Nintendo's Strategy Essay

INDUSTRY ANALYSIS SWOT ANALYSIS To examine Nintendo’s position in its current industry the following SWOT analysis has been constructed. Strengths: Nintendo’s strengths include a well established brand name, well known franchises, ability to manufacture goods at a low price and innovative products as will be discussed later in this report. Since its computer gaming establishment in 1977 Nintendo has maintained a strong and brand image. This has been supported by their success in quality products such as previous market leaders the Super Nintendo Entertainment System and Nintendo 64 (Edge, 2007).

The franchises that Nintendo possess such as their gaming icons, Mario, Donkey Kong, Zelda, etc have enabled them to maintain customer loyalty and recognition. These franchises have also allowed Nintendo to touch on other markets i. e. toy market (Parfitt, B, 2009). Weaknesses: Nintendo’s two major weaknesses would be their dependence on outside contracted manufacturers and lack of games compared to its competitors. Ironically, one of Nintendo’s strengths would also constitute as one of their biggest weaknesses.

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The dependence on specific manufacturers (Moats, B, 2008) leaves Nintendo vulnerable if those manufacturers were to fail or suffer any difficulty in producing the required amount. The inability for manufacturers to supply goods on a timely basis would significantly impact on Nintendo’s performance as the switching costs between competitors within the industry are relatively low. The unavailability of products would ultimately constitute in loss of market share. Currently, the game variety of Nintendo has been overwhelmed by its competitors, capitalising on attaining franchises.

Even though Nintendo does have a well known franchise, its variety limits them from producing other games (Hirooka, N, 2009). Also the motion sensing capabilities of the Wii console has restricted their compatibility to a wide spread of games. Game producers find themselves making alternative versions of the game to suit the Wii which in turn could be quite costly and time consuming (Schoenberger, C, 2009). Opportunities: The main opportunity that Nintendo are exposed to is that the world evolving to which more people are becoming more technologically compatible.

People are introduced to technology at an earlier age and are becoming more computer orientated. The number of sales if gaming consoles have exponentially increased (Parfitt, B, 2009), which my suggest an increase of gaming console awareness. Alike computers, soon, it may become standard that each household contain a gaming console. Another opportunity for Nintendo would be the online gaming support system. It is anticipated that the sale level of gaming consoles will decrease as the number of online gaming subscriptions will increase (Shilov, A, 2009).

This includes the possibilities of introducing newer systems or even upgrading current products to align themselves with current online innovations and to potentially compete against upcoming new competitors. Threats: There are a number of threats that Nintendo may or have come across which include counterfeit products, competitors implementing motion detection additions and new companies planning to branch into the gaming industry. Counterfeit products are an issue to which will affect the sales of games.

Even though extensive measures have been implemented to prevent such from happening, with time, the market will also manage to find ways around any security imposed. It has already been demonstrated that new technologies have been implemented by competitors which will “provide intuitive gaming experiences at almost the same level as Nintendo” (Hirooka, N, 2009). That being said this poses as a threat to one of Nintendo’s competitive advantage being product differentiation. The ever advancing technology market has allowed companies to enter into the gaming market.

A major threat would be newer companies indulging into this market with even more advance peripherals and capabilities (Hirooka, N, 2009). A potential threat could be Apple which already have the motion detection and touch screen technology implemented into their iPhone and iPad. PEST ANALYSIS The PEST analysis looks at the macro-environmental factors that may affect Nintendo’s strategies to achieve certain objectives. Political Factors such as foreign legislation, trade restrictions and the level of political stability in may affect how or where Nintendo are able to distribute their products.

For example, the level of tariffs imposed by a country regarding electronic goods may require Nintendo to analyse their strategic and competitive advantage position in distribution of those countries. Economic Factors include such things as the fluctuation of interest rates, exchange rates and inflation rates. These factors affect Nintendo on an internal investment and a product sales level. For internal investment inflation changes may provoke higher wage demands and raise costs; it also affects any further investment decisions into other corporations.

