WRITTEN CASE ANALYSIS

STRATEGIC MANAGEMENT

THE TASK
GUIDELINES
• Additional materials may be included in exhibits

Case Title – Responding to the Wii

Porter’s 5-forces analysis of the Video Game console industry in 2008 and the structural
attractiveness of the industry

Video Game console industry in 2008

The major dominating players in the video console market in 2008 were Nintendo,
Microsoft, and Sony. Sony is well known because of its PlayStation 3 that was introduced
towards the finish of 2006. On the other hand, Microsoft is well know because of its Xbox 360
that it launched during 2005. Lastly, the market of Nintendo became famous because of the Wii,
which was also released towards the end of 2006. The abovementioned three major players in the
market are striving hard to ensure they capture the entire market and stand to be the top leaders
within the gaming industry (Hagiu & Halaburda, 2010). Establishment and entry of anew
corporations appears to be complex because of the market, which is occupied already and
saturated. Also, the market demands a massive amount of venture.
It is also evident from the case that the video gaming market was uncertain. The market is
experiencing both a downfall and rapid growth. The primary downfall was felt in 1983, which
involved a loss of approximately 97 percent of the total yearly volume of sales in merely three
years. However, given that the gaming industry relies on improving the technology and is also
highly competitive, the market still contains a massive potential for the customers as well as
companies. The video gaming market is very uncertain owing to the aforementioned facts.
 By Wii outselling the PS3 2:1, this move will make it difficult for other players in the
market to stand against the Nintendo. Nintendo makes profit still; however, the margins and
profits for Microsoft and Sony are deteriorating.
Hagiu, A., and Halaburda, H., (2010). Responding to the Wii, Havard Business Review.
In 2008, as Hagiu & Halaburda (2010) note in the case study, gaming online was further
an extra benefit of consoles. The gaming enables several users to play their videogames amongst
buddies over the internet. Video gaming is more exciting when two players play against each
other. It enhances the player’s enthusiasm. Therefore, it may be concluded from the analysis of
the industry that in 2008, the video game console industry is a fast growing sector that contains
view rivals and massive possibility for profits.
Porter’s 5-forces Analysis
Threat of Substitutes: The video game consoles’ major substitute would be the personal computer.
Both may be utilized for entertainment purposes as well as to play diverse kinds of video games.
There is very low threat associated with this substitute slowly becoming successful in the video
game consoles. This is because both are completely different. If anything, the consoles are
becoming more popular than the laptops within the gaming industry. The risk of substitutes within
the industry is not at a higher level. In 2008, the substitutes in the gaming industry were not a very
powerful force.
Threat of New Entrants: each industry contain circumstances, which create benefits for new rivals
trying to be part of the market. As Porter puts, the new entrants to the market bring new aptitude,
the need to gain the share of the market, and often considerable resources. Increased obstacles to
entry, the risk of entry is not high. From, the case study, it is evident that the threat of new entrants
in 2008 was low in 2008. One reason for this is the advancement in technology, which makes new
entrants to spend much capital to attain the appropriate technology. However, for the new entrant to
keep pace with the market, they will have to invest heavily in development and research, for its
products to possibly break the present brand royalties.
Bargaining Power of Suppliers: In 2018, the sellers’ bargaining power have an impact on the
video game industry. The suppliers of software, who are involved in the development of
technology for the consoles, contain a low switching price as they may use the products of their in
production of other electronics like televisions, and particularly laptops. Thus, they impose
increased pressure of bargain on the companies of video gaming. It is a different case for the
suppliers of hardware who are involved in development of corporal pieces to ensemble consoles.
The design of their products is particularly aimed at fitting the request of the companies, thus they
inflict reduced pressure of bargain on the industry. Absence of suppliers would result in a struggle
for the video game industry. Contrary the individual corporations are capable of manufacturing and
developing own technologies and products. However, for this reason, the suppliers’ bargaining
power has a moderate responsibility in the video gaming industry.
