successful (e.g. Rovio Entertainment); these games are also intuitive to play and easy to log-in to and log-off of (start play and stop play); and they can be enjoyed while away from the house.
Nintendo’s Pursuit for Profitability 61 Threat of Entry - LOW The high cost of research and development; advertising; distribution; brand loyalty; and exclusive contracts for software content represent very high barriers for potential new entrants to the home video game console industry. Nonetheless, two new companies have recently entered the industry, Ouya and Gamestick. However, neither their business model nor technology represents a threat for the main industry incumbents (their game devices are not exactly consoles but more of pen drives), and their main value proposition consists of letting users “hack” their system and create their own games, which can even be sold as apps on their online platforms. Due to the barriers listed above, it can be considered that Nintendo faces a low risk from new industry entrants. Intensity of Rivalry among existing Competitors - HIGH Nintendo’s main com petitors are Sony and Microsoft. E ach company’s console has exclusive games, meaning a CD containing a game for one console, will not play in the other two; even for titles which exist for all three. The three companies compete to enlarge their consumer base; this is done either by attracting new consumers to the industry or conquering consumers which belong to the competitors. The competition within the market is thus intense. While Microsoft and Sony tend to directly compete for the hardcore gamers, Nintendo tries to deflect this competition by targeting casual gamers. Although the companies monitor each oth er’s prices, they do not conduct direct price wars. The competition is based more on innovation, through technological improvements/breakthroughs, marketing and overall value chain management. The element that makes this force high is essentially the fact that the competitors are equally balanced in terms of industry know-how and resources and capabilities. Question 2: Based on the information available and the VRIO framework, identify Nintendo’s current key resources and capabilities which could be deployed to create a competitive advantage. Comment on the sustainability of this advantage.
Nintendo’s Pursuit for Profitability 62 Proposed Answer The VRIO model states that the creation of sustainable competitive advantage is only possible if the company possesses resources and capabilities which are valuable; rare; and imperfectly imitable and has the internal structure to collect the value created by these resources and capabilities. Furthermore, the model implies that these resources are difficult to understand and very seldom do they represent tangible assets.
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- Winter '18
- Video game console, Nintendo