4 lessons that Xbox taught the world – Harvey Lee's keynote

Recently, Hall & Partners hosted a room full of insight and marketing leads from across the industry at our Brand Growth Accelerator event in London.

We unveiled our revamped brand intelligence platform, Enlyta Insights, and welcomed keynote speaker Harvey Lee, former Head of Platform Product Marketing (EMEA) for Xbox, to lead us in a discussion about the challenges and successes that made Xbox the brand it is today – a brand boasting 45% revenue growth over the last three years.

A fireside chat followed, featuring an all-star panel including Philip Nellenbach, Head of Consumer & Brand Insight at Holland & Barrett, Debra Walmsley, Customer Insight Consultant for Virgin Atlantic, Rufus Weston, Insight Director at Nike, and Josh Sorene, Global Head of Brand and Reputation Insights at HSBC.

The inspiring keynote from Harvey Lee unearthed a clear set of fundamental lessons crucial to the long-term success of any business. We have outlined them here in the hopes that they also inspire something for you and your brand.

The inside story of Xbox's meteoric rise and the consumer insights that built a successful global brand

Harvey Lee spent 20 years in the video game industry, where he became best known for helping to launch the first Xbox. Inheriting a startup-like team within Microsoft in 2001, Lee managed three generations of Xbox in Europe over 12 years. But the road to success was paved with a host of marketing challenges, for which Lee shared four key lessons he learned along the way – lessons that can be applied to any business in any industry today.

Lesson 1: The power of reverse thinking: what would happen if we didn't do it?

Nearly 30 years ago, when Microsoft launched Windows 95, it was marketed as a 'pop culture phenomenon.' As the business grew, the time came to invest outside the OS arena and expand across other verticals. Microsoft's goal was to scale up its footprint in the consumer space. How? Through a new gaming offering.

On 14 February 2000, Bill Gates met with a host of gaming executives and senior engineers to make a business case for gaming. The meeting dragged on for five hours until a simple question was asked: 'What about Sony?' At the time, Sony was well on its way to 'owning the living room' with offerings across TV, music, film, etc. If Microsoft did not do something, it faced the threat of being boxed out of the consumer's living room.

The question, 'What about Sony?' prompted immediate approval of the Xbox, and 20 months later, the first Xbox was launched. The Xbox was approved by simply asking, 'What would happen if we didn't do it?'

Lesson 2: If you don’t position your brand well, the market will do it for you. And you may not like the outcome

Lee describes brand positioning as the #1 thing consumers will remember about your business. It involves understanding what your brand stands for and against and addressing the '3 C's': Customer, Competitor, and Company.

Lee drew on Xbox's first brand positioning to bring this framework to life.

• What was Xbox for? Raw power, i.e., the most powerful console ever made.
• What was Xbox against? Sony's takeover of the living room.
• What did customers want? Better games and graphics.
• What could Microsoft do better than Sony? Online gaming and HD graphics.
• How could Microsoft deliver on their desired 'raw power' positioning? Rely on its legacy PC heritage.

Xbox's initial positioning focused on being the most powerful console in order to overtake Sony. However, according to Lee, the reality was that games sold systems, not the other way around.

That said, few games were Xbox exclusives, and most of the games Xbox featured were US-centric, like MLB, ice hockey and American football, alienating the European market.

Enter: Halo. A game that became so popular that it singlehandedly sold the first-generation Xbox. For every two systems sold, one would sell with a copy of Halo. That said, Xbox lacked other in-demand games like the original Grand Theft Auto and FIFA football to diversify its offering. With only Halo to rely on, Xbox became colloquially known as the 'Shooter Box.'

While Xbox came to market with a clear positioning strategy, it lacked the RTBs to back it up, leaving it up to the market to reposition the brand based on what they knew of it: Halo. Not delivering the right portfolio of games took Xbox positioning out of Microsoft's hands and put it in the hands of consumers.

