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Can GameStop Survive with Its Brick-and-Mortar Stores?

With more than 6,600 stores throughout the United States, Australia, Canada, and Europe, GameStop’s management team wants to be the premier destination for gamers. The Texas-based retail chain’s major source of revenue is the sale of games, consoles, and other equipment, both new and used. The used market is important because it brings customers into the store to trade in their old games and consoles for store credits. GameStop resells the used games for more than twice what it pays for them.

The business model has, so far, survived the Internet’s creative destruction that swept away other brick-and-mortar outlets selling digital products, including Egghead Software and Tower Records. But competition is intense in this industry. One major rival is Best Buy, which offers customers a chance to trade in their old games for gift cards that can be used at any Best Buy store. Unlike GameStop’s store credit, the Best Buy cards can be used to purchase TVs, computers, music, and any other Best Buy merchandise.

Another threat comes from the game developers, who fume about used-game sales because they earn no royalties. To counter used sales, many developers include a coupon with a new game so that purchasers can download special content or a game upgrade. GameStop has to charge people who buy used games a fee to get that coupon, and the total price approaches the cost of the new game. Developers will continue to find ways to combat used-game sales. Online retailers like Amazon pose another threat, especially combined with price comparison websites that show up-to-the minute prices from different outlets. The free social games such as Farmville are also luring some gamers away from the costly titles featured at GameStop, such as Call of Duty and Madden.

In addition, widespread access to high-speed Internet has a downside for GameStop. Companies such as Electronic Arts and Blizzard can deliver major upgrades and sequels to their high-end games digitally, instead of packaging them into boxes for GameStop to sell. Customers can buy them online, directly from the publisher, rather than making the trip to the store.

GameStop counters these threats by revamping its business strategy and aggressively promoting its online store as a complement to the physical stores. Customers can buy new and used products online and also check out special trade-in deals before they visit the store. They also strive to increase switching costs through a well done loyalty program called PowerUP Rewards. Members earn points for every dollar they spend, but also for telling GameStop about the games they play and their preferences. They can exchange for gift cards, merchandise, restaurant and movie rewards, and subscriptions to gaming networks.

The information GameStop collects about PowerUP members reveals just which promotions might work best for each customer, so the company can save money on marketing. The program also leads to more valuable customers who are far more likely to trade in games, open marketing emails, and buy products. Members spend on average $400 per year at GameStop.

Clearly, the company appreciates the dangerous strategic waters of other brick-and-mortar media companies, many of which have closed their doors due to competition. Sales and net revenue were declining as of 2013, but time will tell if GameStop’s strategies will pay off.

Answer the following questions:
1. Perform a five forces analysis of the online gaming industry. What are the implications of the five forces analysis for GameStop?
2. What role have information systems played in the five forces you identified?
3. How has GameStop used information systems to compete more effectively?
4. What other strategic actions will GameStop need to take to protect its business?

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