Strategy Analysis of the console market – part 3: productive efficiency

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Let’s go on with our analysis. After having talked about the influence of the competitive forces in the console market, as promised we are going to take a (really) short look at the productive efficiency.

It’s quite obvious, but the success of a company depends on the quality of their products and on the ability in minimizing the costs. Moreover, a bad efficiency can turn into a boomerang mainly if the product is a successful one. Why? Because the competitors can benefit from the shortage of your products: if customers don’t find what they are looking for, especially during holidays, it’s likely that they will buy your competitor’s product.

During this next generation console war, the 3 colossi had different strategies. Honestly I can anticipate that I can’t say which was the right choice.

Microsoft: time is better than reliability.

The Xbox 360 was released one year before the competitors consoles. In order to reach this objective, Microsoft produced a hardware not reliable. Too many problems and broken hardware could result in a disaster for Microsoft if they had happened in different times. The big M did not solve this issue until the summer 2007 (thanks to the new “Falcon” consoles), but they were really good in providing their customers with an excellent assistance service.

Nintendo: low costs and positive margins.

Nintendo chose a different strategy: they developed a machine with a low-cost hardware so to be aggressive in the market and make profits from the first Wii sold. The success of the console has been so incredible, that the Big N is still not able to satisfy the requests for Wii consoles.

Sony: Blu Ray over the top

Sony is a big company, with a really diversificated portfolio of products. This time they preferred to launch the Playstation 3 in order to push the new Blu Ray disc format.

The result of this choice was a big delay in reaching the market with the new console (due to productive problem) and big costs. If you consider what the Playstation 3 offers, the initial price of 600€ was a “Value For Money” price: hardisk of 60 GB, a Blu Ray drive, Wireless capability and free online game. Unfortunately, Sony did not think that the gamers perceived 600€ as a Premium Price, as they needed a console to play, not a multimedia box.

Thing are getting better now, after the lowering of the price and the new model of PS3 with 40GB. Honestly I foresee a great 2008 for Playstation 3, especially if Sony cuts the price of the console once more when games like Metal Gear Solid 4 come out.

PS3 has also a reliable hardware, but Microsoft has been so good in releasing a “patched” version of the Xbox 360 (the famous “Falcon”), that Sony cannot push on this aspect as they would deserve.

As I said, this was only a short relation about productive aspects. The next article will be more interesting, as it is based on differentiation, one of the most important aspects in any market, not only the consoles one.

Best regards,

Romano Panzacchi

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