The Environmental analysis
The improvement of technology has been the cornerstone of the video game industry. The market forces demanded an innovative approach to enable an organization to remain on top of the pack. An advance in the technological advantage of any company led to the death of all other companies that were not ready to do upgrading of their services. A good example is exhibited in 1983. During that year, the video gaming market received a great blow from the emergence of the home computer market. It led to the closure of several businesses and diversions in some cases of industries that were based on video games (Harvard Business 2008).
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This point marked the inception of Nintendo into the market. At that point, there was no much competition. This allowed Nintendo to enter the market as a leader. They were also assisted by the plot of their video game. Unlike the former video games that dealt with violence and shootings, some things that the market had become bored with, Nintendo brought in games that had easy learning capabilities but difficulties in mastering. This was the prevailing demand of that time (Harvard Business 2008).
In 1995, Nintendo encountered the first real competition. This came from the joining of Sony into the video game industry. This was later stiffened by the inception of Microsoft into the market. At this point, technology played the greatest role. Improved graphics, capability to play DVD, and also ability to improve on the lower quality first edition was the prevailing market condition. Sony’s play station 2 marked a great improvement in terms of the mentioned advantages above. This drove Nintendo into the worst point with their improved N64 which could not play DVD or allow for upgrading. Sony outsold them by 10 to 1 (Harvard Business 2008).
Pricing was another strategy employed by the competitors. In their effort to gain market share, they went to the extent of accepting to suffer a loss and gain the market share. This environment, though, gave Nintendo a competitive advantage when Sony launched its Play station 3 selling it at $599. This gave Nintendo’s Wii an edge above Sony’s Play station 3 which was too expensive (Harvard Business 2008).
Several factors play an important role in the competitive advantage of an organization in an industry. This industry of video games is no exception. To define it, we need to know porter’s diamond model. According to Porter, four factors give an advantage to an organization. On top of the list are the company’s strategic plan, the competition, and the structure of the organization. The managerial organization of a firm will determine its profitability. This is through its innovation ability. The objectives of the organization serve as a road map to its success. With a good management strategy, well laid down plans for an organization can be achieved through the implementation of the relevant strategies. In addition, the motivation of workers is another contributing factor to gaining a competitive advantage. This can be achieved through a good communication strategy in the firm. Finally, rivalry also creates opportunities to excel. Stiffening competition can highly encourage innovation in terms of getting new products to place the firm at a position that rival firms cannot attain (UBC 1998).
This factor as outlined by Porter can be seen in the video game industry in the case study. Companies are using different strategies to ensure that they stay on top of the game. Among the strategies seen in operation is the pricing strategy. This seems to be well accepted by the market. For example, the soaring prices of Sony and Microsoft products help the low-priced Wii to gain a larger market share. Other companies have also shown their stratification skills through technology. Sony has based its advantage on improving on their products from play station 1 up to play station 3. All these have had advantages that drove the market towards Sony products making it acquire 55% of the total market share (Harvard Business 2008).
The next factor according to Porter is home demand. This is the desire for the services or goods produced by the organization. It is this demand that drives innovation. Demand can be defined by three elements. One is the mixture. This is the variability of the needs of the customers. Secondly, there is the growth rate of the customers and also their scope. And the third is mechanisms that give priority to the domestic market more than the foreign one (Chapman 2008).
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Demand for video games was the real issue that brought Nintendo. The demand for traditional toys had waned making the Japanese more interested in electronic entertainment. Availability of demand for better forms of electronic entertainment brought in Sonny and Microsoft. Through this demand, there was evident innovation with each company trying to take advantage of their technological strength to overpower others (Harvard Business 2008).
The third factor is related to supporting industries. Availability of these industries facilitates and encourages innovation (UBC 1998). In the video game industry, Nintendo, during its shifting from traditional toys to electronic games has to link up with Magnavox to become the distributor of Odyssey. Before it joined the industry, Sony used to work together with Nintendo as a supplier. It is through such cooperation’s that a company can attain efficiency in its operational activities.
Finally, the fourth factor is the called factor conditions. These are the available resources that a company has to assist it in the implementation of the strategies. These include human resources, natural resources, knowledge, infrastructure, and capital. These include also the available research and government’s market regulations. This model stipulates that the factor conditions are purely manmade and do not come up as a result of nature or from an inheritance. Therefore, it takes an industry to develop these factors (Chapman 2008).
One of the resources that can be attributed to Nintendo is reputation. Unlike all other competitors, Nintendo had a reputation for giving good video games that did not encourage violence. Their theme was always the struggle between good and bad. They based their themes on fables and religious teachings. In addition to this, they made games that helped in brain jogging. They did this basing their effort on their target market. They intended to have those people who were not so much interested in video games because of one reason or another. They, therefore, put more effort into making games that were difficult to master but that were very easy to use (Harvard Business 2008).
Another great resource available for Nintendo was a human resource. Miyamoto is termed as the father of video games through his invention of Donkey Kong. This was a brilliant idea which was based on his analysis of the market. He had found out that the market was tired of simple and violent games. He, therefore, designed a difficult to master game but easy to use and which did not advocate for violence. This ended up as a best seller. Yamauchi can also be termed as a great strategist. He was able to enter a market that was dead at the amazement of many. This looked disastrous to some people but the real picture is that Nintendo was targeted at gaining a great market share and also redefining the image of video games. And this is why they came up with a new plot of adventure and religious issues and also based some of the games on plays by Shakespeare (Harvard Business 2008).
