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Gamestop Is An American Based Video Game Retailer Marketing Essay

Paper Type: Free Essay Subject: Marketing
Wordcount: 2067 words Published: 1st Jan 2015

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Gamestop (GME) is an American based video game retailer. It has its headquarters in Texas and Grapevine. The company operated 6,457 retail stores in throughout Canada, Australia, United States, Denmark, Ireland, Finland, Germany and many more about in 17 countries worldwide. The company runs the retail outlets by the name of GameStop, Babbages, EB Games, MovieStop, Funcoland and Micromania. The company also runs the two e-commerce website which are gamestop.com and EBgames.com. Beside this, it also publishes one magazines named as Game Informer which is a leading publication of video game.GME is one of the world’s biggest retailer of video game and entertainment software. It also deals in used and new video games software, hardware and other accessories. The major suppliers of GME are Sony, Microsoft and Nintendo. The company has started 400 new stores around the world.

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The value chain of the company connects to the value chain of the suppliers on the upstream side and to the buyers on the downstream side. It makes a big stream of activities which is known as Value System. The competitive advantage of the company is based not only on the firm specific value chain but also on the value chain of which the organization is the part. Michael porter identified the set of linked general activities common to a wide range of firms. It includes primary activities as well as support activities. I will be discussing here the components of value chain of the industry value chain.

Primary Activities

Inbound Logistics: Here the goods are received from the supplier. In case of Gamestop, the new as well uses video games software received from different software houses, vendors, open market, seller parties etc. Primary suppliers of video game hardware include Sony, Nintendo and Microsoft.

Operations: It is consistent upon the activities change inputs into outputs. Converting the efforts of software engineer/developers into the software of new games. It includes the intelligence and hard work of software resource. Beside this transferring the software on CDs, removable devices.

Outbound logistics: Out bound logistic requires the delivery of final product to the retail shop for the final consumption of the ultimate customer. In this industry, the final product is available in the form of software on CDs, DVDs, online to the consumers or an online copy is also available in the online store. Beside this, the placement of hardware in stores for the final purchase by the customer.

Marketing & Sales: The product is promoted through advertisement in newspaper, online banners, and personal selling. Video game hardware and software manufacturers typically provide marketing of their products. In case the manufacturer decrease their marketing, Gamestop can have a potential negative effect on its sales.

Service: The activities which help in maintaining and enhancing the product’ value. The pre and post sale service are by the technical staff for installation and training of the video game software and hardware.

Support Activities

Support activities facilitate the primary services. It includes:

Procurement: The purchase of old software as well as new software and hardware. By the suppliers and the seller. Selling of used video games can be through online.

Technology Department: Software developers are employed to develop the new video games while for the used games purchase an online media is also used. The hardware is purchased from different suppliers so the research and development for those products is conducted by the suppliers own R&D and technology departments.

HRM: R. Richard Fontaine is Gamestop’s executive chairman of the Board. Daniel A. DeMatteo has been the CEO since 2008.

Each Gamestop store has one manager, one assistant manager and between two to nine employees. Currently, Gamestop has around 17,000 full time employees and around 28,000 to 42,000 part time employees. The figure of the part time employee varies depending upon the time of the year.

Firm Infrastructure:

The company sells its products through its stores, as well as through electronic commerce Web sites, including gamestop.com, ebgames.com.au, gamestop.ca, gamestop.it, and micromania.fr. Gamestop revenues are broken down into four operating segments as per their financial statement. These four segments are:

New Video Game Hardware

New Video Game Software

Used Video Game Products

Other Revenues

Question: 2

The model of Five Competitive Forces was developed by Michael Porter. Here I will be discussing the five forces with regard to Gamestop.

Threat of new Entrant

The threat of new entrant is dependent upon the extent to which there are barriers to entry. There are low barriers to entry within the video retail industry. A store selling the video games as well other products needs the low start-up costs. So, GME has threat of new entrants because the brand loyalty of the customers is low. Economies of scale can be a competitive edge to achieve the benefit over rivals. Distribution channel are not fully controlled by the competitors working in the industry. Customer loyalty is low. So in short all these factors make the entry of new entrants easy so the GME has threat of new entrants.

Bargaining Power of Buyer

The buying power of clients is low within this industry .because the in game industry there is suppliers with large numbers of operators. The supplier’s industry is operating in fix cost. There is no change in the product so substitute is easily available. Customers can easily switch to an alternate product and no high cost of switching is associated. The prices of video games are generally non-negotiable in most of the locations. Going into the future the buying power of the buyer should remain constant.