Bargaining Power of Buyers: The buyers’ bargaining power had no huge responsibility within the
video game industry. These products intrigued the buyers and the customers were ready to
compensate fairly high to receive the products. In the coming times, which cannot be the case
always, since the demand is what drives the prices; if there is a significant drop in the draw
towards the video game consoles the buyers’ power will have a substantial responsibility. The
buyers in 2008 were abundant as compared to the capability of the supply to attain in most cases.
The customers are impressed with brands of their products, they also have trust in the products,
which are made, and thus they generally ready to fairly compensate high price to get these
products.
Rivalry Intensity Among Competitors: In 2008, rivalry involved a very strong force within the
video game industry. For years within the video game industry, there is no company that could hold
the highly famous console for over one successive generation. There is very strong rivalry among
the existing firms. Each of the companies holds its strong identity of the brand, and Nintendo,
Microsoft, and Sony all need to become the leaders within the video game industry. All the players
within the industry contain important resources as well as good fan at their disposal.
Important lessons from industry evolution that Kazuo Hirai and Sony should keep
in mind as they try to formulate a strategy for regaining leadership from Nintendo
With technology advancement, there is development of new platforms at an accelerated
rate whereas the versions of the past as well as their accessories become obsolete. Thus, it is
essential to take into consideration the potential threats related with the company product and the
ways of addressing these uncertainties.
Innovation of a company is the key aspect governing company success within the gaming
industry. There exist several points, which Sony can consider as it attempts to regain the
leadership of the market from the leading Nintendo. Among the important lessons include;
risking to come up with new products, becoming innovative, understanding it potential and
current market. It must also note that imitation does not guarantee success over rivals. Even
though persistent improvement of the present product is vital, it is also essential for the company
to take brave decisions and try to think broadly to please the consumers and attain their demands
and needs.
It is essential for Mor. Hirai to learn the significance that factors of network externalities
have within the market. The presence of network externalities increases the product value as well
as the users too. Any platform’s success depends strongly upon the availability and quality of
games. Further, the products that contain a large installed base appear to be attractive to the
developers of its similar goods.
Being a quick mover does not at all times act as a benefit resulting in success, as
elaborated in the case, Microsoft aimed at being the foremost and it released the Xbox 360 way
much before the release of Nintendo’s Wii and PlayStaion 3. The Xbox cost was very high and
the console too was big enough leading to a loss of eight billion dollars for Microsoft. The
Nintendo’s earlier motive also involved to better its developed company product. Though they
appeared more innovative and focused. They opted for a brave move and launched a whole latest
gaming console within the market. Release of Wii was a threat since it could not be compared
with their past game consoles. Further, the provide the users with something new, which could
add more value to a new as well as present, mu broader market. To confirm that what is more
crucial is innovation and uniqueness but not but not being a quick mover, they outsold its two
rivals every month, instead of one since the month of release to August of 2008.
As evident in the case, the industry history shows clearly that it is not easy for the market
player to sustain the leadership of the market for extended period. There is gradual development
of the products since the first generation, the 8-bit consoles to the newest 128-bit. Similarly, the
video game industry has changed and the market players have adapted correspondingly. The
players who did not keep pace with the growth of the market were removed. Kazuo Hirai could
experience that Wii had outperformed the Sony’s PS3. Thus, he should be very cautious about
any further decisions that he will make with regard to the next moves for Sony. The Nintendo
Wii portrays various new chances for the video game industry. Firstly, Nintendo’s success
contain a vital implication, which Sony must consider pursuing the new segments of the
customer, which Nintendo unlocks XXX. It may be illustrated then that since the release up until
August of 2008, the Nintendo Wii sold two of its rivals monthly except one that indicates clearly
the success of Nintendo in the targeting strategy of the customer. Furthermore, thanks to the
motion-sensing controllers and user-friendly capabilities that Nintendo has, it has become
successful in taping into large number of audiences that are not customary gamers, from the
preschool level up until the elderly level. This allows the Wii attain an enlarged market of target
than Sony whose main consumers are merely the core-gamers. Nintendo Wii also offers the
gamers with the capability of creating customized characters that portrays the interest and
functional diversity. With regard to this, it is essential for Hirai to put more concentration to the
potential breakthrough and the new opportunities. This can become a vital chance of intensifying
the competitive benefit. Moreover, in line with the slump of Xbox360 of Microsoft and
Dreamcast’s failure, a quick mover benefit cannot make certain the leadership position. Thus it
may be an alternative that Sony concentrated in the present PlayStation and improve it with extra
functions and features.
