NintendoReviving a Company, Transforming a Market

Jeffrey Jewett

Marketing Theory, Bus. 575-02

Winter Term 2011

Table of Contents

Contents

INTRODUCTION:.........................................................................................................................................................3

Company History:.......................................................................................................................................................3

Article Summary:........................................................................................................................................................4

COMPANY/CASE ANALYSIS:...................................................................................................................................5

S.W.O.T. Analysis:.....................................................................................................................................................5

Marketing Strategy:....................................................................................................................................................8

Marketing Mix:...........................................................................................................................................................8

The 4 P’s:................................................................................................................................................................8

Porter’s 5 Forces:....................................................................................................................................................9

Discussion Questions:...............................................................................................................................................10

Was Nintendo just lucky, or does the Wii’s success have strategic merit?..........................................................10

Has Nintendo put the “fad” question to rest? State a case as to why the Wii is or is not here to stay.................11

In which stage of the product life cycle is the Wii? Based on that stage, is Nintendo employing good marketing mix strategies?......................................................................................................................................................11

Develop a strategy for the Wii’s next product life cycle phase............................................................................11

Discuss the potential threats to Nintendo’s future success. What will help Nintendo avoid a premature decline for the Wii?...........................................................................................................................................................11

CONCLUSION:............................................................................................................................................................12

Lessons Learned:......................................................................................................................................................12

Epilogue:...................................................................................................................................................................12

BIBLIOGRAPHY:........................................................................................................................................................13

Nintendo: Reviving a Company, Transforming a Market

INTRODUCTION:

Company History:

On September 23rd, 1889, an up and coming businessman named Fusajiro Yamauchi started “Nintendo

Kappai” 1 a company that would design and manufacture playing cards, called hanafuda.2

As the company grew and gained strong brand recognition, they started branching into other markets. In

1963 the Nintendo Playing Card Company would change its name to Nintendo Co., to eliminate the obvious

marketing constraints of having an item focused name. Although the company still makes playing cards they have

become synonymous with gaming, including: handhelds, game consoles and other various consumer electronics.

Since their transition into consumer electronics and game consoles the company has always been a top

competitor, and gained significant market share by being one of the first companies to produce units for the home.

Their early success was also based on their ability to create some iconic and revolutionary games and characters.

One of the earliest and most recognizable games was Donkey Kong which, was introduced in the 1980’s.

This was soon followed by games like Super Mario brothers and many other instant classics. These were the games

that many of today’s hard-core gamers (18-35 year-old males) grew up with and still enjoy fond memories of.

Bolstered by success with their original system and iconic games, they would soon upgrade their consoles

and enhance their technology. The Nintendo became the Super Nintendo, and then Nintendo 64; launching upgraded

1 http://www.reference.com/browse/Nintendo2 http://www.wired.com/geekdad/2009/09/happy-120th-birthday-nintendo/

versions of their games, creating new ones, and continuing to come out with lines of classics. These systems and

games were very technologically advanced for their time and positioned Nintendo on top of the gaming world.

Soon other companies like Sony and Microsoft would enter the market. Their superior supply chains,

technologically savvy employees, and seemingly limitless supplies of money would allow them to build superior

products in the future, leaving Nintendo in the dust.

In response to their dwindling market share Nintendo would launch the Wii. Knowing that they could not

compete on a technological or graphical level, Nintendo took a step back and focused on a more interactive

approach. Over the last four years Nintendo has sold over 30 million consoles worldwide and captured previously

untapped markets reclaiming their position as a top competitor in the industry. 3

"More than any other video game system in history, Wii has expanded the world of video games to new

audiences," said Cammie Dunaway, Nintendo of America executive vice president.4

Article Summary:

As mentioned Nintendo had to do “more with less” in order to make the Wii a viable competitor against the

PlayStation and Xbox. The Wii has a comparatively dismal set of low powered processors and a limiting and dated

optical drive. As stated in the case study: “Compared to the powerful, state-of-the-art chips and high-definition

lasers contained in the PS3 and Xbox 360, the Wii’s graphics are outright scrawny.”5

The key to Wii’s success and what Nintendo’s management had to a gamble on was its inclusion of a

revolutionary third party motion-sensing technology. The technology got their customers off their butts and forced

them to interact with the games on a level that most had never experienced before, especially from their own home.

