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A change in strategy at Nintendo

Antonio HernndezIgnacio ContinenteJulien MorineauMubarak ElmiRaquel Roca

Business Management moduleMSc Management & Information Systems

1Index

IntroductionMarket analysisNintendo before the changeThe changePost-change analysis and benefitsNintendo today & RecommendationsReferences

Introduction

Nintendo in few words

One of the three largest video game companies

Workforce 5,000

Based in Kyoto, Japan

Foundation: 1889

Three large markets: Japan, Americas and Europe

The industry

Consoles

Games

Accesories

The industry

HomeHandheld

Market

Market overview

Red Ocean strategy

Compete in existing market spaceFocus on gaining market share and outsell competitorsExploit existing demand

Defend current position and beat the rest

Red ocean strategy can be best described as TIGHT COMPETITION8The Market: industry strategy

Industry evolving in technological cycles product generations (currently at 7th generation)

Generation life cycle shortening

Incremental

Incremental

DisruptiveChangeRevolutionRed ocean strategy can be best described as TIGHT COMPETITION9PESTLE analysis

LEGAL Piracy, intelectual property issues, content age restriction

SOCIAL Population Ageing

ENVIRONMENTAL Environmentally friendly materials recycling packaging

Weve made the analysis but since we dont have time well only go through the hot topics10

NintendoNintendo before the change

Competition is based on technology performanceGaming consoles are sold at a lossSuffering years of declining market share and shrinking markets marginsGameCube is out-competed by Xbox and Playstation 2

ConsoleXboxGameCubePlaystation 2Main Processor733MHz485MHz295MHzRelease DateNov 15, 2001Sep 15, 2001March 4, 2000Specification Comparison 2004Source: Own work based on NPD Group Data Base

SWOT 2004

SWOT 2004

Nintendo 2004

Follower in a Red OceanSource: Own work based on Seeking Alpha article

ChangeChange Drivers

The lifecycle of the 6th generation consoles is nearly over

7th generation, strong consoles are comingDead-end strategyPoor market focus (7-16 segment)

Change

TIME TO REACT !!!

Blue Ocean Strategy

Strategy focusing on creating new demand in places where there is none, thus making the pie bigger instead of fighting over whom gets the largest slice of the pie.

Blue Ocean Strategy

The Wii : Radical changes to the strategy

1. Game Play2. New Approach3. New Consumers

1. Game-Play

1. Game-Play

Focus on a more user-oriented strategy (controllers)The wireless controller "liberates" gamersEndless options (Kart wheel, fishing rod, shield and sword, blaster)

2. New Approach

Game-packs giving many hours of fun and entertainment in a highly competitive, mobile and fitness-oriented environment.

Wii Sports packageWii FitJust Dance

3. New consumers

From a younger audience into the casual gamers category

More casual players aren't as likely to be attracted by hardware features, so it's all about delivering a fun, easy-to-use and addicting game experience

A. Frazier, Video Game analayst NPD Group (Source Forbes)3. New Consumers

BenefitsBenefits

Wider customer profile bring more money

Competitive advantage on cost

Brand awareness increase

Complementary BenefitsCore BenefitsSales explosion

Profits as never before

Price Decrease

Release Pricing (US)Xbox 360PlayStation 3WiiLow-end model$279(Xbox 360 Arcade)n/an/aMainstream model$349(Xbox 360)$399(PlayStation 3 40 GB)$249High-end model$449(Xbox 360 Elite)$499(PlayStation 3 80 GB)n/aSpecificationsXbox 360PlayStation 3WiiMicro Processor3,2 GHZ /3Dual Core3,2 GHz/ 7 Core729MHz 5 CoreVideo Memory Bandwith21,6 GBps22,4 GBps3,9 GBpsMain System RAM512 MB GDDR3(700MHz)265 MB XDR RAM (3GHz)64 MB GDDR3Optical Drive12x Dual-Layer DVD HD DVD DriveBlue RayProprietary Optical driveSource: Own work based on NPD Group Data BaseNon-conventional uses

Fight obesity

"But once they get it, you can see the change in some people. They are more talkative and have a sense of humor. There's a lot of joking going on in here."

Earl Davis, 73, retired Marine, USA TodayHelps with range of motion and helps me extend and push it as far as I can go

Chris Schroeder, 24, Walter Reed Army Medical CenterUsed for medical rehabilitationUsed in retirement homes

Sales Increase

Source: Own work based on NPD Group Data BaseProfit Increase

Source: Own work based on NPD Group Data Base

Conclusions&RecommendationsConclusions

The strategic change was a big SUCCESS

Low-costFocus on new market (casual gamers)Generating revenues from both sides

Is the change still appropriate?

NO

Current situation

Source: Own work based on Nintendos Annual ReportsCompetitors have catched up:

Loss of competitive edgeBlue Ocean turning Red

2012 losses: ($526,884,000)

The curve is a reflection of the life cycle stages after release34Current situation

Source: Own work based on www.vgchartz.com Loss of leadershipAgain a follower

Current situation Nov2012

Next launch: Wii U

Widely pointed as an early failure

Incremental change

Recommendations

In a market that evolves in waves:

Nintendo have resigned itself to compete in a Red OceanDropping sales loss of market share - follower

They need a DISRUPTIVE change! Either blue, green, or purple

When they compete in the classic market no good results are achieved

3)We suggest to look for competitive advantages that could bring the differenciation Nintendo needs to get back to the leadReferencies

Patricio OGorman (2007) Wii: Creating a Blue Ocean The Nintendo Way

Nintendo corporate site (2001-2012) Financial Statements http://www.nintendo.co.jp/corporate/en (accessed 03/12/2012)

The Video Game Industry Why Nintendo Has Dominant Market Sharehttp://sites.duke.edu/soc142-videogames/global-value-chain/market-power/why-nintendo-has-dominant-market-share-2 (accessed 04/12/2012)

Gamespot UK (2006) 2005 a record year for US gaminghttp://uk.gamespot.com/news/2005-a-record-year-for-us-gaming-6142407(accessed 04/12/2012)

Seeking Alpha (2006) Seventh Generation Gaming Consoles: Thinking Outside the Box http://ce.seekingalpha.com/article/22075(accessed 06/12/2012)

Referencies

Forbes Magazinehttp://www.forbes.com/2008/11/28/nintendo-wii-wii2-tech-personal-cz-cs-1201wii.html (accessed 03/12/2012)

Toy Directoryhttp://www.toydirectory.com/monthly/article.asp?id=3350 (accessed 03/12/2012)

Time Magazinehttp://www.time.com/time/business/article/0,8599,1584697,00.html (accessed 03/12/2012)

USA todayhttp://usatoday30.usatoday.com/tech/gaming/2008-05-14-wii-retirement-medical-centers_N.htm (accessed 03/12/2012)

Questions please

A change in strategy at Nintendo

Antonio HernndezIgnacio ContinenteJulien MorineauMubarak ElmiRaquel Roca

Business Management moduleMSc Management & Information Systems

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