Bargaining Power of Buyers Essay Example for Free

Bargaining Power of Buyers Essay The correlation between the console, developer and consumer is best explained by the paradigm of supplier power. The differentiation of inputs is the key available to the consumer to influence the video game industry as a whole. The developer also has similar power and the consoles are thus dependent on these two key inputs for generating creativity and therefore increasing the sales of the console per se as well as the $ 10 royalty that is being charged from each publisher for publishing the game on the particular console. Volumes are the key input as far as the suppliers are concerned. These also impact the console as there is a need to ensure that more number of games are compatible with each console which will help drive sales. The main strategy for negotiating with the supplier by the console is that of backward integration which is followed in a diffused manner, in that there is open ended competition generated amongst the developers to obtain the most creative inputs. Substitutes In as much as consoles are concerned there is limited threat of substitutes within the oligopoly established. However there is a constant need for up gradation between the three rivals, Sony, Nintendo and Microsoft which is driving the video game console industry. The substitutes also act in the form of providing alternatives to the games on respective consoles creating a different level of threats. The threat of piracy is a grave problem with the total size being at $ 3 billion, the industry will most certainly be affected by piracy which may increase with greater dependence on online gaming and the internet. The bargaining power of consoles has been considerably weakened over the years due to price and product sensitivity; thereby the developers are able to manipulate the rivalry between the three principal players to their own advantage. This is causing only intermediate points of advantage to the console when a new advanced version is introduced, they can bargain with the developers for placing their games on the new console, Another important facet is that of royalty that is being charged from publishers for each console, the buyer has the leverage to increase the same or even have a variable pricing depending on the spread of the product. Thus on initial introduction a higher charge could be made and as more consoles are inducted in the system, the volumes could provide scope for reducing the royalty. The backward integration with the developer and the consumer remains the key strategy of all buyers and towards which they are continuously working. The integration with the buyer through programs such as Nintendo’s forums and magazine feed back ensures that the companies obtain buyer information on a continuous basis. In fact the video games industry is doing so at no cost to itself which acts as a positive growth factor for the same. Buyer volumes are likely to increase each day with a healthy growth of 30 % envisaged for the industry over the next few years. Case Studies Establishing Linkages Console, Developer and Consumer Sony Sony Computer Entertainment Inc is a company which has been established in November 1993. It is based in Tokyo and has a capitalization of 1. 933 billion Yen and a sales and operating revenue of 737. 0 billion Yen for year ending 31 March 2005. This places its net income at 35. 5 billion Yen. It is presently leading in the field of console gaming. Its principal area of business is the research, development, production and sales of both the hardware and software for the video game systems Play Station 2 and Play Station Portable. The number of employees of the company as on 1 April 2006 is said to be 1200. (www. sony. com). It would thus be evident that Sony is managing the large scale of its operation on out sourced processes some of which will be covered separately herein. The company is extensively dependent on the developers for developing games. A call has been made to developers for games for its new console, Playstation 3. (Sharma, 2005). This has been an opportunity provided to the developers to build up game scenarios and develop the schematics for new games for the PS 3. Sony is calling this program as Game Yaroze! 2006. This has been standard practice for the company as per industry watchers as a similar program was launched by the company when it developed Play Station 1. An entire range of games were developed for the console with inputs from developers. The company expects contribution from amateurs as well as professional developers. Gamers are also reported to have contributed significantly to the development of games on Sony’s Play Station (Sharma, 2005). The symbiotic relationship between gamers and developers as well as console producers can be explained by the recent threat by gamers of the Call of Duty 2 game threatening to go on strike as the developers did not respond to certain queries by them and threatened to shut down the gaming servers. With console gaming there is no such problem and it is relatively safe from hacking and other forms of information disruption practiced on the internet.