GameStop: Learning from Blockbuster
GameStop has avoided Blockbusters fate by changing its Business and Operating models.
Example of effectiveness and adaptability
After the big failure of other companies that sold or rented physical copies of movies, music albums or video-games, few analysts had confidence in a business like GameStop, which appeared to be just another outdated retailer doomed to disappear. Nevertheless, GameStop’s operating model based on specialization, network effects, cultivating innovation and discovering new technological improvements that drive an enhanced customer experience has aligned perfectly with its business model.
Operating and Business Models
The company’s business goal is plain and simple: To sell video-games and video-game accessories. But however simple this may sound, customers are progressively willing to pay less for digital content that can be otherwise downloaded from their homes. On top of that, the video-game industry is one of the most rapidly changing businesses that exists, where products and platforms last on the market for very short periods of time, new competitors rise in a matter of weeks and distribution channels add less and less value as technology evolves.
This scenario forced GameStop to adapt both its operational and business models, focusing on three business and three operational objectives:
Objective 1: Create network effects and sustained revenue streams by becoming a social destination
GameStop’s target customer is a young male with considerable free time. The company’s stores have become a meeting point for these customers to socialize and share their views on videogames. GameStop has also become a place where even non-customers socialize. This last factor is actually welcome by the management, who sees it as a positive way to feed the network effects already in place.
Objective 2: Narrow down its products to just video-games, becoming the leader in the industry
Most of GameStop’s traditional competitors have starved out of business. This has left big generalist retailers such as Wal-Mart, Amazon, Best Buy and Target as its main competitors. No other major retailer focuses solely on selling video-games. This landscape helps GameStop immensely when attracting and retaining customers and allows them to introduce and maintain unique customer loyalty programs, rewards and engaged members within the community.
Objective 3: Company culture: Stay Customer Centered
Their business model, which is heavily focused on intense interaction with the customer, has to be in line with a very open and dynamic corporate culture, one that promotes enthusiasm and a deep video-game knowledge. Most GameStop employees claim to personally know the great majority of their customers.
Figure 1: Employees develop a close relationship with their customers
Objective 1: Selling downloadable content in store
Most video-games are nowadays purchased online. Once purchased, consumers download the content directly to their computers or game consoles. However, GameStop has achieved to get consumers to buy digital content in their stores. The chain is managing to sell downloads in physical stores partially because several of its newer and younger clients do not have credit or debit cards, making it very hard to pay online. In addition, people still look forward to using the trade-in worth of games they have finished playing.
Objective 2: Innovating: R&D to monetize each customer’s visit
At the beginning of 2014, the GameStop Technology Institute (GTI) was launched. The aim of this innovative business unit was to create affiliations and associations with the most important technology firms and academic institutions to discover and offer business innovation and technology solutions, to better address the needs of today’s target consumer. GTI’s main mission is to explore and shape best-in-class R&D processes to implement within GameStop’s worldwide physical and digital selling locations the next generation of new, innovative business applications.
Figure 2: Installed in many sectors of each participating store are signs encouraging customers to download the “GTI app” and place their mobile devices near a beacon to obtain promotional discounts
Objective 3: Train employees to take personal responsibility and embrace change
A strict training program has been set up to ensure that the company’s culture is being followed by its more than 45,000 employees.
Implications of the Operating Model for performance and adherence to Business Model
The main alignment of operating and business models occurs around two main areas, digital sales and becoming a social destination.
The only way to compete with online product distribution is to offer a better or equal customer experience. By investing in R&D and selling digital content in store, GameStop has managed to capture some market share from customers that would have otherwise purchased online.
The severe alignment of culture, operations and business model has allowed GameStop to secure a leading position in an industry that has gone through very turbulent times. It is very difficult to explain GameStop’s success without taking this alignment into account.
Student comments on GameStop: Learning from Blockbuster
Thanks Gonzalo. One interesting aspect of the Gamestop business model for me relates to trade-in games. I.e. I think a lot of customers buy from Gamestop today because they have old physical game copies which they are able to trade in for money to then go buy new games (either physically or digitally). It will be interesting to see if people continue to buy from Gamestop as the stock of physical video games declines over time.
Also of note – I think downloaded games are only 20% of the market now meaning Gamestop still addresses the other 80%. But, as we saw with PC games in the late part of last decade, I wouldn’t be surprised if downloadable content is 100% of the market 5 years from now. Key to their success will be executing on the factors around network, obtaining digital purchases in-store, etc. you highlight above.
As with APSwiecicki, I think that the trade-in business of GameStop is extremely important. At any given moment, roughly 50% of a GameStop’s inventory is used products versus new products. For people that use consoles over a PC, many of these older games can be difficult or impossible to digitally download. Gamestop has become the only retail source for many older generation consoles and games. These older consoles cater to a very loyal fan base who love the products for their nostalgia–similar to an antiques business. When these customers come to a GameStop to browse old products, they often tend to buy newer releases also.
Lastly, the GameStop employees themselves are often very passionate about gaming. Because they have a personal passion, these employees are almost like experts in the gaming world. That means that they punch above their weight in terms of expertise and helpfulness to customers compared to most hourly employees.
Very interesting, Gonzalo! I would be very curious to see how Gamestop sells digital copies of games in store. Do customers buy an access code that they then use on their console at home? I also wonder if this business model could ever translate to other content that straddles digital and physical (film, television, music) – could a more social environment encourage in-store sales, or is non-gaming content viewed as too much of a commodity to attract customers to a physical space? Very interesting to see how the physical-to-digital transition plays out across all of these industries!
Thanks Gonzalo, this is really interesting. I had always thought that Gamestop / Gamefly would ultimately play out exactly like Blockbuster / Netflix, but this doesn’t seem to have happened. Trade-ins seem helpful, but isn’t all that different from Blockbuster’s business model. It sounds like the difference may be the in store experience, and thus value creation, is different between game stores and movie stores.