Sony Strategy

Topics: PlayStation 3, Video game console, Xbox 360 Pages: 15 (5402 words) Published: March 20, 2015
Sony Corporation and the
Video Game Console Market:
1
A Competitive Analysis

By Ryan Bogner, Peter Hung, Guan Wang, and Steven Wang

1

This report evaluates Sony Corporation’s strategy in the console gaming market from the top-down perspective of the entire corporation.

Executive Summary
Sony’s current strategy in the video game console market is simple: use the technologically superior Playstation 3 as a loss leader to introduce the Blu-ray optical drive2 into consumers’ homes and leverage that market penetration to drive content sales once Blu-ray is established as the de facto standard for optical storage. It is therefore in Sony’s interest to reach the tipping point for market adoption of Blu-ray as soon as possible. To increase the rate of Blu-ray adoption in the market, we recommend that Sony adopt a “good-better-best” strategy, whereby Sony produces discounted and premium versions of the current Playstation 3 for sale to consumers. This strategy will encourage price-sensitive customers to purchase Playstation 3 consoles without marginalizing power gamers. Nintendo and Microsoft will most likely respond to this strategy with differentiation rather than price competition. If Sony reinforces this strategy with coherent marketing and intellectual property strategies, it can increase Blu-ray adoption rates and make it more likely that the format will be adopted as a standard. The Market for Video Game Consoles is Growing, but Competition is Fierce The market for interactive video entertainment is growing; this market grew four percent over the same period two years ago. 3 However, all players in the market are facing increased competitive pressures. Substitutes for console gaming are growing rapidly (such as massive multiplayer online games, as shown in Figure 1), and as the first generation of console players reach maturity, many players will shift to these substitutes, a problem known as gamer drift. The three main competitors are Nintendo, Sony, and Microsoft. The three are fairly dichotomous, either innovative and user friendly or technologically pushing the envelope. Nintendo has made its mission to do the first.4 Sony and Microsoft both fall in to the latter category. Thus, safe in a fairly differentiated position, Nintendo is in a dominant position in the marketplace. It has the expertise and reputation to not only maintain its position, but push out would be competitors. This has paid off and Nintendo sales of the Wii are far outpacing original expectations. Sony is no longer dominating the market, and compared to the previous distribution of demand for gaming consoles is losing significant ground. In terms of market share, Microsoft has stayed in about the same position as the previous generation of consoles. (See Figure 2.)

The consumer market is segmented mainly by age. The casual gamer, consumers who do not treat gaming as their main source of entertainment, represents 36 percent of the market.5 This

2

A Blu-ray optical drive plays high density Blu-ray disks up to ten times the capacity of current DVDs. For more information, please refer to the “Blu-ray Disc” entry on Wikipedia, available at http://en.wikipedia.org/wiki/Blu-ray. 3

“Annual US Video Game Sales,” The NPD Group,
http://retailindustry.about.com/od/seg_toys/a/bl_npd012703.htm 4
“The development of games that are more complex and graphically intense has been the focus of game companies for too long. . . . Nintendo has implemented a strategy, which encourages people around the world to play video games regardless of their age, gender of cultural background. Our goal is to expand the gaming population.” – Satoru Iwata, Nintendo President & CEO, in Nintendo’s 2006 Annual Report 5

“Annual US Video Game Sales,” The NPD Group,
http://retailindustry.about.com/od/seg_toys/a/bl_npd012703.htm

group tends to be between the age of 18 and 24 and white.6 Nintendo is aggressively courting non-traditional gaming groups outside this...
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