For product sales, as Nintendo’s products are not perceived as a necessity, any changes in the economy would directly affect product consumption. Social Factors impact on the interest demand of the products and to what buying power certain demographics have. This will help determine what and how to market products to their focused niches. An example would be the cultural aspects of a market, if a particular game is found offensive to a specific culture; it should constrain Nintendo to perhaps not market that game in regions of offence. Technological Factors are the advancing natures of technology and its effects on globalization.

In adverse to this, the lifespan of electronic products has also reduced. This not due to its operational capacity life but more to its incompatibility with newer products. An example of this would be the release of the 3D television. A response to this would be for Nintendo to implement a 3D add-on to its current product, or release a new product accordingly. COMPETITOR ANALYSIS Nintendo’s competitors include both handheld and non-portable consoles. For the purpose of this report the only Microsoft’s Xbox 360 and the Sony Playstation 3 will be analysed here.

Are Sony and MS in the same strategic group (Jones and Hill, 2009, p54, p160) as Nintendo; or are they grouped together and is Nintendo in a group of its own? Sony and Microsoft are very similar. They offer similar games with similar quality and both also use a primarily differentiation strategy (Jones and Hill, 2009, p161) to compete. This is evidenced in the remainder of this section. Sony’s strategies have always been to push the boundaries with technology and the PS3 is no exception. The cell processor and the Blu-Ray laser were both co-developed by Sony, IBM and Toshiba (), the processor costing 2. Billions dollars to develop (REFERENCE). Processor production was eventually outsourced to Toshiba for (800million?? ) (REFERENCE) to make back some of the outlay. Sony Computer Entertainment in fact has not been profitable for many years. (CANT FIND WORTHWHILE REFERENCES FOR THESE) Sony took a risk putting the Blu-Ray player into the PS3, whilst Microsoft only offered the HD-Dvd drive as an extra peripheral so they could charge less for their console. This is often touted the main reason the Blu-Ray standard won. There were 5million PS3s in the market and less than 1million HD-Dvd players when Toshiba decided to pull the format.

MS offers online services through Xbox live. This can be considered the Premium (Jones and Hill, 2009, p140??? ) service as they are able to charge a fee whilst Sony offers their service for free. Microsoft also added an achievements system to Xbox live back on the Xbox console. MS made it mandatory for them to be implemented within all games released (Cook, C, 2009). This has helped differentiate MS from Sony and Nintendo. Sony added points in the form of trophies later on (Cook, C, 2009), however by this stage MS had too much of a market lead with many gamers buying games only for points.

Both companies are pushing online services such as streaming Netflix and online gaming (Kelly, k, 2009; Swasey, S, 2009,), differentiating themselves from Nintendo. MS and Sony do not offer much in the way of exclusive mainstream games anymore as the developers make a lot more money by making games multi-platform (Nutt, C, 2008). They must compete in different ways such as online games and services, and brand image. You do not see Sony or Microsoft advertising family based games or women using their products. Call of Duty and God Of War for example are not advertised that way.

They appeal mostly to the ‘hardcore’ gamer and they are marketed that way (New call of duty modern warfare 2 tv advert, 2009). Other than the bare statistics showing Nintendo’s lead, another indicator of Nintendo’s success is how both Sony and MS are attempting to compete with the Wii through imitation (Jones and Hill, 2009), with peripheral features such as motion control and also through lower price points. ’ Sony and Microsoft offer different experiences to Nintendo and Nintendo’s advertising has targeted the Wii at basically everyone else, especially the casual gamer.

This market is potentially far larger as it expands age, type of person, demographics and style of gameplay. For example the Wii exists in preschools through to retirement homes (Wischonowsky, 2007), PS3 and Xbox are not recorded to be found in either. Casual gamers are not interested in the higher prices consoles for example as they are not as interested in the benefits; graphics, power and properly integrated online capabilities. MS wanted to be first to market for the current generation. Sony completely defeated the Xbox console with the PS2 as it was first to market, and also had the good reputation leading in from the PS1.

Microsoft introduced the 360 early in order to do the same thing to Sony. However, rushing the console to market had many quality and reliability issues, with many consoles ‘bricking’. MS had to implement a mass warranty to fix broken consoles costing close to $2 billion dollars. MS and Sony are very similar. They both offer almost identical Hi-definition gaming experiences with very similar libraries of games. Their online services are similar and they both attempt to follow a loss leadership strategy (Hill and Jones, 2009, pp???? ) on their console, making the money back through peripherals and games (Bangeman, 2006).

