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Case Study 4.

1 Introduction

When we talk about game console industry, it is undeniable that three big companies,
Nintendo, Sony and Microsoft will be on the top of the list of the giant powerhouse of
game console companies. Therefore, the three companies are therefore the famous
competitors in the industry. The diagram below shows the market share of three
companies

Diagram 1: Console Market by Company , Source: (Harding-Rolls, 2018) `

From the above diagram, we can see that see that Sony has emerged as the market
leader from the year of 2016 until now. However, when looking at the percentage of
growth, Nintendo no doubt has done a great job.

Nintendo’s Wii is one of the game console system that is being well known by the
people all over the world. Nintendo first introduced the Nintendo Wii in 2006 in order
to compete with the Microsoft Xbox or Sony’s PlayStation 3. In this study, we are going
to discuss the relationship between Nintendo’s Wii, Microsoft’s Xbox and Sony’s
PlayStation from the perspective of international marketing. We will first begin to
discuss the Microsoft’s motives in entering the games console market with their Xbox,
then looking at the competitive advantages of Microsoft’s Xbox Kinect and Sony
PlayStation 3 Move as well as the competitive advantages of original Wii and the latest
Wii U. Lastly, we will be analyze the Nintendo’s chance are of creating a new ‘blue
ocean’ with Wii U.

2 Microsoft’s Xbox

Microsoft company has decided to venture into the console market in 2001. I think the
the main reason that the company made the decision is because the gaming industry
is a very huge industry which can generate profits. According to (Anon., 2018), the
audience of global games is estimated between 2.2 and 2.6 billion people and the
software market is expected to increase from $116 Billion in 2017 to $143.5 in the end
of the year of 2020. Therefore, Microsoft’s motive is definitely hoping that they will be
able to lead the industry. From the perspective of international marketing, Microsoft
wishes to assess the global market opportunities (Cateora, et al., 2011). Microsoft
must have done the extensive marketing research prior the decision. Marketing
research can be defined as the systematic gathering and analyzing of data in order to
provide information which is useful to the marketing decision making. Additional
complications have to be stressed out when comes to international marketing research.
First, they have to work on the information across the cultural boundaries. The
market’s culture is totally different between United States, Japan, or other ASEAN
Countries. Generally, below are some the factors that suggest that Microsoft should
invest into the game console market, there are as below:

i. Economic and demographic

According to (Kharpal, 2018), consumer will definitely be likely to spend


more in games console and the related services. There was $41 billion
spent on games content, hardware and services. This figure is actually 18
percent increase compare to the previous year. This shows there is a lot of
potential that can be unleashed in this industry.

ii. Overview of the market condition

Another reason that contributes Microsoft to such decision could be the


overview of the market condition. The technology powerhouse, Microsoft,
must have been carried out a very detailed analysis of market conditions.
Microsoft believes that themselves have the many years of valuable
experience in the field of software. They think that this could help them
through the way in the hardware-game industry.

iii. Competitive situation

This is one of the most important factor that one will never choose to ignore.
Competitive situation can be analyzed through the competitor’s sales
revenues, products, apparent strategies and as well as international scope.
According to the source from (Karmali, 2013), the only reason Microsoft has
chosen to enter the game console market simply because they wanted to
have a strong competitive relationship with one of the player in the industry,
Sony. Currently, the three biggest players in the game console industry will
be Sony, Nintendo and Microsoft. In other words, the company wishes to
create and develop competitive advantages in a market which is
internationalized. They wanted to diversify the gaming market too.

Of course, one of the trivial reason one company has chosen to invest is of course
wish to generate revenue.

3 Competitive advantages
As a matter of fact, the general aim of marketing plan is to create competitive
advantages that are sustainable (Hollensen, 2014). Competitive advantages are the
qualities that will be able to make a corporation to be more superior than the other. It
helps the company to generate more sale by attracting more customers. An effective
combination of national circumstances and company strategy will eventually lead to
competitive advantages (Hollensen, 2014). Therefore, to enable a firm to have
competitive advantage, it must carry out market research to understand the market
well. Marketing research can be defined as the process of systematic gathering,
recording and extensive analyzing of data in order to provide useful information in
marketing decision making (Ghauri & Cateara, 2014).

To carry the research, it involves the researching of general information about the
market. Due to the evolution of information technology, modern day marketing has
evolved intensively. It allows more diverse set of people to be reached, different set of
targeted age group can be reached (Molenaar, 2012).

(Moore & Pareek, 2009) discussed that the most important thought in marketing is we
people will definitely seek to fulfill our needs. Generally, three stages model can be
used for us to comprehend a firm’s international competitiveness in a wider
perspective. There are analysis of national competitiveness, competition analysis and
value chain analysis.

