Technology and Innovation Strategy
Individual Assignment: “Nintendo Wii” (09/25/2012)
Matteo Berzoini ID: 1432814
1. How attractive is the video game console industry in 2008?
As Sony attempts to regain industry leadership from Nintendo, what lessons should Kuzuo Hirai learn from the history of the video game industry? How has the structural attractiveness of the industry changed over time?
What are Sony’s strategic options for regaining industry leadership? As Kazuo Hirai, which option would you pursue?
1. The video games industry is the economic sector involved in the development, manufacturing and selling of electronic gaming devices, software, and accessories. The case study focuses on video game consoles (also known as platforms), electronic systems that are primarily used for playing video games on a TV. In the past decades, the video game industry has become a huge part of the entertainment industry: it started as a small market niche in 1972 and, since then, has rapidly grown from focused markets to mainstream. I chose to use “Porter’s Five Forces” model to better understand the underlying factors influencing the overall attractiveness of the video game industry. Intensity of rivalry: historically, a high level of concentration has characterized the video game industry since the beginning, with few firms dominating the entire market. In 2008, Nintendo, Sony and Microsoft were controlling the majority of the market and the intensity of rivalry was quite low. Having said that, the fight for market shares between these 3 leaders has always been intense even if, thanks to the rapid growth of the market, a price war was never started. This doesn’t mean that all the consoles had the same price-positioning strategy: in 2008, there were consistent pricing differences between the three products and companies strove to provide the best price for value, so we can say that priced-base rivalry existed among the three companies. Moreover, each firm chose a different product differentiation strategy, which ultimately lead to higher switching costs and reduced the level of rivalry. Therefore, we can conclude that the video game industry was a rapidly growing sector with a small number of competitors and a huge potential for profits. Bargaining power of buyers: as already said before, consoles-customers face high switching costs: when a customers chooses a platform, which is usually expensive, he implicitly accepts not to play video games that are not compatible with it and, because of the console’s high price, that he won’t be able to change it in the short term. This is why consumers expect a good price for value and a wide selection of compatible videogames. As a consequence, the launch of a new console represents a unique opportunity, for producers, to acquire long-term customers and to “steal” them from other competitors. On the other side, once a client is lost, it will be difficult to gain him back until a new platform is launched. However, in conclusion, we can say that, with few producers and many individual customers on the market, the buyer’s power is quite weak. Bargaining power of suppliers: Sony, Microsoft and Nintendo chose to outsource the manufacturing of the key (hardware) components of their consoles, a decision that gave a lot of power to their suppliers and made them responsible for their day-by-day production. Therefore, they play a key role in the success of a new product, mainly because they manufacture the most important hardware components that will be, at the end, evaluated by customers. The processor, the graphic card and the audio card have a drastic impact on the games’ level of involvement and deeply affect the overall quality of the platform. Moreover, in the light of the strategic role that consoles’ suppliers had in the past, we can conclude that the...
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