Strategic Management – Nintendo Wii Case
Strategic Management – Nintendo Wii Case
12th August, 2009
PGSEM 2009 Sec-?
Strategy Group I Dinesh Bhagwat 2008020 Bobby Kurian 2009009 Sajith Radhakrishna Shetty 2009053 Mathew Jacob 2009030
Threat of new entrants
The video game console industry, being a typical oligopoly, enjoys high barrier to entry. Three firms dominate the industry with comparable market share. See Exhibit 1 and 2 for latest sales data.
Existing industry players enjoy high supply-side economies of scale. This includes economies of scale in research, advertising and manufacturing. Without sufficient market share, it would be difficult for new entrants to price consoles competitively.
Customer switching costs are relatively low. A typical console costs about $300, which is 0.61% of average US consumer expenditure per year. Usually, a new model is released every 5-7 years, which is rapidly adopted by consumers and game developers.
Due to independent game developers, demand-side benefits of scale are high. After all, without a good game, there is no use of a console. Game development for the console industry is closed, in the sense that the same game will not run on multiple consoles. So games are developed specifically for each console. Since the sunk cost for developing a game is high, game developers will not risk developing games for new entrants. In turn, consumers tend to buy consoles which offer most blockbuster games. Hence consumers choose among existing three players. So it is difficult for newcomers to develop a large base of customers.
Retail and wholesale distribution channels are limited for new entrants. For example, Sony already has an established network of stores and retail channels, which it uses to market and retail its other products. Because of the volume required to compete in the industry, newcomers have to invest in global distribution channels. But, at the same, it is possible for
12th August, 2009
PGSEM 2009 Sec-?
Strategy Group I Dinesh Bhagwat 2008020 Bobby Kurian 2009009 Sajith Radhakrishna Shetty 2009053 Mathew Jacob 2009030
Threat of new entrants
The video game console industry, being a typical oligopoly, enjoys high barrier to entry. Three firms dominate the industry with comparable market share. See Exhibit 1 and 2 for latest sales data.
Existing industry players enjoy high supply-side economies of scale. This includes economies of scale in research, advertising and manufacturing. Without sufficient market share, it would be difficult for new entrants to price consoles competitively.
Customer switching costs are relatively low. A typical console costs about $300, which is 0.61% of average US consumer expenditure per year. Usually, a new model is released every 5-7 years, which is rapidly adopted by consumers and game developers.
Due to independent game developers, demand-side benefits of scale are high. After all, without a good game, there is no use of a console. Game development for the console industry is closed, in the sense that the same game will not run on multiple consoles. So games are developed specifically for each console. Since the sunk cost for developing a game is high, game developers will not risk developing games for new entrants. In turn, consumers tend to buy consoles which offer most blockbuster games. Hence consumers choose among existing three players. So it is difficult for newcomers to develop a large base of customers.
Retail and wholesale distribution channels are limited for new entrants. For example, Sony already has an established network of stores and retail channels, which it uses to market and retail its other products. Because of the volume required to compete in the industry, newcomers have to invest in global distribution channels. But, at the same, it is possible for