It is essential also for Sony to ensure that it first capture fully the what it can perform
best. The Nintendo Wii is marketed extremely well, unique, and is intuitive due to its usability
and simplicity. Nintendo is at present superior compare to Sony within the console market and
Sony must accept this. Sony can opt to strategize as a compensation of the loss because of their
console. It can do this by ensuring they market their accessories and games appropriately to gain
increased margins. Secondly, Sony can attempt to enter the sphere of the physically interactive
video game by launching other new products as stated before. This will assist it to recapture its
market and assure improved interactive technology into its users in the coming times, making
them to emerge the top within the interactive category of video gaming. Though a fast move can
prove detrimental. Introduction of new products with latest technology will need thorough
designing and research. However, the fines solution may be for Sony to strike an equilibrium
between concentrating on their present advantages and strengths and launching new product.
Inclusion of an intermediary for development of games may also confirm to be
advantageous. This enables the corporation to use more time developing the consoles as
compared to developing the games for their consoles. However, the corporations may decide to
develop internally some few games though will rely primarily on the intermediary developers.
Nintendo had entered into a licensing contract with the intermediaries “to reach into a crucial
collection of video games for the company’s new system”. As evident in the case study, Nintendo
attained the video games of high quality developed by intermediaries by integration of a special
chip in every cartridge that could :extort royalties” for quality sustenance. Sony and Microsoft
performs something similar too. The dissimilarities in resources that Sony gives the
intermediaries lies basically in video games being put in CD-ROMs rather than the cartridges. In
contrast, Microsoft bought Bungie Software Products group. They developed the computer video
games to make sure there is a broad range of high quality video games.
Therefore, the key lessons as per the case study may be recapitulated as follows:
 The value of the customer is not tied necessarily to the attributes of the product upon
which your present industry contends. In Nintendo’s case, the company was in
position of unlocking the extra value of the customer through reduction of its stress on
the performance of the hardware.
 New opportunities can be attained when a company tries to find new market with
appropriate offering at the correct time.
  Creation of considerable value of the customer is not at all times linked with the
increased cost. One may have products of low prices, healthy margins, and happy
customers.
 The value of the customer relies upon the service or product, which attains their
necessities. Nintendo smartly decided to concentrate on “fun factor” instead of
competing with other companies for improved performance.
However, it is my opinion that Kuzuo Hirai must chose to make use of the new segments
or improve the present PS and focus in a single aspect.
The structural attractiveness of the industry
In 2008, the video game console industry contain three major players including the
Microsoft with its Xbox 360, which was introduced in November of 2005. The other player was
Sony Company with the PS3 (PlayStation 3), which it launched in Novermeber of 2006. Finally
is Nintendo with the Wii that it launched during similar month. The three exiting rivals had been
struggling for long to become the leaders within the industry. All through the years, the video
game console industry’s structural attractiveness has changed considerably. Among the most
important changes involves the industry players’ transportation. During the start, Atari became
the pioneer though it failed subsequently. Nintendo then played a leading responsibility in the
generation of 8-bit, after which was replaced with leap of technology by Sega. What followed
was Sega’s failure that happened due to the Dreamcast that was followed by Sony’s rise. Firstly,
Microsoft also entered, resulting in a three-competitor condition. Secondly, given the increased
expenses of bettering the new consoles, the barriers of entry have increased considerably and
only corporations of a particular scale may afford it. Most of the consoles have persistently been
high not including the Nintendo Wii. This is because Nintendo Wii is in opposition to the power
of the buyer in certain case, particularly in the presence of substitutes . In terms of experience of
the user alternates, they present less risk due to the different experience of the user. However, the
substitutes have increased inn number, like the iPad gaming, PC and others. Finally, the segments
of the customer are expanding consistently during these years because the middle age level of the
initial generation of the gamers and also people become more and more skillful in utilizing the
electronic devices. The customization of Wii is an instance of video game corporations by
effectively exploiting this.