They designed games that combined interactivity with ease of use to cast a broad net and thus appeal to various

demographics. The console could be used, appreciated, and mastered by anyone including multi-generational

families and enjoyed by all. “The Wii’s basic software also allows users to custom design avatars from a seemingly

infinite combination of characteristics. With this configuration, users play tennis, go bowling, and hit the links by

swinging the controller like a racket, ball, or golf club, all with characters resembling themselves.”6

3 http://www.msnbc.msn.com/id/38649513/ns/technology_and_science-games/4 http://www.msnbc.msn.com/id/38649513/ns/technology_and_science-games/5 Principles of Marketing, 13th Edition. Prentice Hall/ 12/28/2008. 286. 6 Principles of Marketing, 13th Edition. Prentice Hall/ 12/28/2008. 286.

These new gamers are not the only ones using the Wii. Many of the hard-core gamers who grew up with

Nintendo have also purchased Wii’s as “Secondary Units” which can be also attributed to the systems lower price

tag.

The Wii, which was undoubtedly a hit, has helped re-spark Nintendo’s comeback in the gaming industry,

but many thought the system was just a novelty and fad and wondered if the system’s appeal would continue.

Nintendo has responded by creating new features and applications of their technology.

“As long as Nintendo can stay focused on these elements that have returned it to its throne, it will reign for

a long time to come.”7

COMPANY/CASE ANALYSIS:

S.W.O.T. Analysis:

Strengths:

Nintendo, with respect to the Wii, has four main strengths: The first-mover advantage, strong brand name,

customer loyalty, and a broad appeal.

Nintendo was able to enter the market with intuitive and streamlined motion-sensing technologies which

captured the hearts of many generations and saved a failing company. As with any invention, innovation, or

enhancement there is generally an advantage to the companies who enter the market first. Although they had a

significant advantage upon their launch, they did not own the motion technology and could not prevent competitors

from capitalizing on it. The reason this is still first mover advantage and considered a strength is because they have

positioned themselves as a “game changer” in the industry and opened untapped markets comprising gamers eager

to see what they do next.

Nintendo has opened many new doors for themselves with the invention of the Wii, but their strong brand

name did not happen overnight. Nintendo has been a pioneer of the gaming industry for well over 25 years. They

have positioned themselves as a leader in the handheld gaming market with their Gameboy and Nintendo DS.

Nintendo is the company that brought many gamers some of their favorite characters and games and the industry has

always held them in high regards. This strong reputation, customer loyalty, and history in the industry have allowed

7 Principles of Marketing, 13th Edition. Prentice Hall/ 12/28/2008. 286.

them to bounce back. The brand might just be what saves them from the looming fate of the Wii.

Weaknesses:

Nintendo as a company seems to have some rather significant weaknesses. Being not entirely technology

based, they rely on many outside suppliers and manufacturers to provide the parts for the systems, more so than their

rivals. Their manufacturing and warehouse process is greatly dependent on these third parties, which can have

significant impact on the company’s ability to meet demand and to easily make changes to products.

With regard to the Wii, Nintendo’s non-technological background becomes apparent when analyzing the

systems specs and feature list of their barebones product. The system is lacking some core features that make

modern consoles “modern”. Things like high quality graphics, high definition viewing, and a strong online network.

Opportunities:

Wii was the only console on the market which was turning a profit. According to Forbes, the

Nintendo Wii is averaging $6 profit per unit sold, which has amounted to roughly $180 Million in revenue for

the company8. The other competitors could only dream of such a profit and instead rely on the sales of games

and merchandise to make up for their shortcomings.

Although recently Nintendo has not been able to compete on a technological level, this new buffer

they have created could be the foundation for innovation and enable Nintendo to enter the market with a

comparable product with their own enhancements and methods for changing the market. Simple things like

investing in better processors, graphics cards, and HI definition video output could be all they need to start

getting the console selling again.

Threats:

Although the aforementioned additions to the system would enable the Wii to be more comparable to

current competitors, there is no telling what companies like Sony and Microsoft will come out with next.

Although entry into the market for further competition is very difficult, the two bigger players are huge

technology companies with large reserves, and some of the brightest engineers on the planet. Until Nintendo

can invest into their own infrastructure and supply chain they will always be playing catch up.

