Video games may spur images of spiky blue hedgehogs and Italian brothers in racing karts for some. But for video game and consumer technology retailer GameStop, the industry is so much more than just fun and games. Consider the following: There will be more than 2 billion gamers worldwide in 2016, according to game market research firm Newzoo’s forecast. And in October 2013, research firm Gartner predicted that the global video game marketplace—including console hardware and software, as well as mobile, online, and PC games—would generate $111 billion in revenue by 2015 and $128 billion by 2017.
Indeed, the industry has come a long way since its early Pong and Space Invaders days. In the early 2000s there were the three main console providers—Microsoft, Nintendo, and Sony—the PC, and the Web, says Brian Blau, research director of consumer technology and markets at Gartner. Today, consumers have even more gaming options, including next-gen consoles—think Playstation 4 (PS4) and the Wii U—cloud gaming, and mobile-based games.
In fact, one of the biggest game-changers has been the ease with which consumers can now access games through digital downloads. This form of distribution, which has been gaining traction over the past decade, enables consumers to download games and content directly onto their consoles and PCs without a disc.
GameStop followed customers to this digital frontier. In 2010 GameStop started selling digital downloadable content, such as add-ons, and by 2011 the retailer had agreed to acquire digital distribution platform provider Impulse and streaming technology company Spawn Labs. That same year GameStop began digitally distributing PC games. And in Q3 2014 GameStop generated $54.9 million in digital net sales, mostly from downloadable content, platform currency, and international digital sales.
“Consumers are constantly evolving in how they purchase products, [and] they’re constantly evolving with how they engage with the brand,” says Jason Allen, GameStop’s VP of multichannel operations. “We see it as an opportunity…. If customers want to download products, we want to make it easy to download products.”
Although GameStop has gotten its foot in the digital doorway, this form of distribution poses a threat to its core business model of selling video game discs. But digital downloads will have more of a face-off with its buy-sell-trade model, through which gamers can bring their used games, systems, and electronics to the store; trade them in for store credit or cash; and apply those earnings to new purchases.
“There’s no way to take my digital copy of Grand Theft Auto off of my Playstation for me to give that to somebody else,” Blau says. Although console providers have come up with new ways to enable game-sharing with friends, such as Sony’s Share Play for PS4, Blau says “that’s not the same as taking a disc back to the store, getting $10 for it, and then using $10 to buy another game.”
That unique benefit is one reason GameStop continues to revolve its businesses around its stores. Another: For every dollar a customer spends with GameStop online, he’ll spend $10 in-store. The challenge, Blau says, is how to lure customers into the store.
There are two key components that drive GameStop customers in-store. One is the aforementioned buy-sell-trade model. In fact, GameStop generated $1.2 billion in trade credits in 2013—76% of which were spent on new games, according to GameStop’s April 2014 Investor Day presentation. But the greater attraction is the in-store relationship GameStop forms with its customers. “As an industry, we get so wrapped up in the technology that we lose sight of what we’re really trying to accomplish, which is that human relationship,” says Frank Hamlin, who signed on as GameStop’s CMO in June 2014.
To enhance these relationships and continue to drive customers in-store, GameStop activates its three secret weapons: data from PowerUp Rewards, an enthusiastic gaming community, and an emphasis on convenience.
Data takes the customer experience to new levels
Through GameStop’s PowerUp Rewards loyalty program, which launched in 2010, members earn points for purchases and trades. It has more than 30 million members in the U.S. who drive 75% of the company’s domestic revenues, Allen says.
To enroll in the program, customers must be 13 years old and visit one of GameStop’s locations. After providing a valid email address, customers will receive a PowerUp Rewards membership card. They then have to visit PowerUpRewards.com and provide the 13-digit number on the back of their card to activate their membership. While on the website, customers can add more data to their account profiles by including their personal information (phone number, birthday, gender), their shipping and billing addresses, and credit card information.
GameStop can glean even more data from these members when they sign into their account on its website. Once signed in, customers can manage their game library, which allows them to indicate which games they already own and which ones are on their wish list. They can also visit the online Trade Center to look up the value of used video games and devices, and save products they’re thinking of trading. The retailer can track all of this data. Plus, GameStop tracks click patterns and traffic to see which online pages customers engage with the most, Allen explains.
