Game-consoule - Industry s dominant economic traits: Market...

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Unformatted text preview: Industry s dominant economic traits: Market size & growth rate y y y y Till 2008 about 300 million people worldwide played video games. Value of entire industry was said will grow from $35 billion (2005) to $51 billion (2010), i.e. growth of dash 68%. According to us industry is in growth phase, as indicated by Nividia CEO industry is still a good solid 10 years away from photo realism . There is a lot of opportunity for growth. When exhibit 3 is studied the projected growth rate for global video games market is 45%. Companies Market Share in % Nintendo 62% Sony 30% Microsoft 7% Number of rivals y y There are 3 no of rivals namely Microsoft. Sony and Nintendo. The market share of them are following: Scope of competitive rivalry y y All the 3 rivals compete globally because gamers are globally spread. Nintendo based in Japan has captured a solid lead in hand held game category with DS selling more than 8.5 million units in America with 3.8 million units of Sony PSP were also sold. Number of buyers y y y Buyers are end users, electronic retailers and retailers. Advance improvement in technology, backward compatibility, system appearances are the few factors that influence buyers to choose between different systems. The average age of game players was raising and therefore rivals wanted to customized there systems according to new users wants. For example Nintendo focuses on non-gamers. Degree of product differentiation In this industry company who don t differentiate product can fail to attract specific attention of users to its product. Rivals kept each of their products unique hence there isn t much price competition. More price competition among retailers in video game accessories segments. y y y Product innovation Innovation was not rapid the industry. Product life cycle is not short. According to table 1 in case study, it shows that PS2 is still running and other products are also not vanished from the market within a year. R&D is really important in this industry. As you can see that Microsoft spends 15% of its revenue on R&D and Wii took 1 year to develop wand controller. y y y There are some opportunities to overtake key rivals by being first-to-market with next generation products. Microsoft get edge over its rivals because it launches Microsoft Xbox 360 1year before from the release of generation console by rivals. y Production capacity y y Short supply not creating sellers market. The industry is not in surplus capacity pushing prices and profit margins down. Pace of technological change y y Advancing technology play a strong role in the industry because gamers have high anticipation regarding advancing technology. All the member of the industry needs strong technological capabilities that are why they allied with IBM to make microprocessors. Vertical integration y y There is no vertical integration because not all the component can be made by any of the rivals. There is a partial integration in all companies, as they have alliances with microprocessors and graphics accelerators producers, resulting in competitive disadvantage. Economies of scale y There is no economy of scale in the industry. Learning and experience curve effect y Companies are not characterized by learning curve effects. Porter Five forces Model Threat of New Entrants / Entry Barriers Factors MUF Neutral MFA HFA (1) Economies of HUFA A (2) (3) (4) (5) * Small Comment Large Scale Capital Required Low Expected Low * * Retaliation Differentiation Low Access to Ample * High High High Restricted * Distribution Channels Brand Loyalty Low 3+4+4+4+2+2=19/6=3.16 * High Exit Barriers Factors HUFA MFA HFA (2) (3) (4) (5) High Strategic Interrelationship Neutral (1) Specialized Assets MUFA High Comment Low * Low * 4+2=6/2=3 Competitive Rivalry HUFA Composition of MUFA Neutral MFA HFA (1) Factors (2) (3) (4) (5) Equal Size * Competitors Slow Market Growth * Rate Global Scope of Competition Degree of Commodity Differentiation 3+3+2+3=11/4= 2.75 Comment Unequal Size High Domestic * * High Power of Buyer HUFA MUFA Neutral (1) Factors (2) (3) Few Number of Important MFA (4) (5) High Threat of backward Many * Buyer Comment HFA * Integration Low Product Supplied Commodity * Specialty % of buyer s Cost High * Low Profit earned by Low buyers 4+5+4+4+2= 19/5=3.8 * High Power of Supplier HUFA MUFA Neutral MFA HFA (1) Factors (2) (3) (4) (5) Few # of important