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Sony and Nintendo in the Video Game Industry Research Paper

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Updated: Aug 4th, 2021

Introduction

Strategy formulation and management are some of the critical aspects that companies rely on to succeed in achieving their business objectives. The business context is highly dynamic for any firm, thereby requiring appropriate planning and implementation of measures to steer the firm steadily towards its goals. Factors such as government policies and regulations, recessionary pressures, technological changes, and social characteristics of the market lie outside the control of a firm’s management. Therefore, it requires a highly effective strategy to counter the negative pressures. This paper analyzes the competitive strategies adopted by Sony Corporation and Nintendo Consumer Electronics Company, using the Porter’s competitive advantages and the Blue Ocean strategy respectively.

Sony Entertainment Inc.

Sony is a multinational manufacturer of a wide range of electronics, which include televisions, gaming consoles, music systems, DVDs, among a variety of other commodities. The firm is headquartered in Tokyo, Japan, but it has established offices across its global market. Sony ranks amongst the biggest household names in terms of its heritage that has been built during its long period of operations. The Sony Online Entertainment (SOE) is the firm’s division concerned with the development and publication of video games. Among the most common games produced include EverQuest, PlanetSide, and the Star Wars Galaxies, among many others.

Nintendo Company Ltd

Nintendo is an established manufacturer of electronics devices and digital content with a global market reach. The firm is the largest globally in terms of the manufacture and sale of video games. The firm has manufactured several generations of the home console since the 1980s, beginning with the Nintendo Entertainment System, the Super Nintendo Entertainment System released in the early 1990s, and the Nintendo 64 that was released in the mid 1990’s. The Game Cube and Wii were released in 2001 and 2006 respectively, incorporating new technological features such as optical discs and the Wii Remote controller. Presently, Nintendo’s latest generation of home console is the Wii U, which was announced in 2012. It supports high-definition graphics and features an in-built touchscreen capability.

Five-Force Analysis of the Entertainment Industry

New Entry Threats

New entrants into the digital entertainment content are faced with significantly high industry barriers that make it difficult for them to venture easily. An initial significant investment in the form of high capital outlay is required for an aspiring entrant to set base successfully. Part of this investment is needed for acquiring skilled workers and building critical techniques to enhance business continuity. Additionally, brand identity is useful to enable the new players to compete with other established players in the industry, such as Sony and Nintendo.

Buyers’ bargaining power

Buyers in the industry have a low bargaining power because of a combination of several aspects. Firstly, the switching cost is significantly higher because entertainment firms like Nintendo and Sony have established customer-locking mechanisms (Wada, 2011). These include the lack of compatibility between the accessories from different manufacturers and the games sold. Additionally, different customers have their own personal preferences that make them choose one company over the other.

Suppliers’ bargaining power

The bargaining power of suppliers is moderate in the industry. The entertainment companies, including Sony and Nintendo, have established strong relationships with their suppliers and other third party firms developing hardware and software for them. In essence, the suppliers are keen on sustaining long-term relations with the buying firms; thus, they set up friendly terms of doing business. Additionally, the buyer firms have succeeded to establish elaborate global supply networks that lower the bargaining power of their suppliers significantly. The entertainment firms, moreover, have been in business for long and have established huge capacities to integrate backwards in some instances, which further curtail the bargaining power of the suppliers (Wada, 2011).

Substitution threats

The threat of substitute products is equally moderate in the industry. The entertainment industry is considered as a maturing market, given that highly established firms, such as Sony and Nintendo, dominate it. However, personal computers and other mobile devices, such as smartphones and electronic tablets, also integrate games and other entertainment content that could act as substitutes to the other entertainment content offered by Nintendo and Sony. Additionally, consumers can also consider other forms of entertainment, such as participating in outdoor activities, without necessarily seeking an interaction with digital entertainment content.

Industry rivalry

Rivalry is high within the industry, especially because of the huge capacities of the individual players like Sony and Nintendo. As Wada (2011) points out, these firms have significant resources that they use for their research and development (R&D) activities to ensure high quality products and services.

Competitive Strategies

Sony

Current competitive strategy

Sony adopts a differentiation kind of competitive strategy, which is characteristic of its unique kind of products, such as its multiplayer online games released to the market since 1994. Given the industry’s high rivalry involving other well-established firms, such as Nintendo and Microsoft, Sony’s decision to adopt the differentiation strategy is meant to ensure that its video games provide consumers with a unique interactive experience that can hardly be acquired from other manufacturers (Rysman, 2009).

Actions by Sony to improve current competitive position

Sony sets aside a significant budget of its financial resources, purposely to strengthen and improve its current competitive position. The research and development (R&D) function of the firm receives the biggest budget allocation annually to ensure that extensive research is conducted. This has improved the firm’s capability to deliver both products and services that are of higher quality in the market. Additionally, Sony conducts comprehensive sales and marketing programs to raise awareness in the market so that more buyers can understand its products and acquire them to increase revenues.

