PARTICIPANT HANDBOOK

Gavin Fraser - Blue Ocean Strategy Initiative Centre

Dr. Rmi Triolet - StratX

Copyright 2008 by StratX

2009-04-08

Table of Content
1

Introduction to the BOSS World ___________________________________________________1

1.1

Your Role ________________________________________________________________1

1.2

Introduction to the Market _________________________________________________2

1.3

Key Competing Factors _____________________________________________________3

Price ____________________________________________________________________3
Sophistication of Gaming Experience (Console Power) ____________________________3
Graphics Sophistication _____________________________________________________3
Controller Sophistication ____________________________________________________3
Audio Sophistication _______________________________________________________4
Multimedia Add-ons _______________________________________________________4
Quality of Online Support ___________________________________________________4
Online Gaming ____________________________________________________________4

1.4

The Current Customers of the Industry ________________________________________4

Segment 1: 6-21 Year Olds __________________________________________________5
Segment 2: 22-35 Year Olds _________________________________________________6
Segment 3: 36+ Years Olds __________________________________________________7

1.5

Distribution Channels ______________________________________________________8

Low Price-orientated Channels _______________________________________________9
Specialized Electronics Stores ________________________________________________9
Video Game Chains ________________________________________________________9
Shopping Preferences ______________________________________________________9

1.6

Marketing ______________________________________________________________10

1.7

The Competitors and their Offerings _________________________________________10

Shiny Apples ____________________________________________________________10
Purple Plums ____________________________________________________________11
Yellow Bananas __________________________________________________________11
Blue Buddies ____________________________________________________________12
Expected offering upgrades over the next 3 years _______________________________12

1.8

Services and Delivery _____________________________________________________12

1.9

Introduction to the Blue Buddies Organization _________________________________13

Kel Sharkland CEO ______________________________________________________13
David Richter CFO _______________________________________________________14
Sally Burley Marketing Director ____________________________________________14
Rick Stark Operations Director _____________________________________________14
Barb Regan Sales Director ________________________________________________15

Copyright 2008 by StratX

2009-04-08

Introduction to the BOSS World

1.1

Your Role

Welcome to the Blue Ocean Strategy Simulation (BOSS) World!

You and your team will take over the management of a fictitious company in the video game console
market at the beginning of 2008. You will be leading the company over the next nine years. At the
beginning of each year you have to make key strategic decisions. A computer model then simulates
your performance during the year. You are then able to see the results you have achieved as a
consequence of your strategy!
This introduction to the BOSS World covers the main aspects of the market, the customers, the
distribution channels, the existing offerings and the competitors. At the beginning of each Round
there is an additional introduction to provide you with more specific details about that Round.
The eight years during which you lead the organization are organized into four Rounds. A Round is
broadly related to a particular set of learning objectives. Within a Round you may have one or more
years as shown on the chart below:

Each round presents you with new strategic challenges:

Round Red: Managing your existing offering for 3 years, using Competitive Strategy tools as a
basis for your decision making
Round Blue 1: Creating a high value (differentiated and low cost) Blue Ocean Strategy product
offering, perhaps including competing factors beyond those on which the industry currently
competes
Round Blue 2: Unlocking further demand by determining the right Strategic Price and
refining your offering
Round Blue 3: Extending your Blue Ocean Strategy by using Service and Delivery platforms as a
basis for creating uncontested market space, as well as dealing with the presence of new lowpriced competitors.
Note: your Instructor may have decided to skip the Red Round, since completing this Round is not
mandatory in order to fully understand the Blue Ocean Strategy concepts covered in Blue Rounds

Copyright 2008 by StratX

2009-04-08

one to three. Similarly, he or she may have also decided to combine Round Blue-1 and Round Blue-2,
as shown below, to provide you with a more condensed learning experience.

The mathematical model of BOSS has been designed by a team comprising experts in simulation as
well as experts in Blue Ocean Strategy theory. The model provides a good representation of the
video game console market and of its consumers, competitors, distribution channels, etc. The BOSS
model has been calibrated to reinforce learning; hence, it may not always behave as the real world
does. For instance, the model has been designed to underreact to poor decisions; you will not go
bankrupt even if you make really bad decisions. Similarly, the model has been designed to overreact
to excellent decisions; if you design an excellent Blue Ocean offering, your profits will increase
exponentially. Finally, the representation of time is somewhat condensed in BOSS. For example,
whilst it may take 5 years or more for an excellent Blue Ocean offering to be imitated at scale in the
real world (depending on the industry), it will only take 3 years in BOSS.