When the global economy turns around these competitors are sure to launch their next generation

systems and Nintendo better be ready.

8 http://www.forbes.com/2008/11/28/nintendo-wii-wii2-tech-personal-cz-cs-1201wii.html

Marketing Strategy:

The target market for video games has historically been a younger market, especially for Nintendo. But this

changed dramatically with the launch of the Wii. The new system gained instant appeal to entire families and has

attracted the interest of many generations of people. .

Although the system is appreciated and utilized by a wide demographic, they still cater to individual

segments by developing games for each specific market. While games like Mario and Donkey Kong appeal to

younger crowds, Call of Duty can cater to young adults, and Wii sports can appeal to all age groups9. The

beauty of Nintendo is they have already attracted a new customer base and now the goal is to keep them

satisfied.

In order to expand their target market and to appeal to both older and younger age groups, Nintendo

took many steps to simplify the gaming experience and make the entire process more intuitive. The controller

compared to the other games consoles is held a lot more like a standard television controller, and has many of

the extraneous buttons removed. This combined with the many available accoutrements allows for a very

fluid and approachable gaming experience.

As the product neared maturity, Nintendo decided to launch of series of add-on features to make the

gameplay more lifelike and thus more interactive. Some of these add-ons include the early “Nunchuk” and

additional slip on accessories such as a golf club or tennis racket10. Each add-on appeals to different

demographics and with specific focus on certain games, but each are keeping the consumers guessing what

they will come out with next.

Conventionally the Wii has been regarded as the economic alternative to the higher priced rivals

which has transcended traditional economic tendencies. While this is historically accurate, the current

economic climate has forced the competitors to dramatically cut prices which have diminished the Wii’s value

pricing structure. Nevertheless they have managed to keep their games more affordable and have limited

their system models to avoid confusion for customers. Staying true to their simplistic nature, has allowed

them to appeal to such unconventional demographics.

9 http://nintendo.about.com/od/toppicks/tp/top5familygames.htm10 http://www.businessweek.com/.../2006/09/nintendo_wii_want_to_expand_games_appeal.html

Marketing Mix:

The 4 P’s:

Product:

The Wii is Nintendo’s newest video game console and represents a commitment to being an industry

innovator and market leader. The combination of minimalist design, ease of use, and intuitive motion sensing

technology, has set them apart and enabled them strongly influence the future of gaming. Although lacking in

processor speed and unimpressive in graphics, the system has sold quite well. It has opened the doors to

many new demographics.

Price:

The Wii, originally priced at $250, was $150 cheaper than its closest competitor the Xbox, but in

recent months they both can be found at $199. Originally, Nintendo decided to let Microsoft and Sony

compete in the high-priced arena, but as sales have fallen both have reduced prices, which has slowed down

sales for the Wii. The upside is that Wii games cost no more than $49.99, compared to $59.99 for most

XBox360 and PS3 games.

Their initial value pricing points have been beneficial, but as competitors lower their prices Nintendo

will have to carefully position themselves without significantly cutting profitability.

Place:

The Wii has been one of the fastest selling products in recent history; the allotted preorders at

Amazon.com sold out in in less than 10 minutes!11 The Wii is sold nationwide and during its release they kept

the supply down, which created a substantial buzz as most retailers sold out every time new inventory

arrived. Similar techniques have been used by apple with their iPhone launches. The Wii can be found in

almost all mainstream department stores including, Target, Wal-Mart, Kmart, and others.

Promotion:

One of the most astonishing facets of the Wii is how it has transcended traditional markets and has

brought a wide range of gamers to the table.

Reginald Fils-Aime, Nintendo’s President and COO described their marketing plan:

11 http://www.thesun.co.uk/sol/homepage/news/72112/Nintendo-sells-out-in-7-minutes.html

It's going to be massive amounts of hands-on activity, as well as showcasing exactly how Wii games are

different. We're going to create advocacy. We're going to make it so that everyone who tries the Wii

experience talks to their friends and neighbors. It's going to be a really provocative sight to be seeing teens

and 20-year-olds and 40-year-olds and 50-year-olds talking about how different this experience is.12

Nintendo’s interest was not in competing with the bigger competitors for the same market but instead to redefine the market, and use world of mouth to fuel the growth of their innovative new product.