Bargaining Power of Suppliers

Suppliers provide all the input required for the preparation of a final good or providing the services. The bargaining power of suppliers within the industry is moderate. Only some key suppliers provide the inventory to GME. The power of the suppliers should trend upward over the period of time, because the manufacturers gradually transfer towards the sale over internet and the numbers of suppliers merge.

Threat of substitute

GME has moderate threat of supplier substitute because there are other competitors offering the same products online. These are Amazon.com, Best Buy, eBay’s Half.com, Toys “R” Us and other retailers of video games i.e Play N Trade. The customer might have low brand loyalty. Currently there are also small retailers available online for video games. The switching cost for customer is low so they can easily move to the competitors of the GME. If the competitors of GME lower the prices of their products then customers will easily move to them. The threat of substitutes will go upward in future when more gaming contents will be available online in downloadable form.

Competitive Rivalry within the industry

GME has high competitive pressure which results in pressure on prices, margins and profitability. Competition among rival in this industry is high because there are many competitors in this industry because most of the departmental stores sells video games, video game hardware and video game accessories. They all are almost of the same size. They all are following the almost same strategies. There is price competition because of low product differentiation. Market growth of GME can be increased but it would be at the expense of the competitors. The barriers on exit are low as GME is not dealing with highly specialized and expensive products. The degree of competition should rise in the future as most of the rivals now sell their video games product online.

Question: 3

All companies have some of its strengths because of which it competes and gain competitive edge in the market, on the other side it has some weaknesses which should be taken as opportunities to come over threats in coming life of the organization. This analysis helps to focus on the strengths of the company, minimize the threats, and take the greatest possible advantage of opportunities available to the management.

Strengths and weaknesses are relatively internal to the organization, on the other side threats and opportunities are the factors relating to or associated to the outside environment of the organization. So this is also known as Internal-External analysis and the SWOT Matrix is sometime also called IE Matrix analysis.

GME has the following Strengths, weaknesses, opportunities and threats.


GME has a recognized brand name. Customers are familiar with this brand. It has taken the place in the video game industry.

Only the large retailers of video games can successfully buy and sell the used video games. As Gamestop is a large retailer in this market so it can purchase easily and sell further the used video games.

GME has a very strong position in rising market. The number of its outlets is increasing day by day approaching and capturing the more and more clients of the target market.

GME has marketing partnership its suppliers which makes a strong relationship with its suppliers.


GME has the risk of foreign currency.

In short run, there is a high amount of downward pressure on hardware prices because of the increased competition in the market.


The market of video game is not fully matured so far and many upcoming markets are evolving the culture of video game.

In next decade, new major console releases are expected.

With the passage of time, the Europe should have acceptable attitude towards the used video fame business models.

The target market is getting bigger day by day owing to the encouraging shifts of demographics.


The competitors of GME are reducing their prices in video games currently and they might keep on in future as well. So this will also force Gamestop to reduce the price, in turn decreasing the growth.

Video game industry is now more inclined towards online selling. If Gamestop stays behind in the successful online competition, it might have to face the growth issues in the long term.

SWOT Matrix


Recognized brand name

Strong position in market

Large retailer of buying and selling of used video games

Market partnership with suppliers


Foreign currency risk

Risk of price cuts in short run


Immaturity of the video game market

Release of major console

Positive attitude towards used video game software

Favorable shift of demographic


Price cuts by competitors

Movement of industry towards digital media

Question: 4

Gamestop should focus on the following and change the strategies to sustain its position of leadership in the market.

Gamestop is the successful company in the industry of video games software. It has excellent cash flow generation. Its top line growth will grow relatively slowly as compared to recent years; its bottom line growth will be much more consistent owing to improvements in gross margins and the re-leveraging of fixed costs. While over a long time span GME’s current business model is threatened by the movement of the video game industry online, GME’s management continues to find ways to stay digitally competitive, and almost 100% of the discounted cash flow value comes within 20 years. As a result of the comparable and discounted cash flows analysis, I recommend a BUY for GME in all portfolios.

Competition from low cost sellers such as online retailers could put pressure on Gamestop to lower prices. If Gamestop were forces to lower prices, the operating margin will definely decline.

So to cope up with this issue Gamestop has to think over its pricing strategy. Gamestop has to reduce the prices of its product, where is possible, to attain the market share and increase the growth.


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