Nintendo was able to enter with an 8-bit system and rise to dominance by selling consignment, alleviating retailers’ risk.
It had near a monopoly but Sega was able to overthrow Nintendo’s dominance by introducing a 16-bit system. At the time when Nintendo earned money on its 8-bit systems and wasnt going to reduce sales of 8-bit games by introducing new console, Sega , who had experience from its arcade games, decide to create a new more advanced product. At last Nintendo also decided to introduce a 16-bit system but to that time it was useless. At first it was incompatible with Nintendo’s high amount of 8-bit games. And also it was made too late. Gamers already had Sega’s systems; they liked it and have no need to buy the same one. So, thinking what factors enabled Sega to break Nintendo’s near monopoly of the U. S.
video game console market in the late 1980s, we can see that Nintendo was unable to plan its time and to make good compatibility decisions and let Sega to gain market. Nintendo choose to not make its video game consoles backward compatible. Nintendo knew that it conquered almost the whole market and felt that they could make consumers buying libraries for new parts of games. Video game console producers made most part of their profit on game and sold their consoles on a small price. Nintendo understood that the introduction of 16-bit systems create a strong consumers’ will to buy new 16-bit games. But Nintendo wanted its consumers to buy 8-bit video games. By not making their new product backward compatible Nintendo widened the playing field for Sega. It caused customers to incur switching costs to upgrade that were comparable to the costs to switch to Sega’s products.
When Sony entered the video game market in 1995 its weakness was the lack of experience and reputation as a game manufacturer. By the way Sony entered the market with tremendous brand image in consumer electronics and access to extensive distribution channels in electronics and media. These factors gave a great competitive advantage to Sony when it enetered the game market. Sony, who developed and controled the compact disk format, decided to use that technology in the development of video games. Sony had the resources to hire a toy industry veteran and to convince game developers to produce only Playstation titles for the first six months after its introduction. All of these factors combined to give Sony a very significant advantage when they entered the market.
When Microsoft entered the video game market the also had lack of experience with arcade games and consumer electronics. They tried to enter the market which already had a very strong leader that had the bulk of the market share. Microsoft also had to build on their distribution network to include toy distributors, to develop a different brand image than what it had in the software market and use different market channels than it had for software sales. By the way they Microsoft had very signicant strenghts. They had some experience in the game market with PC computer games and online game services.
The Xbox offered a high technological advantage over existing game systems and Microsoft had the resources to price it below cost. Microsoft’s resources enabled them to budget $500 million for a marketing campaign that was spent in part on offering incentives to third party developers including giving them game development kits. Analyxing the different generations of competition in the video game industry we can see that every strategy includes following features. The first one is timing. The firm needs to have a will to cannibilize existing generations before competitors do that.
They also need to concur with the Christmas seilling period. As for licensing and compatibility, a good strategy considers making new generations of video game consoles backward compatible with previous generations. Good strategy includes licensing third-party developers to produce games.
Profits are made of game royalities so it isnt effective to license console production to others because the will not be able to subsidize console price with game royalities. Important strategies of course include pricing. Analyzing several types of companies, consoles must be priced at or below cost and Christmas sales also have to be taken into account. There must be agressive advertising and promotion with preannouncemets about upcoming product introductions. And the last point is distribution. Leveraging distributor relationships, providing guarantees if necessary (as Nintendo did with its early consignment policies) and making sure that a wide range of distributors receive sufficient shipments (to avoid Sega’s mistake with Saturn) must consist good strategy.
Well these are just several points. It is obvious that every company has its own unique strategy which helps it remaining on the top places of the market.