1.2

Introduction to the Market

There are two broad geographic markets similar to continents: Roundland and Starland.
Roundland has a population of 125 million and could resemble North America. Roundland is the
home country of all the major competitors in the market and is thus the market where new
offerings are assumed to be launched first.
Starland is about the same size as Roundland, with a population of 130 million: it could be viewed
as similar to Europe, with multiple languages and countries. Investment in geographic expansion
into the Starland market is financially rewarding, although it requires more investment since there
are fewer region-wide players and each market has its own cultural and business idiosyncrasies.
The total video gaming market consists of hardware (the video game consoles) and software (the
video games themselves). Hardware and software each account for about 50 % of the $7.4 billion
market.
The current video console market is thus worth $3.8 billion annually. Annual sales peaked at $5.0
billion 5 years ago, but unfortunately the market has been in decline since then. Over each of the
last three years it has declined as shown on Figure 1 below.

Copyright 2008 by StratX

2009-04-08

Figure 1 Market size and growth rates over the last 3 years

The household penetration of video game consoles in Roundland and Starland is about 53% - so, over
half the homes in the market have at least one video game console, and many have more than three!
These have accumulated in households over many years, as each console is replaced by a more
powerful and sophisticated one as the industry drives relentlessly to exploit the exponential
technological improvements within the broader computer and electronic entertainment device
industries.
The video games industry has been through peaks and valleys in the past. What creates a new peak
is mostly the long-awaited launch of ever more powerful and sophisticated gaming consoles.
Technological novelty and sophistication is a strong driver of consumption in the industry, especially
amongst the core customer group. Once they mobilize behind an offering, the rest of the industrys
customers follow suit.

1.3

Key Competing Factors

This section explains the competing factors which are most important to customers (and thus
competitors) in the Red Ocean.
Price
The current prices for the four competitors' game consoles vary between $250 and $660. The
allowable price range for your decisions within the game is from $100 to $660 per console.
Sophistication of Gaming Experience (Console Power)
This factor is measured in GHz (Gigahertz), referring to the speed of the main processor which drives
the visual and audio experience, and the ability of the controller to direct many different tasks almost
simultaneously. Console power varies between 2 and 10 GHz.
Graphics Sophistication
This is measured in Mbytes and is accountable for the degree of lifelike movement and scene-setting
within the virtual world, as well as the number of colors and the ability to select widescreen, letter
box or standard aspect ratios. Graphics Sophistication ranges between 32 and 288 Mbytes.
Controller Sophistication
Controller sophistication refers to the number of buttons on the controller, whether it is wireless or
not and whether the controller includes any haptic devices, transmitting tactile sensations an
example of the latter is a shaking or rumble function in the game controller. Controller
sophistication is measured on an index from 4 to 20 and is largely driven by the number of buttons
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2009-04-08

on a controller. Beyond this, a haptic device raises the index by 2 points, as does having a wireless
connection between the controller and the console.
Audio Sophistication
Audio sophistication refers both to the clarity and richness of the sound as well as to the number of
channels it supports. It is measured on an index from 1 to 9. The index at level 1 represents mono
sound. At level 2 it represents stereo sound. At level 3 it represents stereo with early generation
Dolby sound enrichment and clarity. From level 4, sophistication increases as channels increase to
four and then to 5.1 (including a subwoofer), 6.1, 7.1 and finally 10.2 for the extremely sophisticated
home cinema with twelve speakers. Similarly, as the number of channels increases, the sound
enrichment progresses from early Dolby enhancement to Dolby Pro Logic, DTS, SDDS, Dolby Pro Logic
II, Dolby Digital EX, DTS-ES and finally DTS-HD, true high definition sound.
Multimedia Add-ons
Over and above the basic gaming capability of a console, various other entertainment devices may be
included within the console unit, or connections are available so that customers can connect the
gaming console to other devices (e.g. HD television screens) as well as to the internet via a wireless
or wired connection. This competing factor is thus measured on an index from 1 to 9, where 1 is no
other devices other than the gaming console itself. As the index increases, it becomes possible to
play CDs and DVDs, to interact with an MP3 player (copying and playing music), to store information
on a Hard Drive of 20GB to 100GB (for saving movies purchased off of the internet) and even have an
HD (high definition) Video playing device.
Quality of Online Support
This is measured on an index ranging from 10 to 90, measured as the time it takes for a question to
be answered or an issue to be resolved. Typical response times range from several days (index = 10)
to only a few minutes (index = 90).
Online Gaming
This is measured on an index which ranges from 10 to 90. It encompasses the speed of access to the
gaming environment and the ability of the gaming environment to cope with multiples users, as well
as the quality of the games and the quality of the interaction with other players.

