Is it game over for physical retailers?: A study on Swedish video game industry

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Master thesis

Is it game over for physical retailers?

A study on Swedish video game industry

Authors:

Farhana, Mosarrat Swietlicki, Daniel Tutor: Sattari, Setayesh Examiner: Pehrsson, Anders Semester: VT20

Subject: Business Administration Level: Advanced

Course code: 5FE05E

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i Abstract

Purpose - The purpose of this study is to extend the understanding of the business model of video game retailers using online and physical stores focusing on the impact of digital platforms on the retailing industry within the context of video game industry considering different actor’s perspectives like retailers and consumers.

Design/methodology/approach - This is a multiple-case study based on deductive reasoning.

In this qualitative study, two cases of click-and-mortar retailers operating in the Swedish video game industry have been considered along with feedback from customers. Online personal interviews and semi-structured interviews have been conducted with retailers and customers respectively. Both primary and secondary data have been used to conduct the study.

Findings - Findings show that video game retailers need to encourage engagement through incentives and other activities in order to create value and change up their formats and sales strategies through pricing to reach new customers and focus on design of their online store fronts to convey trustworthiness.

Research limitations - A major limitation has been the COVID-19 pandemic spreading during the writing of this paper, which resulted in companies backing out to refocus their efforts.

Another limitation has been the legal aspect as companies owned by bigger publishers denied to take part in the study to avoid revealing sensitive information.

Practical implications - It offers some insightful practical suggestions to retailers who are

struggling hard to adopt digital transformations in the industry.

Originality - Authors’ proposed research model, based on Sorescu et al. (2011)’s retail business model and the empirical findings, contribute in the less explored domain of research on business models from retailer’s perspectives. Moreover, it adds values in industry specific study like the video game industry in Sweden considering all actors, which is argued as scarce.

Keywords - Business model, Retailing Business model, Click-and-mortar, Video game industry

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ii Acknowledgements

This master's thesis has been carried out as part of the completion of the Masters Programme in Marketing at Linnaeus University, Vaxjö, Sweden, during spring 2020 by Daniel Swietlicki and Mosarrat Farhana. We would like to express our sincere gratitude and appreciation to a list of wonderful people who have made the journey of this research process possible through their valuable inputs and support. At first, we would like to thank our examiner Professor Anders Pehrsson for his valuable suggestions and guidance as well as insightful feedback during all seminars. His words have encouraged us to broaden the horizon of this research. We would also like to thank our tutor, Dr. Setayesh Sattari for her continuous support and guidance to improve the quality of our research. During the outbreak of COVID-19 pandemic, we have gone through the moment of ‘paralyzing’ in our work process. In that situation, our tutor has motivated us to be optimistic and has given us thoughtful practical suggestions to complete this research on time without compromising the quality. Moreover, we would like to thank our beloved families and friends for being there to support and motivate us. Finally, we would like to extend our deep gratitude to all participants and two retailers of the video game industry in Sweden for their valuable time, effort and thoughtful contributions in this study. Thank you!

Daniel Swietlicki Mosarrat Farhana

________________ ______________

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iii

This chapter presents an introduction to the field of study and theoretical foundation within the domain of e-commerce and retailing in the video game industry. Furthermore, the chapter depicts the changing business environment in the video game industry and continues with a problematization of the field under study, following previous research works. Finally, the research gap and research question are stated along with the delimitations and the purpose of the study; and it ends with an outline of the thesis.

1.1 Background

The exponential growth of the business-to-consumer (B2C) e-commerce activities in the world marketplace has brought revolutionary transformation in retailing and it has grown dramatically since 1997 (Otto and Chung 2000; Doong et al. 2010). According to Statista, in 2018 approximately 1.8 billion people worldwide purchased goods online from brick-and- mortar retailers like Walmart as well as from web-only retailers like Amazon or Rakuten and in 2021 over 2.14 billion people worldwide are expected to do online purchase (Clement 2019).

Following the e-commerce activities, organizations have become more diverse and researchers have defined three types of e-commerce organizations like (1) completely physical companies - ‘brick-and-mortar’, (2) companies using some e-commerce activities as marketing channels - ‘click-and-mortar’, and (3) companies only based on e-commerce activities - ‘virtual organizations’ (Turban et al. 2009; Doong et al. 2010). The retail industry has witnessed disruptive changes every 50 years or so, due to ongoing technological advancement and societal changes (Rigby 2011). The emergence of digitalization of retailing along with omnichannel concept has transformed consumer’s shopping behavior and expectation in favor of the digital platform of brick-and-mortar retailers (Betzing et al. 2018). History shows that over time each wave of change did not abandon the earlier format, rather it has reshaped the landscapes of the retail industry by adopting new changes in the old format and redefined consumer’s expectations (Rigby 2011). Retailing as a core function of all economies will not be extinct in the near future, but traditional brick-and-mortar physical retailers will endanger their existence without adopting the concept of digital retailing in their business model (Reinartz et al. 2019; Rigby 2011). Since virtual organizations are enjoying some crucial

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2 operational benefits such as reduced cost, 24/7 open store, less communication cost along with no geographical barriers and so on, a growing number of brick-and-mortar companies have turned into click-and-mortar ones (Doong et al. 2010; Otto and Chung 2000; Steinfield et al.

2002). Moreover, as an inevitable part of the e-commerce platform companies can offer consumers more personalized services based on their provided personal data and can also design tailored advertisements to reach the target audience (Zhu et al. 2017; Piotrowicz and Cuthbertson 2014; Reinartz et al. 2019; Rigby 2011).

To combat the fierce competition, brick-and-mortar retailers have integrated different in-store digital technologies like self-service terminals, in-store assistant, mobile payment, virtual mirrors, QR codes and so on to uplift consumer's shopping experience through multiple channels (Piotrowicz and Cuthbertson 2014; Betzing et al. 2018). But the pervasive advancement and deployment of new technologies like different smart devices and social network across the retailing landscape have blurred not only the line between online and physical retailers, but also the boundaries between retailers and manufacturers (Reinartz et al.

