This report will use a number of business tools and models as highlighted as being useful in the literature so as to give an insight into the strategic issues facing those in the computer games industry such as Nintendo and other incumbent players in the market. The report will then end with a set of recommendations which those within the sector may consider based upon the results of the analysis carried out.
Porter (2004) identified five forces which may be considered as making up the overall attractiveness or not of an industry and thus highlighting the key elements to be considered in business strategy in relation to a single industry. The following elements will now be considered in relation to the case study.
The overall level of rivalry in the industry may be seen as relatively high. As the case study highlights there are just a small number of players in the industry including Nintendo, Sony, Microsoft and to a lesser extent Sega. Despite this oligarchic market structure competitors are large in a market worth $30bn and thus able to commit significant levels of resources in the battle for competitive advantage. Patterns of trading highlight the significant level of rivalry within the industry as incumbents often choose to release new product offerings at similarly times in key trading periods such as the run up to Christmas. The resources of incumbent players is highlighted by the ability to role of a new product either on a global scale or a large regional scale in often a short space of time.
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One should also give a consideration to the level of rivalry for products which may be seen as substitute products, this is particularly prevalent were the games console being purchased is considered as a “life style” product as opposed to that of a singular games console. Were this is the case console producers may be seen as having to compete with similarly large and successful competitors such as Apple with its lifestyle products such as the iPod and iPhone (Lynch 2008).
2.2 Power of buyers
The power of the buyer may be seen as mixed, initially the power the buyer is pretty high with an array of alternative systems and substitute products available giving the consumer a real choice and thus the ability to exert their buying power. However once a consumer has a made a purchase their power may be seen as greatly diminished given the high cost of switching systems and the fact that once a console has been purchased the consumer is locked into that particular system.
2.3 Power of suppliers
The power of suppliers may be seen as average for that of any industry with a standard array of inputs into incumbent player’s products such as plastics and electronic hardware. There may be the consideration that were one considers the element of intellectual property then the power of suppliers has a slightly more important value. Intellectual property considerations may include licensing for games which have an association with a product or film tie in such as games like the Star Wars series launched on the Game Cube.
2.4 Threat of substitutes
This may be seen as one of the greatest threats for any incumbent in the computer games industry. In the first instance consumers are able to substitute between rival systems for instance a Nintendo games system may be substituted for the relevant Sony based system. In addition to the ability to substitute within the sector there is also the consideration the consumer has the ability to substitute for products which at similar the provision of benefit but in a different market. For instance if the consumer is considered to be buying the benefit of entertainment rather than a computer game then the consumer may choice to substitute for a whole range of products ranging from DVD players through to products and services with an even greater level of obscurity such as a night at the cinema.
Despite this consideration there is the fact that incumbents may have used the easy nature of substitution to improve their own product offerings hence why incumbents have included such lifestyle offerings in which their products have included the ability to play music and DVDs as well as fulfilling the core mission of offering a games console.
2.5 Threat of entrants
The threat of entrants may be seen as relatively low over all. There are significant barriers to entry for the industry including the need for significant investments in both capital resources, intellectual property and distribution channels. This may be highlighted by the fact that in recent years the industry has seen people leaving as opposed to entering the market as with Sega.
The largest threat of entrants may be seen as coming from the electronics “life style” segment. As has been seen those involved in the primary production of a product which is for the playing of games have in recent years diversified there offering to encompass extra features such as the ability to watch DVD’s or listen to music. As products thus become more generic in nature there is the consideration that the threat of entry will not come from companies specifically seeking to enter the games market but from those in other sectors who adopt a similar strategy of building gaming technology onto their alternative entertainment offerings.
3.0 Critical Success Factors:
In the first instance the critical success factors of an industry may be defined as those factors which consumers value (Johnson et al 2008), in other words what those in an industry must do in order to succeed. In considering the critical success factors one may see that there are two ways of looking at the issue in there first instance there are the critical factors to success in relation to the consumer directly from the above analysis one may consider these as having an association with the elements of the power fo the buyer and the threat of substitution. In the second instance there are the critical success factors which are associated with competing against rivals in which case the level of rivalry and threat of entrants may be seen ad the most important elements. The report will now go on to look at some of the specific critical success factors considering how incumbents need to behave in order to be successful within the industry.
In the first instance one of the key success factors may be seen as the ability to provide the consumer with the whole product, as such incumbents must be able to offer both the console and the games which can be played on the console. It is important that equal attention is paid to both of these elements as poor quality in these of these areas will lead to consumer disappointment given that the consumer views the product as a whole rather than two separate elements.
