According to Nintendo’s marketing director, Sega’s strategy entails beating competitors to the market. They will be first at all costs. By targeting a broader market than Nintendo going after the MTV audience of teenagers and adults, not just the younger Playskool audience-Sega has become the market leader. But Sega views its competition as more than merely Nintendo and the other video-game manufacturer. They consider making their games more of fun than watching a half hour of prime time TV, basketball game, or the Disney Channel. That’s the competition asserted their Director. The biggest challenge in this business is to maintain momentum and continually improve the entertainment experience.
Sega’s strategy can be characterized as “angle-based”. Quite literally, this means that the company approaches the customer from every angle. Sega is always there, and expect to be ambushed from any angle. Sega uses all the tools at its disposal and appears to be quite discerning in their implementation. In less than a year, Sega united with Time Warner and TCI to create the Sega Channel scheduled to debut in 1994, joined with AT&T in the creation of Edge 16 which aims at allowing clients to play computer games over telephone lines, introduced games linked to blockbuster movies such as Jurassic Park and Aladdin, and teamed up with Circus Inc., to create an elaborate amusement center in Las Vegas – just to name a handful of Sega’s exploits. In addition, Sega launched a giant Sonic balloon in the 1993 Macy’s Parade. Sonic the Hedgehog is clearly breathing down the neck of [Nintendo’s] Super Mario, said analysts David Leibowitz, senior vice president of Republic New York Securities. In addition through a cooperative promotion with The Lifesaver Co., purchasers of ‘Lucky packs’ of Lifesavers candy can win Sega games or Genesis machines. And don’t forget that Sonic the Hedgehog is starring on both a network and syndicated television program. A year and a half ago they were knocking on doors asking corporations to tie with them. Today we carefully answer phone calls from companies we think best fit their image. Incidentally all of this has been accomplished on a marketing budget one-third the size of Nintendo’s.
Nintendo’s virtual monopoly of the video game market forced Sega marketing managers to develop skill in doing more with less in terms of spending. Only through intense, innovation marketing exploits has Sega been able to capture the lead. Sega’s approach marketing with a shot gun approach wile Nintendo has a 2-ton gorilla at its disposal, said Lee Isgur an analyst with Volpe, Welty & Co in San Francisco.
Integral to the success of Sega’s strategy in the United States has been its decentralized organizational structure. As previously noted, Kalinske’s virtually unchecked authority has enabled him to make the decisions necessary to propel Sega forward. In turn, Kalinske has provided Sega staff with a large degree of freedom and flexibility. Our average age is about 28, and we try to keep the atmosphere fun and relaxed by letting people work flexible hours, said Kalinske. It’s no secret that our 500 employees are the largest users of pizza and Coca-cola in the San Mateo community. In addition, Sega draws from a pool of approximately 1,500 freelancers, programmers, writers, musician and artists – who participate in the process of game creation while working out of their homes. The company adapted its structure to accommodate the needs of a nontraditional workforce. Sega recognizes that the trick to surviving and succeeding in the video-game industry lies in software and it is willing to do whatever is necessary to support creativity.
Sega achieves its strategic objectives through systems in place that support company efforts without overpowering them. Communication systems are important particularly since staff is geographically scattered. While the majority of Sega’s American employees work in the San Francisco Bay area, another 30 work in Los Angeles and 30 more in Chicago. They consider they need to do a lot of project management work that requires information to be shared by people who are not necessarily located in the same office and (geographic) location. Besides the US staff the company maintains communication with the company’s other locations around the world.
Through all of the company’s endeavors including the initial decisions to enter the video game market, Sega’s style involves taking risks. The point is that you should not be afraid to take a risk. Sega released a 16 bit system first, while Nintendo delayed the release of a similar machine because it believed that the 8 bit market was still active. Then in the early 1990s Nintendo decided the market was not ready for a CD system, but Sega wanting to be first it make a big splash to make some noise plunged ahead and developed Sega CD. Regardless of whether the market was ready, the initial installment of Sega CD sold out within 48 hours. By the end of 1993 Sega CD combined software and hardware sales were estimated to have reached $365 mn about 12 percent of the company’s overall expected sales.
Guiding Sega through it all has been the company’s super-ordinate goal, explained best through its advertising campaign, Sega’s overriding goals is to lead the way to the most sophisticated most exciting most technologically advanced software and hardware even if it means dragging video game players along. Sega as discovered that video game players will buy what’s simply because it is new, even if what’s new is not necessarily what’s best. Fast paced hard hitting in-your-face marketing has carried the message to the public that Sega is what’s new, what’s hot, what’s in. The [public] perception is that Sega is the platform of growth, not Nintendo any more. Essentially Sega took everything that Nintendo was doing right and added a new image: younger sleeker, faster, better – the next level.