Porter’s 5 Forces:

Threat of new entrants:

The console gaming industry, is a market in which, only very technologically advanced and well-funded

companies can enter. Loyal customer bases and established subcultures have made it so new entrants would have to

provide something completely revolutionary to get customers to switch. Microsoft was the last big company to join

the competition and they struggled for a long time, despite being a well-known technology giant.

Competitor rivalry:

Although this market has few leaders, the competition is fierce. Nintendo squares off with industry

giants Sony (PlayStation) and Microsoft (Xbox). Each of the competitors is well funded and has the most

advanced technological innovations at their fingertips. For example, Sony nearly went bankrupt trying to beat

out the competitors through innovation, and lost close to $700 million (on the PlayStation 3) in the first six

months alone.13 Fortunately for Sony, they are a multi-billion dollar company and have cash reserves that

Nintendo can only dream of.

Threat of substitute products:

In such a highly competitive market, there are of course strong substitutes. Each system started with their

niche, but in order to grow market-share each has added features to eliminate the qualities that have enabled

competitors to differentiate. As they become more similar, the choice between them becomes harder and thus the

threat of substitutes is high. Nintendo being the most basic and least powerful of the bunch means they have to

continuously price themselves well below the competitors to help eliminate the ease of substitution.

12 http://www.usatoday.com/tech/gaming/2006-08-14-nintendo-qa_x.htm13 http://seekingalpha.com/article/17605-why-the-playstation-3-will-bankrupt-sony

Bargaining power of suppliers:

Nintendo, like other consoles, does not make all of their own parts. Instead, they contract with

experts in the field of batteries, processors, and video cards. They are using fancy sounding products such as

“custom-made Hollywood CPU (IMB) and Broadway graphics processor (ATI)," 14 but actually the specifications

are very unimpressive. Since these are pretty standard items compared with PS3’s revolutionary and custom new

parts, Nintendo should have substantial bargaining power. Since Nintendo has historically used the same

manufacturers in other consoles, they should have solid reputations with their supplier.

Bargaining power of customers:

The gaming industry is one of luxury and in a bad economy these goods are at the mercy of the

customers. Without these customers the items would be sitting in shelves unsold and filling warehouses

creating substantial debt for their manufacturers. The customers have the power, the money, and the

marketing buzz to make or break a company rather quickly. Companies have to be careful how they price

themselves and be sure to always keep the customer in mind; there is very little room for error.

Discussion Questions:

Was Nintendo just lucky, or does the Wii’s success have strategic merit?

Their success with the Wii really stems from two sources. First, they have gained substantial market

share with previously untapped demographics (elderly, small children, and families). Second, because

they have eliminated many of the additional costs and features of the more advanced game systems, they

have been able to better compete based on price.

Even while they were struggling, Nintendo maintained a strong brand within the gaming industry.

They are the industry pioneers who created the big ticket names like Donkey Kong, Zelda, and Mario, but

as their systems became more advanced they would become victims of their own success. As they

advanced their products more technologically savvy competitors such as Sony and Microsoft were able to

enter the market with advanced equipment and games. Nintendo’s ability to think outside of the box has

prolonged what could have been a dire fate.

14 http://www.cio.com/article/445316/Nintendo_Wii_Shortage_Shrewd_Marketing_or_Flawed_Supply_Chain

The more advanced competitors are entering this new market using similar technologies to compete

in the interactive gaming market. Their technological superiority paired with the motion sensor

technology is sure to make a significant dent in the Wii’s market share.

The one major advantage that has substantial strategic merit is the low cost. With the current global

economic state low cost alternatives have become crucial and the Wii fits the bill.

Has Nintendo put the “fad” question to rest? State a case as to why the Wii is or is not here to stay.

When this question and case study were written in 2008, the Wii had already had two great years of sales

and no sign of slowing down. The company had rebuilt a failing company within the console gaming market.

The “fad” they created got so much buzz that the competitors had to emulate their formula for interactivity

which would grossly halt the sales of their systems. These mock Wii technologies combined with a growing

demographic of cell phone gamers has created a dim future for the Wii.

The Nintendo Wii sold 244,300 units, down from 253,900 in July, and 277,400 a year ago. It was lowest

month of unit sales for the Wii since it was launched.15

In which stage of the product life cycle is the Wii? Based on that stage, is Nintendo employing good marketing mix strategies?