Nintendo makes money on both their hardware and software (Bangeman, 2006). Both Sony and Microsoft target the same gamer market segment and spend incredible amounts of money on development. For Nintendo, Sony and Microsoft are not really direct competitors. Everything from marketing to games is targeted at different and potentially larger market segments, even different markets. This is evident in that many households owning two consoles generally have a Wii plus an Xbox OR a PS3 (Lugmayr, 2006). They are indirect competitors for Nintendo. STRATEGIC DIRECTION

Since entering electronic industry, Nintendo had persistently sought breakthroughs, which can be interpreted as seeking leading position in certain markets. Associated with corporate-level strategies, this can be called diversification, because Nintendo, originally producing gambling instruments, re-positioned themselves as manufacturers of new-style gaming machines, in the background that consumers in Japan and United States had felt tired of those old-style games. By virtue of their keen sense of touch on consumers’ needs, they conducted extensive research and concluded that consumers ‘had a need’ to play video games (1).

This strategy was finally proved correct, as Nintendo successfully exploited this potential market and earned the leading position within it. “I always emphasise the Nintendo goal of putting smiles on the faces of everyone we touch whenever I visit our Global companies, both in Japan and throughout the world, and I think I’m getting the message across. I want everyone at Nintendo to know I expect everything that they do, their every action, to lead to this goal…. Although our employees are all over the world… we are all unified to achieving Nintendo’s corporate mission” (-President Satoru Iwata, CRS Report, 2009).

CORPORATE SOCIAL RESPNSIBILTY (CSR) STRATEGY Nintendo achieves their corporate mission by bring families closer and making strangers become friends, creating stronger deeper relationships in our society. By sharing the Nintendo CSR Philosophy with all external production partners, Nintendo aims to reduce their environmental impact, and proactively in one year inspected 15 major production partners, refined their processes and followed up within 12 months. Nintendo products such as the DS and Wii have also incorporated designs for energy conservation.

Nintendo is also an official supporter of the Starlight foundation, supporting and “bringing smiles” to sick and unfortunate children through their entertainment and gaming products (CRS Report, 2009). MARKETING “Nintendo is not fighting against Sony and Microsoft. Its real enemy is the indifference that many people still feel towards gaming…” (-President Satoru Iwata, Towns, 2006) In order for Nintendo to capture and retain profitable market share, it would be thought to be possible by achieving higher profitability than their competitors.

However, as the insight above suggests, Nintendo have structured business strategy upon the mission “to go out and reach the people that would not consider themselves to be gamers” (Strategic Direction, 2008, page 22). This dramatically increases the size of the total addressable market for Nintendo marketing, and their intuitive strategies have meant that Nintendo touches many more people than the typical ‘gamer’ – with more profits to match. Non-Focused Strategy In the mission to touch those indifferent to gaming, the company adopted the The Blue Ocean Strategy which is centred upon creating a market where there nitially was none and going where no other organisation has gone yet (Rosmarin, 2006). To reach this untapped market, Nintendo adopted an all inclusive, gender and age-neutral stance to gaming. This was achieved by going against the grain of competitors and including women in their audience, welcoming women by introducing a feminine aesthetic in product marketing (for example the Wii and the DS are visually light, curvy, bright, people based products) and focusing on gaming/entertainment content that appeals to both sexes (for example the Wii Fit, Brain Training and Nintendogs).

This can be contrasted to the gaming content of competitors in the market Sony and Microsift, which are typically associated just with ‘competition content’ (Marketing Magazine, 2008). BUSINESS LEVEL STRATEGY Cost Leadership Nintendo made a huge strategic bet that less is more in the global console gaming market. The Wii console is the low budget alterative to the Play Station 3 and the Xbox (see Figure 1. ). It doesn’t boast blistering chip speeds or cutting edge graphics.

