Responding To The Wii Case Solution

1. Carry out a detailed Porter’s 5-forces analysis of the Video Game console industry in 2008. The analysis should also extend to complements. Is the industry structurally attractive? Give reasons for your response.

Michael Porter's five forces determine the competitiveness of the industry and help shape the company its strategy to gain success in the market (Bruijl, 2018). To some extent, it also defines the growth or life cycle of the industry. The 5 forces include competition in the industry, bargaining power of supplier, bargaining power of customer, threat of substitute and threat of new entrant. In 2008 there were only three major players in video game console industry; Sony’s PlayStation, Nintendo’s Wii, Microsoft’s Xbox, fighting for dominance in the industry (Marchand & Hennig-Thurau, 2013). Briefly, this question will answer each element of porter's five forces.

• Competition in the industry: With fast paced changing technology, the industry was supposed to be highly dynamic in 2008. To stay competitive companies had to innovate continuously; otherwise, they will lose its huge share to a competitor. As can be seen that in 2005, Microsoft came up with its Xbox 360 and soon after, Sony and Nintendo introduced their PlayStation 3 and Wii respectively (Marchand & Hennig-Thurau, 2013). Not only that, but there was fear that your supplier could turn into your competitor. For example, when, in 1994, Nintendo approached Sony to develop CD-ROM for its new product, Sony replied by entering the videogame console industry (Fahey, 2007). Thus, turning into competitor itself. 

• Bargaining Power of Supplier: In the video game console industry, major suppliers are the one who provides games (game developers) and those who provide processors (IBM). The game developers have less bargaining power as they are huge in number in the market. While processors have high power for their product quality (Hanh, 2017). To retain good game developer’s company also provide royalties to them. The problem is that these processors companies might go for forward integration and come up with their consoles. This happened in Sony's case, who was once Nintendo's console supplier (Fahey, 2007). 

• Bargaining Power of Buyer: Buyer’s power seems to be low as there are few console developers verses the huge number of customers. Additionally, it's a technological product, so it is assumed to be priced high and not to be bargained.  But because of competition, the rivals lower their prices to some extent to attract customers (Strader, 2011). To differentiate itself company's come up with packages. Each package has a different bundle of product, e.g. console, remote, USB etc.

• Threat of New Entrant: When this industry was the information stage, this threat was high. Entrepreneur were entering this segment and experimenting. But with time, this threat went low as the other three companies established themselves in the market. Additionally, one needs high investment in R&D and marketing to operate in such a risky and dynamic industry. Only processer manufacturing companies can take this risk to enter this industry. In the game developing area, the competition is low, and there are many developers who produce and supply games to Big Three for royalties in return.  

• Threat of Substitute: This threat is also low. The main substitute for a videogame console can be Personal computers. Microsoft tried to do that but failed miserably. It seems customers have developed their loyalty for the console, which makes substitute already less attractive for both company and customers. But one can predict that in future this industry may be affected by online games, e.g. google play store.

• Attractiveness of the Industry: The videogame console industry is highly uncertain and risky. Any new product innovation renders the previous product obsolete. The pace of innovation is way too fast. If a competitor doesn’t respond on time, he will be pushed out of the industry very soon. Also, if a competitor introduces a better product, the sales of other companies will hugely suffer. As in Sony and Microsoft's case where Nintendo's Wii was accumulating profits, Sony and Microsoft were facing losses. These factors render industry unattractive for a new entrant. In 2008, it also appeared that the market is quite saturated. 

2. What important lessons from the evolution of the industry should Kazuo Hirai and Sony keep in mind as they try to formulate a strategy for regaining leadership from Nintendo? 

Sony should learn the following lesson from its competitor and incorporate in its strategy to regain leadership. 

1. Research on Target Audience: Sony was narrowly focused on 18-34 years old male audience and ignored the other potential customers in the market, e.g. females, kids, old people. While Nintendo seems to target these ignored segments primarily. Hirai should learn that a certain kind of consoles or games can be introduced to capture these segments of the market. 

