Introduction: Emotive Systems Inc. Has developed a headset called EPOCH. This product uses EGG technology transmit brain signals wirelessly to a computer. While the product has several potential applications, the most lucrative market seems to be video games. Emotive systems management needs to decide whether they wish to market to the PC gamers only or to be integrated on one of the gaming consoles. Further, decisions regarding the marketing mix need to be made. Segmenting and targeting: The video game market can be segmented as per the chart in Exhibit 1 .
The PC gamers largely comprise hard core gamers and the segment is shrinking. However, the console market has seen a tremendous growth in casual gaming segment (specifically WI). Moreover, this segment offers the following advantages over the PC and hard core console gaming segments: 1. Precedence of accessory- focused successful games – WI and Guitar Hero 2. Opportunity of co-branding with console makers 3. Hard core gamers prefer fast reaction games to which EPOCH is less suitable This being said, there are also certain disadvantages of the console based casual gaming market: 1 .
Game developers are more concentrated 2. Software development kit required from console manufacturers 3. Casual gamers more price sensitive than hard core gamers On balance, given the tremendous growth potential of the casual console gamers, these should be Epoch’s target customers. Moreover, Emotive should target collaboration with Sony for the ASS console, though without dilution of the EPOCH technology. Demand Forecast: Assuming that Emotive manages to strike a deal with one of the console manufacturers, the demand for EPOCH can be calculated using the sales of Guitar Hero as a benchmark Exhibit 2).
As a conservative estimate, the sales should be close to 21,000 units in the first year and cross a million units in the third year. Marketing Mix: Assuming that Emotive strikes a deal with a console maker, we can calculate a break even retail price for each of the next three years (Exhibit 3). However, as the breakable price is greater than the maximum possible retail price of $399 for the first year, we propose the pricing structure as per exhibit 4. It is necessary to maintain a selling price of $399 in the first year and $299 in its second year.
The company will turn profitable in its second year. At the end of the third year, with reduction in production costs (after crossing 1 million units sales), the unit contribution will further increase. A skimming strategy can be adopted as the product is fairly complex. Further customer purchase intention can be increased by Listing the product above the selling price by $100 and offering the difference as rebate. Emotive should partner with Best Buy for the sale of EPOCH as they are most suited to sell this product.
In case EPOCH is only PC enabled, emend for EPOCH is likely to be lower (consider conservative estimates from Exhibit 2). Further, given that the PC gamers mostly tend to be hard core gamers, EPOCH can be priced higher in its second year (Exhibit 5). The software development kit should be released free of charge to attract game developers with a focus on acting as an add on feature for existing games (a la Harry Potter). The distribution channel (Best Buy) and promotion through rebates should be applicable in this case as well. Growing Segment Shrinking Segment Exhibit 1: Video Game market segment