Pairing this account information with customers’ purchase history allows GameStop to get a clearer sense of who the customer is beyond the transaction, such as what lifecycle stage he’s in. Consider the following: Small children often enjoy toys-to-life games, while more mature audiences prefer fully immersive or first-person shooter games, Hamlin explains. So if a parent comes in looking for a game for her 13-year-old son, GameStop’s sales associates, or “Game Advisors,” can refer them to an age-appropriate title that aligns with the types of games that the parent has purchased for him in the past. Or, if a Game Advisor sees that a member just bought the new Call of Duty game and that the latest Battlefield game is on that customer’s wish list, he can present a relevant offer or recommend other first-person shooter games. Game Advisors can even tell a customer how much value he could get for trading in one of his old games and how much he could save by using his PowerUp Rewards points.
“The biggest opportunity is the customer that’s in the store,” Hamlin says. “The human relationship between that store associate and that customer, to me, is holy. The program is there to extend the collective memory to our thousands of store associates to help them have a better one-to-one relationship with the customer.”
But not all of GameStop’s customer data is in one database, which can present accessibility challenges. “It takes a little bit longer to get to some of the data than we would like,” Allen admits, “but that’s something we’re working on.”
Email helps players get in the zone
Despite the store being the epicenter of GameStop’s business, it’s not always where customers begin their journeys. According to Allen, customers generally visit GameStop’s website to research products and gather information before purchasing in-store. Actually, pick-up-in-store sales is GameStop’s fastest-growing multichannel customer segment, Allen notes—and a profitable one. Customers who order online and pick up in-store have a higher average order value than other customers, suggesting that they buy more than what they initially came in for.
GameStop relies on a number of channels to propel the customer from the online space to the store, including SEO, digital advertising, and email. The content within its emails can vary from more general information about in-store events and trading, to targeted offers for a particular game. The emails will typically link to a specific landing page or website page to help customers research games or consoles before heading in-store.
Just like the retailer’s in-store relationships, GameStop fuels its email with data from PowerUp Rewards and transactions. For instance, if GameStop has an offer for pre-ordering Bloodborne—a game in which “danger, death, and madness lurk around every corner,” according to Sony—GameStop will look at which members have bought similar titles in the past.
“It does two things. Number one: I’m communicating relevantly to that individual,” Hamlin says. “Number two: I’m not offending an individual for whom Bloodborne might not be the title [he wants] to reserve.”
GameStop also considers members’ propensity to trade, Hamlin says. The retailer may send a specific offer to people who have never traded, for example, but send veteran traders messages reinforcing its value.
The retailer’s email performance varies depending primarily on content and time of year, Allen says. Title game emails often perform better than other messages, he says, usually generating 17 to 19% open rates. GameStop sends more of these targeted communications in the third and fourth quarters of the year because that’s when most new releases come out.
Making mobile moves
In-store and email aren’t the only places GameStop is successfully connecting with its customers. Mobile is another winning channel. More than 50% of the retailer’s online traffic comes from mobile devices. So GameStop relaunched its app in 2014 to make it easier for customers to do the activities that they want to do the most on their mobile devices, such as research product information, look up trade values, manage their PowerUp Rewards account and game library, check preorder statuses, and locate stores.
The app, which has more than 4.2 million installs, has a number
of convenience features that allow customers to perform these activities anytime, anywhere. For instance, it contains the Trade Center (which actually started on the app); content, such as videos, highlighting popular games and electronics; and the PowerUp Rewards catalog, which allows users to shop and purchase items (e.g., posters, clothing, and figures) with their points. Rewards members can even turn their phones into a digital rewards card so they always have it with them.
“I defy you to find a retail program where 100% of your customers carry your loyalty card,” Hamlin says.
But GameStop is still working to fuse the mobile and in-store experiences. During the National Retail Federation’s Big Show conference in New York this past January, GameStop announced it plans to use Microsoft’s cloud platform Azure. Here’s how it works: Let’s say that a customer is viewing a trailer for a new video game on his mobile device. He may also see an offer to preorder that game so he can play it as soon as it’s available. Through the cloud platform, that customer can go from viewing the promotional content on his phone to streaming it on one of GameStop’s in-store TVs—similar to how someone might stream content through Google’s Chromecast, says Charlie Larkin, senior IT director for the GameStop Technology Institute (a business unit focused on partnering with technology companies to create more innovative solutions for GameStop).