2019; Piotrowicz and Cuthbertson 2014; Brynjolfsson et al. 2013). As a consequence, the omnichannel concept has evolved substituting existing multiple channels, with an aim to deliver a seamless, unified customer experience (Reinartz et al. 2019; Piotrowicz and Cuthbertson 2014). This digital transformation affects the retailing arena to a great extent, as manufacturers have entered into that interface to engage directly with the end consumer instead of the traditional retailer (Reinartz et al. 2019). This is the case for the video game industry as publishers and developers are directly connected with consumers and have their own online stores such as Origin, Microsoft store and Playstation store (Polo 2019).

The video game industry is an industry that has been on the rise for the past 20 years (Johnson and Woodcock 2019; Waldner et al. 2013; Jöckel et al. 2008) with it reaching a worth of 151,9 billion dollars in 2019 growing steadily from 76,5 billion dollars in 2013 (Wijman 2019). With this steady growth the videogame industry is catching up and has even passed the film industry in 2018 that had a global box office revenue of total 41,1 billion dollars (Statista 2019a). This trend is expected to continue with a CAGR of 9% till 2022 as consumers continue to play and newer platforms like mobile and tablets gain popularity among gamers (Wijman 2019). The video game industry has changed so much over the years with the development of new technology that in addition to creating better quality games has enabled new ways of distribution (Waldner et al. 2013; Davidovici-Nora 2014). A video game itself can be described

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3 as “a game played by electronically manipulating images produced by a computer program on a monitor or other display”, Video games are often made for platforms such as PC (personal computer), dedicated consoles like Xbox, Playstation and Nintendo Switch playing on a TV and mobile phones (Wijman 2019). Video games have traditionally been sold in retail stores such as GameStop, MediaMarkt and Walmart but gradually digital retailers such as Steam, Origin, Microsoft store and Playstation store have nearly taken over the sales of video games (Polo 2019). Looking at the American market,in 2018 83% of all video games sold, were in digital form which was a dramatic change since a decade earlier 80 % of all sales were physical (CD, DVD, SD card or cartridge) (Statista 2019b). While this has been a drastic change, globally things have not advanced quite far with sales of physical console games still owning around 66 % of the market worldwide in 2017 (Wepc 2020). This number however is getting smaller each year as retailers are adapting to new ways of distribution by adopting digital distribution since they cannot afford not to. GameStop in their annual 10k report with an overview of the past year mentions the trend of downloading games have increased significantly and if they do not act with great haste consumers might go elsewhere with their distinct changing behavior (GameStop SEC 10-K form 2019). With changing purchase behavior brick-and-mortar retailers such as GameStop are becoming less important with their usefulness as a middleman being questioned as they have failed to adapt to the current times (Gilbert 2020). As consumers’ everyday life becomes more digital so does their purchase behavior but it is still unclear what is behind this gradual shift as many still stick around buying physical copies of games.

1.2 Problem

Many industry experts and researchers have predicted that the basic role of the retailer or middlemen has shrunk enough to be questionable in the near future (Piotrowicz and Cuthbertson 2014; Reinartz et al. 2019; Rigby 2011; Otto and Chung 2000) and for survival it is obvious for any organization to embrace the emerging concept of digital platform (Kumar 2018; Varadarjan 2018; Reinartz et al. 2019). However, several studies on e-commerce and digital platform reveal that not all groups of customers prefer to do online purchases due to risks associated with fraudulent acts, data privacy and customer tracking activities through

‘push’ advertisements (Piotrowicz and Cuthbertson 2014; Lee et al. 2012; Zhu et al. 2017).

The ownership of collected data and a breach of privacy have become an emerging issue (Piotrowicz and Cuthbertson 2014). In that context Meyer (2018) has argued that anytime

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4 consumers may decide not to have apps acting as virtual ‘shopping friend’ on their smartphones and in their homes, which will simply jeopardize the company's financial investment on new technology.

Another group of researchers pointed out that retailing industry has adopted digital technologies since 1960s in different formats (Betzing et al. 2018; Hagberg et al. 2016) and went through transformations based on specific industry requirements (Rigby 2011; Goldmanis et al. 2010; Steinfield et al. 2002). Diffusion of an online platform is linked to the decline of small establishments in certain industries, whereas it has minimal or positive impact on large establishments in other industries (Goldmanis et al. 2010). For example: the travel agency industry has gone through a shift as consumers are preferring online ticket purchase and airlines have reduced agency commissions. A large bookstore chain like Barnes and Noble has embraced online platforms as a business expansion strategy, whereas in the car industry, consumers are preferring physical stores as point of purchase but online platforms as source of information (Goldmanis et al. 2010). But in the last few years, the digital distribution platform has brought disruptive shifts into the video game industry (Davidovici-Nora 2014) and has challenged the existence of the physical retailer in the coming years (HBS Digital initiative 2017). The declining phase of the big brick-and-mortar video game retailer - GameStop has revealed the changing dimensions in this industry and raised questions about the position of retailers and middlemen in future (HBS Digital initiative 2017; Gilbert 2020). Different research works reveal that due to technology, the video game industry is going through radically changing distribution channels like the music industry; where the boundaries between consumer and developers have become more permeable than before (Payne 2018; Waldner et al. 2013; Potts et al. 2008; Jöckel et al. 2008).

Existing research works within the field of e-commerce and its impact on physical retailers have mostly been carried out on consumers’ perspective focusing on web security and trust in e-commerce (Ruppel et al. 2003; Oliveira et al. 2017; Hallikainen and Laukkanen 2018) influencers and barriers in e-commerce (Alqahtani et al. 2012), consumer’s online shopping intentions (Doong et al. 2011) and decision-making process (Zhu et al. 2017), customer relationship (Lee et al. 2012) and then, conceptual framework for cyber-enhanced retailing (Otto and Chung 2000; Steinfield et al. 2002), effect of e-commerce on supply-side industry structure (Goldmanis et al. 2010) and retailing value chain (Reinartz et al. 2019), in-store technologies (Betzing et al. 2018) and omnichannel concept in retailing (Piotrowicz and

