has several segments which include Activision Publishing, Blizzard Entertainment and Blizzard Distribution which make it very competitive. The publishing segment is mainly concerned with creating, marketing and sale of the company’s products to its main customers which includes game specialty stores and electronic stores.

The industry macro economic environment

The macroeconomic environment refers to societal forces affecting the entire microenvironment. Such forces include economic, demographic, technological, political, global, social- cultural and legal factors as discussed below.

Political/ legal environment

It is always important to learn the rules before playing the game (Ricky and Pustay 85). However, many people lack knowledge about political/ legal environment. Activision Blizzard Inc is a California based company and sells its products to a number of Asian, American and European countries where by rules governing the industry are quite different.

Therefore, it becomes much more important for the marketing staff to understand the rules governing the industry to avoid problems. Moreover, non -compliance with laws, regulations and ordinances could lead to fines, negative publicity, and embarrassment or even to the worst expensive legal suits.

Economic environment

The economic well-being influences the consumer spending behavior. Further, consumer buying practices influences the health of an economy. Louise and Kurtz (49) observed that economic environment consists of such factors that influence marketing strategies and also the consumer buying power. They include inflation, unemployment, resource availability, business cycle and income.

Interestingly, the economic growth of most countries which form markets for Activision Blizzard products recorded remarkable growth to year 2006; only to be hit by depression in 2007, with inflation rates rising to worrying levels.

This indeed led to sluggish economies causing adverse effects on company products movement in foreign markets. Additionally, high inflation rates also led to rise in production expenditure making the company products costly, hence leading to a decline in sales and profitability.

Social/ Cultural environment

This component consists of the relationship between society and its culture with the marketer. Doing business in foreign countries calls for thorough understanding of culture of nationals in the respective countries. According to Ricky and Pustay (85), “a society’s culture determines how its members communicate and interact with each other”.

In Asian countries, to be successful in business calls for thorough understanding of both the business and social environment. Asian cultures are long and does not adapt quickly compared to their counterparts in Europe and America. The negotiation process in Asian countries compared to Western standards is quite low.

Notable difficulty in negotiation process with Asian clients is evident in understanding what it means to decline something since saying “no” directly is considered culturally rude and unacceptable. Activision Blizzard marketing staff reported experiencing difficulties of understanding Asian social/ cultural environment which resulted to adverse effects on products sales in this particular market.

Technological environment

Technological environment comprise of knowledge based on scientific discoveries, innovations and inventions. Major discoveries can have significant marketing implications since they can drastically change the industry (Orbanes 13).

Activision Blizzard tries to ensure that the development process of such innovation is achieved within the shortest time possible in order to trickle down the resulting benefits to the clients and for them to keep pace with their competitors. Companies in this industry are spending millions of dollars to develop their products in a bid to ensure they maintain royalty of their clients.

Demographics

According to Kotler and Keller (70), marketers must understand population growth in their market segments, changes in age mix, educational levels, and ethnic composition. They should also consider whether to moving from mass marketing to micro marketing depending on those who mostly use their products.

For instance, if it is the youths whom companies should specifically target in their marketing strategies. Activision Blizzard has a policy of specifically targeting people aged between 10-40 years since according to the research done; this age group is commonly engaged in playing games and watching movies.

Global

The gaming industry is fast gaining prominence across the globe. Therefore, companies that have invested in this industry should consider establishing markets across the globe since in today’s internet- based world, it is easier for them to trade their products online. Activision Blizzard in its strategic plan considers investing in broadband network to support online transactions that will see it selling its products worldwide.

The five forces framework

Threat of new entrants

In this industry, barriers to entry are determined by ease of entry of new players intending to challenge the market share of existing players with intent of making the industry situation unattractive (Porter 96).

For the established companies, they are able to produce in large scale, thus cutting on production cost and eventually transferring the benefit of low prices to the consumers. It becomes difficult for companies entering the market for they require substantial start up costs which are not always available.

New entrants are faced with many challenges such as access to distribution channels, compliance with government policies and expected retaliation. Activision Blizzard Inc. has an advantage over potential new entrants for it already has successful distribution network in all its markets.

Due to many years of experience in gaming industry, the company understands the rule and regulations governing the industry very well. Finally, being an established firm, the company can apply tactics to deter new entrants from venturing in this industry.

Bargaining power of suppliers

The gaming industry comprises of both large and small firms, all producing wide range of gaming products. Each firm employs superior production methods and hires talented work force in a bid to produce superior products that are appealing to the customers. Therefore, these gaming companies cannot collude to exert collective bargaining powers in this industry.