On the other hand, I also prefer to view the industry as unattractive because of mainly
two reasons. First, the video game console industry contain the characteristics of specialization
and uncertainty. Basing on the external threats and internal competition, having a place within
the current industry and entering it was significantly hard. Moreover, costs have increased and
the standards had also been increased. The total amount of necessary capital was tremendously
high for the probable entrants, whereas the return and result of investment was hesitant.
Moreover, the other reasons that makes the industry not to be structurally attractive include first,
the issue of intense competition between the three main companies. Positively, this competition
did not involved the prices but it involved the differentiation of the product (games, features, and
technology), which denoted that there existed no descending spiral into the failure of the market.
Second is the issue of negative or low margins of the profits. This is evident in the case study
Exhibit 2b. This was particular to the high cost of console producers (Microsoft and Sony
meaning that either the customers were ready to compensate less or that one of the consoles’
sales heavily cannibalized the other consoles.
1. How is Nintendo Wii positioned vis-à-vis the five forces?
 Nintendo Wii is well positioned to defend itself from al the Porter’s five forces in the
video game industry. Generally, cost leadership brings about superior returns through: enabling a
company earn positive return when the other rivals have get rid of any superior results by way of
rivalry; defending the company against the pressure of the buyer; defending against suppliers’
pressure since reduced cost provider is well set to absorb extra increases of cost; providing an
obstacle to any alternates and constituting barrier to entry because of scale economies and cost
benefits. As Porter (1980) asserts, the position of cost strategy generally enables a company to
defend itself from the five forces of the industry. In this regard, Nintendo Wii has been able to
attain this because of its ability to encourage more sales through incorporation of reduced cost
strategy providing the most reasonably priced console. As cited in the case study, Nintendo’s Wii
from the technological position was significantly less advanced in comparison with the two
rivals (Nicole, 2006). However, it was able to gain the market when it equip the Wii with user-
friendly and innovative aptitudes to appeal to its customers instead of the customary gamer.
However, through its cutting-edge technology as mentioned by the CEO of Nintendo, Satoru
Iwata, saw the Wii outselling its two competitors because of the huge demand. This constituted
barrier to entry due to economies of scale and innovative technology including such features as
motion control and the aptitude to utilize the controller to act as the second screen.
Differentiation also offers chances for better performance through leveraging the industry
five forces. Loyalty, exclusivity, and uniqueness are string barriers to entry and Nintendo has
achieved this by ensuring it becomes innovative than its rivals thus becoming hard for new
entrants since they will have to invest heavily in order to meet Nintendo’s level.
Focus is another strategy adopted by Nintendo to defend itself against the industry five
forces. This strategy comprise the concentration of the entire resources of the company as well as
the concentration on satisfying the needs of a particular, appropriately defined segment of the
customer. To achieve this, Nintendo was able to attract massive customer segment as stated in the
case study. This is evident when it launched fifteen Wii games in December of 2006 within the
US. Due to its innovation to meet the customer needs, it was able to outsell its two main
competitors between the launch and August of 2018 due high demand of the games.
Sony’s main strategic options including their pros and cons and the necessary data
considered to choose the options
Strategic option refers to the process of deciding on an alternative strategic choice created by
SWOT analysis. It is essential for the Sony company management to try and evaluate and identify
other strategies for the business to reach its set objectives and become competitive in the market. In
order to choose the strategy option, the major data that would be essential include knowing the
approximate number of potential customers for easy planning on the amount of production.
Information about the actual needs of the existing customers is also very important since the it makes
it easier for the company to major on the appropriate products that will meet customer needs.
However, among the strategies that I consider Sony should address include first, ensuring that it
concentrate on staying in this distinctive segment as well as taking advantage of its perceived
distinctiveness as a leader in technology. Rather than competing on the terms of Nintendo, Sony must
exercise “Ukemi” rather than reacting. It can do this through advancing its position within the serious
segment of gaming by for instance, ensuring it is cares about the serious gamers more (who are the
major customers) by meeting their needs and desires. This is advantageous because Sony will be able
to attain the needs of the customers, which in turn results in increased demand for its console.