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5 Cuthbertson 2014). Different scholarly works in this field have focused on the immense impact of digital platforms on existing retailing industry and consumers, but industry specific empirical study on the business model in retailing embracing technological advancement is found to be less explored. Moreover, studies within the field of the video game industry have been more focused on subjects such as consumers of physical vs digital (Lee et al. 2016), live streaming (Johnson and Woodcock 2019), local/global knowledge on innovation (Cohendet et al. 2018), publishing (Engelsätter and Ward 2018) and distribution strategies (Broekhuizen et al. 2013) and value creation process (Marchand and Hennig-Thurau 2013). Research articles have also been written about digital business models for developers (Davidovici-Nora 2014), technological tying and price competition (Derdenger 2014), knowledge spillover and economic effect of developers’ network (Claussen et al. 2011), consumer involvement in value chain network (Henfridsson and Holmström 2002; Jöckel et al. 2008), industry structure and competition (Williams 2002). Existing research have mostly emphasized the marketing strategy and value co-creation process in the video game industry from only developers’

perspectives. Though the video game industry has been defined as one of the fastest growing industries worldwide by the academic researchers and industry experts (Johnson and Woodcock 2019; Teipen 2008), it has received little scholarly attention from the arena of business and economics (Zackariasson and Wilson 2012) specifically in European region (Nieborg and de Kloet 2016). A few research works have highlighted the vulnerable position of the physical retailers in the industry (Payne 2018) and have considered the growing radical innovations and the highest number of internet-enabled households in certain countries like the Netherlands, Norway, Sweden, Denmark, Germany, the UK and France as catalysts in this changing business environment (Nieborg and de Kloet 2016). Researchers have further argued that the Northern European countries are in the forefront to adapt to this digital transformation in the existing business models in the industry.

With such notions, this study intends to focus on balancing between online and physical sales and explore the business model of the retailers in the Swedish video game industry considering their future business strategies. This study will also consider consumers’ viewpoints to generate a holistic view of existing practice in the industry and its future prospects. Since in a retailer’s business model value is delivered to customers and appropriated by the retailer and its partners including suppliers (Sorescu et al. 2011), it is crucial to have all actors’ viewpoints to define retailer’s position in the industry. Thus, this dyadic research encompassing both retailers and consumers will cover how changes in the physical and digital environment influence the

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6 business and offer insights and directions to the retailers and middlemen who are facing the first wave of shock. The outcome of this study will contribute to the scholarly field of retailing practice in the era of digitalization and will also offer some suggestions or directions based on theoretical framework for the similar service or entertainment industry practitioners.

1.3 Purpose and delimitations

The purpose of this study is to extend the understanding of the business model of video game retailers using online and physical stores. It will focus on the impact of digital platforms on the changing landscape of retailing industry like the video game industry and its future prospects considering different actor’s perspectives such as retailers and consumers.

Individual European country specific study on the video game industry is found to be scarce to address how some Northern European countries are playing a significant role to flourish this booming industry utilizing government policy, ICT research and development and hi-tech infrastructure (Nieborg and de Kloet 2016). In this context researchers have also named Sweden for its ongoing contribution in the international arena of the video game industry along with a profound track of ICT related developments. With such understanding, this study intends to be delimited within the boundaries of the video game industry in Sweden, more specifically Swedish retailers classified as click-and-mortar organizations.

1.3.1 Research questions

How does e-commerce impact the business model of retailers in the gaming industry?

Why is the contribution from different actors in a retailer's business model crucial for both the value creation and appropriation processes?

1.4 Report structure

The structure of this paper is as follows: from here a literature review will be presented offering the reader additional necessary knowledge about the current research on business models. Next a conceptual framework will be presented explaining key concepts around the retail business model and proposing a research model with the authors’ assumptions. After this a detailed

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7 method chapter explaining the ways this study has been conducted. Following this a short presentation of the case retailers which is followed by a presentation of the empirical data gathered from both retailers and customers with an analyzis of the presented assumptions. Next a discussion offers some new propositions and an adjusted model of the retail business model followed by a conclusion presenting this study's important takeaways and contributions. Finally limitations and future research is presented ending with a reference chapter and the appendix containing interview questions and scripts.

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8 2 Literature review

In this chapter, researchers present theories and definitions related to business model, e- business model, classification of e-business organization, elements of retail business model and video game industry to map the existing stream of literature in this research field. This review of previous research reflects further on the research gap and will help the researchers in developing conceptual framework and assumptions in the following chapters.

2.1 Business model and impact of digitalization Business model

The introduction and proliferation of the internet and the digital economy have triggered the evolution of new business models (Gatignon et al. 2017; MacKensey and Company 2017; Zott et al. 2011; Wirtz et al. 2010; Chen 2003) and have received momentous attention in the academic and professional journals (Ruggieri et al. 2018; Baden-Fuller and Haefliger 2013).

Technological advancement and customers’ increased access to digital platforms have made firms adopt new business models to create new ways for value creation and appropriation (Gatignon et al. 2017). Statistics show that over the next five years, about 80% of firms are planning to adopt new business models (Gatignon et al. 2017; Accenture 2014). Due to its immense importance, since 1995 the concept of business model has been explored by different researchers in more than 1177 peer-reviewed articles (Zott et al. 2011). But the number of articles, conferences and discussion panels on this subject of business model appear to be insufficient for the researchers and practitioners to develop and agree on a common and widely accepted definition and structure of a business model (Baden-Fuller and Mangematin 2013;

Baden-Fuller and Haefliger 2013;Zott et al. 2011). As a consequence, researchers end up with a diverse set of business model definitions and classifications (Baden-Fuller and Haefliger 2013). Among all these scholarly works, a systematic literature review done by Zott et al.

(2011) is found to be more accepted and recognized by many researchers (Ruggieri et al. 2018;

Baden-Fuller and Haefliger 2013; Sorescu et al. 2011).

According to Zott and Amit (2010), business model refers to a system of interdependent activities articulating a firm’s value proposition, sources of revenue, its utilized resources to extract rent and the governance which basically connects firm’s different stakeholders. Based on this core idea Sorescu et al. (2011) has proposed a working definition as: ‘A business model is a well-specified system of interdependent structures, activities, and processes that serves as

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9 a firm’s organizing logic for value creation (for its customers) and value appropriation (for itself and its partners)’ (p. S4). Fielt (2014) has further linked this concept to value, more specifically creation and capture of value by the organization (Ruggieri et al. 2018). In a recent study Müller et al. (2018) attempts to propose a comprehensive definition. They have argued that a business model depicts the ways how organizations conduct different activities to deliver value to the customers and how they interact with suppliers, customers, partners in their network, and finally how they get feedback from customers. In summary, in the widespread recognized literature, most of the researchers have agreed that a business model should be able to connect two dimensions of a firm activity: value creation and capture (Zott et al. 2011; Zott and Amit 2010; Casadesus-Masanell and Ricart 2010; Baden-Fuller and Haefliger 2013;

Baden-Fuller and Mangematin 2013; Teece 2010).

