FREE ESSAY ON NINTENDO

NINTENDO

SEGA's Strategy
SEGA's strategy is to become a world leader in video entertainment. Their strategic
intent is to build an entertainment empire. To achieve this, SEGA has adopted a
technology oriented strategic plan that focuses on acquiring and maintaining competitive
advantages in fields such as multimedia, computer graphics, virtual reality, and high
tech amusement theme parks. The research and development spending has been boosted to
capture the market before the competitors. SEGA's strategy is characterized as "first at
all cost" since the burn they took from Nintendo on the release of the 8-bit system.
SEGA has competed in both the in-home and out of home video entertainment. The United
States theme park industry is now a $6 billion industry. SEGA's future strategy includes
entrance into this market with their SEGA theme parks. These parks will provide games
with high-tech graphics and virtual reality simulations. Plans include 50 parks in the
United States, and another 50 in Japan. SEGA has been involved with arcade games, and
used that technology to implement games for the home systems.
SEGA's marketing plan includes the SEGA Club, a push in Japan's market, and a review of
their European markets. The SEGA Club is a marketing channel for SEGA to capture teens
and pre-teens. SEGA's objective is to bring good, clean video game entertainment and
educational products to the market for teens and pre-teens. SEGA also plans to put more
emphasis on Japan, since the margins for sales in Japan are much higher. This includes
new products, increased advertising, and marketing that is more extensive. SEGA is also
planning marketing research in Europe in order to respond better to the consumer
preference and competitive conditions. Their goal is to improve sales and gross margins
in the European market.
SEGA's new product development includes the SEGA CDX, which is a 32-bit platform that
uses CD's or cartridges. In 1994, SEGA test marketed the SEGA Channel in the United
States. Genesis owners could play games, obtain game play tips, news, contest, and
promotions. Another development is the PICO system. This is a book like toy for children
that convert pictures from books onto the television. This was SEGA's first attempt to
penetrate the educational market for children. SEGA also offers video game equipment that
attaches to exercise equipment. Analysts believe this could eventually be a $2 billion
market.
SEGA has also employed a pricing strategy that has caught on throughout the industry.
This strategy is for systems to have components. The fully loaded Genesis system had
three components, the game player, the SEGA CD, and the Genesis 32-X. This got consumers
to buy the system in installments.
Nintendo Corporate Strategy
Vision/Mission
The old strategy of slow and steady wins the race has grown obsolete, shown by the recent
loss of market share to SEGA. It has become quite clear that in order to be effective in
the interactive entertainment industry, Nintendo must adapt its corporate strategy to
keep pace with the market. In other words, Nintendo must produce innovative products
using the newest technology and expand in new markets, while maintaining the high quality
of our products.
Strategic Objectives
We see the future of Nintendo relying on three key areas: Development, Product Expansion
and Marketing Position. Under each of these categories there is potential for tremendous
growth. Development is key to Nintendo's growth in future. Under this category, Research
and development into faster and more efficient machines will provide Nintendo with an
edge in the market. This foresight, reflects the strong change in Company philosophy.
With our recent release of the N64, we plan to aggressively market and develop this
product. Finally, we plan to increase our revenue from internal development to 50%.
Within five years, we see Nintendo expanding its product line to embrace not only
interactive TV, but also large scale Gaming centers and underdeveloped demographic
markets. Finally, Nintendo plans to capitalize its market position through lobbying for a
uniform rating system, as well, as maintaining current high levels of advertising and
improving communications with customers through internet web site development.
Development
From industry experience and analysis, it is quite clear that success in the interactive
entertainment and specifically the videogame industry are directly related to staying
atop of the newest technology. With this in mind, we plan to focus on both sides of the
development coin: Hardware and software development. With the release of the N64,
Nintendo is planning on releasing a minimum of 10-15 games in the first year for the N64
and steadily increasing the number released throughout this product's lifetime. This will
create a solid foundation of demand from our consumers, while not under satisfying them
from the start. In addition, we will focus on developing new accessories to add value to
the gaming experience.
While marketing and expanding the products offered for the N64 is vital to Nintendo's
current success, we must continue to move forward. Nintendo is set on constantly
improving the efficiency and speed at which its devices operate. With this is mind, we
plan to begin development of the N128 within the next year. Under this development
program, the N128 will be test marketed within two years, including the connection for
our Gaming World Channel. If all goes as planned we would have this product out on the
market within three to five years. Additionally, we plan on testing to see if N64 games
should operate on the N128. Just as importantly, a majority of our revenue comes from
game sale, so it is very important that we concentrate on developing games with the most
resent advances in all integral aspects of game production, such as audio, video, and
special effects.
Product Expansion
While Through the N64 and the development of faster machines, Nintendo will at least
maintain its position in the videogame market. We have to look forward to where the
market is going and what will be necessary to be successful there. With this in mind, we
have developed three new services and markets to enter into: Interactive Channel Service,
Gaming Centers and untapped demographic markets.
Nintendo's Gaming World Channel will be a fully interactive premium cable station offered
through local cable service. It will allow subscribers to try out the a broad range of
games including demos of the latest release and soon to be released games. With the
advances made in mutli-band technology, subscribers will be able to play networked games
versus another of the other users.
This channel will be marketed like that of an HBO or CNN, based on a monthly
subscription. We will tier the pricing to provide users different packages. The Basic
package will include the broad games with some of the demos and network play. While the
Premium package will allow for all of the services.
Nintendo's Gaming Worlds will showcase the latest in technology from interactive theme
rides, internet cafes directly linked to Nintendo's web site, games stations for playing
Nintendo Games, restaurants, shops, and most importantly demo versions of the Nintendo
Channel and its hardware. Customers will be able to purchase a variety of passes, from
all day to half day or even hourly.
