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Friday, September 13, 1991 - Page updated at 12:00 AM

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Sega Takes On Nintendo -- Alderwood Mall Is Testing Ground In Video-Games War

Move over Pepsi and Coke, the latest "taste-test" challenge is a battle between video games.

The challenge, set to begin at Lynnwood's Alderwood Mall today, pits Nintendo of America Inc.'s Super Mario World against Sega of America Inc.'s Sonic The Hedgehog. The two games are played on the more-advanced 16-bit hardware systems, which Nintendo introduced this month, and Sega has been marketing for two years.

The battle is for a bigger slice of the nearly $5 billion video-game pie. Currently, Redmond-based Nintendo dominates, with more than 85 percent of the total market, according to industry figures. Sega and NEC - another producer with a 16-bit machine - combined capture between 8 percent to 12 percent of the total video-game market, says Bill White, a Nintendo spokesman.

San Francisco-based Sega concedes Nintendo's giant lead. Sega, however, claims about a 90 percent share of the 16-bit machine marketplace, which it pegs at about $1 billion in annual sales, says Al Nilsen, Sega director of marketing.

Until just days ago, when Nintendo began shipping its new 16-bit machine, called the Super Nintendo Entertainment System, Sega's 16-bit equipment had no Nintendo equivalent.

With Nintendo's entry this year, however, the 16-bit video-machine marketplace is becoming a battleground, with Sega throwing some aggressive punches Nintendo's way.

In addition to Sega's aggressive marketing, the company has cut the price of its machine to $50 below Nintendo's and is also trying to capitalize on Nintendo's failure to make its 8-bit and 16-bit machines compatible.

Meanwhile, Nintendo is spending $25 million on an advertising blitz touting its 16-bit machine, now through the Christmas season, says Nintendo's White. The company will spend another $10 million on promotions for its 8-bit product and its hand-held machine, Game Boy. Moreover, a cooperative effort with Pepsi will add several million more dollars to the Nintendo advertising budget.

Sega is spending only about $15 million on advertising between now and Christmas, says Sega's Nilsen..

Sega, which introduced its 16-bit video game in August 1989, claims a wide lead when it comes to the number of software offerings for the more sophisticated, 16-bit machines, with 150 games to Nintendo's 18 titles.

Nilsen claims that Nintendo's own advice to consumers is to buy the offering with the most games - when competing in the 8-bit market, which Nintendo dominates. Nintendo's White counters that quality counts for more than quantity, arguing that Nintendo is the quality leader.

The battle with Nintendo seems to be shaping up around two titles - Sega's Sonic The Hedgehog versus Nintendo's Super Mario IV, a new, 16-bit version of the company's fabulously successful Super Mario game series.

The impetus for the Sega-sponsored competition is, according to Sega, a market-research study indicating that 66 percent of video-games players preferred Sega's Genesis system.

With that study in its pocket, Sega decided to head to the shopping malls of America to pit Sonic The Hedgehog against Super Mario IV.

Dubbed a grandiose "Sega World Tour '91," marketing extravaganza is taking the challenge to kids in 25 shopping malls throughout the country - though, not actually the world.

Alderwood Mall in Lynnwood is one of the kickoff cities, because it is in the heart of Nintendo country, Nilsen says. The nearly three-month tour begins today at Alderwood Mall, Springfield Mall in Springfield, Va., and Town East Mall in Dallas. The somewhat one-sided Sega-sponsored competition will last three days in the kickoff cities and then push on to shopping malls in other cities. Sega also will demonstrate its new video-arcade game and its hand-held video game.

Besides attempting to knock Nintendo around in America's malls, Sega is also playing tough with its price. In June, Sega dropped $40 off the cost of its machine, bringing the suggested retail price tag to about $150, compared with Nintendo's price of about $200.

The move is not expected to start a price war, however, Nilsen says. Nintendo has never lowered its price, he says. White, at Nintendo, says the company has no plans to drop its price. Consumers will accept the $200 price tag for the Nintendo 16-bit machine, because it is a good value, he insists.

"The first reports from our customers and scouts is that the Super Nintendo games don't look as good as some of the Genesis games do," says Lynne Nakamura, manager of the Everett mall Waldensoftware store. With a price tag of $50 more than the Genesis machine, it will probably take a while before the new Nintendo system becomes a big part of the 16-bit system business, Nakamura says.

Sega also plans to capitalize on the lack of compatibility between Nintendo's 8- and 16-bit systems. The incompatibility is perceived by many as a marketing mistake, and retailers report that consumers are angry at Nintendo. Nilsen thinks this gives Sega an even bigger edge.

The lack of compatibility was a major blunder for Nintendo, and consumers are angry, says Burke Williams, general manager for Merchants West Washington, the local corporate arm for Toys Galore. "Nintendo will do some business in spite of (the blunder), but I've never seen a marketing decision evoke such an emotional response at the customer level," Williams says.

But Williams questions whether Sega will be able to capitalize on customer anger over the Nintendo incompatibility problem. Consumers may direct their anger at the entire industry, he says.

Nakamura agrees that adults are upset with Nintendo, because they have to not only shell out the money for the new system, but buy all new software as well. Still, she says, many appear willing to buy the Nintendo system anyway, if it makes their kids happy. Nintendo has a lot of name recognition, she says.

White, at Nintendo, says the two machines are not compatible, because the company is marketing the 16-bit machine only to advanced Nintendo players. It will continue to support its 8-bit system.

In the U.S., more than 30 million homes have Nintendo machines, White says. This year, Nintendo will produce only 2 million 16-bit machines, and those are expected to sell to move-up buyers. So far this year, Nintendo has sold 1.5 million 8-bit machines and expects to sell another 3 million by Christmas, White says.

Nintendo's name recognition and giant market share gives the company an edge with some retailers. For example, Toys Galore, a 34-store chain owned by Merchants West, does not carry Sega, Williams says. Video games are a low-markup, high-capital investment item, which leaves no margin for error for the retailer, he says. "It's a dangerous category, and we're not sure Sega will survive," Williams says.

Copyright (c) 1991 Seattle Times Company, All Rights Reserved.

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