Likely strategy shifts

Sony is likely to shift from its current differentiation strategy to adopt the focus strategy, given the high rivalry in the video gaming market that is considered matured. With a focus strategy, the firm will only concentrate on an exact niche market to understand its underlying dynamics and, accordingly, develop well-specified products to capture it fully (Rysman, 2009). This will be significant in helping Sony to improve on its current brand loyalty performance and dissuade other competitors from venturing into the niche market. In pursuing the focus strategy, Sony is more likely to consider the differentiation focus, as opposed to the cost focus, because of the high R&D expenses that are characteristic of the industry presently.

Weakness of the company

Sony’s video game is not the most sought after in the industry, compared to Nintendo’s game console that records the highest performance in terms of sales. This means that Sony does not acquire significant revenues from the industry, owing to the fact that its video games are not popular. With the market for video games being mature, this is a big threat to the firm as it may lose its current customers to rivals such as Nintendo.

Competitive move that will provoke the greatest and most effective retaliation

Sony should consider introducing customer-locking strategies that will play a significant role in enhancing its competitive stance in the market. It should equally focus on releasing a new generation of video games with unique, highly interactive features that will increase the market demand for its products (Rysman, 2009).

Recommendations on the current strategy of the company

I would recommend Sony to consider shifting its current differentiation strategy and adopting a focus differentiation strategy. The video game market is becoming saturated, thus a differentiation strategy is not adequate to enhance Sony’s competitive performance because all the competitors are working on unique product ideas to compete with each other. A focused differentiation strategy, however, will ensure that Sony only targets a smaller fraction of the market and presents highly effective products and services that no other industry player will manage to emulate.

Nintendo

Current competitive strategy

Nintendo pursues a differentiation and low cost strategies within the video game industry. The strategies have helped it to break the value-cost trade-off significantly (Hollensen, 2013). While producing unique video games in the market, Nintendo has succeeded to eliminate the threat of high cost products in the market that would discourage consumers from buying. Instead, the firm has continued to attract high market demand because of the unique nature of its video games.

Actions by Nintendo to improve current competitive position

Nintendo has focused on ensuring that all its products fulfill exceptional buyer utility within affordable limits. The firm concentrates on tackling possible hurdles of its product idea in advance by conducting wide range research that has resulted in highly interactive and effective video games. The pricing strategy adopted at Nintendo equally ensures that the firm is able to attain its cost target compared to profits.

Likely strategy shifts

Nintendo could more likely maintain its enhancement efforts on the brand power and sustain the current sales power, which is the highest in the video game industry. Additionally, the firm is likely to continue with the production and release of new game consoles with highly improved functionality and interaction. The company’s market focus is equally likely to target the entire globe, as a way of ensuring that its game consoles remain as the most popular in the market (Hollensen, 2013).

Nintendo’s weakness

The greatest weakness of Nintendo is its production of multiple game accessories that are incompatible with each other. While other manufacturers have focused on producing new games and new accessories that are compatible with the older hardware and software, Nintendo’s advanced games do not comply with the old hardware and software. It means that customers are required to buy a whole setup of hardware and software to interact with new games. This could result in customers buying other games manufactured by the rival firms, such as Microsoft and Sony.

Competitive moves that will provoke the greatest and most effective retaliation

The video game industry is characterized by high rivalry amongst the well-established industry players. This has resulted in a saturated market, whose profitability is likely to remain less lucrative. Nintendo should consider forming partnerships with other third party industry players, such as software and hardware developers, to enhance the creativity performance. An effort to form partnerships with other industry players, particularly suppliers and consultants, will result in combined technology that will make Nintendo video games highly efficient in a highly competitive market. This, combined with high research and development, will boost the competitive stance of the firm’s products and ensure that it retains higher sales (Hollensen, 2013).

Recommendation for continuation or modification of Nintendo’s current strategy

Nintendo should consider continuing with its current strategy to ensure it retains its competitive performance and market leadership. The current strategy performance is focused on producing unique products with higher functionality and interactivity. This has helped in raising huge revenues for the firm through higher sales performance. Additionally, Nintendo has perfected its global marketing efforts that have seen it achieve greater market awareness results on a worldwide scale.

Conclusion

The video game industry is characterized by intensive rivalry among the leading manufacturers, who are well established. The suppliers have moderate bargaining power owing to the manufacturers’ ability to integrate backwards, as well as their extensive distribution networks that cover the whole world. Both Nintendo and Sony pursue the differentiation strategy for their respective video game products to provide unique products to their consumers. However, Sony’s greatest weakness is the diminishing brand popularity that has seen it fail to match Nintendo’s industry lead in terms of sales performance. On the other hand, Nintendo’s continued release of new games and accessories that are incompatible with previous releases serves as its greatest weakness in the market. This could influence a mass exodus of its consumers to other video games manufactured by the rival companies.

References

Hollensen, S. (2013). The blue ocean that disappeared – the case of Nintendo Wii. The Journal of Business Strategy, 34(5), 25-35.

Rysman, M. (2009). The economics of two-sided markets. The Journal of Economic Perspectives, 23(3), 125-143.

Wada, T. (2011). Exploitation reduces novelty: An empirical analysis of the Japanese video game industry. Annals of Business Administrative Science, 10, 1-12.

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