The result was losses for Microsoft in excess of three times their budgeted projection on the first-generation Xbox. The only way Xbox could recover was by revisiting and delivering on all three C's – building the most powerful system fit for the future and offering the broad suite of games consumers demanded in the European market.

Lesson 3: How you show up in tough times determines your future – it can even grow your business

The Xbox 360 had learned from its predecessor's mistakes and had taken a healthy lead in the new console generation. Until, a year after launch, customer service calls flooded in regarding an 'unknown hardware error' denoted by 3 red lights on the console. The return rate spiked, with one in five of the installed base sending their systems back.

After eight weeks of issues and Microsoft being no closer to a solution, the public deemed the crisis the 'red ring of death,' yet another affectionate rebrand for Xbox by consumers.

Unsure of how to address customers, Microsoft was trapped in a 'decision-making vacuum.' Finally, crisis management kicked in, and executives implemented a plan to overcorrect the issue by investing $1.15bn to fix or replace impaired systems in five days and extend their warranties.

The investment paid off, with the share price recovering in 2007 and peaking the following year. The Xbox 360 finished out its generation in 2012 as the market leader, with a 46% share of the wallet, bigger than that of Sony and Nintendo systems combined.

Xbox experienced an 'extinction level crisis' with the Xbox 360 but was still able to win the category because it addressed three key points of crisis management:

1. Acknowledging the issue
2. Top people taking responsibility
3. Overcorrecting

Lesson 4: Hold the wheel. If you know your plan is great, don't change it

Fast forward to November 2013: Microsoft was set to release its third-generation console, Xbox One, just a week before Sony released the PlayStation 4.

According to Lee, Xbox's go-to-market planning had never been tighter. Their #1 priority was to win the core gamer audience by offering a diverse lineup of games. Secondarily, Xbox now wanted to be seen as more of a holistic entertainment ecosystem, so the new system featured a TV set-top box.

Despite a clear go-to-market plan, the marketing for Xbox One was ultimately centred around the broader aspirational goal of 'owning the living room.' As such, the buzz generated around the new system was more focused on the TV element, which was widely detached from the needs of core gamers, i.e., a diverse lineup of games.

What's more, Microsoft also announced a digital rights management initiative in an attempt to interrupt the secondary market. Negative reactions from gamers and retailers prompted Microsoft to exclude the digital rights from the new OS in the eleventh hour.

Microsoft's not sticking to their original go-to-market strategy for winning core gamers meant Sony was able to swoop in and easily capture the market with their release of the PS4, which was marketed as a cheaper system with promises of great games and no digital rights.

The impact on Xbox? An entire generation of sales was over before it started. Jumbled messaging from Microsoft vs. clear, targeted comms from Sony meant Xbox could not recover its sales momentum and was significantly outsold by PlayStation at launch.

Had Xbox's marketing team stuck to its original strategy, it might have continued its sales trajectory over Sony. Xbox saw a recovery in sales with the release of the Xbox Series X some years later.

Keeping the pulse on the voice and needs of the consumer is paramount to the success of any brand.

Xbox's success was rooted in valuable insights, while its missteps resulted from discounting those insights.

Positioning the Xbox in a way that aligned with its audience's needs, i.e., offering a diverse suite of games coupled with thoughtful customer support, eventually led to considerable growth of the brand.

Gone are the days of one-way conversations. Consumers are empowered, with greater choice, more influence, and a healthy dose of skepticism. Relationships are hard won, yet quickly lost. People expect brands to not just talk at them but to truly value them. Brands must build relationships with customers that matter, supporting both long and short-term growth.

Hall & Partners power the world's most successful brands. We work with various clients across industries to understand the brand and market landscape, monitor brand reputation and perceptions, assess comms performance, and determine whether messages are landing as intended to support brand positioning. Because we work across the brand planning cycle, we partner with our clients across different stages of development to build an insights roadmap for growth.

We believe in democratising data to help clients make decisions quickly and efficiently. Our award-winning brand intelligence platform, Enlyta, ensures insights are easily available to stakeholders to inform strategic decision-making and enable commercial storytelling that travels across the business.