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Joseph Chang, Anthony Griffin, Israel Gonzales, Anna Olivier, and Scott Vanderpool

MGT 235: Strategic Analysis. Joseph Chang, Anthony Griffin, Israel Gonzales, Anna Olivier, and Scott Vanderpool. Background. Video game console industry $10 Billion per year Nintendo First console: 1985 First-mover Current market

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Joseph Chang, Anthony Griffin, Israel Gonzales, Anna Olivier, and Scott Vanderpool

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  1. MGT 235: Strategic Analysis Joseph Chang, Anthony Griffin, Israel Gonzales, Anna Olivier, and Scott Vanderpool

  2. Background • Video game console industry • $10 Billion per year • Nintendo • First console: 1985 • First-mover • Current market • Sony (Playstation: 1st), Microsoft (XBOX: 2nd), Nintendo (Gamecube: 3rd)

  3. Typical Life Cycle Introduction Growth Maturity Decline Current Console Market X

  4. Individual Game Console Cycle Introduction (Innovators/Early Adopters) Growth (Early market saturation) Maturity (Full saturation, R&D begins on next generation) Decline (Introduction of new, phase out of old) 5-year Period (Average)

  5. Game Console Life Cycle Trend 5-year Cycle 20+ year Period

  6. Game Console Environment Introduction Growth Maturity Decline Game Cube N64 SNES NES ’85-’89 ’89-’95 ’95-’98 ’98-’05

  7. 1985 – 1989: The Beginning • Players: Nintendo (NES), Sega (MS) • First mover: Nintendo • Nintendo market share: 90%

  8. 1989 – 1995: The 16-bit Generation • Players: Nintendo (SNES), Sega (Genesis), • First mover: Sega • Nintendo market share: 60%

  9. 1995 – 1998: Dawn of the PlayStation • Players: Nintendo (N64), Sony (PS), Sega (Saturn) • First mover: Sega • Nintendo market share: 23% Nintendo Sony

  10. 1998 – 2005: 128-bit and Beyond • Players: Sega (DC), Sony (PS2), Nintendo (GC), Microsoft (Xbox) • First mover: Sega • Sega exits hardware market • Nintendo market share: 14%

  11. Strong Industry Profits High Entry Barriers High start-up & marketing cost, brand equity Weak Weak Sony Microsoft Nintendo Suppliers Buyers High switching cost Low rivalry, 3 players, $10 billion market Substitutes Weak

  12. Competitive Advantage *Console Market: $10 billion per year industry Portable market: 10% of home console market ($ 1 billion per year) 1985 1988 Industry Infancy Industry Present 1st Mover Portable Advantage* 1st Mover Console Advantage

  13. Strategic Issue • How can Nintendo regain lost market share in the home console market?

  14. Exit the Home Console Market Pros • Eliminate expensive hardware and focus on producing software • (e.g. Sega) • Allocate resources to concentrate on portable market • Cons • Lose out on licensing revenue • Portable market is significantly smaller than home console market

  15. Expand Third Party Software Support • Create incentives to entice game developers • Lower licensing fees, advertising benefits, easy platforms • Pros • A variety of games attract larger market share • Additional exclusive titles attract more consumers • Cons • Hard to motivate third party developers • Incentives can be costly • Exclusivity of Nintendo products • Decrease in market share appears unprofitable

  16. Upgrade the Home Console • Add new features: DVD, online, HD, etc. • Pros • Caters to new generation’s needs • Online gaming components can add extra revenue streams • Cons • High costs in developing new console • Two large players dominate this part of the market

  17. Focus on Untargeted Market • Low price and user friendly approach • Pros • Tap into the untargeted market including women and baby boomers • Gain market share without stealing it from competitor • Cons • Low price limits the graphical capabilities of Nintendo’s home console hardware • Too broad: opinion leaders (hardcore gamers) may be turned off by this approach

  18. Rationale: Industry Trends • The increasing age of the average gamer • 2000: Average age is 28 • 2005: Average age is 33 • Broadening demographics • 43% of all gamers are women • Women over the age of 18 represent a greater portion of the game playing population (28%) than boys from ages 6 to 17 (21%) • 25% of all gamers are 50 and up • In 2004, 19% of Americans over the age of 50 played video games, an increase from 9 percent in 1999 Source: The Entertainment Software Association

  19. Final Recommendation Sony 1995 Nintendo 1985 • Focus on an Untargeted Market • Gamers over the age of 50 are a growing market • Female gamers are increasing in number • Potential in untargeted gamers • Low price and user friendly approach Nintendo 2006

  20. “The optimist sees opportunity in every danger; the pessimist sees danger in every opportunity.” -Winston Churchill “The worst thing that you can do is to compete with your rival on the same things.” -Michael Porter

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