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Strategic Management Assessment- Video Console Industry in 2008

December 03, 2017
Author : Alex

Solution Code: 1IAG

Question: Strategic Management

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Strategic Management

Case Scenario/ Task

Question 1-

How structurally attractive is the videos console industry in 2008?

Questions -

What are the most important lessons from the evolution of the video game industry that kazuo hirai and sony's should keep in mind as they try to formulate a strategy for regaining industry leadership from Nintendo? how has the structural attractiveness of the industry changed over time, and why?

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Video console industry in 2008

In 2008 the video gaming market is dominated by three major players, namely Sony, Microsoft and Nintendo. Sony is famous for its PlayStation 3 which was launched towards the end of 2006. Microsoft is known for Xbox 360 released in 2005 and at last Nintendo’s market is because of Wii, also launched in the end of 2006. All these market players are putting the best foot forward to capture the whole market and become the top leaders in the gaming industry. Entry and establishment of any new company seems difficult as the market is already occupied and saturated and also demands a huge amount of investment.

This market is quite uncertain. It experiences both rapid growth and downfall. A major downfall was observed in 1983 with a lose 97% of annual sales volume in just 3yrs. But since the gaming industry depends on advancing technology and is highly competitive, there is massive potential in the market for companies as well as customers. The videogame market is quite uncertain owing to these facts.

Outselling of PS3 2:1 by Wii will make it difficult for others to stand against Nintendo it in the market. Nintendo is still making a profit, however the profit and margins for Sony and Microsoft are going in negative.

Online gaming was further an added advantage of consoles. It allows multiple users to play videogames among friends over the internet. The game becomes more exiting when you have someone playing against you. It improves the enthusiasm of the player.

Thus, it can be concluded that the video game industry in 2008 is a rapidly growing sector with a small number of competitors and a huge potential for profits.

Lessons to be learned by Sony

With advancement in technology, new platforms are developed at an accelerated rate while the older versions and their accessories become outdated. Therefore, there is a need for considering potential risks associated with the product and ways to deal with these uncertainties.

Innovation is the key that governs the success in gaming industry. There are many points that can be considered by Sony and kept in mind while making an attempt to regain leadership from Nintendo. Some of the important lessons are: being innovative, taking risk to develop new products, understanding its current and potential market. It should also keep in mind that imitation cannot assure you success over your competitors. Although continuous improvement of the existing product is important, there is also a need to take bold decisions and think outside of the box to please the customers and meet their needs and demands.

Mr. Hirai needs to learn the importance of network external factors in the market. The existence of network externalities exist increases the value of the product and its users. The success of any new platform strongly depends upon the quality and availability of games. Also the products with a big installed base tend to attract developers of its matching goods.

Being the first mover does not always serve as an advantage leading to success. As illustrated in the case study, Microsoft wanted to be the first and launched its Xbox 360 much before the launch of PlayStation 3 and Nintendo’s Wii. The cost for Xbox was too high. Also the console was large enough. This resulted in $8 billion lose for Microsoft. Earlier Nintendo’s motive was also to improve its developed product. But they were more focused and innovative. They took a valiant move and introduced a whole new gaming console in the market. Launching Wii was a risk as it was not comparable to their previous game consoles. They gave the customers something new that could create value to current as well as a new, much wider market. They actually outsold the two rivals each month rather than one from the month of launch to August 2008, proving that uniqueness and innovation is more crucial than being the first mover.

Sony must firstly fully capture what it is best at. The Wii is intuitive, marketed extraordinarily well, and is unique because of its simplicity and usability. At present, Nintendo is superior to Sony in console market and Sony should accept this. It can strategize to compensate for the loss due to their console by properly marketing their games and accessories to gain high margins. Secondly, it can try to enter the physically interactive video game sphere by introducing some new products. This will help Sony to recapture the market and promise better interactive technology to its customers in the future, making them leaders in interactive video gaming category. But a quick move may prove detrimental. Launching a new product with new technology will require thorough research and designing. So the best solution can be to strike a balance between introducing a new product and focusing on their current strengths and advantages.

Including third party for developing games can also prove to be beneficial. This allows the company to spend more time on developing consoles than developing games for their consoles. The companies can develop a few video games internally but will majorly rely on the third party developers. Nintendo, they had licensing agreements with the third parties “to reach a critical mass of games for it new system.” To ensure high quality of the games developed by third party, Nintendo incorporated a special chip in each cartridge which could “extract royalties” for thee sustenance of the quality. Something same is done by Microsoft and Sony too. The difference in resources being given by Sony to third party basically lies in games being in CD-ROMs instead of cartridges. On the contrary, Bungie Software Products Group was bought by Microsoft. Computer video games were developed by them to ensure a wide range of games with high quality.

Thus, the keys lessons can be summarized as following:

  • Customer value isn’t necessarily tied to the product attributes on which your industry competes. In the case of Nintendo, the company was able to unlock additional customer value by reducing its emphasis on hardware performance.
  • Looking up for new market with the right offering at right time can lead to new opportunities.
  • Creating considerable customer value is not always associated with high cost. One can also have low priced products, happy customers and healthy margins.
  • Customer value depends on the product or service that meets their needs. Nintendo smartly chose to focus on the “fun factor,” rather than competing in the race for higher performance.

Structural attractiveness of the industry over time

There has been a great change in the market success of video game industry where consoles have played different roles over time. From simply being viewed as hardware infrastructures, the awareness of consumers has significantly increased by the end of the 90’s in view of unique gaming experience. The rapid growth of this market and tough competition has made such companies to build most advanced and innovative products for the customers. Potential for improvement still lies. In the past few years, the trend has become such that all-in-one device will be sold by the producers to make the life simple. This will contain a combination of every form of digital entertaining and will include video game too. Apart from being attractive, the market has admirable development potential in the coming future.

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