1.4

The Current Customers of the Industry

The core customer group is about 20% of the total available market.
approximately 63:37 male:female.

Currently it is split

Most customers fall into the 10-45 age bracket, half of these under the age of 21. However, the
market has been aging as young gamers in the 1980s are now wealthy and are able to pay for an
improved gaming experience in terms of game complexity, visual definition, realism and sound
quality gaming is part of the relaxation at the end of a hard days work. These customers are also
willing and able to buy consoles for their children.
The core customer group is very internet-savvy and enjoys playing within the recently available
online gaming communities. They are able to meet with and play with or against other gaming
enthusiasts from all over the cyber world at any time of day or night.
The one thing that customers do complain about is the lack of availability of really good games. The
majority of available titles style the gamer as a person with weapons, life credits and sets of tasks to
perform to progress from one level to the next in the game. The task is to avoid being damaged or
Copyright 2008 by StratX

2009-04-08

killed while solving how to progress to the next level of the game. This can involve much repetition
however a recent survey revealed that, for some customers, the repetitive nature of buttonpressing and repetition of actions at any one level in the game provides a soothing effect on the
player.
The hand-held controllers have become more and more sophisticated, with many buttons located on
their different faces usually more buttons than the fingers on both hands. The attraction and
complexity of a game are partly dependent upon all of the functions that these buttons offer and
how game programmers are able to use the consoles control language to exploit all the options that
the buttons offer.
The market is divided into three major groups of customers, or segments, each having similar needs
and purchasing behavior. The major defining demographic of each segment is age.
The sizes of these groups (in volume and value) are given below, and a detailed description of each
group follows.

Figure 2 Size in volume and value of the three groups of existing customers

Segment 1: 6-21 Year Olds

This segment accounts for about half the market by volume. The first expensive gift that a pre-tenyear-old is likely to receive is a video game console. Hours spent in front of the screen give hardworking caregivers relief from having to provide constant supervision.
As this segment ages, it enjoys video gaming as a way to escape from teenage and post-teenage
relationship and development issues. They mostly live at home and the video gaming world is a
world to which they can escape and over which they feel they have control. If anyone within the
gaming world behaves aggressively towards them, they can be defeated or blasted to eternity!
These gamers can take on the persona of the people they play in the game, for as long as the game
endures. Although they may not always win, they win in the end. They have the free time and the
drive to progress through all of the avenues and challenges that a game offers. While this segment
used to be dominated by boys, the gender split is fast approaching 50:50.
For this segment, price is the most important purchase driver. It may take them or their parents a
while to save up to buy a video gaming console. Alternatively, they may have to wait for their
birthdays or another celebratory holiday before they receive a gaming console. They will avidly shop