Game Advisors will also have the power to do this from their in-store tablets. What’s more, they can queue up a series of trailers ahead of time if they want to promote a particular game, such as for a midnight launch event, Larkin adds. They can also look at customers’ PowerUp Rewards data and purchase history to discover what other kind of games they like and show them any promotional content related to those games. If a customer decides to buy one of those games, the Game Advisor can simply add it to his shopping cart and send it to the retailer’s POS system so it’s ready for in-store purchase.
Eventually, Larkin says, GameStop intends to use beacons so it can show targeted content on the in-store TVs as soon as a customer enters the store; however, this would require a customer to opt in to the retailer’s use of geo-location and its contextual messages.
Playing off of a sense of community
Besides providing a place where customers can foster relationships with sales associates, GameStop’s stores offer a place where they can establish a sense of community with other gamers, such as through game launch events. This community is then extended through GameStop’s Facebook, Google+, Twitter, and YouTube channels. The retailer asks consumers “pop quiz” questions on Facebook and Twitter, for example, and posts interviews with different gaming company executives on YouTube. In fact, Engagement Labs, a social analytics company, named GameStop the second highest rated social marketer based on an assessment of its engagement, impact, and responsiveness.
Sometimes, GameStop is even able to combine these in-store and online communities, as it did with “Karissa the Destroyer.” On November 8 GameStop hosted a Super Smash Bros. sneak preview event for top players, and a 10-year-old named Karissa beat them all. What the losing players didn’t know was that professional gamer Liquid’KDJ was secretly doing all of the playing from a hidden game room. GameStop created a video that documented the whole thing and promoted the campaign’s hashtag #JoyToThePlayers. The video was then uploaded to YouTube on November 21. The video generated more than 888,000 views, and the reach of conversation around the video was 12.5 million.
“That sense of community exists and we’re the locus of that sense of community,” Hamlin says. “We’re leveraging a natural phenomenon. Because of our footprint and because we’re the experts in the gaming space, it only makes more sense to do that.”
The next-gen GameStop
So, will GameStop be able to adapt to industry changes, or will it have to hit the reset button on its business model?
If its 2014 holiday sales are any indication, growth for GameStop will be as challenging as conquering a level in Battletoads. The retailer experienced a 6.7% decrease in total global sales during its nine-week holiday season (ending January 3, 2015) compared to last year, with a 3.1% slip in total comparable store sales. Plus, the pre-owned/value category decreased 1.3%.
But in terms of the immediate future, it looks like GameStop will be able to play another day. Video game consoles typically have a five- to 10-year life span, Gartner’s Blau notes. Because 2014 was the first full year that both Sony’s PS4 and Microsoft’s Xbox One were on the market—and because both of these consoles contain disc drives—GameStop should at least stick around for the early 2020s. Actually, new software sales were an area of growth for GameStop this holiday season, growing 5.8%—or 8.9% in constant currency. According to an official GameStop press release, this increase was primarily driven by a 94.4% increase in PS4 and Xbox One software, such as Call of Duty: Advanced Warfare and Grand Theft Auto V.
Digital distribution challenges that game developers face also have slowed GameStop’s possible demise. For one, console and PC games contain a huge amount of data, Blau says. And if that data isn’t stored on a disc, then that data has to be downloaded onto a PC or console, which can take time. Certain game developers have found ways to work around this issue; for instance, they make it possible for players to have to download only a small amount of data before they can start playing the initial levels while the rest of the game downloads in the background, Blau says. Plus, not all countries have the same level of connectivity or downloading speeds. However, Blau suspects that many of these issues will be resolved as technology progresses.
“For every disc that’s sold as the year goes on, that’s going to turn into a digital download,” Blau says. “You have to think, after a number of years, that the infrastructure is going to get better around the world, data [capacities] are going to rise. So, those things aren’t going to be a problem. People are going to be more used to playing games online, cloud gaming is going to be more popular, and these are all things that are going to take away from the GameStop business.”
But for now, Hamlin can only learn from GameStop’s past and apply those learnings to the future. And the one lesson that’s been reinforced time and time again is the value of the in-store relationship.
“The most direct marketing that can occur is right there in that human relationship,” he says. “Every other channel that you have is some subset of your entire customer database, and the whole of your customer database is the customers that are in and out of store. Frequently, we rely so heavily on email [that] we lose sight of the fact that even if we’re getting a 25% open rate, we’re not talking to 75% of our customers through that channel. But when they enter the store, that’s 100% of them. In this business, [in] particular, that’s been a big learning for me and I’m hoping to educate others that that’s the lens through which we need to view our
customer relationships.”
