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.
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.
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.
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.
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.
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.
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.