Industry analysis of the games and console products
This assignment is followed by a case study based on the Nintendo Co., Ltd. Founded in 1889; the company has seen a rise and fall of the operations of the business. Over the years the company has gained goodwill in the industry, but that has not reflected in the sales of the organisation after a period of time. In 2007, the company had become the market leader in the game and console business. The major global competitors in this industry are Sony, Microsoft and Nintendo. In this assignment, the competition and the dynamics of the external business environment and the industry that impact the international market and how positions as the market leader shifts will be discussed by answering the question that are listed at the end of the case study. With the help of necessary theories and models the answers will be structured in order to substantiate the statements and the arguments that are mentioned in the discussion. The products of Nintendo that are discussed in the assignments are Wii and Wii 2.
- What were Microsoft’s motives in entering the games console market with Xbox back in 2001?
Industry analysis of the games and console products will help in understanding the strategy of diversification. With the help of porter’s five force analysis the motives can be determined. Microsoft launched the first product in the market and named it Xbox during November 2001 in United States. The company quickly started making the product available in the Australian and European market as well.
Threat of new entrants: The games and consoles industry is based on innovation and new products as the target market is always looking for something new, the industry becomes lucrative and attractive for companies who have the means and resources to invest and develop. The product life cycle of the industry is low therefore, there is always a scope of new value proposition this makes it easier for organisation to diversify or begin its operations in this industry (Porter 2008). Microsoft is a company that has been known for its disruptive innovation ideas in the past the company during the early 2000s were looking for an opportunity to venture in to a new market and new product and at that time the games and consoles industry was in its introduction stage, the management of the organisation understood the opportunity that they had in the industry and invested in the Xbox. One of the drawbacks of the industry is that in order to venture into the business there is a requirement of heavy capital investment which is difficult for a new company or a small scale organisation. Therefore, it can be concluded that the industry is lucrative for some companies where as it is difficult for other for the same reasons (E. Dobbs 2014).
Microsoft’s motives to venture into gaming industry
Bargaining power of the customers: The bargaining power of the consumers in the industry at the time was limited to some of the popular company that sold the product. The price of the product is usually high and therefore the target market of the organisations in the industry cater to a niche market offering them exactly what they want as the companies are aware that the life cycle of the product is going to be not more than four years (Pervan et al. 2018). Hence it can be said that the bargaining power of the customers are low as the switching cost is high, there are preference of the consumers that play are big role in the industry. Microsoft with the help of market analysis determined the taste and preference of the people who were interested in games and consoles and developed hardware and software to create loyal customers (Porter and Heppelmann 2014).
Bargaining power of the suppliers: The bargaining powers of the suppliers are also low in the industry as there are only a few contenders in the field. For a company like Microsoft they prefer using their own products and developing their own resources rather than partnering with a third party supplier (Leelapanyalert and Ghauri 2007).
Threat of substitute: Investing time in actually playing games in the physically is the major threat to the industry, be it an indoor board game or an outdoor game. The kind of game that was popular before the advent of digital games and consoles industry. There are many who advocate for the old-school games rather than spending time with the consoles as it may be harmful for the mind as well as the body with extensive use (Porter and Heppelmann 2014).
Intensity of competition: There are three major players in the industry, Nintendo, Sony and Microsoft itself. During 2001 before the launch of the Xbox, there was just Nintendo who was the inventor of the system and then Sony Interactive Entertainment came up with their Play Station range of products. Therefore the intensity of competition in the market was low when Microsoft decided to venture in the industry. Even today there are these three companies who rule the industry (Cheng 2013).
The above analysis of the industry illustrates the reason or the factors which has motivated Microsoft to invest in the industry, as it is observed that most of the aspects pointed out by Porter works on the behalf of the company (Cheng 2013).
Competitive strategy of Xbox one and Play Station 4
The company had identified the prospects in the industry and the resources of Microsoft allowed the company to research and develop technology in this industry (Cezarino et al. 2018). The resources and capabilities of a company are the factors of internal business environment and they guide the company to develop market, products as well as diversify in order to maintain the competitive advantage (Pervan et al. 2018). As innovation has always been the way Microsoft has used to stay ahead in the market, the company immediately recognized the scope of business in the gaming industry (Arunachalam et al. 2018).