High Availability of Many * Supplier Switching Cost Low Low * High * Substitutes High Threats of Forward Comment Low * Integration Suppliers product an important input to Highly the buyer s business * Less important important 2+3+2+4+1=12/5=2.4 Threat of Substitute Product HUFA (1) Factors MUFA (2) Neutral (3) MFA (4) Threat of HFA (5) Comment * obsolescence of industry s product Hi Low Switching cost Low * High Perceived Hi * Low price/value 5+4+4=13/3=4.3 Overall Industry Attractiveness Factors Unfavorable Neutral Entry Barrier 3.16 Exit Barrier Favorable 3 Rivalry among 2.75 existing firms Power of 3.80 Buyers Power of Suppliers 2.4 Threat of Substitute 4.30 Product Overall Industry Attractiveness of the industry is Favorable =3.23 Strategic Group Mapping Strategic Groups in the U.S. Metal Container Industry High Sony Microsoft Price Nintendo Low Low Product Variety High Industry dynamics on dominant strategic groups (Porter five forces of competitive) Group (Microsoft,Sony)  Threats of new entrants: Low The market share is safe from any new entrants.  Rivalry among existing firms: High Competition in terms of innovation, customer-oriented features  Threat of Substitute Products or Services: Low There are substitutes available but people are not too much attracted towards it.  Bargaining Power of Buyers: Low The demand of product is very high.  Bargaining Power of Suppliers: High There might be chances of the micro processor suppliers dictate term to the gaming console industry. Drivers of change: Technological change: Due to high computing power and graphics every console maker adjusted its technology accordingly and resulting in global market of to increase by 67%. Exit of major firm: Sega unable to achieve success withdrew in 2001 because it just had one hit game which was not enough to attract customers, therefore game software developers focus their efforts on Nintendo and Sony. Emerging new internet capabilities and applications: In 2007, 76% of Wii users went on line to play games and Xbox and PS3 owners went online 70%. Changes in who buys the product and they use it: By 1983, consumers were bored of simple arcade type games and therefore the industry was dying, but Nintendo rescued the industry by offering popular super Mario Bros game and Nintendo also allowed users to take their games outside the home through the Game Boy. As video games spread in categories of hand held devices, Pc s and mobile phones the average age of game players rose. Nintendo created the Wii fitness game which allowed users to evaluate their posture, balance and body mass index. Xbox Live provided users who had broad band access the capability to play online games, chat, watch game trailers etc. Sony also released such features but there content was very limited and no match for Xbox Live. Spread of technical knowhow: In making new systems all three companies allied with IBM and Nvidia to produce micro processors and graphics processing units respectively, allowing all gamers to play highly sophisticated and life like games. Product innovation: Nintendo successfully developed Wii appealing non-gamers which analysts say will further expand market for video games. Growing preferences for differentiated products: Industry sales slowed considerably between 2003 and 2005 as gamers postponed purchase until they eagerly awaited next generation of console games become available. Key Success factors: Technological factor: Nintendo ability to rescue industry with innovative game systems gave other rivals opportunity to survive in the industry. Manufacturing: Nintendo s low cost system resulted in low relative development cost needed for its video games, therefore video game developer believed there was more opportunity for immediate profits from Wii games than those for PS3 and Xbox 360. Industry Matrix/ Competitive Profile Matrix (CPM) Sony weighted Nintendo weighted Microsoft weighted Weight Rating score Rating score rating score Technology 0.25 4 1 4 1 4 1 Innovation 0.20 3 0.6 4 0.8 4 0.8 Famous Games 0.18 3 0.54 3 0.54 3 0.54 4 0.6 3 0.36 2 0.20 Strategic Factor Consumers anticipation 0.15 3 0.45 3 0.45 Installed based 0.12 3 0.36 4 0.48 Meeting demand 0.10 1 2 0.20 3.15 2 0.2 3.47 3.50 ...
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This note was uploaded on 07/21/2011 for the course BUS 10001 taught by Professor All during the Spring '11 term at Shaheed Zulfiqar Ali Bhutto Institute of Science and Technology.

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