The profitability of these gaming companies lies on the quantity of sales achieved. Therefore, the suppliers will strive to retain a customer base and also work harder to ensure that they still get more customers to boost their sales levels.

To diversify against the risk faced due to low bargaining powers, the supplier has various classes of clients; one being those who acquire the products for use in production of final products and also those who purchase for final use.

Game software publishing is regarded as labor intensive and requires the input of talented software developers. In this case, it increases supplier’s power. Intellectual property rights are used to differentiate various suppliers’ products.

However, the supplier can increasingly become dominant in the industry by differentiating products from those of other suppliers, thus increasing switching costs and decreasing availability of substitutes (Porter 78).

Bargaining power of buyers

Buyers enjoys strong bargaining power as they can demand better quality products from the company, which in effect increases production costs of developing games and software. Considering the high competition amongst the suppliers, the buyers gain a strong negotiating power as they get an option of turning to the firms with products that meet their specific needs (Utterback 50).

The products are well differentiated though brand loyalty is relatively low. Despite this, leading manufacturers such as Activision Blizzard were still able to achieve a degree of product differentiation through established game lines.

Further, the success of individual title is achieved through critical review to ensure that it always remain more appealing to the clients. This industry is susceptible to low profits since buyers easily collude to demand good quality products from the suppliers who in turn pass these costs to the buyers thus cutting on their margin.

Threat of substitute products

Presence of various substitutes in gaming industry lowers profitability level (Porter 93). This calls for gaming companies to differentiate themselves from others through unique competitive advantages and outstanding performance; otherwise they may be faced with many problems making their survival difficult.

The substitute available in the market includes live events, sports, films and music. Future environmental trends seem to act as barriers to new entrants’ competitiveness within the industry. However, the existing gaming companies can mitigate such threats through establishment of strong brands that carve a unique niche.

Intensity of rivalry among existing competitors

Rivalry in competitive games industry is a zero sum game though very strong in nature. This is because of the high fixed game development and storage costs involved, making many game titles to be less profitable and thus leading to sluggish growth rate.

Further, software titles production is quite minimal compared to total development costs involved. These high development costs have a negative effect on capacity increase as gaming companies fear for uncertainty on commitment of such huge sums of money.

Competitor analysis

The competitive gaming industry comprises of a number of competitors. More acquisition and mergers are likely to take place in future due to threats such as, piracy, risks due to upfront development costs, increase of game players acting as game content developers and economic recessionary factors. The table below shows the top ten competitors for the fiscal year 2010.

Table: Top ten competitors in gaming industry

Company Name Sale $ (m) Employees Market Capitalization $(m) Net Income $ (m) Net Margin (%)
1 Electronic Arts Inc 3665.00 9037 5715.52 -454.00 -12.39
2 Konami Corp 3233.86 5472 2067.05 199.48 6.64
3 Activision Blizzard Inc 3026.00 2149 12,915.29 -107.00 -3.54
4 Square Enix Holdings Co. Ltd 1605.53 2973 1874.94 100.19 6.19
5 Take –Two Interactive Software Inc 1537.53 2100 591.14 97.10 6.32
6 Ubi-soft Ent. SA 1450.90 4323 1429.89 142.36 8.49
7 TQH Inc. 1030.47 2400 184.41 -35.34 -3.58
8 Real Networks Inc 604.81 1774 290.21 -243.88 -40.32
9 Info-grams Ent. 372.01 555 47.31 -65.39 -21.33
10 KOEI CO. Ltd 309.42 1191 469.34 55.96 18.44

Source: Reuters

From the above table, competition in the interactive gaming industry is very strong since development costs are quite high despite many gaming titles contributing little profit as companies rely heavily on blockbusters hits as their main revenue source.

SWOT analysis for Activision Blizzard can be analyzed as below

Table: SWOT analysis for Activision Blizzard

Strengths Weaknesses
Good global market
Diversification of innovative gaming products and services
Lack of competitive strength in some market segments
Over reliance on limited game titles
Weak financial performance
Opportunities Threats
Acquisition of new subscribers
Room for consolidation through strategic consolidations
Growing demand for home entertainment due to changing consumer preferences
Piracy
Intellectual property capabilities with the rise in popularity of third party developers
Unfavorable economic conditions
Overall market risk

Strengths

The company enjoys first position as a world leader in the multi-player online role- playing games. In addition, it enjoys strong financial position achieved through engagement in various kinds of entertainment businesses.

Weaknesses

The major weakness is low or little competitive power in several segments of the market which include movie entertainment licensing and sports gaming. In addition, there is much reliance on fewer hits for the purposes of revenue generation.