Competitive advantage is the strategy that the company develops in order gain an edge over the other companies in the same industry (Hussain et al. 2013). This strategy helps the company use the internal and external factors of the business strategically in order to develop products or services which makes it exclusive. Both Xbox One and Play Station 4 are the latest offering of the respective companies. With the application of Ansoff matrix the Competitive strategy of Xbox one and Play station 4 will be determined (Hussain et al. 2013).
With the help of internal resources, opportunities in the industry as well as the scale and nature of the business a company can develop strategies to maintain the position in the market as well as gain an edge over the competitors.
Market penetration: in this case the market and the product remains the same and the company focuses on other strategic management tools like the marketing etc to keep the target market interested in the product or the brand (Hussain et al. 2013).
Market development: market development is said to be when a company wants to cater to a new group of target market with a same product. In this case chances are that the company has been catering and reaching out to one part of the market as the company starts developing strategies to expand in to the new market, thus the company has an opportunity to maintain an edge over the competitors.
Diversification: when Microsoft decided to venture into the games and consoles industry it had changed its market as well as its product therefore this can be said to be a diversification strategy of the company. Here the company chooses to invest on a new product and cater to a new group of people so that they can stay ahead in the industry (Zeschky et al. 2014).
Strategic management tools for maintaining competitive advantage
Product development: The market remains the same where as the product keeps on innovating and upgrading depending upon the needs and the requirements of the target market. The strategy that is used by Microsoft and Sony is product development, as it has been discussed above that the life cycle of the products in the gaming industry lasts for a couple of years and after that the company has to come up with new features and innovative design ideas in order to keep the target market engaged (Zeschky et al. 2014). The companies have over the years come up with a series of Xbox consoles and Play Station consoles with features upgrade in each release, the product in this case remains the same but a new and improved version of the same product is offered to the target market and is usually priced at a higher range than the previous one. In a span of around four years on average the company releases an upgraded product which is highly priced. Xbox one has been launched in the market in 2013 and the product is available in 21 countries on the other hand; Ps4 was also launched in 2013 and has a record of sales of 1 million consoles in its first 24 hours of release.
Here are some of the features of Xbox one that has been developed by the company to maintain the edge in the industry:
- The software and hardware allows the console to remain in an active state all the time. This allows a lot of additional features in the product for example motion sensor, voice control etc.
- The users can also stream live television with the help of Xbox one. This means that the user can be playing a game and straight away change course to television any time, simultaneously getting Xbox notifications (Curtis and Kinder 2013).
- User can also use two screens side by side much like multi tasking in a Smartphone. The user has the facility to listen to music in Xbox as well as play game at the same time, or watch a football game and play football game in Xbox.
- The software used in Xbox one entails a feature called Smart Match which uses highly developed algorithms to couple users depending upon their age, language, skill, and even their specific style of gameplay. In the previous version of Xbox the technology was limited to the people who were added to the list of users here the step is taken further ahead providing a broader horizon for the player to achieve the goals (Curtis and Kinder 2013).
- The Xbox One has a new controller but the one feature that has caught the attention of most critics is the triggers. The design is innovative there are four vibrating support systems at the back of the triggers which gives haptic feedback are the triggers are made wider around the index fingers, and make individual weapons feel very different within games.
- There are exclusive Xbox one games which is one of the major competitive advantages apart from the above stated features (Curtis and Kinder 2013).
Following are some of the exclusive upgrade features of Play station 4:
- There are a number of exclusive games in Ps4 that are not compatible in any other consol is one of the major competitive advantage and important feature of PS4. For example: god of war, Spider man series etc.
- Internal memory of 8GB to enrich the gaming experience.
- There is provisions for having personalized and curates content for the user
- With the help of play station application on any Android or IOS based device to serve as the second screen. Apart from this there are also a number of other features of the application.
- The DUALSHOCK®4 wireless controllers that the Ps offers is also upgraded which ensures innovative and new experience for the players (Playstation.com 2018).
It can be concluded form the above discussion that the design development and some of the software innovation in both the consoles are more or less similar but what really sets the two apart is the internal memory and the exclusive games that are provided by each platform.