Conversely, as seen (From the case study, Exhibit 2b) that Sony has been running in a negative
operating margin, this strategy may therefore be disadvantageous for Sony because of the huge
capital it will need to maintain its perceived distinctiveness. This is because technology
enhancement, adding more features to its consoles, and market. All these require a lot of capital to be
accomplished.
As evident (From the case study, Exhibit 2b), Nintendo has emerged successful in sustaining
positive operating returns regardless of not being a strong competitor in the past two generations.
However, from this fact, the second strategy option that Sony should consider adopting is ensuring
that it concede defeat this gaming generation, whereas it sustains a balance by offering influential
services to present market. Its target should be on the serious gamers but not reacting to Wii on the
basis of evaluating its strategy of differentiation. It may do this by making something similar to
Nintendo’s but with enhanced features for instance, a game that the kids can play both indoors and
outdoors as they move around but not just sitting at one place. This is what many parents desire for
their kids since they make the kids move around. This is a very important strategy for the company
since it will enable attraction of the present massive market given the rising demand for the video
games. This will also position Sony as the leader since it will have got hold of a large market, thus
increased production and eventually high returns for the company. Conversely, this strategy is
disadvantageous since it will require the company to use much capital in order to beat the current
leader in the industry in terms of technology enhancement and research about the needs of the
customers.
A business model to aid the option chosen
According to Hamel (n.d.), a business model relates with the business strategy in that the
model of the company is included in the overall strategy: it involves the nuts and bolts behind the
way a corporation plans to attain its objectives, like earning profit, which in this case is ensuring the
chosen strategy option becomes successful. A great model for business must concentrate of
delivering and creating substantial value to consumers as it also convey great margins. It must look
also to avoid dissatisfaction of the customer or funding and dissonance problems. Moreover, it must
incorporate methods and plans to maintain and attain market leadership (Das, 2019). However, the
business model I would employ to aid the chosen strategy option will follow involve taking into
account the following considerations: first, is to size the value of the products in the market. This
involves matching your products’ prices with the competitors’ to ensure no highly-priced products,
which result in low sales and not too low to ensure high margins for long-term sustainability.
Secondly, it to ensure adequately increased margin. This will solve the negative margin that
Sony is operating on as evident in the case study (Exhibit 2b). The company would ensure it keeps it
cost of manufacturing to be low either by further outsourcing its manufacturing or improving the
process to ensure high operating margins. Further, the company would ensure the product’s features
improves customer value and enables the company to charge the premiums for the products (Das,
2019). Thirdly, the company would aid the strategy options by ensuring satisfaction of the customer,
which maintains the company position in the market. It highly expensive to acquire new customers
compared to keeping the present customer satisfied. The video gaming industry has always been
experiencing increased demand. However, to tap into this growing market, the company would
ensure that the games they introduce to the market are friendly to the kids and does not cause any
kind of harm wither health wise or physically. Finally, the company would ensure it formulates the
strategy for funding to ensure long-term sustainability. This can be done by ensuring the corporation
is bootstrapped though this needs steady flow of resources for sustenance. Ideally, the company’s
initial funding rounds must enable the company multiply sales manifold to avoid further outside
funding.

SWOT analysis for Sony

Strengths:
- Early release of PlayStation 3
 - Remarkable technology achievements
- Unique features
- Ability to win Hollywood to adopt its format
- Sustained success
- Online gaming
Sony has been able to experience high volume of sales as compared to its main rivals, the
Nintendo and Microsoft consoles. As stated in the case study, Sony had emerge victorious by
2005, and became dominant for two console generations. This is because of its high volume of
its PlayStation 2 consoles (89 million consoles) as compared to Microsoft’s 23.7 million Xboxes
and 26.6 million GameCubes sold by Nintendo.