Analysis of national competitiveness was proposed by Porter (1990). He discussed


that home nation play a central role in shaping a firm’s international success. For
instance, when we mention about Microsoft, people will definitely be aware that it will
be a product that come out from a very well reputable company in United States.
Nonetheless, only under the effective combination of national circumstances and
company strategy, the ultimate result for competitive advantages just will be able to
realize. All these is up to the company to grasp the opportunity.

The next will be the competition analysis. We can begin with some definition of
terminologies. A group of firms that offer a product or class of products that are
relatively close to each other is called industry (Hollensen, 2014) while a market can
be defined as a set of real or potential buyers of the products. Sellers can be the
buyers in this case. Hence, to identify competitive advantages, the factors of the
industry level have to be known. The factors are new entrants, suppliers, substitutes,
buyers and as well as market competitors.

3.1 The Competitive Advantages of Microsoft’s Xbox One and Sony’s


PlayStation 4

Generally, the competitive advantages of Microsoft’s Xbox One and Sony’s


PlayStation 4 can viewed in few aspects. The first aspects is the CPU power. Both
Microsoft’s Xbox and Sony’s PlayStation 4 are one of the most powerful CPU that we
would normally see in the most PCs.

Next, we can review their competitive advantages through the storage of the devices.
Both Xbox One and PlayStation 4 are operating under the memory RAM of 8 GB. Now
we look at the storage, both devices are also come along with the 500 GB of Hard
Drive system (IGN, 2017).
It is definitely moving at a very fast rate when comes to the world of digital. According
to the (Buchanan, 2013), the future of game console is no longer just about the games.
It is better to be embedded with HS Video, Wi-fi Connectivity and so on. Both game
consoles apply high-end graphics chips that support the HD games and are prepared
for HD TV. Moreover, both Xbox One and PlayStation 4 are both multimedia hubs
that will be able to stream videos, music and even will be able to access to the social
media.

3.2 Competitive advantages of the original Wii and the new Wii U

Throughout the case study, the main concern is to talk about the original Wii and the
new WII U. The new Wii is generally the successor to the original Wii which had been
modified in order to meet the ever changing needs and the competitions that have
been faced. The first advantage of the original Wii is that it is relatively cheaper than
its main competitors, Microsoft’s Xbox and Sony PlayStation. Another competitive
feature of Wii can be viewed in term of motion controllable. This feature has totally
added a new value to game playing. Nintendo has invented the stick which integrates
the movements of a player directly into the video game. Players can experience the
real feeling of tennis, golf or even sword fight in the simulated environment.

Another unique competitive advantage of Original is that it is more family oriented and
the target’s group age is more wider. With the innovation of the motion control stick,
Nintendo has totally brought the gaming experience to a new spectrum of gaming
world. Nowadays, not only people of the age 30, but grandparents also have seen
enjoyed playing the Wii.
The new Wii was introduced by Nintendo in November 2012 with more exciting
features have been added. The new Wii has got the built-in touch screen. When using
the ‘Off TV Play’ function, the controller will be able to be act as a standalone screen.
It requires no TV to be used.

4 Blue Ocean Strategy

Blue ocean is a business strategy that proposed by Kim and Mauborgne in 2005 (Kim
& Mauborgne, 2005). Generally, we can imagine the market universe composed of
two sort of oceans which are red oceans and blue oceans. According to them, ‘blue
ocean strategy’ is referred to a product or a market where there is no competition. In
other words, it means all the industries that are not in existence today. This new
strategy basically involves the effort of searching for new unknown business where
there is no pricing pressure in the industry.

On the other hand, in the red oceans, industries boundaries are defined and accepted.
Therefore, the competitive rules of the game are well-known. Therefore, the
companies in the red ocean are definitely striving hard to outperform and grab a
greater share of the existing market demand. As the market becomes saturated,
percentage of growth get reduced and the prospects for profit get decreased. The
works of Porters mentioned that companies that are simply fighting for competitive
advantage, battling endlessly for market share will only result in a bloody red ocean if
rival fighting over a pool which its size is becoming smaller and smaller (Porter, 1985)
, (Porter, 1990).
Conversely, blue ocean, which is an untapped market, the opportunity for high
profitability is of course higher. One interesting feature about the strategy in blue ocean
is that, the competition is less relevant as the rules of the game have not been set yet.
Thus, the companies that are the taking the ‘blue ocean’ route are actually those
companies that beat the competition by focusing more on the development of
compelling innovation that will be able to create uncontested marketspace (Hollensen,
2014). Normally, the firm or company that decides to sail on blue ocean will have a
belief on their mind that they are no longer valid to engage in head-to-head competition
in the process of searching sustained and profitable growth.