E-business model

The very systematic study by Zott et al. (2011) suggests focussing on three distinct concepts:

1) e-business model archetypes, 2) business model as activity system and 3) business model as cost/revenue architecture to better understand the business model concept in any respective study. Since the mid-1990 the concept of business model became popular among academic scholars and professionals due to the introduction of the internet (Ruggieri et al. 2018; Zott et al. 2011). Technology advancement has brought dynamic changes in the business environment and has facilitated the evolution of new business models (Baden-Fuller and Haefliger 2013;

Chen 2003). The pervasive penetration of the internet has created a ‘high velocity environment’

(Wirtz et al. 2010) with changing customer preferences, which has made modern organizations to adopt e-business models as a way of survival (Phillips and Wright 2009). Historically the success of e-commerce pioneer Dell, Amazon and e-Bay has been attributed to their novel e- business models (Chen 2003). Baden-Fuller and Haefliger (2013) have argued in their study as: ‘Business models and technologies interact regularly’ (p.419). For example: both Amazon and Easy-Jet (Europe’s low-cost airlines) have applied traditional well-known business models with development in new contexts following new technology; whereas Google has invented new digital business models (Baden-Fuller and Haefliger 2013).

Swaminathan and Tyur (2003) has defined e-business as a business process which uses the internet or electronic medium to conduct business transactions (Phillips and Wright 2009).

However, researchers have further argued that e-business encompasses e-commerce and beyond by including the implementation of information technologies for internal processes as

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10 well as external commercial activities and interactions with suppliers and customers (Phillips 2003; Phillips and Wright 2009). Here, Phillips and Wright (2009) have defined internal functional activities, such as marketing, accounting, human resource, and operations. During the early phases of the internet, a good number of business models have been proposed to the management to find the best one for pursuing e-business (Phillips 2003; Phillips and Wright 2008). According to Chen (2003), based on classification, more than 29 e-business models have been discussed by different authors. However, following those studies Mahadevan (2000) and Weill and Vitale (2001) have considered four distinct concepts to define business models for e-business, which are: 1)the supply chain model, 2) the revenue model, 3) whether the model aims B2B or B2C market and 4) whether the firm is pure-play (online) or click-and- mortar.

2.1.1 Classification of e-business organizations

Different reasons and perceived benefits like better information management, better integration of channel partnership and actors, lower transaction costs, better understanding of market and geographical penetration have motivated many organizations to adopt e-business (Damanpour, 2001; Dubelaar et al. 2005). Considering the immense growth of e-commerce Turban et al.

(2009) have classified business organizations into three groups such as brick-and-mortar organization or purely physical companies, click-and-mortar organizations and virtual companies.

1. Brick-and-mortar companies

It refers to completely physical companies (Turban et al. 2009; Doong et al. 2010). Brick-and- mortar model of retailing is based on a physical store with a display of the merchandise; where the customers can interact with vendors directly, physically try the products and then can take them home immediately (Enders and Jelassi 2000). Customers can easily return or exchange products in the store (Enders and Jelassi 2000). Moreover, it allows them to ‘touch, feel and try’ the product and have face-to-face conversations with sales personnels (Adelaar et al. 2003;

Enders and Jelassi 2000). Enders and Jelassi (2000) have argued that this type of business involves substantial investment in creating physical infrastructure to enter a geographically new market and offers limited working hours and day. Due to the diffusion of digital technology, this model of retailing is becoming obsolete in many industries or countries (Piotrowicz and Cuthbertson 2014; Reinartz et al. 2019; Enders and Jelassi 2000).

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11 2. Click-and-mortar companies

In this category, companies utilize e-commerce activities as marketing channels along with the physical store (Turban et al. 2009; Doong et al. 2010). Adopting the click-and-mortar model, companies can derive synergies from the integration of e-commerce in their physical retail outlets (Adelaar et al. 2003). According to Adelaar et al. (2003), this type of companies enjoy certain benefits over traditional brick-and-mortar companies such as strong relationship with existing customers in the geographical market, relocation and re-establishing contact with the moved away customers and bringing in new customers via easier and less expensive purchase options.

3. Online companies

This type of companies use e-commerce solely to conduct their business (Turban et al. 2009;

Doong et al. 2010). This model of retailing gives the customer access to the online platform to have product information, place an order, pay and in case of digital products like software, music, video and so on customers get them delivered immediately via the internet (Enders and Jelassi 2000) instantaneously through the Internet. Enders and Jelassi (2000) have further argued that, due to the nature of online retailing, it enjoys a number of advantages over the traditional brick-and-mortar retailers such as wide reach, exhaustive product selections, little infrastructure requirements, unlimited opening hours and a high degree of scalability.

___________________________________________________________________________

Note: Researchers have used terms like organizations and companies interchangeably (Turban et al. 2009; Doong et al. 2010). Moreover, in some articles different terms like ‘pure-play’,

‘virtual’, ‘web-based’ have been used to define online companies (Chen 2003; Doong et al.

2010; Reinartz et al. 2019)

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12 A good number of scholarly works have focused on the burgeoning issues of digital impact on physical stores, characteristics of brick-and-mortar, click-and-mortar and online companies and their business models from different perspectives. Since the literature in this field is quite young and dispersed across different disciplines, authors intend to systematically summarize the most relevant studies to map the ongoing development and to create a theoretical base for this study. In this regard, the Web of Science platform has been utilized to review some peer reviewed articles in this field. Authors have preferred to reflect on the most important findings in this research field by summarizing key concepts of following ten most relevant articles (see Table 1) out of twenty four reviewed articles to understand the overall empirical findings in this study.

Topic Method Author Findings Context

The impact of digital transformation on the retailing value chain

Research paper Reinartz et al.

2019

From a value-creation perspective, digitalization impacts the existence of brick-and-mortar retailers.