The Wii is in the end of the growth stage and the beginning of the maturity stage. They created a

great product and experienced substantial growth. As their growth began to plateau, they began creating

more innovative features and product enhancements to keep consumers interested. By innovating and

expanding the product they are making all of the right decisions to prolong the decline of the product.

Develop a strategy for the Wii’s next product life cycle phase.

As the product ends the maturity stage and transitions into the decline stage, which will most likely

be about the same time that Sony and Microsoft launch their next generation game systems, Nintendo

will have to either compete with the more advanced products on a technological basis or begin adding

another dimension of interactivity.

Discuss the potential threats to Nintendo’s future success. What will help Nintendo avoid a premature decline for the Wii?

15 http:// barrons.com /2010/09/09/august-us-video-game-industry-sales-down-10-vs-yr-ago/

As mentioned before the global economic condition will significantly impact the Wii’s decline. If the

economy stays down the major competitors will probably delay the launch of their new systems and will

prolong the lifecycle of the Wii. As Nintendo continues to develop low cost value-added features to their

already value pricing structure, they should be able to continue to see marginal growth of market share

while the major competitors are coming out with more expensive (more for more) advances.

CONCLUSION:

Nintendo has done an exceptional job turning their company around in the console gaming industry.

The Wii has revolutionized the industry and paved the way for the more interactive future of gaming.

Their innovation and seniority in the industry has resulted in the formation of brand that endured

harsh and powerful competition. Unfortunately, they are positioned in an awkward place, which will force

them to play catch up with the more advanced competitors and constantly try to do “more with less”.

Solutions & Recommendations:

Nintendo really needs to take a step back and take a look at the current economic climate. They

launched into the market positioned as a low priced alternative to the more technologically advanced rivals.

To sustain growth they are going to have to reduce prices significantly. New add-on’s such as Xbox Kinect are

signs that the secret is out and the big guys want a share of this newly tapped market. This new technology,

paired with superior graphics, processing, and media are severely diminishing the appeal of Wii.

The current economy is prohibitive to launching a new product so Nintendo needs to find a way to

re-revolutionize the unit they already have. They should focus on new products like their balance board,

which adds another level of interactivity and an entirely new dimension of fitness in gaming.

Since there have been the creation of leagues and teams of Wii players, Nintendo needs to harness

this subculture and continue to provide new and improved methods of communication and

interconnectedness with and between these clients. One way they could do this is by creating virtual brackets

or host online events that invite these types of groups to play against others.

Lessons Learned:

There are really two main lessons that I have learned from this case study. First, that when you can’t

beat them at their own game, it is time to reinvent the game. Nintendo did just that with the use of the motion

sensing technology. Second, is that launching at too low of a price could prohibit a company from keeping

their position as a low cost alternative. This is evident by Xbox and PlayStation cutting prices while the Wii is

struggling to compete and has suffered diminishing profit margin.

Epilogue:

Over the last couple years both Microsoft and Sony have launched competitive products to the Wii.

Sony first launched the “Move” which is an add-on to the PlayStation 3 that enables players to control a game

based on their own movement. “The combination of technology from the PlayStation Move motion controller and

PlayStation Eye camera allows you to see yourself holding an object in your television or interact with a character

right inside your living room.” 16 Microsoft has responded with an even more revolutionary product which

eliminates the controller all together. “This amazing new technology allows the sensor to recognize your body and

mirror your movements in the game, making YOU the controller.”17

The fate of the Wii can really be summed up in the following statement:

According to Bloomberg Businessweek, for the second year running, Wii sales have fallen, and the

company is now missing sales forecasts. Nintendo's net income is declining, too, estimated to fall 13

percent this year, on top of an 18 percent drop last year.18

Bloomberg paints a grim and uninspiring fate for this once great company. Nintendo’s patrons and the gaming community can only wait and see how they will respond and if they will prevail.

16 http://us.playstation.com/ps3/playstation-move/product-information/17 https://store.microsoft.com/microsoft/Kinect-for-Xbox-360/product/C737B08118 http://news.yahoo.com/s/ytech_wguy/20100506/tc_ytech_wguy/ytech_wguy_tc1948

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<http://www.cio.com/article/445316/Nintendo_Wii_Shortage_Shrewd_Marketing_or_Flawed_

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