Here’s why this brand’s product launch in 2013 almost reversed a positive outlook on its new offering!

From the desk of Miles Everson:

Welcome to today’s edition of  “Return Driven Strategy (RDS).”  I’m thrilled to share another business insight with you in this article.

For those of you who are not yet familiar with this, RDS is a pyramid-shaped framework with 11 tenets and 3 foundations. When applied properly, these principles help businesses attain high levels of performance.

For today, let’s apply this framework in the context of consumer sentiment and how this can negatively impact a brand when customer morals do not align with a firm’s actions.

Curious to know more?

Keep reading below!

Here’s why this brand’s product launch in 2013 almost reversed a positive outlook on its new offering!

In 2013,  Microsoft  was on the heels of the release of the Xbox One, its next generation offering that succeeded the highly successful Xbox 360 that had over 80 million in sales.

Given that Microsoft and its gaming division had enough time to improve every feature found in the Xbox 360, it wasn’t unreasonable to assume that it would find similar success for Xbox One.

However, did you know that during the console’s official unveiling, Microsoft’s gaming division faced heavy scrutiny and was criticized heavily?

Let’s talk more about that below…

A Disaster of Epic Proportions

On May 21, 2013, Microsoft announced the Xbox One, a highly anticipated successor to the Xbox 360 in a press conference that was watched by many across the globe.

Prior to the unveiling, the console was hyped and was projected to continue the Xbox brand’s successful run in the gaming industry, standing toe to toe against industry giants like Sony and  Nintendo.

All of the hype pinned on the product was warranted, as Microsoft had a track record of making great consoles and securing first party titles that gamers can only play on Xbox consoles.

During its initial reveal, the Xbox One was presented as an all-in-one home entertainment device as its multimedia playback capabilities and its integration with television boxes took center stage.

In a subsequent press event held during the annual Electronic Entertainment Expo (E3) held in June 2013, Microsoft revealed more details about the Xbox One, announcing launch titles and the release dates for the various regions the console would be released to.

At that point, the event seemed like a casual affair where Microsoft would simply talk about the technical specifications of the console and show off other gaming-related features.

Unfortunately, the event would be remembered in infamy.

Why?

First, the Xbox One was initially required to be connected to the Internet at least once every 24 hours for games to function. While access to the Internet was widespread in the early 2010s, not every region had reliable access to it.

Second, it was initially announced that every game bought at retail for the Xbox One would be bound to the user’s Xbox Live account, which can then be shared with up to ten designated users.

This functionality was added because in theory, it would enable gamers to play games without a disc once the game has been installed.

While this was made for a great function in theory, this type of digital rights management (DRM) essentially meant buyers of the Xbox One cannot trade, lend, or resell the physical games they bought.

Third, the Xbox One was given an introductory price of USD 499, a price point that was USD 100 more expensive than its competitor, the PlayStation 4 that was also unveiled during E3.

Aside from these, the Xbox One was initially bundled with the Kinect, a natural user interface sensor designed to provide motion-tracking and voice commands for the gaming console.

It was also announced that in order for the gaming console to work, the Kinect sensor would have to be plugged in at all times.

As a result of all these, Microsoft received a wave of negative feedback from gamers, industry critics, and privacy and consumer rights advocates.

Those who criticized the DRM scheme felt it had the potential to infringe on consumers’ first-sale rights for games purchased on physical media.

Meanwhile, the Kinect sensor drew criticism from privacy advocates, arguing it could be used for targeted advertising and perform unauthorized surveillance on users.

Microsoft responded to this by saying the Kinect’s voice recognition and motion tracking can be disabled by users. Also, under the company’s privacy policy, the data collected by the sensor cannot be used for advertising nor be utilized to redistribute user-generated content without permission.

The Xbox One’s initial price point also drew flak, as some industry observers noted that Microsoft’s choice to position the console price-wise was a dangerous choice in a highly competitive gaming marketplace.

When comparing it against the PlayStation 4, this view was valid as Sony’s offering was cheaper.

So, what did Microsoft do in the wake of the criticisms and negative reception to its product?

For the most part, the company reversed course on the features it had initially announced.

The “always on” Internet requirement and the DRM implementation were reversed.

Consumers only needed to connect the console to the Internet once for the initial setup. Buyers were also able to share, resell, and purchase used physical games without restrictions.

Meanwhile, the Kinect sensor no longer needed to be plugged into the Xbox One for the gaming console to work. By 2014, Microsoft sold consoles that were unbundled with the Kinect sensor, leading to a price change of USD 399.

Despite these setbacks early in the lifecycle of the Xbox One, it still went on to be a success for Microsoft, having sold over 58 million units.

However, this was a far cry from the PlayStation 4’s total sales of over USD 117 million.

Going Against Customer Values

Viewed through RDS’ first tenet— ethically maximize wealth —it’s not surprising that Microsoft received negative reception when it first unveiled the Xbox One.

As  Professor Joel Litman  and  Dr. Mark L. Frigo  emphasized in the book,  “Driven” :

“ Any business that wishes to succeed must find ways to understand the boundaries and limitations of the groups it seeks to do business with. What’s ethical in one part of the world may be considered unethical in another. What is ethical to investors may not be considered ethical to consumers .”

To be clear, there’s nothing wrong with adding features to a product.

However, the reason why Microsoft drew so much flak for its decisions is because  these features went against what was ethically acceptable for its target customers .

As a consequence, this led Microsoft to reverse course on implementing the features it initially announced.

The bottom line?

Always take into account the ethical standards and values your target customers live by. Failure to do so will lead to negative press or worse, complete and total customer alienation.

—

If you’re looking to gain a better understanding of Return Driven Strategy and Career Driven Strategy, we highly recommend checking out  “Driven”  by Professor Litman and Dr. Frigo.

Click  here  to get your copy and learn how this framework can help you in your business strategies and ultimately, in ethically maximizing wealth for your firm.

Hope you found this week’s insights interesting and helpful.

Stay tuned for next Tuesday’s Return Driven Strategy!

Imagine a tapestry woven with threads of time, each strand representing the past, the present, and the future.

Learn more about  Loewe’s business strategy through the lens of RDS  in next week’s article!