The digital transformation effects retailing through five new sources of value creation: automation, individualization, ambient embeddedness,

interaction, transparency

& control.

Digitalization and new sources of value creation

In-store Technologies in the Retail Servicescape

Literature review

Betzing et al.

2018

In-store technologies in brick-and-mortar retailers leverage customer experience and impact business strategies.

In-store

technologies in brick-and-mortar retailers

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13

Introduction to the Special Issue Information

Technology in Retail:

Toward Omnichannel Retailing

Focus group discussion

Piotrowicz and Cuthbertson 2014

Key issues are: channel integration, the

impact of mobile technologies & social media, the changing role of brick-and-mortar stores, diverse customer requirements,personalizati on & privacy and supply chain redesign. The omnichannel approach leads to seamless customer experience.

Channel integration via omnichannel strategy

Business Model

Transformation in Moving to a Cross-Channel Retail Strategy: A Case Study

A single case study following multiple data collection methods: semi- structured interviews, observations, and document analyzis

Cao 2014 As a consequence of e- commerce, a retailer can shift towards cross- channel strategy following five stages (solo, minimal, moderate, full integration, new business model) of adoption model rather than operating in separate channels. The physical store works as a hub linking different channels to create value.

Value creation via cross-channel retailing

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Enhancing customer value through click-and-mortar e-commerce:implications for geographical market reach and customer type

Multiple case studies

Adelaar et al.

2003

Highly integrated click- and-mortar e-commerce strengthen relations with existing customers in geographical markets, relocate and re-establish contact with moved away customers and bring in new customers.

Customer value enhancement through click-and- mortar e-commerce

Understanding Click and Mortar E-Commerce Approaches

Research paper Steinfield 2002 A conceptual framework describing four synergy- related benefits from tight integration between online channel and physical store; and minimization of channel conflicts.

Channel integration in click-and-mortar retail business

The Converging Business Models of Internet and Bricks-and-Mortar Retailers

Research paper Enders and Jelassi 2000

It focuses on advantages and disadvantages of physical and online stores. The convergence of bricks-and-mortar and online retailers minimize drawbacks in both types of retailers.

Convergence of bricks-and-mortar and online retailers

OptimizingYour Digital Business Model

What does it take to create the strongest possible online presence?

Weill and Woerner 2013

A successful digital business model should consist of three components: good content, customer

Effective digital business model to create customer value proposition

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experience and platforms to create customer value propositions. But a company does not need to lead in all three areas.

Value creation in e- business

Amit and Zott 2001

A model of sources of the value creation in e- business suggests four dimensions: efficiency, complementaries, lock-in, novelty. An integration of entrepreneurship &

strategic management theory can fully explain this value creation process.

Value creation in e- business:

firm/manufacturer’s perspective

Benefits, impediments and critical success factors in B2C

E-business adoption

Dubelaar et al.

2005

Identified major impediments in the adoption of e-business are: leadership issues, operational issues, technology,

and ineffective solution design. The critical success factors are: e- business knowledge, value proposition &

delivery measurement, customer satisfaction &

retention, monitoring

Bricks-and-mortar vs online

companies: success factors & obstacles in e-business adoption

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internal processes &

competitor activity, and finally building trust.

An investigation of consumers’ webstore shopping: A view of click-and-mortar company

Quantitative study

Doong et al.

2010

Consumers’ offline brand loyalty plays a significant role in decision-making process across both online and offline channels and impacts their purchase intention on the same brand’s online store.

Consumer’s purchase behavior on click-and-mortar company

Table 1: Summary of relevant articles

From the above mentioned summary in Table 1, it is visible that most of the research works have been evolved within four contexts: characteristics of brick-and-mortar, click-and-mortar and online businesses(Adelaar et al. 2003; Enders and Jelassi 2000; Dubelaar et al. 2005;

Doong et al. 2010); impact of digitalization on each type of retailing business model (Weill and Woerner 2013; Betzing et al. 2018; Reinartz et al. 2019); value creation in e-business from both manufacturer and retailer’s perspectives (Amit and Zott 2001; Cao 2014; Reinartz et al.

2019) ; and enhanced value creation through channel integration (Steinfield 2002; Piotrowicz and Cuthbertson 2014; Cao 2014).

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17 2.2 Retail business model (RBM)

According to Reinartz et al. (2019) retailing can be defined as: ‘Retailing as a function is central to all economies: it bridges the varied needs of consumers with specialized offerings of producers. At heart, these retailing functions comprise the building of assortments, physical logistics of merchandise, legal transactions with the consumer, information provision and communication in general, and the rendering of ancillary services’ (p. 350).

Globally, the retail landscape is encountering revolutionary changes due to the boom of the internet era (Sorescu et al. 2011). Though the above mentioned definition aims at the mainstay physical retailing (Reinartz et al. 2019), technological advancement has brought changes in it by adopting new business models (Gatignon et al. 2017). Most retailers nowadays operate as multichannel firms where the customer can reach the retailers through different channels such as offline, online and telephone. Over the years retailers have started to shift their focus from simply selling products towards creating a rewarding customer experience (Sorescu et al.

2011). Different researchers have proposed a set of diverse business models focusing on specific sectors of the economy such as Wieland et al. (2017) on services, Zott and Amit (2010) on manufacturer, or on specific types of business models by Kind et al. (2009); Pauwels and Weiss (2008) and so on (Gatignon et al. 2017). But on retailing the business model by Sorescu et al. (2011) is found to be one and the most acceptable since it combines value creation and appropriation as a prerequisite to understand a business model (Gatignon et al. 2017; Cao 2014;

Sorescu et al. 2011).

Sorescu et al. (2011) specifies how the RBM (retailing business model) is made up of three main components which they name retailing format, activities and governance. These have been used later on in the model presented in the conceptual framework chapter with further explanations. Format refers to the different formats a retailer can use to interact with its customers with structured activities on formats such as online or physical stores. Activities refers to the different activities such as pricing strategy, store design and product assortment.

Governance refers to the different actors including customers involved in creating value for customers as well as incentives mechanisms. Along with these three elements, the authors Sorescu et al. (2011) also put forward 6 design themes with its own approach to enhancing value creation and appropriation through innovation. The first three themes revolve around value creation and are customer efficiency, customer effectiveness and customer engagement.