The strategic management tool that has been used by Nintendo in order to gain competitive advantage is use the Blue ocean strategy. The concept was introduced by W. Chan Kim and Renée Mauborgne. The strategy of operating in an industry where there is little or no competition is known as the blue ocean strategy. In this strategy as there is hardly any other players in the industry the company has a pricing advantage as the target market has a demand and is willing to pay the amount for the product or service (Kim and Mauborgne 2014). The aspects associated with the service or products are focused and innovation plays a significant role in the strategy instead of the price of the products or services (Bourletidis 2014).
Features of Xbox One and Play Station 4
The strategy that was undertaken by Nintendo was that they wanted to develop an enriched and innovative gaming experience as well as keep the cost of the product lower than the two competitors in the market (Microsoft and Sony). As mentioned above in the blue ocean strategy price is considered to be secondary and the focus is on the innovation of the product or service so that there is a unique item for the target market (Burke et al 2016). With Wii the strategy of popularity involves providing simplicity in the gaming consoles and offering the products at a low price the company was targeting a new market with the new games which was targeted to expand the base the target market thus getting an opportunity to explore a new market, which is uncharted by any other competitors (Agnihotri 2016). The company was targeting people who are not accustomed to playing games; the company described the new target market to be non-traditional gamers. The competitive advantage areas as compared to Sony and Microsoft were that the company had introduced motion control stick which integrated the movements of the users directly in to the game, this was the feature apart from the simplified exclusive games that popularized the product Wii, this feature had caught the attention of the “non-traditional gamers” and made the product which can be family oriented and can be enjoyed by a wide range of users, the opportunity that the company used in this case is the fact that other competitors were focusing on a niche group of people overlooking the scope of developing a low-cost product for a new market. The gaming experience was also unique as it offered more depth and motion form the user (W Chan and Mauborgne 2018).
For Wii U the company had used the same tools as the strategic management instrument, the feature that was exclusive in this unit was the product was the main controller which was called the game pad. In this controller there was a touch screen which extended as a second screen for the game. Making Nintendo the first company to come up with the feature of a second screen, there was an “off TV play” function which enabled this screen on the gamepad to act as the main monitor. Apart from this the company came up with several exclusive games like the new Mario Bros, LEGO city: undercover etc (Agnihotri 2016). These strategies did create an edge over the competition in terms of the features and the exclusivity of the game but the company failed to create a blue ocean situation as at the time of the launch of Wii U, Smartphones were taking over (Kim and Mauborgne 2014).
In order to create a “blue ocean” the company has to undertake a strategy that will introduce a new aspect to the gaming industry. The company has been in the industry longer than its competitors and that is one of the advantage of the company that they can use with the successor of Wii U. there are a number of games developed by Nintendo that has nostalgic aspect attached to it and this would help the company to attract new customers or be interested in the brand. The strategy that the company can undertake is create a device that can facilitate virtual reality with simple specification and provide exclusive augmented reality games that are among the top exclusive retro games of Nintendo. As the patented exclusive games of Nintendo these cannot be produced by any other competitors this in turn will help the company be the only organisation in the industry that will have these nostalgic games in an augmented reality version. This will also attract a new group of people who used to play these games in their childhood and would like to experience them again in the new version. This strategy will help the company to grow and create a new unique and innovative feature that will support the “blue ocean”. The popularity of the games will be one of the major aspects that will help in marketing the product as it has certain amount of nostalgic aspect associated with it as well (Bourletidis 2014).
Conclusion
It can be concluded form the above discussion that the games and console industry is an attractive industry for an organisation that has a large scale operation and is looking for diversification. But it is difficult for small and medium scale operation to invest and be successful in the industry. It has been observed that the games that each of the organisation offer make up most of the competitive advantage and loyalty base of the brand. Specifications do play an essential role in the choice of product but it is mainly the exclusivity of the games. The features of the products are more or less the same and how it impacts the choice of the consumer is highly subjective of the preference and style that they like. As is discussed in the Nielsen market study provided in the case study that there is various preference reasons for choosing a consol. The Fun factor in the Nintendo was catering to a target market of young people and people who were non-traditional gamers therefore this had limited their sales option in the long run. Thus the strategy that had made the blue ocean for the company did not work in the long run is providing an edge to the competitors who were providing graphic intensive games to the niche market. Nintendo failed to capitalize on the storyline based games as it focused on interactive gaming producing virtual versions of outdoor games.
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