Copyright 2008 by StratX

2009-04-08

and be aware of the best deals. They usually buy the basic bundled package, which may include
one or two free games.
The sophistication of the game is important but not paramount. This segment also likes to play
online, where the lack of sophisticated games requiring high speed processors does not interfere
with the quality of their gaming experience. The same applies to the graphics sophistication. Often
they are viewing the game on older generation televisions (family cast-offs). As long as they can see
what they are doing, they are fine, regardless of how small or blurry the screen might be. Even
though the world they view may not be a close representation of reality, it is a big step up from
childrens story books where the characters do not move and where there are no sound effects.
The controller is a different matter. Long before they are able to drive a motor vehicle, these players
enjoy developing the reflex reactions of jet pilots. Mastering the complexity of the controllers is a
right of passage which, when achieved, denotes assured status within their peer group. They are not
daunted by sophisticated controllers and they enjoy developing the skill to master them. Unlike the
next segment which has more money, this segment does not usually opt for wireless controllers or
sophisticated haptic devices.
Audio sophistication is not a strong need for this group. Since they live at home, they cannot make
too much noise without disturbing others in the house (parents or younger siblings).
Internet connectivity is important to this segment, as well as the ability to play DVDs. They are fairly
interested in the console being a CD player as well (linked to an MP3 player), but not really for it to
have a hard drive for streaming movies off of the internet, or for it to be able to play HD (high
definition) videos.
When things go wrong with the controller or with a game, or if they have questions, this segment
mainly consults their friends. In fact, they are very well-informed and well-networked players. The
main source of knowledge is typically that of older siblings. A new piece of data travels very quickly
through this highly interconnected segment. They do appreciate online help, but are quite relaxed
about how long it takes to receive a response. In the meantime, they have the patience to try and
sort out the problem themselves or to seek help from their friends.
The online gaming experience is fairly important to this group. They may be latch-key kids or from
families where they are the only child (a growing trend in the developed world) and so the
availability of many friends in cyberspace is appealing. After school, they enjoy meeting their
friends in a virtual gaming world and using the messaging capability to send joking messages. The
internet games they play are available for free or for a nominal monthly fee that is usually well within
their financial allowance.
Segment 2: 22-35 Year Olds
This segment accounts for about 25% of the market. They live in a world where they are beginning
their careers and have more disposable income. Many still live at home, but a larger majority share
low cost student type accommodations with friends of their own age group. With few claims on
their time and income, they are able to spend as much time as they want playing games as a kind of
stress reducer from the combined tension and (possible) boredom of their first jobs. The gender
split of girls to boys is 30:70.
Price is not as important to this segment as it is for the younger one, and they are willing to spend
money on a quality console, especially if the console has other multi-media add-ons; this saves them
from having to buy a DVD player, a CD player and a media box separately.

Copyright 2008 by StratX

2009-04-08

One of the most important drivers of choice for this segment is the sophistication of the gaming
experience. After having grown up in the video gaming age, they are not interested in retro as far
as technology goes! They want faster, better, and more complicated. Their minds have been
weaned on gaming strategies, and the more complicated and quicker the gaming environment, the
better.
However, they are not as demanding on the graphics front. Although the appeal of very lifelike
scenarios is big, often they are as yet unable to afford a display device (e.g. a medium-to-large LCD or
Plasma television) to match the sophistication of the graphics that their console produces.
The controller, however, is their master weapon. The more sophisticated the controller, the better.
Sophistication is offered through the number of buttons and the way the functionality of these
buttons changes at different phases of the game. The best controllers are also wireless, enabling the
gamer to roam freely around a room or studio apartment while being able to game constantly
stand up, shoot monster, open fridge, shoot baddy, open drink, shoot monster, pour drink, shoot
baddy, sit down, shoot monster. Finally, rumbling controllers are very appealing to this group the
rumble effect and the sounds that it can make all contribute to the realism of the virtual escape
world for this segment.
Audio sophistication is also not a primary driver of choice for this segment, since they have limited
space, live in dense accommodation and have to try and be considerate to others. They may well use
headphones in which case stereo sound is sufficient. When the cost of a good home cinema speaker
system drops well below $100, this segment will buy one and they would like their gaming console to
be able to offer a great sound.
Multi-media add-ons are very important for this group. If their gaming console doubles as a CD
player (together with the ability to download songs to their MP3 player) and a DVD player, along with
providing internet connectivity and the ability to stream videos from the internet, then they are quite
happy. A few from this segment may require an HD player however, this is not a paramount
requirement.
Online support is quite important to this group and they expect to receive a reply which solves the
problem within 24 hours.
Along with the sophistication of the gaming experience and of the controller, the most important
factor for this group is the online community. They may have moved to another town, or moved
away from their friends and familiar neighborhood, and so the virtual community becomes their new
extended network of family and friends.
Segment 3: 36+ Years Olds
This segment accounts for about 25% of the market. They are the aging gamers who grew up with
the industry. They refuse to grow old and remember those bygone times when all they had to
answer to were themselves. These gamers may have families and much more disposable income to
spend on toys. They already have, or aspire to have, a home cinema system. This segment is
predominantly male, with the gender split being 85:15 men to women.
This segment is not price sensitive at all. Since they are working hard and spending most of their
earnings on their family, buying something for themselves for once feels justified. They are looking
for something good, not a bargain.
They are willing to pay, and so the sophistication of the gaming experience is very important to them.

