UNIVERSITY OF DHAKA

CASE: PORTERS’ FIVE FORCES ON GAMING INDUSTRY

STRATEGY AND LEADERSHIP: SEMINAR, CASE DEVELOPMENT AND
BUSINESS PROJECT

SUBMITTED TO

Dr. Muhammad Abdul Moyeen

Professor
Department of Organization Strategy and Leadership
Faculty of Business Studies

SUBMITTED BY

Md. Mahin Nur Islam

ID: 91805044
Batch: 5th
Date: 03/10/2020
Internal Rivalry
Because of the way that there are barely any rivals in the market and the business is
developing continually, the gaming console industry is an exceptionally serious market.
Nintendo, Sony and Microsoft contend so as to beat one another and increment their piece of
the overall industry. They additionally seek similar assets and similar clients. Every one of them
follows an alternate methodology so as to accomplish this.
Nintendo mostly target the casual gamer and is more family orientated. Although in terms
of specifications and graphical power, its consoles are not on the same level as Sony’s or
Microsoft’s, they offer unique features such as motion control or the ability to use the controller
as a second screen. Nintendo has also incorporated a low cost strategy offering the most
affordable console, therefore encouraging more sales. On the other hand Microsoft and Sony
offer very similar consoles, with identical technical specifications. They are also similarly
priced and are targeted towards the hardcore gamers. Microsoft and Sony charge more for their
consoles because they are more powerful. In terms of product differentiation, there aren’t many
differences between the two making Nintendo more of an indirect competitor.
Console prices are generally high when the product is first released and as a result not many
rush out to buy it. This means that there is a high price elasticity of demand. As the console
moves through its lifecycle it becomes cheaper making it more accessible to consumers
therefore resulting in increasing sales. Brand loyalty is a major deciding factor for a consumer
which leads them to keep coming back and buying consoles from the same manufacturer
regardless of price and performance. It is important for competitors to try and persuade
consumers to buy their product since it is highly are unlikely to switch in the future due to the
high switching costs. In order to achieve this companies cooperate with software developers
and produce exclusive games which are only available on their platform. Other strategies
include releasing limited editions of their consoles, and bundle deals which offer the console
with an array of accessories or games in order to tempt customers away from competitors,
where the total cost is usually lower than buying each item separately.

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Threat of Entry
Threat of entry in the industry of gaming consoles is low due to a range of several factors.
Nintendo, Sony and Microsoft have been around for several years having established such
strong products discouraging potential entrants from entering the market. Entering the console
industry has a high capital requirement because of the high fixed costs and the continuous
investment in research and development of new technologies, advertising and marketing.
Microsoft spent $100 million just to develop the new controller for its next generation console,
the Xbox One. Also discouraging is the fact that entering the console market means that the
company will most certainly have to suffer losses in the first years due to the steep learning
curve and the huge economies of scale that exist in the industry. For example, it took Sony
nearly 4 years to turn a profit with the PlayStation 3. Since its debut in 2006 each console was
sold at a loss until it managed to lower manufacturing cost by using an improved graphics chip.
Brand equity also plays a distinctive role in the console industry, influencing buyers’
purchasing decisions. This is especially true for less informed consumers who are more likely
to decide which console to buy based on the company’s reputation. A recent survey shows that
potential buyers and owners of previous generation consoles would rather stick with the same
brand than switch sides. New entrants could also face problems in other areas such as
establishing and securing access to distribution networks and retailers. Since game consoles
rely on the video games available on the platform, retailers will only carry the hardware if there
is large library of games available for the platform. Finally, if a new competitor eventually
manages to enter the industry they should expect some form of retaliation from the other firms
such as aggressive pricing strategies.

Substitutes & Compliments

The main compliment for game consoles are the games available for each platform. Games
can either be developed internally or by third party developers. High quality games can lead to
greater sales. This is the reason that Microsoft, Sony and Nintendo purchase major development
studios in order to produce exclusive games. Other compliments include gaming accessories
such as controllers, steering wheels and headsets. There is also a requirement for a television
set or a monitor in order to display the output of the console.
Many alternative substitutes exist in the market, with the level of threat considered to be
medium to high. Substitutes like movies, recreation, boards pose a low threat since they aren’t
directly connected to gaming. The biggest threat comes from PC and mobile gaming. Many
consumers nowadays own laptops, tablets and mobiles. According to a report from gaming
industry watchdog PC Gaming alliance, the sales of PC games has increased with annual
growth. Mobile gaming is also on the rise. The introduction of gaming applications on mobile

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devices has given gamers the opportunity to have new entertainment options at their fingertips.
It has been reported by Research and Markets that gamers are moving away from console and
PC gaming towards games on mobile devices such as smartphones and tablets. It is one of the
fastest growing segments on the market and is forecasted to outpace the total online gaming
market in terms of growth.

Supplier Power
Supplier power is considered to be low to medium in the console industry. Because
Nintendo, Sony and Microsoft generate revenue from hardware and software sales, both
suppliers have integral roles. Companies strive to supply any of the 3 companies because of the
assured profit they will make. For example, AMD, the main supplier for the semicustom CPU
for the Sony’s PlayStation 4 and Microsoft’s Xbox One, managed to become profitable after
over a year of substantial losses. The suppliers of the main hardware components supply all 3
competitors and these components are critical to a console’s success.
The brand equity of Nintendo, Sony and Microsoft and the large number of suppliers
available makes it difficult for suppliers to exert considerable influence over their prices, and
as a result suppliers want to keep a close relationship with these companies. On the other hand,
certain conditions exist where suppliers can wield significant bargaining power. These include
shortage of supplies and the availability of a certain input, which can lead to increased costs.

Buyer Power
Buyers in the console market do not have many choices since the competitors are only three.
This coupled with the high switching costs of buying another console reduces their buying
power. Other factors limiting consumer’s power are games which are exclusive to one console,
therefore forcing buyers to purchase one console over the other. Also purchases are made in
small volumes from a large number of buyers. As a result buyers have limited power in the
market.