Case Study - Virtually Free!

An old marketing adage puts forward the importance of creating customers. In times gone by, companies like Kodak were heralded for using inexpensive cameras like the Kodak 110 to create customers for film and film services. Kodak’s success lay in film, not in cameras. Perhaps the connection between Kodak and video games isn’t so obvious, but success in gaming is all about creating customers. Before the widespread adoption of online gaming, companies like Nintendo used game consoles as loss leaders to create customers for games. The online gaming companies don’t even have to manufacture or sell consoles as loss leaders. Zynga is one of the major players in online gaming. While Zynga’s original marketing strategy was to provide games free to users and generate revenue from advertisers, they’ve morphed into a revenue model strongly driven by Facebook users. Zynga games like Castleville, Cityville, Farmville, Fishville, and Zynga Poker have become a social networking phenomenon in recent years. Zynga and other online gamers now use the “freemium” as the primary tool to create customers. The term freemium refers to the free games that companies offer to consumers as a tool to sell virtual products that help freemium customers succeed in their game play. Zynga grew on this business model to revenues topping $600 million in 2010 (from $1 million in 2008).1 Zynga went public with an intial stock offering in late 2011. Initially shares sold for $10 and showed a decline to about $5 by the middle of 2012.2 Zynga’s hope is to create more whales, a term referring to heavy consumers of virtual products. However, Zynga faces a lot more competition today than it did in 2011, as consumers find many more options for online games.3 Take for example TinyCo, makers of Tiny Zoo, available as an app in iTunes or for Android systems through Google. After playing Tiny Zoo for only 60 seconds, new users receive a message saying “looks like you need more Coins to buy a Chickity Puff.” The idea behind the game is to amass a prized collection of virtual (not real) animals to display in the virtual (not real) zoo. Perhaps with more than a touch of irony, one of the prized animals is known as the Cash Cow! In case you haven’t guessed by now, TinyCo sells Tiny Zoo virtual coins for real money. One market segment for virtual products is children. One eight-year-old spent two months’ allowance ($50) when Tiny Zoo released a new batch of animals. These kids are not playing the games on computers but on their parents’ smartphones and tablets—or on their own tablets and iPods. Many parents willingly allow their kids to use payment apps to buy virtual products as a sort of babysitting device. After all, parents have always given in to kids in toy stores. Trouble is, unlike a real toy store, the app store is open 24-7 and the kid is in the store any time the smartphone is in their hands.4 Industry analysts expect the mobile gaming business to grow fivefold to nearly $20 billion per year by 2015.

1- Brand loyalty is an important marketing concept. Define the concept of schema. How important is the brand schema in consumer decisions to play these games? Do you think consumers think of the company (Zynga), the game (Cityville), or the host (Facebook) when playing the games?

2- All consumer behavior is motivated by something. What motivations underlie online gaming and purchasing of online games? In the case of parents paying for virtual goods used by their kids, what value is involved in the consumption?

3- Do consumer attitudes play a role in online gaming?