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2009-04-08

However, the most important thing for them is the sophistication of the graphics. Visual appeal is
everything to this segment. The gaming console must match the performance of their high-end DVD
and HD Video players. Scenarios must have depth and accurate visual detail, and the movement of
the characters must be smooth and realistic.
Controller sophistication is not particularly important for this segment. They found the controllers
they learned on (some 25 years earlier) to be quite adequate for their needs and, with so much else
happening in their lives, they appreciate the simplicity and familiarity of these.
Audio sophistication is very important. Since games are using better and better sound effects to
mimic dramatic explosions, often with surround sound echoes, being able to reproduce this in a
home cinema is very important. This segment has spent the money on a good sound system and
now they want to make it pay for itself!
This segment is not at all driven by game consoles with multiple multimedia add-ons. In fact, the
stand-alone equipment which they have is far more sophisticated than any available on a gaming
console. All they want is the game player itself they are indifferent to the rest of the multi-media
capability and will never use it.
Although they are experienced gamers and do not require much help, they are used to pushing
equipment to its limit and from time to time may have an odd technical question. Since they have
money, they are used to obtaining a high level of service and are able to pay that bit extra to be at
the front of the queue. They thus expect very rapid replies to any queries which they may have.
Online gaming was never part of their gaming experience when they grew up, although they are now
relatively sophisticated internet users. However, their internet usage is not socially driven, apart
from the few e-mails to family and distant friends. They use the internet to buy and sometimes sell
goods and services. Their interest in online gaming is very low, but it is increasing slowly.

1.5

Distribution Channels

Most sales arise through three main channels. The sizes in volume and value of these three channels
are given in Figure 3 below:

Figure 3 Size in volume and value of the three distribution channels

The majority of sales force expenditure for each competitor involves the extent to which their
strategy focuses on developing and maintaining one, two or all three of these distribution channels,
as well as their investment in geographic expansion within Roundland and beyond to Starland.
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2009-04-08

A detailed description of each channel is given in the next sections:

Low Price-orientated Channels
These stores sell a very wide variety of goods and services. Examples are hypermarkets, catalog
companies, online electronics stores and auction sites. Service is virtually non-existent, although
most distributors will exchange faulty goods immediately as a matter of policy. No advice or
guidance is given at the point of sale. Many price deals are done, and only the most basic game
console packages are offered in summary: limited variety at a great price.
Specialized Electronics Stores
These sell electronic and computing goods such as televisions, computers, printers, MP3 players,
DVD players, cameras of all types and some domestic appliances. These are either independent
distributors who have only one shop or a number of shops in a particular region, or major multiples
which have national brand presence and store footprint. They mostly offer a limited number of
bundled packages i.e., a combination of console, number and types of controllers (wireless etc)
and free or discounted games.
Video Game Chains
These include distributors dedicated to selling consoles and games, as well as some distributors
which focus broadly on home entertainment products such as pre-recorded CDs and DVDs. There
are no national brands here, although some do cover multiple regions. They tend to carry the most
extensive range of gaming console bundles from low end to high deluxe which include multiple
wireless controllers, many discounted games and many multimedia add-ons. All items are sold
separately as well (i.e. not only in bundles). These distributors also sell accessories and games. They
have a strong relationship with customers, including loyalty cards for discounts. They offer second
hand games at lower prices and pass on tips to customers regarding how to get the best out of the
games.
Shopping Preferences
Figure 4 shows the shopping preferences of each segment for each channel. For example, 30% of the
22-35 Year Olds will usually shop in Low Price-Oriented Channels.

Figure 4 - Shopping preference by age band

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2009-04-08

1.6

Marketing

Not unexpectedly, all competitors spend a significant amount of money on marketing, investing their
budgets strategically to target each of the three major customer segments. The majority of the
marketing budgets are used to buy advertising space in a variety of media, including television, the
internet, billboards, and the press.

