Biting off all it can chew
THE IT INDUSTRY hasn’t been shielded from the economic downturn and corporate cost-cutting but there are a few areas still going gangbusters. The Core Group, exclusive distributors of Apple and Nintendo products in South Africa, inhabits such a space. Core chief Rutger-Jan (RJ) van Spaandonk says its core philosophy is to swim in the blue ocean away from the sharks. “We operate in uncontested markets.”
A turnover currently sitting at around R1bn and a growth rate of 45%/year since 2001 attest to that. Core has 175 staff. Worldwide games console sales have surged, defying the downturn as consumers opt for home entertainment instead of expensive holidays. Nintendo’s groundbreaking Wii overtook rivals in third quarter 2008 as the best-selling games console in SA, despite the fact its main rival (in terms of price, at least), the Xbox 360, has been on the market for a year longer.
“We could hit 100 000 units of the Wii this Christmas – and that’s after only five quarters on the market. But we shouldn’t even be comparing the Wii with the Xbox or PS3. Our market is the traditional non-gamer and families. Many buyers don’t even know it’s a ‘console’,” says Van Spaandonk.
With the Wii, Core is targeting the 1/20 households in SA that can afford a console but don’t own one. “We actively target women with the Wii with titles such as Fit. Research shows women with body image issues are in fact those who don’t feel comfortable to go to a gym. On the DS, Brain Training is the top selling title,” says Van Spaandonk. It’s a far cry from the shoot-em-ups (many of which have “adults-only” ratings) that’s the staple of Nintendo’s rivals.
The Wii should also maintain its momentum even as rivals develop more family-friendly fare. The business models of Sony and Microsoft will keep it locked into its console development schedule. “It takes about five years to develop a platform and just as long to start making money on consoles,” says Van Spaandonk. Console gaming follows the razor and blade principle: sell the consoles at a deep discount and make money from games.
How the Wii has transformed the electronic games market with its innovative motion-sensitive controller and how it transformed Japan’s Nintendo from the brink of bankruptcy to the most profitable of the three is worthy of an MBA course. However, it hasn’t been enough just to box-drop consoles in the SA market. When Core negotiated the distributorship for Nintendo early last year what clinched the deal, says Van Spaandonk, was the group’s model of being a “brand custodian” and not simply an importer and distributor.
“Usually importers leave it to the retailers to advertise and market the products. We do much of it ourselves,” says Van Spaandonk.
Core’s go-to-market strategy has also worked well for its Apple franchise. Apart from the iPhone (where Vodacom is the importer), Core is Apple’s sole independent marketing company in SA after the other licensee went under. Core also operates three physical stores on behalf of Apple and is opening another in Sandton. “Our overall market share is tiny but in the R10 000 plus bracket we have a 15% and growing market share. Our philosophy has always been that technology is personal and that brands are important,” says Van Spaandonk.
Other PC vendors, including HP and Dell, have been copying the Apple strategy, recently targeting the consumer with cool designs and even own-brand only stores as large corporate orders for business machines dry up. Core’s market has never been large companies, but individuals and the education market. It hasn’t all been plain sailing for Core in 2008. When it broke off its relationship with TomTom in May it made the business front pages in Amsterdam, where the personal navigation company is listed. While all sorts of rumours were flying around when the deal went sour, Van Spaandonk says it was a business decision plain and simple. “Contractual obligations weren’t fulfilled and the right marketing support wasn’t forthcoming.”
The break with TomTom could turn out to be a blessing for Core. The personal navigation market is increasingly becoming one of high volume and low margin. GPS can now also be found in millions of cellphones. Many analysts say 2008 will be the last good Christmas for stand-alone personal navigation devices.
And what’s next for Core? “No technology this year has really come along that could complement our model like Nintendo or Apple. But there will always be new stuff that changes the market. We’ll see, we’ll see,” says Van Spaandonk.
Finweek
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