For value appropriation they name operational efficiency, operational effectiveness and

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18 customer lock-in. They stress the fact that an isolated change to either of these does not constitute as an innovation to the RBM unless it affects other parts of the business model as well Sorescu et al. (2011). The following parts focus on the design themes and concepts put forward by Sorescu et al. (2011).

Design themes:

Operational efficiency refers to doing things right such as cheaper, faster and easier to make the best use of the resources the retailer has available. For retailers this could mean managing inventory levels to optimize turnaround and enhance the store environment to increase sales (Sorescu et al. 2011).

Moving on to operational effectiveness which essentially comes down to doing the right things such as producing the desired results by doing things that reach those goals to the fullest (Sorescu et al. 2011). Examples here include matching the product assortment with demand and having a flexible pricing strategy.

Customer lock-in is based on the retailer’s desire to decrease the customers intention of looking elsewhere or switching to a competitor after they have done some form of initial investment (Sorescu et al. 2011). This strategy has often meant using incentives to get customers to return.

Customer efficiency is all about making the customers access to the products as simple as they can which could involve having multiple locations or ways for customers to get access to products (Sorescu et al. 2011). All of this increases customer convenience which the internet has helped greatly to achieve as customers now can order online or even order online to pick it up at the store.

Customer effectiveness refers to the retailers ability to realize the customers intention of purchasing by helping them find what they are looking for (Sorescu et al. 2011). An example of this is having a wide range of products to increase the possibility that a customer’s needs will be met, a tactic that could be at the cost of efficiency such as keeping cost down.

Customer engagement: This involves the degree to which a retailer can involve customers by designing the customer experience so as to create engagement beyond the purchase (Van Doorn et al. 2010). Retailers want to create engaged customers with a good perception of the brand that they can share with others and identify with the retailer.

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19 2.3 Video game industry

The video game industry is a sector involved in developing and selling video games and employs thousands of people around the world providing entertainment for billions of people (Beattle 2020). Video games have come a long way since the early days of pixelated screens to today's groundbreaking and realistic graphics (Johnson and Woodcock 2019; Beattle 2020).

The cost of development has skyrocketed with the increasing complexity of games and demands from consumers and can now cost wise be compared with Hollywood blockbusters (Beattle 2020, Nieborg and de Kloet 2016). As games are becoming more popular the demographic is expanding with a nearly even gender mix and people from all walks of life coming to play (Beattle 2020; Teipen 2008). Starting as a small cottage industry of hobbyists, hackers and digital tinkerers over the past decades, the industry has always been about innovation, technology, platforms and new experiences (Nieborg and de Kloet 2016; Beattle 2020). The industry has in the past 10-20 years passed many other entertainment industries in terms of immersion (Beattle 2020). As people have moved towards spending more time on their smartphones, new streaming services like PlayStation Network and Xbox Live, and expansive marketplaces like Steam and Good Old Games teeming with independent titles and remastered classics (Payne 2018) and the growing mobile games market have become more important ways of generating revenue (Beattle 2020).

Since 2014 when for the first time sales of digital games eclipsed that of physical ones, the industry has been going through a transformation in terms of distribution of products (Payne 2018). There are not many other industries with such rapid changes both in terms of technology and products offered (Morris 2018). Though games played on personal computers (PC) have pioneered new ways of distributions, during the last few decades rapid expansion of broadband internet, emergence of networked game consoles and multiplayer online worlds have scaled up online distribution of games (Toivonen and Sotamaa 2010). New consoles reach the stores every 7-8 years but new ways to play are constantly evolving with everything from VR (virtual reality) to mobile devices and new player interfaces (Morris 2018). Retailers are struggling to keep up with the changes and what used to be an industry dominated by physical sales is now full of other more convenient ways to distribute games (Waldner et al. 2013). The brick-and- mortar model retailers are challenged not only by the online distributors but also by their increasing revenue via service subscriptions, game expansion, downloadable add-ons, micro- transactions and advertising-based strategies (Toivonen and Sotamaa 2010). In this day and age even publishers are becoming threats to physical stores as they are opening their own online

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20 stores (Morris 2018). The industry is changing and retailers are changing with it, adopting new ways to engage customers and create incentives to come into the stores. With new distribution platforms like Steam and GOG, physical PC games became a thing of the past and consoles appeared to lag behind in terms of efficiently delivering games (Banks 2018; Pullen 2015).

With the newer generation of consoles to keep up they started offering similar digital solutions but still providing incentives to buy physical copies as other actors in the industry have questioned their existence (Toivonen and Sotamaa 2010; Davidovici-Nora 2014). Still consoles are lagging behind in terms of logistics and the way they distribute as retailers like Steam and Origin provide more of an instant gratification (Banks 2018). The question of when consumers will go fully digital has been raised many times and with new services entering the market like Google with their video game streaming service Stadia and Playstation now that might be closer than they think (Morris 2018). When compared to similar entertainment industries such as the music and movie industry going more digital the games industry is very suitable for the same transformation, since they are in digital form from the beginning online distribution seems to be the obvious choice (Toivonen and Sotamaa 2010).

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21 3. Conceptual framework

The chapter includes the proposed research model based on the key concepts and three assumptions to be analyzed further. This proposed research model based on the concept of retail business model depicts relationships among three elements: retailing format, retailing activities and retailing governance in terms of value creation and value appropriation.

3.1 Key concepts

Core elements of Retailing business model

Retailing format: The core element of format refers to the structuring of activities in a coherent way to create a customer experience which is made possible with a combination of elements from the retailing mix. These levels include product assortment, pricing, location customer interface to name a few (Levy and Weitz 2008). The customer interface has been the focus of many retailers which deals with the exchange process. Retailers have to decide where to put their store, figure out in which location they can reach the right customers and which format to use whether it be a physical store or an online shop to maximize the reach (Sorescu et al. 2011.

With this they also have to organize in terms of assortment and style as they are coordinating their online storefronts with their physical to create a coherent experience, such as a click and mortar store (Sorescu et al. 2011). In today’s market customers have many different formats to choose from and it is important for retailers to keep up with competitors as customers choose the formats that best fit their own needs. To deliver a competitive customer experience activities connections within the format needs to be specified to make a clear business model (Zhang 2009).