1.7

The Competitors and their Offerings

Four well-known organizations compete fiercely with one another for a share of the gaming industry
market. They are:
Shiny Apples
Purple Plums
Yellow Bananas
Blue Buddies (YOUR TEAM)
Each competitor vies with the others in a bid to amaze the industry gurus and journalists with the
technological sophistication of their offerings. The gurus and journalists have the ability to make or
break an offerings success. Industry magazines are dominated by speculation concerning the
fascinating technological capabilities of potential future offerings.
An organizations market leadership in terms of market share can easily be lost to a competitor
through the launch of a new generation of technology by the latter, leading to a step change in
market share. However it can take years to recover the hundreds of millions invested in developing
new technology, and often hardware sales need to be subsidized for a while by software sales. Thus,
although it is a large industry, making a good profit or even growing profits remains a daily struggle.
The sales and market shares in volume and value of the four competitors are given in Figure 5 below,
and a detailed description of each organization is given in the sections which follow:

Figure 5 Market shares by brand

Shiny Apples
The current market leader, Shiny Apples, is still enjoying steady sales from the buzz created by the
Shiny Station, its new generation console launched 2 years ago. This console features the fastest chip
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2009-04-08

10

in the business, which apparently cost hundreds of millions dollars to develop. It is by far the most
powerful processor in the gaming market. Shiny Apples takes great pride in the fact that game
developers prefer to develop games using their proprietary software than that of other
manufacturers, not only because it is simple, but because the graphics capability is so superb,
allowing the imagination of developers to reach beyond anything conceivable in the industry even
half a decade before. Their controller is uniquely sophisticated in that it has an extra button under
the base the blast/jump button. Gamers can ram this button onto their knees or stomach (if lying
down) to generate a particularly massive attack after earning the points to do so, of course. Shiny
Apples sound engineers had worked with a specialist sound group which had just won major awards
for its contribution to the latest animated Hollywood blockbuster. They believed that the quality of
sound that the console could produce was better than some top end receivers. The console was also
richly endowed with connections the first HDMI connection in the industry, four controller slots
and an option to extend controller slots further. There were two USB 2 ports (for any MP3 players
and cameras) and an Ethernet LAN port. There was also a component and two SCART connection
points as well as the 7.1 sound connection ports. The console no longer resembled the small
machines that characterized the industry 5 years before. It was a veritable technological marvel. It
had a 60 GB hard drive for future downloading of movies off of the internet.
At a price tag of $650 a console it was rated as well worth the buy for the great quality gaming it
offered. Shiny Apples strategy was to supply the best machine it left the development of the
online community to its main developers. The talk in the industry was that this was Shiny Apples
Achilles heal other competitors had exploited this factor to try and differentiate themselves given
Shiny Apples awesome technological capabilities. It offered an acceptable level of online support to
its customers.
Purple Plums
The second major competitor is Purple Plums, with sales of just over a billion $. It is a spin-off from a
major computer manufacturer. The management team hired some experts from the consumer
electronics and gaming industries to create a new powerhouse in the gaming industry. The press
calls Purple Plums little Shiny Apples since their console, the Purple Player, is very similar to the
Shiny Station, with not quite the same sophistication as the industrys flagship device. However, at
$100 less per console, savvy customers believe they are getting all they need at a great price.
Unkind observers believed that Purple Plums merely imitates Shiny Apples, thus avoiding the high
development costs spent by Shiny Apples executive team (Shiny Apples was rumored to be having
financial difficulties). Purple Plums defends its reputation by saying that its main strategic focus was
the online gaming experience. To support this, it has a broadband wireless link built into its console
rather than the Ethernet LAN connection in Shiny Apples console. It has a well respected online
support business with the best search facility in the business. Through an alliance with a world class
search engine, customers are able to search Purple Plums database of FAQs as well as the whole
internet to access the information they need for gaming tips and strategies.
Yellow Bananas
The smallest competitor, Yellow Bananas, provides its console, named the Yellow Console, as a link to
a PC or a laptop via a high speed USB 2 link. A new version was launched in 2007 with major
improvements in the sophistication of the gaming experience and the graphics. The controller is the
least sophisticated in the business, a variation of the old PC joystick.
The Yellow Console relies on the graphics card in the PC as well as the PCs sound card. While the
graphics sophistication is probably below the average expectations of potential customers, and the