Initially we will build in ten major cities, five domestic and five internationally.
Specific locations are projected domestically to be New York City, San Francisco,
Chicago, Atlanta, and Seattle. While internationally, we will open in Japan, London,
Paris, Sydney, and Rome. After these initial openings, we plan to expand the amount of
Gaming Worlds to forty in five years.
Finally, Nintendo will broaden its current game production to include women and children.
In order to achieve these results, we plan on producing more games based on problem
solving and learning, along the lines of Tetris. While for children, specifically those
under the age of six, we plan to produce inexpensively priced games with a range of
topics from some learning to Pac Man type products.
Both of these markets have been so far left relatively untouched. We feel that appealing
to both of these markets, allow Nintendo to not only improve revenue generation but also
better satisfy our customers complete wants and needs.
Marketing Position
As the interactive entertainment industry grows more competitive and shelf space
decreases, there is a growing need to maintain a firm's market position through
advertising and marketing. To this end, we believe that while Nintendo currently is the
146th highest advertiser in America, that this is not enough. We plan to achieve a top
100 ranking within five years through various promotions and programs. These programs
will be focused not only on our consumers through rebates for purchase of the N64, but
also through discounts given to retailers for use of their shelf space.
In addition to promotions and rebate programs, Nintendo is planning to revamp our web
site to better communicate information to our consumers. The new version will provide
information on the company, game playing tips, release dates, write ups on demos
including actual game images, and also the ability to sign up for weekly reminders of
game release dates, as well as new game tips.
While providing these services directly to our consumer, we believe that Nintendo's
support of a uniform rating system will not only provide piece of mind for our consumers,
but also a positive brand image of the Nintendo name. We believe that a combination of
both the IDSA and SPA rating systems will allow consumers not only to get a general feel
for the age appropriateness of a product, but also the specific breakdown of material
within the game.
Industry Analysis
In recent years the interactive video game industry has went through many changes.
Nintendo and SEGA have been the giants in the video game industry throughout the 1980s.
The sales, which have been growing since mid 1980 have slowed and were relatively, flat
through out 1994. However the next generation game players, which were released in 1995,
gave a whole new dimension to the video game industry. New competitors like Sony,
3DO-based systems, and Philips were challenging Nintendo's market-share. The market size
in 1995 reached approximately $15 billion in sales and reached $18 billion in 1996. Sales
have increased once the next generation systems were fully on line in 1996, however the
profits were weak because of razor thin profit margins on hardware, software proved to
have a higher gross margin.
Though out the 1990s the key to success in the video game industry has been innovation
and technological advancement. The rivalry among the competing sellers in the industry is
very intense, especially in the area of game quality. The revenue hits games accounted
for as much as 30% of revenue from video game sales. The advancements in the personal
computer industry is clawing away market share from the industry. In recent years the
bargaining power and leverage has shifted from suppliers to the retailers. The limited
shelf space and lining up software developers has been a bid challenge for competitors in
the industry.
There is a number of key factors which have driven the industry in the past. Product
innovation and technological change were key. The fact that Nintendo lagged behind in
introducing a 16-bit system has cost it 50% of the 16-bit market share and allowed SEGA
to gain a firm foothold in the industry. Marking has also played a large part of video
games sales. TV commercial & magazine ads helped boost sales for video games and created
hit games.
SEGA and Nintendo are the dominant companies in the fight for market share in the video
game industry. In 1994, Nintendo's net sales were 4.7 billion and SEGA's net sales were
4.0 billion. Each of the companies had market shares of 45% of the video game industries.
The other companies Atari, 3DO-based, and Philips CD-I has 1%, 7%, and 1% respectfully.
Sony's playstation did not come out until 1995. Before 1996, SEGA and Nintendo had 90% of
the market share of the video game industry, leaving little room for other companies. The
introduction of next generation platforms changed all that. The six main companies;
Nintendo, SEGA, ATARI, 3DO-based, Sony and Phillips reshuffled the market-shares to 37%,
27%, 2%, 21%, 10%, and 3% respectfully. Nintendo and SEGA were still the dominant powers,
but 3DO and Sony took away large portions of market-share from the two industry leaders.
The key factors that determine the competitive success or failure of a company in a
marketplace are the particular strategy element, product attributes, resources,
competencies, competitive capabilities, and business outcomes. Each company must have
good technology, manufacturing, distribution, marketing skills and organizational
capability. Technology in the video game industry is one of the most important factors.
They need to always be on the cutting edge and never lag behind. SEGA introduced the
Genesis, which was the first 16-bit system on the market, 18 months before Nintendo 16
bit Super NES. The SEGA CD was released well before any competing system. SEGA has
introduce it's 32-bit system, Genesis 32X, a full year before similar system from
Nintendo or SONY. So far, SEGA has been the first to come out with; in return Nintendo
was forced to play catch up. With Nintendo the strategy was characterized by the industry
as "slow & steady wins the race"
The video game industry is attractive and there are above average profitability possible.
There is tremendous industry growth potential. In 1994, the video game industry was a 15
billion-dollar industry worldwide. In 1985 it was less then 100 million. Two thirds of
the children in North America between the ages of 6 and 14 played video games. There is a
tremendous amount of money to be made in the video games industry. It not only has a
large percent of children 6 to 14 in North America but also have a large percent of
people 18 and older who play video games. Nintendo did a study of ages of players. The
look at under 6, 6-14, 15-17, and 18+ and the percentage of players o f NES systems was
2%, 48%, 11%, and 39% respectfully.