Microsoft Retail Stores

From

Case 2

Microsoft Retail Stores

Case Objectives

1)To highlight the use of distribution as a means of developing long-termcompetitive advantage.

2)To demonstrate how channel management is a process by which companies are continually examing how effectively their distribution network serves their corporate objectives.

3)Show the importance of congruency between distribution and other elements of the marketing mix and corporate strategies.

Problem Situation

This case outlines the development of Microsoft retail stores, discussing Microsoft's reasons and purpose for their creation. As the case explains, due to the growing popularity of the Apple operating system and its popular products, Microsoft found itself in the position of having to defend its market share. As evidence, Microsoft has seen its total revenue and gross profits decline in 2009 compared to the year before while Apple realized substantial increases in both. In an attempt to counteract Apple's channel strategy, Microsoft responded by opening its own retail stores as a means of building its customer base.

Teaching Suggestions

Like most people who use computers daily, students will undoubtedly be divided between the PC and Apple users. This will work both as a plus and a minus in terms of engaging the students in a discussion about Microsoft's retail expansion. On the plus side, everyone will have opinions to share about the way Apple or Microsoft products work. This can be helpful in terms of precipitating a lively discussion. However, it may be hard for some students to rate the programs of Apple and Microsoft objectively since they may not separate brand success with distribution effectiveness.

Thus,this can be an opportunity to challenge students to disect the effectiveness of the marketing strategies for Microsoft and Apple. A good way to do this may be to divide the students into PC and Apple camps, having each group analyze and defend the other's strategy. A set of questions that might be useful to begin the exercise man include:

What products does each software provider offer?
What is the difference between the product lines of Apple and Microsoft?
Where and how does each company market its products?
How do their respective retail stores compare in terms of what they offer? Similarities? Differences?

By the end of this exercise it is hoped that students will have a greater appreciation for the importance of having an comprehensive and complementary marketing strategy.

Students should be encouraged to review Chapters 5 and 7 before proceeding with their case analysis.

Case Discussion

Today as Apple products are enjoying growing popularity, Microsoft finds itself in the position of having to defend its market share. To many, Microsoft's opening of its own retail stores appears to confirm that Microsoft is on the defensive and following Apple's retail lead. Consider some of the points the case makes that seem to confirm the assertion that Microsoft is copying Apple:

The retail store model is clearly one that Apple championed before Microsoft
Microsoft recruited Apple store employees and store managers
Both Apple and Mirosoft are using the stores to engage customers and foster product interest.

However, despite the apparent similarities, there are also significant differences which might make the launch less important to Microsoft in the long run"

Microsoft management stated purpose of creating retail stores was largely to, "create deeper engagement with consumers and continue to learn firsthand about what they want and how they buy." In other words, the stores are laboratories to learn more about the consumers rather than just to promote products
Apple stores feature Apple hardware products, Microsoft must rely on other companies like Hewlett-Packardfor the products to run its software. This differs from the Apple concept in which it controls the products and brand positioning.

Consequently, Microsoft faces the challenge of marketing both its software and showcasing the products of independent hardware manufacturers. This is a challenge that Apple avoids since it controls both hardware and software. In addition, Microsoft'sretail store plans may create conflict with existing retail partners like Best Buy Co., on whom Microsoft is heavily dependent upon to market its products. However, if the number of Microsoft stores remains small, Microsoft may be able to build relations with other retailers by sharing what they learn in its own retail stores.

This is not Microsoft's first attempt at retailing. In 1999, Microsoftoperated a Microsoft store in San Francisco, but closed after onlytwo years. In this earlier model, Microsoft only displayed Microsoft products but did not sell them. Is the Microsoft retail idea a good one? As Allan B. Krans (with Technology Business Research) wrote, "Microsoft is putting the cart before the horse. Stores do not draw consumers to products; innovative products bring consumers into stores."