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11

sound depends on the sound resources of the customers home PC, it is the online support and
online gaming experience which really sets Yellow Bananas apart from the competitors.
The games are bought and downloaded online and it is easy to try new games, or buy them at very
low cost for a week or two. Yellow Bananas went this route since it believes that gamers would find
it easier to interact online through an already familiar system the home PC. The Yellow Bananas
console also plays CDs and DVDs and some customers like the ability to copy CDs in real time from
the Yellow Bananas player onto their PCs CD burner. It has the best international online contact
centre in the business, run from Sydney, London and Chicago so that it is always open 24/7/365 for
live webchat and e-mail help; the support staff/issue handlers are highly informed gamers
themselves, mostly university students. The current console price is $300.
Blue Buddies
The firm which you and your teammates will manage is Blue Buddies. It is the third player in the
market in terms of market share. The Red Box, your current offering, is a generation behind that of
Shiny Apples and Purple Plums from a technology point of view. Recent internal difficulties and
uncertainties regarding the future of the market have delayed the design and development and
launch of the new console. However, the research laboratories, designers and production staff are
enthusiastic and ready to create Blue Buddies new console or to upgrade the existing one.
The Red Box was very successful when first launched, so much so that it really defined the markets
expectations, and continues to do so. However, the leap in performance of the graphic, sound and
gaming capability of the Shiny Station and the Purple Player have made the Red Box seem very
2001. Furthermore, when it was launched, MP3 players were not yet mainstream, and nor were
DVDs. Thus, it only plays the game CDs for which it is designed. Blue Buddies had such success with
its technology development in years gone by that it failed to invest sufficiently in its online support;
and, apart from a few primitive online games, it was not as well-placed as its rivals in the online
gaming world. The current price of the game console is $ 350.
Expected offering upgrades over the next 3 years
Blue Buddies and its three competitors are likely to continue their relentless technology race over
the next few years. All competitors are expected to upgrade their existing offering while
simultaneously decreasing their price.
The chart below summarizes all the announcements that have been made in the past few weeks.
Competitor
Main offering
Expected Upgrade Date
New features
announced

Shiny Apples
Shiny Station
2009
Major improvements in
graphics and audio
sophistication

Pricing trends

$650 $600

1.8

Purple Plums
Purple Player
2008
Major improvements in
the sophistication of the
gaming experience and
the controller
$550 $525

Yellow Bananas
Yellow Console
2011
Major improvements in
audio sophistication

$300 $250

Services and Delivery

The industry competes primarily on product differentiation and price, rather than on service and
delivery differentiation (with the exception of the comments on the quality of online support and the
online gaming experience discussed earlier).

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Virtually the same strategy is followed for delivery. Manufacturers regularly subsidize deals and
promotions (price discounting) to increase sales volumes. In addition, game consoles, accessories
and games are bundled in packages where a small financial incentive exists for customers to buy
them all together. Additionally, manufacturers do contribute towards the training expenses of the
salespersons.
A similar convergence of strategy amongst the main players in the industry exists for services. The
length of warranties (one year) is a standard for the industry and extended warranties can be
purchased. Since Yellow Bananas first introduced a loyalty and reward card system, the other
competitors followed suite. The operation and reward system for the loyalty cards is virtually
identical.
Manufacturers also offer accidental damage insurance for an extra charge, except where distributors
have a scheme of their own on offer. This is because they believe that making a move into the
financial services industry is quite lucrative.

