SEGA: Brand explosion and annihilation. A lesson for all brands

The story of SEGA Enterprises is one of a near mythic rise, catastrophic fall and an innovative rebirth.
Ronan Hegarty

April 16, 2018

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 Genesis.

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, their insight into their target market was the smoking gun. They faithfully converted the most popular arcade versions of the day, got 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 their target market didn’t come about through sheer luck but with informed insights from specialised expertise in the form of Tom Kalinske. His strategies grew the company from approximately £51 million to £1 billion. SEGA had successfully navigated perilous waters by trusting and investing in their talent and industry expertise. It sounds clichéd but SEGA’s head office in Japan had to take an unfamiliar approach and listened to research that contradicted their intuitions. Even today, changing one’s 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 their market share further. It didn’t enhance the gamer experience to any significant degree and ultimately the vision of combining music and gaming failed here. 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 they rushed production and created second tier titles. After a series of shots in the dark SEGA had created a house of cards. Their staff ballooned massively in the hay days but had now become highly ineffective. There were also too many of their own consoles on the market (The Mega Drive, Master System, Game Gear, Mega-CD, 32X).

It was clear that a storm was brewing and despite protests from Tom Kalinske the company continued its kamikaze course into oblivion. SEGA lost touch not only with its consumers but also the changing marketplace. Sony ensured their new system was friendly with third party software developers while SEGA's Saturn console was not. The blowout here was immense and PlayStation stunned the world with its visuals and game line up, leaving SEGA mortally wounded in the process.

SEGA rolled the dice one final time with the Dreamcast in 1998. Despite the consoles improved power and greatly improved ease for developers 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 capitulate from the domestic console market in 2001.

It is important to note SEGA's survival only happened because of an unshakeable belief by its top shareholders. It took a personal gift of £493 million from 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.

There are many lessons brands can glean from this adventure. We here at Morar HPI 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.


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