After the study over thirty industries over 100 years carried out by Kim and Mauborgne
(Kim & Mauborgne, 2005). They came out with the hypothesis that the correct criterion
to evaluate the difference between red and blue ocean is the particular strategy move
of the company itself instead the industry as the markets are constantly changing. The
strategic move here is named as value innovation.

4.1 Value Innovation

As mentioned, value innovation is a strategic move for a company in order to explore


the ‘blue ocean’. However, the terminology value innovation itself is ambiguous.
According to (Kim & Mauborgne, 2005), value and innovation should be well balanced.
Why do we say so? This is because value without innovation will incline to focus on
value creation on an incremental scale while innovation without value will result in
technology-driven, or too futuristic. This often lead to overshooting what potential
customers are ready to accept and pay for it. In a nutshell, value innovation has to be
customer-based, but not fully so. It focuses on creating a leap in value for buyers and
therefore make the competition amongst three companies become irrelevant.

Value innovation can end up in a win-win situation where customers will be able to get
what they want, and seller or the innovators obtain a higher rate of return on invested
capital by reducing the start-up costs.

Diagram 2: Blue Ocean Strategy [Source :Framework (Hollensen, 2014)]


Diagram above shows the blue ocean strategy on how the strategy works. We can
see that the combination of cost reduction and the increase of the buyer value will
eventually generate the value innovation, which is the catalyst to creation blue ocean
market. The curve is the

For many years, the game console industry has been locked up in Red Ocean. The
focus of the entire industry is nothing but just simply focusing on beating the
competition, share winning and so on. Hence, the blue strategy is just like making the
pizza bigger instead of fighting among each other in order to get the largest slice of it.
Now the problem is how to implement it? In my opinion, of course it would not be easy
to create a new blue ocean strategy with successor of Wii U. According to the theory,
value innovation will only occur when the company itself aligns the innovation with the
price, cost and so on. By raising and creating elements the industries has never
offered, buyer value will be lifted.

Nintendo is trying to create a new blue ocean strategy by targeting on the area on
playability, customer’s experience, and new approach (O Gorman, 2008) . Playability
refers to technological race towards a more user-oriented strategy. Nintendo is aiming
to achieve ‘ faster, better graphics and having more fun’. To this, Nintendo has
invented the Wii U GamePad. The Wii U GamePad comes with the built-in touch
screen. Moreover, Wii U is also comes with ‘off TV Play’ function, with this, the
controller will be able to act as a standalone screen without the use of a TV.

Nintendo has also realized that it was a mistake to just simply targeting on younger
consumers. Therefore, Nintendo has completely embarked on journey where their
new mission is to encourage more people in the world to play video game regardless
of their gender, age, or even cultural background. In the report published by Nelson
Company (Games, 2017), it indicates that people purchased Wii U is because of its
‘fun-factor’. Probably this is the reason why it is very popular among the kids group.
This indicates that Nintendo has taken the industry with an entire brand new, holistic
game console approach. The Wii Sports-package which incorporate Bowling, Golf,
and Tennis. Now gamers are not seen only playing with their peers, but also their
families, their relatives, or even their grandparents. As a successor to the Wii, Wii U is
of course able to

In an interview of the Nintendo CEO (O Gorman, 2008), Satoru Iwata mentioned that
the strategy is ‘while other people invest their money on to the screen resolution, they
decided to out theirs into the game experience’. To this, it can be seen that Nintendo
has really invest a big amount of time and effort in the development of new games via
flagship franchises.

However, there exist other relevant factors that have been identified in the game
industry which the price. The price of Wii U is generally lower than its main competitors,
Sony’s PlayStation and Microsoft’s Xbox.
Diagram 3: Strategy Canvas for Nintendo Wi , Source: (O Gorman, 2008)

The above diagram depicts the strategy canvas that have been used by Nintendo Wii.
We can see that the x-axis will be the factors that have been taken into consideration
while developing the blue ocean strategy for the new Nintendo Wii.

The blue ocean strategy can be valued through three complimentary qualities which
are focus, compelling tagline and divergence.

i) Focus
By simply looking at above diagram, it is trivial to see that the focus of Nintendo is
on ease of use and the interactive games for a bunch of people.

ii) Divergence
From the diagram, we can realize that Microsoft Xbox and Sony PlayStation are
generally sharing identical position. On the other hand, Nintendo, the first company
who makes motion sensor that had successfully brought the non-traditional group
of consumer into the market, which is the women and elderly people.

iii) Compelling Tagline


The new Nintendo Wii U’s tagline ‘ How U will play next’( How you will play next)
is delivering a very clear message that there are the person who will change the
industry.

In conclusion, we have seen that there is actually a very close relationship between
competitive advantage and the blue ocean strategy. Both are very pivotal in the
international marketing strategy. To mange a good marketing skill, it is vert important
for one company to identify the problems or be able to foresee the future of the market.
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