1.9

Introduction to the Blue Buddies Organization

Blue Buddies was originally a family business and the Dexter family is still the largest single
shareholder even though their shareholding is under 5%. Their presence on the external board is
largely honorary now. Frank Dexter was a solid state physics graduate who specialized in the
development of hard drive storage and access protocols. Both his son and nephew, best friends from
their earliest years, had graduated with majors in mathematics and physics respectively. These two,
Marc and Stephen, were among the earliest gamers in the late 1970s and had a vision for the
industry. They built the company into a profitable and successful one and largely liquidated their
shareholding in the mid-1990s.
The organization still holds strongly to the values of fairness, integrity and innovation that the
original founders had. Blue Buddies appears to new employees as an organization which can achieve
good outcomes but can be rather sloppy and unsystematic in the way that it got there: it marches to
its own drum. In the past, new console launches have been delayed by up to 6 months. When it has
mastered something as an organization, it can be quite good at ongoing execution. However, when it
needs to do something quite different from business as usual it struggles. It lacks a project
management discipline which is usually taken for granted in most organizations in the technology
industry.
Blue Buddies employs over 5500 staff. 85% are in the Roundland continent, the majority being
located in three factory sites linked to distribution hubs East Coast, Mid-Continent and West Coast.
Head office consists of 500 people, and the Research Centre 800 people. The remaining Roundland
employees are in Sales, spread across the Roundland continent. The 825 employees located in the
Starland continent are mainly in Sales with some minor local support functions.
Kel Sharkland CEO
Kel has been with Blue Buddies for 15 years, previously playing the role
of marketing manager. An enthusiastic gamer himself, he is often on the
front cover of industry magazines and always willing to give opinions on
the industry to journalists, many of whom he would count as his personal
friends.
His office wall is lined with trophies and citations awarded at the annual
video gaming awards ceremony held in mid-January every year just
after the high winter sales period. Kel is a capable businessman and
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manages to keep the profits of Blue Buddies steady when those of competitors have been declining,
although even he has been unable to stem the downward trend in profits experienced over the last 3
quarters. He has given his word that he will remain at the helm of Blue Buddies for as long as the
shareholders still need him. It is well known that he is privately very wealthy and wishes to spend
more time fishing.
David Richter CFO
David has only been with Blue Buddies for 6 months. He was previously a
partner in a medium-sized accounting firm and had long wanted the chance
to be part of an organization with tangible products and services. An active
and sophisticated gamer himself, he leapt at the chance to join Blue Buddies
when he noted the position advertised in a gaming industry magazine.
David has become increasingly concerned by the drop in unit sales, although
he realizes that this is mostly due to the trend in the industry overall. He
believes that what the industry needs most is novelty, a new technological breakthrough which will
wow customers to such an extent that they will be happy to replace their existing consoles, as they
have done for each new generation of gaming console in the past.
Sally Burley Marketing Director
Sally is a well known figure in the video gaming world. She began her
career in marketing at a well known consumer goods organization. After
a thorough training in marketing, she made an industry switch to become
the managerial assistant to Stephen Dexter. She is an avid gamer and
extremely knowledgeable about the industry and its customers, and is
deeply respected for this knowledge within Blue Buddies and the
industry. She was the first person in the industry to accurately segment
the market and to point out that gamers now ranged from under ten to
over 40 and comprised 3 separate demographic and psychographic
groups. Many of the competitors had adopted her classifications of the different customer
segments. She had encouraged the other major players to subscribe to a panel which collected and
distributed monthly information on certain vital customer purchasing and usage patterns. She is a
popular conference speaker, often headlining industry events.

Rick Stark Operations Director

Rick has been with Blue Buddies for over 20 years, longer than Kel who
he remembers inducting into the organization all those years ago. Rick is
a real devotee to the gaming industry. At home he has installed an
impressive home cinema, complete with 7.1 surround sound and a
$25,000 projector. When the Blue Buddies research laboratories want to
test their latest graphics and sound systems, Rick is their number one test customer if he likes it, it
will be good enough for anyone in the market. Rick has seen the market develop from the first
colored blocks moving on a screen to the massively impressive and realistic 3D pictures and great
sound being offered today. After an early career in the mail distribution center and then in sales,
Rick worked his way up through the business and took over the helm of Operations two years ago.
His main challenge has been to deal with balancing staffing at the factories with the unpredictable
demand pattern for consoles. The patterns that existed with peaks during the winter season and just
before the summer break no longer occurred.

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Barb Regan Sales Director

Barb was seen as a strategic hire when she joined Blue Buddies just
under a year ago from a major global computer giant, where she was
deputy Global Sales Director. She holds a PhD in Computer Science and
was a prominent researcher before her management career
development led her to doing a stint in Sales. Following Blue Buddies
struggles to change its culture, Barb was seen as the right person with
the intelligence and initiative to make a real impact at Blue Buddies.

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