By not investing significant amounts of money in technology like Blu-Ray technology (typical to the Sony Playstation) the Wii was profitable from day one (Bremmer, 2006). Referring back to the target market, by targeting new generation families with a product that provides fun, educational and entertaining activities through a cost leadership strategy, Nintendo is sure to please by providing families with more affordable fun, without the need to leave the house. Figure 1. Ninteno beats competitors through Cost Leadership [pic] Product Differentiation While we need adequate processing power, there was a threshold beyond which customers didn’t really need more” (Reggie Fils-Aime, President Nintendo America, Bremmer, 2006). With this, the designers of Nintendo products developed the easy to use, completely innovative wireless controllers and peripherals which give the users a completely new experience to gaming, and which give the hand held users of the DS a whole new content of gaming, which their competitors are still trying to catch up with. Nintendo remains profitable and recognisable through their trademark characters and games with the likes of Mario & Luigi, Zelda and many others.

This partnered with the product differentiation strategy of designing products completely unique to the competitors in the market, has made for extremely successful strategising. Innovation and Creativity Nintendo’s strategies always embed their core value: ‘creativity’. This is typically reflected in the case of Wii. Wii had accumulated a sales volume of 70. 93 million worldwide, as of March 31, 2010 (Nintendo Co. , Ltd. , 2010, p. 23). This is a remarkable sales result. Why is Wii so attractive to consumers? The most creditable feature of Wii is its multifunctionality.

Distinctive from other game consoles, it allows the players to emulate a variety of actions, like shooting arrows and hitting tennis balls, to achieve objectives in the games. This is a truly fresh and unique experience for video game players. They praise Wii, and are desperate to get one without much regards to its price. Word of Mouth Marketing was achieved in this process. The achievement of Word of Mouth Marketing was welcomed by Nintendo, because the extensive share of information between players and their friends can bring significant results that even multi-million dollars advertisements can not bring (Trout, J. 2006). But in the end, credits belong to Nintendo’s core value of ‘creativity’. Without creativity, they could not develop products with preeminent functionality, and there would be no way for them to claim the leading position in the market. As Mr. Iwata said, ‘Nintendo works to put smiles on the faces of everyone we touch’ (President Satoru Iwata, CRS Report, 2009), which shows that, Nintendo sincerely cares about the video game players, and always strives to bring unforgettable experiences to these consumers through continuous innovation and improvement. This is one of the secrets behind their success.

FUTURE RECOMMENDATIONS As a prospect for future growth, Nintendo must ensure they are not just concentrating on new games for existing gamers, and ignoring non-gamers. They must drive the existing consumer and bring in new ideas for new consumers by being flexible and innovative. First off using product proliferations to produce a range of products aimed at different segments of the same market, along with product development for new products in the existing market. Nintendo can also employ differentiation strategies in the area of after sales service and repair to protect their brand loyalty.

Disruptive strategies through innovation and employing new technologies will aid in Nintendo’s future growth. A focus on future consoles to beat Microsoft and Sony to the market will allow Nintendo to gain a competitive advantage, but will also give game developers a reason to write software for their brand instead of their competition, as it’s always more appealing to be associated with the coolest brand in the market. Nintendo can further force the consumer to choose their console based on brand loyalty and quality gaming at a good cost.

An issue Nintendo need to overcome is the stigma of being a “family” or “younger person’s” console due to their multitude of G rated games. Instead, the company should focus on a game that will grab the media’s attention and create buzz in the form of cheap pre-launch press, instead of launching games such as “Luigi’s mansion”, as suggested by Rick Powers (2003). They should consider formulating games for all skill levels, along with backwards compatibility when new consoles are created. Leveraging the internet is an important tool, as most people conduct their research online.

Nintendo can create fan sites to create buzz and also turn gaming online to open the door to new markets and consumers. New markets are an important factor to look into as online gaming, multiplayer games, interactive television and gaming via mobile devices such as phones and PDA’s are areas in which are not yet dominated. It is also in Nintendo’s best interest to respond to new competitors in the market, namely the sudden presence of Apple. Due to the introduction of Apple’s iPod and iPhone which act as casual gaming devices, Nintendo’s revenue is in jeopardy as the products are a threat to their DS.

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