1. Why do you think MS decided to change its channel strategy by opening its own retail stores?

2. According to Kevin Turner what are the purposes of opening MS retail stores?

3. Will MS retail stores allow MS to deliver the high level of customer service and experiences? Why and why not

4. Do you think MS will keep opening MS retail stores? Why and why not

5. Would you suggest any change to MS channel strategy?

CASE 2 Microsoft Retail Stores Recognizing the Need for New Channel Strategy Microsoft History Microsoft was founded by Bill Gates and Paul Allen in 1975. The company is best known for its Windows operating system supporting personal computers (PCs), Micro- soft Office, and software server products. During the 1980s, Microsoft worked closely with IBM to create an operating system (OS) compatible with the first IBM PC. Until 1990, the company was mainly a supplier of programming languages and operating sys tems for hardware manufacturers. After 1990, Microsoft put more emphasis on selling its system software to corporate users and individual consumers. Today this segment ac- counts for a significant portion of Microsoft sales--for the last two quarters of 2009, the segment accounted for over 43 percent of the company's total revenue' Prior to 2009, Microsoft software products to individual consumers were distributed only through independent retailers such as BestBuy and CompUSA. In its desire to grow and diversify its businesses, Microsoft has also expanded into new industries. After form- ing a joint venture with NBC in 1996, the company created MSNBC, a 24/7 cable news station. During the early 2000s, the company also penetrated the video game console market by introducing the first version of the Xbox Microsoft has become one of the leading companies in the high-tech industry and the world's largest software company. Its key focus now is on innovation and creativity that will lead not only to the enhancement of its existing products, but also to the introduc tion of new products that "better serve its customers and accelerate new technologies The Need for a change Despite Microsoft's dominance in the OS market, the company has faced growing com- petition from rival Apple over the past few years as Mac's Os market share increased by 37 percent between 2008 and 2009 while Windows' market share decreased by 3.1 per cent over the same time period' (see Exhibits 1 and 2). As a result, Microsoft has seen a decrease in its total revenue and gross profit in 2009 compared to 2008 whereas Apple has enjoyed a substantial revenue and profit increase in 2009 (see Exhibit 3). EXHIBIT 1 Windows EXHIBIT 1 Windows Market Share: January 2008 December 2009 Window Market Share 96.00 95.00% 91.00% 92.00% 91.00% Windows November 2008 January 2009 May 2008 July 2008 September 2008 March 2008 January, 2018 May 2009 July 2009 eptember 2009 March 2009 November 2009 Source: Data erilise from http://marketharchitlink.com/reportapeterid- EXHIBIT 2 Mac Market Share: January 2008-December 2009 Mac Market Share 6.00% 5.00% 4.00% 3.00 2.00% 1.009 Mac 0.00% January 2008 July 2008 January, 2009 July, 2009 September, 2009 March, 2008 March 2009 May 2009 November 2009 Sepermber, 2008 November 2008 Source: Dute valable from: http//marketshore hitlink.com/reportapalpride Although Apple has not generally been considered to be a serious competitor capa ble of undermining Microsoft's OS market position, this view is changing Microsoft executives believe that Apple is now emerging as a real competitor in the OS market. Moreover, the unprecedented success of Apple retail stores has been one of the major factors contributing to Apple's recent market share increase. In fact, in 2008, Apple stores generated sales of approximately 54,700 per square foot--the highest revenue http://www.nytimes.com/2009/10/13/businew/media/disney.html?_rdraerwantedrerit 5. Ces EXHIBIT 3 Microsoft Corporation and Apple Inc. Revenue and Grow Profit: 2008-2009 Microsoft Corporatie Apple, Inc. June-09 -June-09 June Revenue (mill.) SRAJ 60.00 *.537 Cont of goods sold (mill 12.155 11.595 23.97 Grow profit (mills) 4.02 1140 per square foot in retailing Through its retail stores, Apple has not only created an alternative channel for its products but has also provided its customers with a memo. table store atmosphere and exceptional in-store experience and customer service. This in turn, has led many PC users looking for better customer and tech support to con sider switching to Apple's Macbook because Microsoft has failed to deliver a compara- ble level of service In an attempt to counteract Windows declining market share, Microsoft executives have sought to devise a strategy that will enable the company to maintain and expand its existing customer base. Kevin Turner, Microsoft's Chief Operating Officer (COO). pointed out that Microsoft strives to establish a long term relationship with its custo mers, truly connect with their needs and help illuminate the magic of software and the value of the technology. The Microsoft management team has thus decided that one way to, similar to Apple.create a deeper engagement with consumers and continue to learn firsthand about what they want and how they buy is by opening company-owned retail stores. Microsoft believes that by doing this, it can gain better control over how new and existing products are marketed to its customers So, in February 2009 Microsoft hired David Porter, a former Wal-Mart Stores Inc. executive, and appointed him as corporate vice president of Microsoft Retail Mr. Porter has since been in charge of building a strong team of professionals who can help the company attain its long-term retail sales objectives Commenting on Microsoft's new channel strategy. Mr. Porter stated: Our customers told us they want choice, better value and great service when shopping for technology, and that is what we will deliver through our Microsoft stores... We want to showcase what's possible with the full Microsoft brand The stores The first two Microsoft stores were opened at the end of October 2009 in Scottsdale. AZ and Mission Viejo, CA During the first half of 2010 Microsoft opened two more stores--one in San Diego, CA and one in Lone Tree, CO. In July 2010 http://www.news.com/10_2938.562260 ml ON Microsoft COO Kevin Turner said that Microsoft is planning on building at least a doren more retail stores because "Microsoft stores are an incredible learning vehicle for The Microsoft store layout is such that cach store consists of four zones. This allows consumers to experience different types of technology. In addition, the stores feature stylish PCs set up with Zunes, Xbox consoles, headphones, and widescreen displays Huge LCD screens line the store walls. Toward the back of the store, consumers can find laptop bags and a variety of Microsoft software products. Consumers who purchase software products can use a kiosk to select and pay for the selected items after being provided with a virtual card and a software disc. The disc cover and software manual are created almost instantaneously. Xbox fans are able to enjoy a gaming zone with a 94-inch widescreen seating, and numerous controllers to play with Store visitors can also custom-tailor their computers, Xbox consoles, and Zunes with external skins thanks to a partnership between Microsoft and a company called Skinit." According to Microsoft's Scottsdale store manager Cheryl Hibbard: The Microsoft Stores...celebrate personal choice and preference, and so the service offerings in the store let people express their individual style throught technolog-inside and out. Microsoft is committed to providing exceptional sales assistance in its stores by creat- ing a friendly store environment in which its customers can learn about Microsoft pro- ducts as well as receive professional advice on product usage and features. http://www.am.com/software/225900095 http//www.microsoft.com/prepaw/features/2009/09/10-22retallopen maps