Innovation is also a key a key success factor for the industry however how this is interpreted by incumbent players is a point of debate. On the one hand companies such as Sony have interpreted innovation to mean the use of the highest specifications of technology available in short using better and faster sources of hardware. On the other hand companies such as Nintendo have opted for a strategy using lower levels of technological development but overall using product innovations which give the consumer a different sort of gaming experience such as the physical interaction which consumers enjoy with the use of the Wii.
Another critical success factor may be seen as that of legacy, as the case study highlights of the key consumer values is the ability to use games which have been bough for previous systems of the same brand. Were the incumbent player is able to maintain this functional feature for the consumer there is the consideration that the company is able to encourage longer term consumer loyalty across multiple purchases. Were such legacy purchases are not able to be continued to be used there is the consideration that this reduces the barriers to switching thus increasing the risk that a consumer will seek or have the ability to switch brands more easily. As such this highlights the importance of building long term relationships with consumers in the industry as a whole.
Finally there should be a consideration of the issue of supply chain management. One of the key issues highlighted in the case study is that products can often cause significant levels of consumer disappointment were marketing efforts prepare the customer for a given launch date only for the product not to be available in sufficient quantities.
4.0 EVR Analysis:
One way to carryout an EVR analysis is to use a SWOT analysis the benefits of a SWOT analysis are that it considers both internal elements in the form of strengths and weaknesses and then attempts to match these against the considerations of the external environment in the form of Opportunities and Threats (Lynch 2008). This section will no proceed to consider these elements in relation to Nintendo.
Nintendo’s key strengths may be seen as the company’s ability to implement a strategy of greater focus on a single market segment than that of its rivals products. For instance whilst alternative systems have tried to offer products which a broadly entertainment systems including such extras as Blu-ray and music playing capabilities in addition to being a games system Nintendo has focused on the core area of the product, games. Another key strength of Nintendo may be seen as the company’s ability to design a product which is truly innovative, whilst competitor products contain innovations in many cases they may be seen as only adding current innovations as a bolt on to the game system such as with DVD and Blu-ray capabilities. On the other hand Nintendo has brought a genuinely new innovation to the market in the form of the Wii in which games interact physically with the system in a way which is not present in competitor products.
Whilst Nintendo has been shown to be largely successful with the launch of its Wii console the company does have some significant weaknesses. In the first instance the company’s products may be seen as technically inferior to competitor products with lower levels of technology used in the product specification. In some cases this may affect Nintendo’s ability to target the “serious gamer”. Secondly Nintendo has used a low pricing strategy which has so far be successful for the company, however there is the consideration that should other companies start to follow Nintendo’s niche within the market as a whole such a low pricing strategy could see further fall which would make the product unprofitable for the company.
From a strategic perspective Nintendo may be seen as having capitalised upon some key opportunities which rivals have missed in the overall computer games market. Whilst rivals have focused on high specification products aimed at the serious gamer as well as incorporating technology aimed at the life style market Nintendo has capitalised on two missed sub-segments. In there first instance Nintendo through the launch of the Wii has tried to move away from the serious gamer and target the family market a strategy which has thus far been successful. In addition Nintendo has also recognised the large potential but unrealised market represented by female gamers. Finally Nintendo has continued to capitalise on its position as the market leader in handheld consoles with the lunch of its DX product, again the product has been used to target an alternative opportunity in with innovative games such as “brain training”.
Finally despite the success of the company Nintendo may be seen as facing significant threats which may be seen as largely coming from rival companies. There is the consideration that Nintendo’s success has largely been based around the elements of price and the targeting of previously ignored areas of the market. As such the major threat to Nintendo may be seen as the ability of rival firms to start to target these sub-segments which Nintendo may be seen as currently being the market leader.
4.4 Summary of strategic fit
Considering both Nintendo’s internal strengths and weakness and the opportunities and threats presented in the external environment it may be considered that Nintendo has managed to create a significant level of fit by using its less technologically advanced but more innovative products to target an alternative market to the companies rivals. As such it may be considered that in doing so Nintendo has been able reduce the effects of rivals who largely compete with each other for a different customer group within the overall industry (Porter 2004).
This section will now give a set of strategic recommendation for Nintendo based upon the analysis carried out in the report.
5.1 Corporate level
Nintendo should adopt a “focus” generic strategy based around targeting alternative customers (not the serious gamer)
Nintendo should continue to invest in true innovation as with the development of the Wii as opposed to adding bolt on technologies to its products
5.2 Business Unit
A greater level of co-operation should be seen between the activities of the business units. This is particularly prevalent in the case of the games unit which may be seen as providing the ultimate success of failure of all other business units such as the consoles or hand held units.
