Sony_Strategy - Sony Corporation and the Video Game Console Market 1 A Competitive Analysis By Ryan Bogner Peter Hung Guan Wang and Steven Wang 1

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Sony Corporation and the Video Game Console Market: A Competitive Analysis 1 By Ryan Bogner, Peter Hung, Guan Wang, and Steven Wang 1 This report evaluates Sony Corporation’s strategy in the console gaming market from the top-down perspective of the entire corporation.
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Executive Summary Sony’s current strategy in the video game console market is simple: use the technologically superior Playstation 3 as a loss leader to introduce the Blu-ray optical drive 2 into consumers’ homes and leverage that market penetration to drive content sales once Blu-ray is established as the de facto standard for optical storage. It is therefore in Sony’s interest to reach the tipping point for market adoption of Blu-ray as soon as possible. To increase the rate of Blu-ray adoption in the market, we recommend that Sony adopt a “good-better-best” strategy, whereby Sony produces discounted and premium versions of the current Playstation 3 for sale to consumers. This strategy will encourage price-sensitive customers to purchase Playstation 3 consoles without marginalizing power gamers. Nintendo and Microsoft will most likely respond to this strategy with differentiation rather than price competition. If Sony reinforces this strategy with coherent marketing and intellectual property strategies, it can increase Blu-ray adoption rates and make it more likely that the format will be adopted as a standard. The Market for Video Game Consoles is Growing, but Competition is Fierce The market for interactive video entertainment is growing; this market grew four percent over the same period two years ago. 3 However, all players in the market are facing increased competitive pressures. Substitutes for console gaming are growing rapidly (such as massive multiplayer online games, as shown in Figure 1), and as the first generation of console players reach maturity, many players will shift to these substitutes, a problem known as gamer drift. The three main competitors are Nintendo, Sony, and Microsoft. The three are fairly dichotomous, either innovative and user friendly or technologically pushing the envelope. Nintendo has made its mission to do the first. 4 Sony and Microsoft both fall in to the latter category. Thus, safe in a fairly differentiated position, Nintendo is in a dominant position in the marketplace. It has the expertise and reputation to not only maintain its position, but push out would be competitors. This has paid off and Nintendo sales of the Wii are far outpacing original expectations. Sony is no longer dominating the market, and compared to the previous distribution of demand for gaming consoles is losing significant ground. In terms of market share, Microsoft has stayed in about the same position as the previous generation of consoles. (See Figure 2.) The consumer market is segmented mainly by age. The casual gamer, consumers who do not treat gaming as their main source of entertainment, represents 36 percent of the market. 5
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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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Sony_Strategy - Sony Corporation and the Video Game Console Market 1 A Competitive Analysis By Ryan Bogner Peter Hung Guan Wang and Steven Wang 1

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