2. Don’t Imitate Competitors: It appears that Sony was more concerned with what its competitor was doing and trying to make a product like that of a competitor with minor changes. This change in focus made Sony ignore what the customer was looking for. It also appears that Sony became a victim of marketing myopia, in which a company is so concerned with product features and improvement that it loses track of customer needs. The basic need of the customer is to entertain themselves. Sony also needs to define to the customer that how its product is different from the previous one. It appears that Sony's marketing strategy was a bit flawed. The message was not clearly delivered to its audience. 

3. High level Technology is not Always the Answer: Customer play games for fun and enjoyment. The more sophisticated the game, the more it will attract core videogame audience, leaving other segments behind. A product is worthless if a customer doesn’t know how to use it. It is highly important for the audience to understand the game easily and should be user-friendly. Sony should let PlayStation for hardcore gamers and introduce a new product for other segments. 

4. Look for Gaps in the Market: Sony should do its research on gaps in the market. Such gaps turn out to be opportunities for companies. For example, Online gaming filled the gap of playing games online with other people sitting at far-away places.

3. How has the structural attractiveness of the industry changed over time?

Structural attractiveness of any industry can be understood by applying porter’s five forces on industry and the long-term objectives of companies involved. In videogame console industry it moved from less competitive to highly competitive with changing technology overtime. From a customer perspective, it also changed from average kids toy to the adult male game. The growth of this industry can be divided into three main phases.

• The first phase (1972 – Early 1980’s): This was the first phase in the videogame industry where the television company like Magnavox and entrepreneurs like Nolan Bushnell of Atari developed consoles and games. The market was no competitive and regulated at all, so the threats of new entrant ran higher. It was more like a blue ocean strategy where at a low cost, new market space and new demand was being created. By 1980 Atari owned 80% of the market. The potential of this newly created industry attracted other videogame developers, and thus, one saw the birth of Activision and other software game developers. But the quick growth of the market led to the proliferation of cheap and low-quality games. Eventually, this caused the market to crash.

• The second phase (1980’s to Early 1990’s): After the crash of the early 1980's the market was revived and dominated by Nintendo’s. By this time, it became clear that the market is highly risky and requires a huge investment to succeed. The licensing agreements and quality of games were highly important, a lesson learnt from Atari's crash. Still, the competition was not intense as Nintendo controlled 90% of the market (Responding to Wii, 2010). 

• The Third phase (Early 1990’s – Early 2000): This phase was characterized by intense competition. It was the time when Sega’s Genesis entered the market. The competition was further intensified by launching of new generation games after every 5 or 6 years. By mid-1990s, Sony entered the videogame console market. The message was clear for the small and medium-sized enterprise that this industry is not meant for them anymore as giants have set their foot. Sony’s incentives for third party game developers, lesser pricing and less costly CD-ROM’s helped it to increase sales compared to Nintendo who had to develop inhouse games with costly cartridges. By 1999 a new entrant Microsoft entered into the market with its Xbox console. Since that day, only these three companies have been dominating the market.

• The Final Phase (2001-2008): by this time the suppliers bargaining power also got from low to moderate when it didn’t bow down to Microsoft demand of no-royalty for developing their games and consoles in early 2000’s.  The other companies, Sony and Nintendo, were paying royalties to its suppliers. In 2005 the second-generation console war was won by Sony as its product had better features and its pricing was better than the other two. But soon after the launch of the third generation consoles, the market was overtaken by Nintendo's Wii (Responding to Wii, 2010). It was clear that constant innovation and market research are key to success for any company to survive. Not only that there was a new substitute in its infancy phase in the market known as online video games over the internet which could divert customers from consoles to online games.

4. How is Nintendo Wii positioned vis-à-vis the five forces?

1. Threat of New Entrant: As specified above the threat of new entrant is low considering the R&D cost involved in the videogame console business. The major players recognized by industry are Microsoft, Sony and Nintendo. Nintendo is strongly positioned and regarded as leader after is Nintendo Wii’s introduction (Boyes, 2008). It is leased possible that any new entrant will take the risk to compete company like Nintendo.