Wii free essay sample

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. We will write a custom essay sample on Wii or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 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 â€Å"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 bargaining power of suppliers is quite high. Availability of substitutes: Dissatisfied customers can choose between lots of substitute products within the market, that among others comprise PC games, handheld video game devices, Smartphones, board games and other â€Å"physical† toys. Even if choosing a substitute product means facing high switching costs, the entertainment market is able to satisfy a wide range of different needs and tastes, making the threat of substitutions, for the video game industry, high. Threat of new entrants: The video game sector is a technology driven industry where a huge amount of resources are invested in the Ramp;D department: as a consequence, the initial investment needed to enter the market is almost prohibitive for small and medium sized firms. In addition, all the 3 market leaders have a strong brand power, with a loyal customer base willing to spend a lot of money for their cutting-edge products: raising brand awareness would be a very difficult achievement for newcomers. With very few companies entering in the market during the entire industry’s life and the difficulties highlighted above, we can conclude that the concentration and size of the existing companies would make it difficult, for a new company, to enter and obtain a portion of the market share. 2. The history of the video game industry has been characterized by rapid and frequent changes of fortune, often resulting in radical turnarounds that redefined its benchmarks and standards. To understand this trend, it is important to keep in mind that this industry has been cyclical in nature in response to the introduction of a new technology. With the release of a new platform, (approximately every five years) the product’s sales increase drastically, especially during the launch phase, while the older platform and all its related accessories begin to be obsolete. The introduction of a technological discontinuity (represented by the new generation console) can overturn the existing competitive structure of an industry, creating new leaders and losers. Shumpeterian’s creative destruction can be difficult to manage and the market often finds itself unprepared. Therefore, every manager should always consider the risk of product cannibalization and the uncertainty that comes along with technological innovations. Another important lesson that Mr. Hirai should learn is about the role that network externalities play in the market. Network externalities are present when the value of a product increases with the number of others using it. Within the video games industry, the success of a new platform is strictly related to the availability and quality of complementary goods (games) and, at the same time, products that have a large installed base are more likely to attract developers of complementary goods. Since the availability of appealing video games will influence users’ choice of the platform, the availability of video games will influence the size of the installed base, in a virtuous self-reinforcing cycle. Given the situation highlighted above, it becomes crucial for console companies to establish some sort of stable relationship with video games producers, in order to assure a minimum standard quality for the complementary goods. Other strategic alliances could be useful, for example with strategic components’ suppliers: it is crucial, for Sony, to keep ensuring a high level of flexibility (in terms of software compatibility and licensing model) to its strategic suppliers in order to minimize in-house development and to exploit core capabilities of business partners. But along with strategic alliances comes the risk of â€Å"technological spill over† (i. e. the result of a spread of knowledge – usually from the Ramp;D department- across the organizational boundaries). In the case of Atari, as presented in the study, the spill over was caused by four former Atari’s programmers who left the company to start up a parallel venture based on Atari’s know how and technologies. However, the problem was solved with the introduction of an authentication chip that prevented independent developers from marketing unauthorized games. Finally, one last lesson can be learned from the case study: the first mover advantage doesn’t always mean success. As seen in the case study, Microsoft worked hard to snatch the first mover advantage from Sony and launched its Xbox 360 a full year before both PlayStation 3 and Nintendo’s Wii. Even if the console sold out at launch, the high price combined with supply shortages resulted in heavy marginal losses for the American company. Nintendo, on the other side, focused more on being innovative than on being the first mover, and, as a result, between the release and August 2008 it outsold the two rivals in every month except one. Being different and innovative sometimes means much more than being the first. To conclude, the attractiveness of the video game industry has been changing over time, depending on the different role played by consoles through the years. Until the end of the 90’, platforms were only seen as mere hardware infrastructures on which hit games were played. Nowadays, consumers have become increasingly aware of the central role played by these products in providing a unique gaming experience: the purchasing process of a console is a critic and pondered decision based both on price and hardware characteristics. The market is rapidly growing, its competitors strive to provide customers with the most innovative and advanced products and profit margins continue to be relatively high. In addition, there’s room for improvement: in a few years, consoles will be technologically ready to take the lead role and become media centres. Producers are facing the opportunity to sell an all-in-one device that could make people’s life easier by aggregating every form of home digital entertaining, including video games. Ultimately, we can say that not only the market is attractive, but it also has excellent development potential for the future. 3. To regain its leadership, Sony can choose between the following strategies: Becoming a Wii follower: Nintendo’s Wii success showed, as said before, that being innovative and user friendly might be the keys to succeed in the business. Even if the video game industry is a technology driven sector, trying to think â€Å"out of the box† turns out to be, sometimes, a more valuable resource than having the most advanced product in the market. Nintendo opened a niche that was never explored before: videogames not just for teenagers or young adults but also for families. By following the Wii strategy, Sony would create a new kind of product (compared to ones generally sold by the company) and expand its existing customer base, by focusing on a not-completely-tapped segment of non-traditional gamers that, regardless of their ages and genres, are looking for a simpler and less time-consuming way of entertaining themselves. Stick to the core: Sony could choose to stay focused on its core business and to invest its resources in fine-tuning the existing technologies and trying to redefine its market position. This strategy will require specific investments in business areas, such as the online multiplayer gaming area and the online marketplace, where additional games and features could be sold. Moreover, a huge marketing campaign would be needed in order to convey a new image of the company’s main product (PlayStation 3) and to communicate its own uniqueness. PlayStation 3 should be seen as a sort of time machine, able to let users escape from routine and reality to a reign where everything is possible. The product should become a must have for users who want to spend their leisure time just relaxing and experiencing a revitalizing mental escape. By expanding, in the customer’s perceptions, the traditional horizon of a video game console, Sony would be also able to detach itself from other videogames consoles, often seen as a mere mean of distraction or, even worse, as a luxury toy for teenagers. Becoming an all-in-one digital media centre: By choosing this option, Sony would have the chance to widen its customer base like never before, since the potential consumer could be represented by teenagers, adults and/or families. The underlying idea is to expand as much as possible the console’s features in order to create a centralized hub for a digital living room, highly integrated with other entertainment platforms. A system that is basically able to coordinate all digital forms of entertaining at a domestic level, in order to simplify the way that people live and have fun. At the same time, creating a â€Å"digital amplifier† means having to deal with the continuous flux of innovation coming from other entertainment fields, such as movies, music, photography and so on. Going into the handheld video game device industry: To pursue this strategy, Sony would need to create a new portable console with the size of a smartphone and the complexity of a traditional console. By entering in the handheld devices sector, Sony would have the chance to compete against â€Å"phone-games† thanks to a product that would offer a new level of gaming involvement that no â€Å"app† could reach. A critical factor is considered to be the overall quality, availability and complexity of compatible games: the company should be able to provide games with the same level of complexity of their â€Å"older† brothers, while delivering an appealing portable solution for everyday and travelling gamers. Among the four different solutions listed above, we think that the most economically convenient option for Sony would be to follow the Wii strategy, since a big business opportunity has emerged. This strategy could be exploited especially in the short term, when competition is still low and there is a concrete chance to earn a considerable portion of the market share. This doesn’t mean that Sony should betray its traditional customers, considering also that the launch of the new platform could eventually cannibalize the sales of the older ones. Moreover, if the new consumer segment turns out to be extremely profitable, other competitors will try to enter the market, increasing competition and eroding profit margins. Sony should address this issue by seeking for a wiser middle term strategy, which involves a shift towards a different corporate image. By using a big marketing campaign and a product differentiation strategy, Sony could remain focused on the unique experience of mental escape (and not just entertainment) that its console and games can provide.