Nintendo should pay particular attention to its supply chain management, as has been seen the success or failure of a product can often be related to a company’s ability to get the product to market in time. This is demonstrated with the significant success of Apple’s products (Wailgum 2008) vs the poor performance at times for rivals such as Sony (Hendricks 2005).
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As has already been stated strategy is are the long term choices that as business either activity chooses as in planned strategy or become the automatic choices made through repetition of an activity as in the emergent approach (Johnson et al 2008). This section will now consider the issue of generic strategies as outlined by Porter (2004) in relation to the automotive company GM and its generic strategy in relation to the current economic climate. The central references for this piece of analysis are Competitive Strategy by Porter (2004) and two articles charting the strategic decisions of GM published by the BBC (2009) and the Guardian Newspaper (Macalister 2009).
In the first instance Porter (2004) defines three generic strategies which a company may engage in so as to create a competitive advantage. These generic strategies are based around cost leadership, differentiation and market focus, in the first instance the cost leader creates a competitive advantage by offering the consumer the lowest priced product in the market. By using such a strategy the company in question generates large volumes which generate economies of scale within the supply chain thus allowing the company in question to continue to maintain the cost leader model. Such strategies may have been seen as being implemented by manufacturers such as Fiat in the automotive sector in which all innovations have been aimed at reducing costs rather than improving quality (Maielli 2005).
In the second strategy the company in question attempts not to offer the consumer the cheapest product in the market but the best product in the market, in order to create a differentiated competitive advantage a company may use the physical features of the product to differentiate it from its competitors such as superior construction and material. In addition it is likely that the differentiator will also use higher standards of service and brand image to add value such seen in the automotive sector by company such as BMW and Mercedes-Benz (Reuters 2007).
The final generic strategy offered by Porter (2004) is that of market focus, in this strategy the company in question chooses as single segment and attempts to generate a revenue stream from every part of the segment. Segmentation may however in this case be the most difficult element to define with different companies taking into account a range of approaches from targeting a specific demographic of consumer through to geographic segmentation. In addition to the three generic strategies offered Porter also highlights two other points which are relevant, firstly Porter (2004) argues that whilst these generic strategies are not mutually exclusive there are relatively few firms that are capable of successfully engaging more than one strategy at a given time. Secondly Porter (2004) goes on to indicate that were a firm fails to engage any of these strategies the company is likely to become “stuck in the middle” and thus unable to generate any competitive advantage thus leading to poor returns or even business failure.
Considering the specific case of GM from the articles in question (BBC News 2009, Macalister 2009) one could argue that previous to recent events GM may not have been following any one of the three generic strategies offered. Whilst the company has traded on a high volume basis the companies conglomerate style nature comprising of multiple brands has not allowed such large volumes to translate into sufficient cost savings so as to become a cost leader. On the other hand GM its self and the GM brands may be seen as lacking in differentiation when competing with competitors such as BMW and Mercedes for whic`1h the emphasis is on differentiated quality of product and service levels rather than low cost volume sales.
The current economic downturn has had a large impact on the automotive sector as a whole (IMI 2009). The automotive sector may be seen as suffering in the recession to a higher degree than other industries for two key reasons, firstly a car represents a significant capital investment for the consumer and as such sales have been hit harder due to the lack of cheap credit available in the consumer sector. In the second instance those industries such as the automotive industry which have a highly capital intensive and assets specific structure suffer worse when trading volumes far due to an inability to reduce costs which have a high resonance with fixed elements (Brealey et al 2006). In order to adapt to the changed economic environment GM has had to thus change its strategy significantly, it should be highlighted at this point that GM did have to file for bankruptcy in 2009 (Isidore 2009) and the subsequent injection of cash into the company was reliant upon the company putting forward a clear strategy for the company’s future. As highlighted by the central articles GM may be seen as adopting a strategy of market focus in relation the changed economic environment. As part of the stagey the company has started to dispose of its global assets including brands in Europe such as Vauxhall and Opel. The company has issued a statement showing its intention to focus on its core brands in the US market as such this may be seen as a geographic interpretation of Porters (2004) generic strategy of market focus. Initial reports in the business press would suggest that GM’s new strategy would appear to have been relatively successful with the company making its first repayments of government aid which were used to re-launch the company in 2009, the company is also expected to be undertaking an IPO in 2010 (Reuters 2009) representing a return in full to the private sector.
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