Topics: Marketing, Video game console, Video game Pages: 11 (1631 words) Published: June 5, 2014
Chapter 13


Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Deployment Tactics in the U.S.
Video Game Industry
• After the Atari/Coleco video game generation crashed, Nintendo was able to enter with an 8-bit system and rise to dominance by selling on consignment, alleviating retailers’ risk. It had a near monopoly from 1985-1989.

• In 1989, Sega was able to overthrow Nintendo’s dominance by introducing a 16-bit system 1½ years before Nintendo.
• Sony was able to break into the video game industry by introducing a 32-bit system, investing heavily in game development, and leveraging its massive clout with distributors.
• In late 2001, Microsoft entered the video game industry with a 128-bit system. It had an advanced machine, and spent a lot on marketing and games, but Playstation2 (also 128-bit) already had an installed base of 20 million.

• In late 2005, Microsoft introduces the Xbox 360, beating the Playstation3 to market. Would it be able to displace Sony as the dominant console producer in this generation?

Deployment Tactics in the U.S.
Video Game Industry
Discussion Questions:
1. What factors do you think enabled Sega to break Nintendo’s near monopoly of the U.S. video game console market in the late
2. Why did Nintendo choose to not make its video game consoles backward compatible? What were the advantages and
disadvantages of this strategy?
3. What strengths and weaknesses did Sony have when it entered the video game market in 1995?
4. What strengths and weaknesses did Microsoft have when it
entered the video game market in 2001?
5. Comparing the deployment strategies used by the firms in each of the generations, can you identify any timing, licensing, pricing, marketing, or distribution strategies that appear to have influenced firms’ success and failure in the video game industry?


• A large part of the value of a technological
innovation is determined by the degree to
which people understand and use it.
• An effective deployment strategy is thus a
key element in a technological innovation
• Some of the key elements of an effective
deployment strategy include timing,
licensing and compatibility, pricing,
distribution, and marketing.

Launch Timing
• The timing of a market launch can be an
important deployment strategy
– Strategic Launch Timing
• Firms can use the timing of product launch to take
advantage of business cycle or seasonal effects
– E.g., video game consoles are always launched just before Christmas.

• Timing also signals customers about the generation
of technology the product represents.
– E.g., if too early, may not be seen as “next generation”

• Timing must be coordinated with production
capacity and complements availability, or launch
could be weak.

Launch Timing
– Optimizing Cash Flow versus Embracing
• Traditionally firms managed product lifecycles to optimize cash flow and return on investment  would not introduce new
generation while old generation selling well.
• However, in industries with increasing returns this is risky. • Often better for firm to invest in continuous innovation and willing cannibalize its own products to make it difficult for competitors to gain a technological lead.

– Cannibalization: when a firm’s sales of one product (or at one location) diminish its sales of another (or another location).


Licensing and Compatibility
– Protecting a technology too little can result in low
quality complements and clones
– Protecting too much may impede development of
– Firm must carefully decide:
• How compatible to be with products of others
– If firm is dominant, generally prefers incompatibility with others’ platforms but may use controlled licensing for complements.
– If firm is at installed base disadvantage, generally prefers some...
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