How might Porters Generic Strategies theory help to explain why Electronic Arts lost its leadership in the video-game market to Activision Blizzard?
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According to Porter's Competitive Strategy: Techniques for Analyzing Industries and Competitors (2010) the generic strategy model is quite simple to understand. It features two target scopes: broad scope, and narrow scope. Then, it correlates the target scope to the cost and the uniqueness of the product.
If you want to sell to a broad audience, which is selling to the industry, you want to keep your prices lower. Researchers have shown that it is best to sell cheaper and consistent than expensive and at random. Hence, you sell to the industry at a lower price, which is called the Cost-Leadership strategy.
If you want to sell to a market segment specifically, you also want to keep the prices low, and keep your focus on the segment. This is why it is called the "cost focus strategy".
When it comes to product uniqueness, differentiation is the key. Always keep the research coming, keep surveying users, both broad and narrow. For focus strategy, EA and AB should have created a myriad of focus groups to test games, give feedback and offer solutions.
EA's main problem was public relations. One flop in this department may result in profit losses across the market because, once you upset one segment of your focus, your reputation as a firm will spread like wildfire through word-to-mouth users (mostly teenagers and young adults) who may blog, text, post feedback, or even create an online campaign against the product. The issue became evident when Mass Effect 3 was released. Most AB users get extra perks in the form of codes and additional footage included in the cost of the game. Not Mass Effect 3. The users (many of whom do not have ready cash and get their games as gifts) had to spend an additional $10 to download additional content. They did the same thing with SIMS. Now, here we have close to a billion users locked out of their games for a period of time. In cyberspace, this is a real nightmare. Immediately, users logged into consumerist.com and called EA "the worst company of 2012".
Then came the style of the product's technology. EA wanted to catch up with AB in terms of game style which, by 2010, the leading style was the MMORPG (massively multiplayer online role playing game, or MMO). AB was the leader in this style. So, EA aimed to catch up by spending a significant amount of money on R&D (Role and Dynamics) engineers. The problem is that they included a PC platform which, by default, is slowly dying out as a result of the advent of the iPad and other technologies. Hence, it was money lost, the focus segment was not satisfied, the technology was not well-assessed and it looks like EA did NOT conduct enough pre-release focus forums.
In all, the Porter strategy shows that EA may not have had the best interests of the customer in mind. They already knew that the production of the games could be kept at a lower cost, therefore, all that they needed to do was to tap on their focus strategy, get to know their clients better, and offer their products accordingly. Instead, they overcharged their focus segment, did not fix the problem as fast as they could have, and rather than moving on, their head leader abruptly leaves the company, which shows poor leadership in the first place. With these conflicts, EA was doomed from the start.
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