January 8, 2020

The rise and fall of Sega: a lesson for all brands

Author:
Ronan Hegarty, Consultant
Even today, changing market strategy and stepping into the unknown is difficult for any organisation.

The story of Sega Enterprises is one of a near mythic rise, catastrophic fall, and an innovative rebirth


The rise

In the late 80’s Nintendo controlled 90% of the domestic video game market. Sega Enterprises had entered the scene as an underdog and since 1989 had been chipping away at Nintendo’s previously impenetrable grip on the market thanks to the launch of the trusty Mega Drive (known as Sega Genesis in North America).

Magic was certainly in the air on a number of fronts. The genuine creativity and charismatic appeal of the iconic Sonic character coupled with a marketing masterclass allowed Sega to soar to unimaginable heights.

By 1992, Sega had taken over 60% of the North American market.  Although Sonic was the magic bullet for Sega, the brand’s insight into its target market was key. Sega faithfully converted the most popular arcade versions of the day, acquired licensed sports titles and created an edgy in- your-face image that prevailed in the hearts of the youth at the time.

This connection to its target market didn’t come about through sheer luck but through informed insights based on specialised expertise in the form of CEO Tom Kalinske. His strategies grew the company’s value from approximately £51 million to £1 billion. The brand had successfully navigated perilous waters by trusting and investing in its talent and industry expertise.

It sounds clichéd but Sega’s head office in Japan had to take an unfamiliar approach and listen to research that contradicted their intuitions. Even today, changing market strategy and stepping into the unknown is difficult for any organisation.

The fall

Sega disintegrated over the course of the 90’s in what seemed to be one console flop after another.

The Mega-CD, for example, was a clumsy attempt to bolster its market share further. It didn’t enhance the gamer experience to any significant degree and— ultimately — the vision of combining music and gaming failed in this case.

After this attempt, the mindset shifted from visionary to reactionary. Sega lost the innovative flair that got them to the top. By solely focusing on competitors like the 64-bit Jaguar console the company rushed production and created second tier titles.

After a series of shots in the dark Sega had created a house of cards. What’s more, in its heyday its number of staff had ballooned —but had now become highly ineffective. There were also too many of the brand’s own consoles on the market (including The Mega Drive, Master System, Game Gear, and Mega-CD)

It was clear that a storm was coming and, despite protests from Tom Kalinske, the company continued its course into oblivion. Sega lost touch not only with its consumers but the changing marketplace.

By contrast, Sony ensured its new PlayStation system was friendly with third-party software developers —while Sega’s Saturn console was not. The consequences were immense: PlayStation stunned the world with its visuals and game line up, leaving Sega wounded in the process.

Sega rolled the dice one final time with the Dreamcast in 1998. Despite the console’s improved power and greatly improved ease for developers, at the time, it was nothing more than a final hurrah before the inevitable collapse.

Sony had picked its moment, invested heavily and the PlayStation 2 forced Sega to exit the domestic console market in 2001.

Rebirth

Sega survived because of an unshakeable belief from its top shareholders; it took a personal gift of £493 million from Sega’s Chairman Isao Okawa on his deathbed to secure the company’s future. Since then, Sega has had to adapt to the market, moving into software development and publishing. It now holds powerhouse franchises such as Total War, Yakuza and Football Manager – making it one of the largest publishers of video games in the world.

In late 2019, Sega launched the Mega Drive Mini — a smaller version of the original console preloaded with 40 classic games. The release was part of a wider trend for retro mini consoles and follows in the footsteps of PlayStation and Nintendo The reception has been almost universally positive.

The nostalgia factor was an obvious phenomenon to tap into and Sega has used its classic console in a bid to capture the joyous memories of youth. The gaming world has welcomed this homage to an age gone by and it remains to be seen if Sega, rejuvenated by this jubilant fandom support, may surprise us once again.

The forthcoming Sonic the Hedgehog film may also charm both old and new fans alike.

One thing is for sure: the adage of ‘nothing is permanent’ is especially true of the gaming world. Whether the release of the Mega Drive Mini is a one off shooting star or a sign of things to come remains to be seen.

At Savanta, we understand what drives brand growth, how to understand your consumers and how an evolving market effects your brand. We provide strategic insight to illuminate the best course of action.

Read more about the data we hold on the gaming industry in our recent report: Game On: a study of UK gaming attitudes and behaviours.


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