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Friday 25 December 2009

MACRO AND MICRO ENVIRONMENT ANALYSIS FOR NINTENDO

Macro Environment

Macro environment is said to be the most general layer of the environment. This consists of broad environmental factors that have an impact on the organisation. The PESTEL framework helps us to identify the future trends which might impinge on Nintendo and therefore identify the key drivers of change. On the other hand the five forces framework helps to understand how the competitive dynamics within and around the video game industry are changing.

The two frameworks are discussed below:

PESTEL Framework:

This categorises environmental influences into six main types, namely: political, economic, social, technological, environmental and legal. A PESTEL analysis on the video game industry is carried out below:
Political: Factors such as taxation policies, foreign trade regulations and social welfare policies influence the video game industry. Video games have a tendency to play with the emotions of people which inturn can threaten peace and law, a country being multicultural. Therefore Government has the authority to control the contents of the video game frames.

Economic:

Places such as U.S and Japan are largely dominated by the video game business. Therefore contributing towards the GDP of their countries. Interest rates have not much impact on the video game business as they manufacture their own units. The disposable income of the consumers in the video game industry has an effect on their buying behaviour. For example people who fall under a low income range may not afford to buy a video game of a high price. Nintendo’s low manufacturing cost was also one of the reasons for it to sell its games at a nominal price, therefore increasing its sales.

Social:

The social factors that influence the video game industry are population demographics, income distribution, lifestyle changes, social mobility, attributes to work, consumerism, level of education and consumer behaviour. Nintendo’s action to open the World of Nintendo showrooms was to attract and influence customers and show interest towards fulfilling the customers' needs. Also, games have an influence to the culture of people, bring aggression in children, etc all which have an impact on the industry.

Technological:

The role of technology is vital in this industry as it focuses on technological efforts for competitive advantage. Every new development uses new technology. Though there are restricted innovations in the gaming industry, the speed of technological transfer is very high. Nintendo’s role from playing cards to toys to video games and then with each console introduced, included many technological changes. Technological upgradation increased hardware costs and discouraged innovation. The online capability of Nintendo Wii was a major change in the technology of the video game industry.

Environmental:

The video game industry uses a lot of plastic resources. Playing games on television or computers does consume a lot of power. Nintendo therefore see to it that their games utilise low power. On the other hand protecting the environment and practicing a “green” lifestyle is a value many of today’s parents are trying to teach their children. Nintendo facilitates in that effort through the creation of “Super Mario Sunshine” and “Chibi-Robo: Park Patrol”, which challenge players to improve the environment around them.

Legal:

The legal issues faced by the video game industry include trademarks, copyrights, licensing, online ownership, revenue recognition and demands of intellectual property. The other issues that can be considered are product and health safety. It has become an accepted practice for the console manufacturers to lose money on the hardware and to recover the loss by charging high licensing fees to game publishers and developers.

Five forces Framework:

This helps us to identify the sources of competition in the video game industry. The five forces may be interdependent i.e. pressures from one direction can trigger off changes in another in a dynamic process of shifting sources of competition. Industry rivalry here occurs in the strategic alliances i.e. battle to control market. With huge players like Sony, Nintendo and Microsoft there is a tuff battle between companies to dominate the market. The threat of entrants into the industry can be negligible with the existence of players like Sony, Nintendo and Microsoft etc. There can be no substitute to the video games. The Power of Buyers in the video game industry is low as there are very few successful companies in the video game industry, therefore a small variety of video games available to the buyers. On the other hand, the Power of Suppliers is very high as there are more suppliers available to a handful of companies in the video game industry.

Micro Environment

Suppliers:

Companies being the developers of their own video games become the suppliers themselves. The augmented products used in the development of these games may include cd’s, hard disks, electronic components, software’s, game writers, packaging of the consoles, printing of manuals and additional features like graphics etc to make the games more popular.

Distributors:

Distributors play a vital role in the video game industry. They include the local store distributors and now days the online distributors too who have majorly contributed to the video game industry. However it is essential to know the potential distributors of video games as some might just act as middlemen to make profits.

Customers:

The individuals playing video games comprise an increasingly large and definition-defying group.  According to the Entertainment Software Association, the average gamer is 35 years old and has been playing for 13 years. Incidentally, there are more gamers than non-gamers in the U.S. population almost half of which are female. Today’s video game players include a diverse segment of students, employees, military troops, seniors, mothers and fathers who have driven the evolution of games into new territory. The first gamers have grown up, started families and included their children and parents in the fun, multiplying the pool of multi-generational gamers exponentially. As the population of gamers has expanded, market forces have driven game developers to make games more accessible to this new, diverse audience.

Competitors:

Sony and Microsoft are the major competitors of Nintendo. Sony has about 70% share in the market with Nintendo and Microsoft commanding rest of the market. Nintendo continues to be the market leader in the hand video games and is able to maintain a low price in the hardware. It and has a good reputation for maintaining healthy relationship with outside parties. The other small players like Sega, Vivendi and Universal Games, concentrate mainly on Arcade games, which are not a major threat to Nintendo. In general, the company offering good graphics games at competitive prices can become a leader in the gaming sector. But at the same time, it should also come up with newer products by carefully analysing the changing requirements of the users.


Video Game Markets and Consumer Behavior

Analysing consumer buying behaviour is important to marketers as this helps them to determine what satisfies consumers so that they can implement the marketing concept and predict how consumers will respond to different marketing strategies.

The decision making behaviour of a consumer within the video game industry is of high involvement and are based on the views of the opinion leaders. The influences that affect consumer buying decision process within the video game industry may be either the personal or the social factors.

Segmentation within the video game industry is done according to demographic, psychographic and behavioural. Over the period, the demographics of the customers played a major role, from children to the middle aged, also the women, the video game industry now has a wide audience. The psychographic aspect of video games reflects Maslow’s theory wherein the industry becomes a part of the social and esteem needs. The industry has change from being confined to oneself to become a part of social class and lifestyle.
The industry mainly depends on word of mouth as its communication strategy. The various marketing strategies used by them include the frontal attack and the Guerilla strategy. The promotion of a product helps in positioning them. For example Nintendo had created an intense buzz in the gaming community about the release of Wii and planned for in store advertisement.

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3 comments:

Anonymous said...

This article needs to be checked for plagiarism or correct referencing should be added.

Anonymous said...

Googled all possible plagiarism terms... Nope... it's original...

bestmba said...

Nice article on Micro Environment.