Retailing activities: Sorescu et al. (2011) describes it as “Refer to acquiring, stocking, displaying and exchanging goods and services that fulfill the customer experience.”(p. 7). How these activities are structured depends on the chosen format and could be activities like store design, product mix, pricing, branding and communication. When it comes to the gaming industry having an extensive product mix and assortment is crucial to attract customers (Banks 2018). Having a good pricing strategy is of utmost importance as customers interested in games often do research into the cheapest offers available (Morris 2018). Having an aggressive sales strategy with customized offers based on customer data communicated to customers could help out retailers significantly. Design comes into play when trying to attract customers is an

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22 important retail activity for both online and in physical stores (Banks 2018). Adoption of new technology is something that also comes into play here and can be combined with activities that enhance customer engagement and its brand identification (Borghini et al. 2009).

Retailing governance: Sorescu et al. (2011) describes it as “Refers to the actors involved in creating and delivering customer experiences, as well as the mechanisms (such as contract and incentive systems) that motivate these actors to carry out their roles in fulfilling the customer experience.”(p.7). Actors here also include customers and the retailer’s network of actors through its supply chain where for example customer reviews has helped shape customer interface. Suppliers also have a part to play as they too can react to customers changing needs and modify their assortment to better fulfill the customer experience (Coughlan and Soberman 2005).

Value creation: Value creation simply put is the value created for customers, it is the way a company acts and the activities it undertakes to create value for its customers (Sorescu et al.

2011). According to the researchers, creating value for customers can be done in many different ways such as having sales effectively giving them more value for their money spent, being able to order online creates value for customers thinking ordering is more convenient or are unable to get to a store. The list of creative activities and format options is endless with customers also being part of this creation process by for example leaving reviews for other customers that rely on these to make purchase decisions (Sorescu et al. 2011).

Value appropriation: Much like value creation is for the customers value appropriation is for the retailers and its partners (Sorescu et al. 2011). The researchers have stated that value can be created in many different ways such as supply chain maximization as well as setting up a website collecting important customer information to be used to have tailor made sales strategies.

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23 3.2 Proposed research model

Based on the literature review and the theoretical key concepts, authors have developed the following research model (see Figure 1), inspired by Sorescu et al. (2011)’s proposed retail business model. Here, actors have been defined within the context of the video game industry.

Figure 1: Research model: Adapted from “Innovations in retail business models” by Sorescu et al. (2011)

3.3 Assumptions

After having gone through relevant articles and created a proposed model (Figure 1) authors present the following assumptions to be tested:

A1: Adopting new technology in retailing format and activities, retailers can ensure enhanced customer value and engagement.

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24 A2: Different actors’ contribution in a retailer’s governance mechanism due to technological development can create enhanced value for customers, which in turn can help the retailer to maximize value appropriation.

A3: A change in existing one or more elements in the retailing business model (i.e. retailing format, activities and governance) lead to change in other elements resulting in a retail model innovation and generate new options for value creation and appropriation.

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25 4. Method

In this chapter, the whole research process has been documented including different aspects of methodological steps such as research approach, design, strategy, data collection method

& instruments, sampling strategy along with data analyzis method. Moreover, it has been enhanced with reflecting on ethical aspects and quality criteria of this study.

4.1 Research approach

According to Bryman and Bell (2015), there are two research approaches to connect theory with empirical finding in a research, which are inductive reasoning and deductive reasoning.

In inductive approach known as ‘bottom up’ approach (Bryman and Bell 2015), researchers begin with identifying patterns in collected data and move forward to build their theory or conceptual framework, whereas the opposite is the deductive approach starting with theory before collection or analyzis of data (Hair et al. 2011; Bryman and Bell 2015). Since in this study authors intend to find answer of the research questions based on a conceptual framework rooted to ‘the retailing business model’ by Sorescu et al. (2011), deductive approach is found to be appropriate for its nature of ‘theory testing’ process rather than building theory from collected data (Carson et al. 2001; Hair et al. 2011).

To employ deductive reasoning in a research project two research approaches such as qualitative and quantitative approaches can be followed (Hair et al. 2011; Bryman and Bell 2015). Qualitative research is considered to be the most appropriate one in a situation, when the topic of interest or a research problem is less known and the research question is incompletely explained by the previous research (Hair et al. 2011). In this study, existing research only highlights the eroding position of physical retailers in the video game industry (Payne 2018), but does not give clear understanding on retailer’s business models due to digital transformation of the industry (Baden-Fuller and Mangematin 2013). Therefore, a qualitative research approach is in line with the purpose of study and the most suitable approach.

4.2 Research design

According to Hair et al. (2011) researchers can employ many research designs to study business problems among which three designs are prominent: exploratory, descriptive and causal design.

Bryman and Bell (2015) have argued that research design is crucial for research, as it impacts the outcome of the study. It defines the outline of the study aiming at the purpose of the study

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26 (Saunders et al. 2009). Exploratory research is employed when the researcher has little knowledge about the problem or opportunity and intends to identify new relationships, patterns, themes, ideas and so on (Hair et al. 2011). Hair et al. (2011) have further argued that this research design is highly preferred by the practitioners in technology intensive innovative industries aiming to identify technologies to meet both business and customer needs. With such understanding authors have preferred to use exploratory research design, as this study is carried out in a technology intensive industry addressing a less explored field of research.

4.3 Research strategy

According to Saunders et al. (2009), the choice of research strategy depends on the research questions and objectives, the depth of existing knowledge, the span of time and other available resources. In this context, considering these conditions researchers have decided to follow a multiple-case study research design for this exploratory study. Several researchers (Bonoma 1985; Eisenhardt 1989; Morgan and Smircich 1980; Yin 2014) have suggested the use of the case study method in the studies underpinning an exploratory or descriptive nature. Moreover, this research method has allowed researchers to investigate a contemporary phenomenon or a set of events in depth within the context of a real-world case (Yin and Davis 2007), following a ‘how’ or ‘why’ research question (Yin 2014).