The Blue-Ray function: The PlayStation 3 comes with an advantage of playing the
Blue-Ray discs in the console, which is not provided by its competitors such as Microsoft’s
Xbox 360 as well as Nintendo’s Wii. It is the only gaming console in the market, which has
the function of playing Blue-Ray discs in it. This gives consumer the advantage of not only
playing the games but can also watch movies on it through this function. This function also
increases PlayStation’s attractiveness among the movie buffs.
Better Hardware: The PlayStation 3 has a better hardware over its competitors like
Microsoft Xbox 360. It provides for two 2.0 USB ports and multiple memory card reader
slots which makes it faster and better to the Xbox 360. In addition to this most of the models
of PlayStation 3 also provides for an in built Wi-Fi port, which comes separately under the
Xbox 360 as an accessory. This spares the consumer of the headache of buying a separate
Wi-Fi port as in the case of Xbox360.
Weaknesses:
One of Sony’s weaknesses include the costly products. If it is producing products of high quality
that means the gaming consoles will be costlier. For example, the blue ray feature of the
PlayStation increases the cost of PlayStation 3. The PlayStation 3 for Sony is much expensive
compared to its rivals like the Wii and Xbox 360. This is among Sony’s biggest weaknesses
because of which there is a decrease in popularity of PlayStation 3. The other weakness of Sony
is its delay to launch the PlayStation 3. As stated in the case study, the delay was due to technical
issues and the cost overruns. This is threat to the company since the customers will opt to go for
the rival products given their low-priced products. The high cost of technology is also another
weakness for Sony. With its negative operation margin, the high cost of technology also imposes
other more expenses for the company thus will not be able to cope with the stiff competition in
the market as result of reduced profits.
Opportunities:
One of the opportunities that Sony has is the capability to attract high support from external
developers, This comes as a result of its rival, Nintendo, which charges a premium for its games.
This resulted in the third-party developers earning less gross profit for Nintendo format of 11
dollars only per unit (versus Sony’s PlayStation format that earned them 18 dollars. As stated in
the case study, this is because of increased royalties charged by Nintendo (more than 20 dollars
versus Sony’s nine dollars) and the more expensive cartridge format. From the case study, it is
stated that the video game industry is experiencing high demand. This is due to the popularity if
the console games pivoted by the features that the players are offering to the customers. The
products of console is said have remarkable technology for instance, the introduction of Blu-Ray.
This increases the chances of Sony to attract more external developers. In the case, this is evident
from the movie studios of Hollywood, which opted to go for Sony’s standard. There is also high
chances that Sony can reduce its production cost due to high technology cost. It can do this
through manufacturing scale-up as well as improvements in terms of additional high-tech
features.
- Disappointing sales volume for other consoles
- • Blu-Ray may become the new high-definition standard
- • Cheapest Blu-Ray player available
- • Voice controller under development
- • Synergies with other products of Sony
- • Production cost should go down via manufacturing scale-up and improvements
- • Introduction of exciting games later this year
Threats:
- Supply shortages
- Stiff competition
Moving people: In today’s market the customers are not loyal to any company so in
order to satisfy their gaming needs they might switch on to more cheaper gaming console
as PlayStation is very costly.
The Xbox One console is a threat for Sony. The main reason this is because Sony generates
most of its profits from its gaming division, and if Microsoft were to become the market leader in
gaming, this would impact Sony tremendously. The other company which could affect Sony
would be Nintendo and their home console, the Wii U which has exclusive games such as Zelda
and Mario.

References
Das, S., (2019). How to Develop an Ideal Business Model? | The Startup Process, FEEDOUGH.
Retrieved from https://www.feedough.com/how-to-develop-an-ideal-business-model/
Hamel, G., (n.d.). The Relationship Between the Business Model and Strategy. Small Business -
Chron.com. Retrieved from http://smallbusiness.chron.com/relationship-between-business-
model-strategy-25963.html
Nicole, R., (2006). “Nintendo’s Wii is Flying Off Store Shelves,” Smart Money. Retrieved from
http://www.smartmoney.com/investing/stocks/nintendos-wii-flying-off-store-shelves-20527/,
accessed Dec 27, 2006
Porter, M. E. 1980. Competitive strategy: Techniques for analyzing industries and competitors.
New York: Free Press.