After the invention of the Wii, Nintendo has also boasted a large market share. This is also a resource that can give them an edge over the other competitors. The great market share will not only improve their reputation but also will mean that they acquire a strong capital base (Harvard Business 2008).
Key Success Factors in Video Game Industry
The video game industry is one of the most sensitive industries. The market is sensitive to a small change or innovation that is brought up. The most important factor to keep a company afloat in this industry is the availability of adequate research. This should include both research for a new market, research for new products, and research for customer needs and demands. In addition, a company must be well versed with the strategic plans of the competitors. For example, it was through research that Miyamoto discovered that the Japanese market was tired of simple and violent games. Nintendo responded to this by designing a difficult to master but easy to handle and nonviolent video game. This gave birth to Donkey Kong a best seller (Harvard Business 2008).
It is also through research that Nintendo finds out that the two competitors were ready to suffer loss but capture a big market share of core gamers, something that Miyamoto terms as dangerous to the growth of the industry. To respond to this, Nintendo decides not to compete with the two but to come up with products that will get new users. They came up with simple games that did not need complicated controllers and which had a good taste for older people and young kids. They came up with Nintendogs and Brain Age which sold more than 13 million and 8 million copies respectively. This goes hand in hand with innovation. Research identifies the problem while innovation finds out ways of how to deal with the problem (Harvard Business 2008).
Another key factor of success is technology. With an increase in competition, the market demands the inclusion of technology that will give the customers quality in terms of graphics and controllers. Improved graphics, the ability to play a DVD, and the ability to upgrade from a lower level to a higher level gave Sony’s Play station an upper hand in the market (Harvard Business 2008).
The most applied strategy has been differentiation. Nintendo has tried to ensure that it positioned itself differently from the other competitors. While video games in the early years based their themes on violence, Nintendo changed this completely into using adventure as their theme. While Microsoft and Sony battled out in the core gamer’s category, Nintendo went for a new market that had not been tapped. They went for children and old people. They did this through designing of easy to operate video games with adventurous themes. In addition, Nintendo gave its product a very quire name as a strategy to differentiate them. It is a name that is easy to remember and a name that brought about the feeling of collective effort; from the word we (Harvard Business 2008).
Another strategy is the maintenance of simplicity and non-violence. From its inception through the hard times to successful times, Nintendo tried so hard to maintain simplicity in the operations and controls of their games. They ensured that their controls were so easy to handle.
They ensured that their games were without violence instead made them educative and mind jogging (Harvard Business 2008).
The greatest problem that Nintendo is facing is stiff competition. Its competitors have even opted to suffer a loss but ensure that they are gaining a greater market share. Also, they have included high technology which is expensive to lure the gamers. This has led to Sony and Microsoft acquiring a bigger part of core gamers leaving Nintendo to the starters (Harvard Business 2008).
Another problem being experienced is the issue of product shortages. This was experienced in the event of launching both DS and also Wii. Despite an increase in production, the number of units produced could not satisfy the need demand. This was experienced in Japan (Harvard Business 2008).
Competition is normal for an industry to grow. It is through this that the organizations are pushed into innovation. This brings us back to Porter’s diamond model. The model dictates that there has to be competition for a firm to learn how to acquire an edge above the rest. Through competition from Sony and Microsoft, Nintendo was able to invent easy to handle games that differentiated them (Harvard Business 2008).
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Production shortage can be attributed to a lack of resources. The diamond model dictates that a firm needs a strong resource base to be able to stay afloat. This resource includes human, natural capital, etc. without this the company becomes disadvantaged. Nintendo has failed to increase production due to minimum resources (management.net 2008).
Nintendo has to mark out its market segment properly. The market segment will therefore be analyzed in terms of their buying behavior. Through this analysis, Nintendo will be able to predict what they need and at which part of the year they buy a lot. Through early preparation, it will be able to determine what number of units will be enough for which part of the year (QuickMBA 2008). In addition, through proper market segmentation, the needs of the buyers will be easily identified making it easier to predict whether a product will be highly valued or not. Market segmentation is, therefore, the best solution to both competition and underproduction because the needs of the segment in question will be known therefore giving clients what they need. Their buying patterns will be defined thus giving the firm enough preparation to mobilize its resources to meet the estimated demand (Atenga Inc. 2008).
Atenga INC, (2009) “Thrive in this Economy,” Web.
Bookmercial Production, (2009), “Market positioning. Be Unique,” Web.
Chapman, A. (2008) “Porter’s Five Forces Model,’ Businessballs. Web.
Eiler Communications, (2007), “Market Positioning Strategy”. Web.
Harvard Business Publisher, (2008) “The Wii: Nintendo’s Video Game Revolution.” Web.
Management.net, (2008) “Diamond Model-Michael Porter,” Web.
QuickMBA, (2007) “Market Segmentation,” Web.
The University of British Columbia, (1998), “Porter’s Diamond,” 2009. Web.