Opportunities

Acquisition is one of the opportunities available for Activision Blizzard, as it solidifies its market share. Additionally, global video game market is anticipated to rise to $45 billion by end of 2010 while the online game market is to be boosted by penetration of the broad band.

Another notable opportunity is the potential to acquire more subscribers. To conclude, Activision Blizzard can effectively pursue opportunities to expand its downloadable content and improve efficiency in online gaming by developing internet based gaming.

Threats

Despite the opportunities available, there are quite a number of threats facing the gaming companies. They include pirating intellectual property, Market riskiness, increasing piracy and illegal modifications to facilitate piracy. Another notable threat is one posed by the global economic slowdown.

The economic recession that started in 2007 has led to decrease in consumer disposable income, very weak housing market lower consumer demand all of which has led the industry to remain financially weak currently and in the long term.

Strategic positioning

Activision Blizzard strategy is to put much more emphasis on online marketing of MMORPGs and video gaming software that are subscription based. This firm is set to diversify categories of games which includes music based gaming , first- person action, role playing simulation and sports amongst others. However, this is particularly foreseeable following the recent acquisition strategy of Bizzare creations for $ 1.5 billion.

The prime reason behind this acquisition is to boost its development capability to stay on top of the game. Regarding brand management, Activision Blizzard is set to apply a marketing framework to boost its brand equity in consumers view.

Also, it is important to position its gaming products in a particular way such that it still remain a brand of choice for their consumers (Kotler and Keller 72). Thus integrating e-commerce strategy with more appealing websites becomes more important to counter issues as competitors’ rivalry, unfavorable economic conditions amongst others.

Performance assessment

Assessing Activision Blizzard financials over a period of five years shows reported revenue of about $ 3,026 million during the fiscal year ended 2010 which is a 100% rise from the previous year. However, the company suffers an operating loss of $ 233 million in year 2010 as shown in appendices 1.9 (Winn 5).

Reason for Activision blizzard merger

The major reason behind Activison merger with Blizzard was to enhance competition with other companies in the gaming industry such as Electronic Arts (EA). After merger, EA and Activision Blizzard were the two world largest game publishers. Blizzard wanted to have a good pool of resources since creating and maintaining multi media objects is complex and needs substantial amount of expensive resources.

On the other hand, Activision was able to gain access to new intellectual rights from the merger. Overall, the merger made the Activision Blizzard Inc to gain large and robust catalogue rich in money making game properties (Walton 36).

Conclusion

Activision Blizzard reported increased profits and market share for the last five years. Its future goals are to maintain this position while adopting modified strategy to enable it achieves success in its next product.

This company has a reputation as a high quality game manufacturer, giving it an advantage of market dominance. More so, the company enjoys economies of scale thus enabling it to produce more content at lower costs which subsequently enables charging of lower prices to the consumers.

Recommendations

Activision Blizzard needs to identify its competitors wisely so as to counter major threat. Though it has succeeded in maintaining a large diverse subscriber base, it should also broaden it up.

More so, it should increase barriers to entry to check on potential competitors and also improve on products quality to discourage switching to competitor’s products. Following such a strategy, no company will easily overtake Activision Blizzard. It will also become easy to maintain its dominance in market share.

Works Cited

Louise, Boone, and Kurtz, David. Contemporary marketing. New York: The Dryden Press, 1992. Print.

Ricky, Griffin, and Pustay, Michael. International business: a managerial perspective. London: Pearson Education Press, 2003. Print.

Kotler, Phillip, and Keller, Kevin. Marketing management. London: Prentice Hall Publishing, 2006. Print.

Orbanes, Phillips. The game makers: the story of Parker Brothers. Boston: Harvard.

Porter, Michael. “The five competitive force that shape strategy.” Harvard Business Review 86.1 (1982):78-93. Print.

Porter, Michael. Competitive advantage: creating sustaining superior performance. New York: Free press, 1985. Print.

Utterback, James. Mastering the dynamics of innovation. Boston: Harvard.

Walton, Mill. The deming management method. New York, NY: Perigee Books, 2006. Print.

Winn, Roll. How much testing is enough? Proceedings of Frontiers in Education ’90. Vienna: Austria, 1992. Print.

Appendices

Figure: Graphs showing Activision Blizzard performance over five years

Graphs showing Activision Blizzard performance over five years

Source: Activision Blizzard Annual Repor

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IvyPanda. 2019. "Strategy of Activision Blizzard Inc." July 2, 2019. https://ivypanda.com/essays/strategy-of-activision-blizzard-inc/.

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IvyPanda. (2019) 'Strategy of Activision Blizzard Inc'. 2 July.

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