The core motivating factors behind adopting this research strategy are: (i) the exploratory nature of the study and (ii) the fact that the impact of e-commerce on retailer’s business model is a contemporary phenomenon rather than historical. According to Yin (2014) researchers have almost no control over this phenomenon. Since this study intends to have in-depth understanding of retailers’ (Doong et al. 2010) business models following other actors’

influence in the gaming industry, the choice of a multiple-case design has found to be well- justified. Moreover, authors have focused on the individual cases of retailers along with their unique contexts to generate findings, which have met the basic rule of thumb for a multiple- case study design (Bryman et al. 2019). Though a multiple-case study is time consuming and complex in nature, it allows researchers to identify differences or similarities within and between cases based on theory (Yin 2014; Eisenhardt 1991; Bryman et al. 2019).

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27 4.4 Data collection method

As an initial step of exploratory research, a literature review has been conducted (Hair et al.

2011), utilizing peer-reviewed articles, industry reports, company website and other articles from reliable sources. This has worked as a base to design data collection methods and implement qualitative techniques while collecting primary data. This multiple-case study has been conducted on two click-and-mortar retailers in the video game industry. Furthermore, data has also been collected from customers, another important actor in the video game industry, as they are actively contributing in transforming or innovating retailer’s business model (Sorescru et al. 2011). For this purpose, fourteen video game players or customers have been reached following specific data collection instruments. Authors have also gathered secondary data from different reliable sources like company websites, industry review reports, articles and so on to enhance the quality of the data analyzis process (Bryman and Bell 2015).

In qualitative research, basically two broad approaches such as observation and interviews are employed to collect qualitative data (Hair et al. 2011). In order to ensure cross-case comparability along with a standardized approach in a multiple-case study, researchers have agreed to use a qualitative interview technique (Bryman et al. 1996; Bryman et al. 2019). It reflects more on the interviewee’s own perspective rather than the researcher’s concerns as in quantitative research (Bryman et al. 2019) and gives researchers greater opportunity to increase participation rates by explaining the importance of the projects and their valuable contribution in it (Hair et al. 2019). Interviews can differ from being highly structured one to highly unstructured one using a variety of forms such as face-to-face, or via telephone, emails and Skype (Hair et al. 2019; Bryman et al. 2019). In this study, for each case of retailer, authors have conducted online personal interviews (Bryman et al. 2019) to collect primary data. Due to the locations of retailers in different cities (e.g. Stockholm, Gothenburg, Karlstad and so on) as well as the outbreak of Coronavirus pandemic, online personal interviews via emails have been preferred over face-to-face interviews. In this process for greater commitment and motivation, authors have exchanged several messages with the respondents for instance CEO and Product Managers of the respective retailer, as suggested by Bryman et al. (2019) to reassure the significance of their valuable contribution. As a consequence, it has built a

‘relationship of mutual trust’ (Mann and Stewart 2000, cited by Bryman et al. 2019) with the managers; which let authors to go back to them for further information and clarification.

Moreover, respondents have had enough time to ponder upon all those supplied questions and

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28 given more detailed answers in comparison to a face-to-face interview as argued by Bryman et al. (2019). Finally, semi-structured face-to-face interviews have been conducted to collect data from the consumers, that is the video-game players. This technique allows researchers to explore respondent’s perceptions and motives about less explored research topics and gives an opportunity for the researchers to clarify their answers further (Barriball and While 1994).

Following this technique, authors could delve deeply into a response to figure out all possible motives behind any particular consumer behavior (Hair et al. 2019). But in response to the unavoidable situation of social distancing during the Coronavirus pandemic, a few interviews have been conducted via Discord and Skype. In agreement with Bryman et al. (2019) authors have found it more time and cost savings and flexible than the face-to-face interview to some extent. In this regard, interviews were audio recorded and transcribed. The average timespan of each interview was approximately 25-30 minutes.

4.5 Data collection instruments

4.5.1 Structured interview schedule & interview guide

To meet the purpose of this study, authors have utilized both open-ended questions and an interview guide to conduct online personal interviews and semi-structured face-to-face interviews respectively. While conducting online personal interviews with the retailers, a structured interview schedule with a set of predetermined open-ended questions (Hair et al.

2011) have been used for each interview. The conceptual framework has worked as root to design this interview schedule. According to Hair et al. (2011), it has helped authors to avoid any inconsistency during interviews, as they have offered equal opportunity to each respondent to respond. For face-to-face interviews, an interview guide consisting of a list of addressable questions has been used; which is less specific than a structured interview schedule (Bryman et al. 2019). This interview guide has been developed with an aim to ask relevant questions considering the theoretical aspects and to stay on the right track, (Bryman et al. 2019; Hair et al. 2011) based on the conceptual framework on ‘retail business model’. Semi-structured nature of the face-to-face interview creates such a flexible atmosphere that authors could pursue open conversation with the video-game players to gain in-depth understanding on the phenomenon (Bryman and Bell 2015; Saunders et al. 2009). While conducting semi-structured interviews, the first interview has been carried out as a pretest to revise the interview schedule.

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29 4.5.2 Operationalization

Authors have drafted the following operationalization table (see Table 2) based on the research question and the conceptual framework. It has worked as a core guideline while pursuing this research.

Literatures Conceptual Practical themes Questions:

Retailers

(See Appendix 1)

Questions:

Consumers (See Appendix 1) Retailing

format (VC)

It refers to the organization of selected retailing activities aiming to fulfil customer experience (Sorescu et al. 2011). It depicts a combination of retailing mix like product assortment, pricing strategy, location, customer interface, and so forth (Levy and Weitz 2008).

● Dilemma of deciding where to sell the video games (for example click and mortar or mobile commerce)

● Level of convenience offered to customers (location, interface, product mix and pricing)

Q:1 Q:2 Q:4b Q:6

Q:4 Q:6a Q:9

Retailing activities (VC)

It deals with acquiring, stocking, displaying and exchanging goods and services to deliver customer experience following the adopted retail format (Sorescu et al. 2011). It focuses on designing retailing activities within a specific retail format to enhance customer engagement (Borghini et al. 2009).

● Adapting and

promoting new

technologies to satisfy customer needs (communication

strategy and supply chain optimization).

● Enhanced customer engagement through virtual/physical store design and atmosphere.

Q:1 Q:3 Q:6

Q:5 Q:6a

Retailing It refers to all actors involved in ● Developers’ chain of Q:4a Q:6b

Is it game over for physical retailers?: A study on Swedish video game industry

Master thesis

Is it game over for physical retailers?

A study on Swedish video game industry

Table of contents