NintendoReviving a Company, Transforming a Market

Jeffrey Jewett

Marketing Theory, Bus. 575-02

Winter Term 2011

Table of Contents

ContentsJeffrey Jewett .......................................................................................................................................................... 2

Marketing Theory, Bus. 575-02 .............................................................................................................................. 2

Winter Term 2011 ................................................................................................................................................... 2

Contents .......................................................................................................................................................................... 2

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

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

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

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

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

Strengths: ................................................................................................................................................................ 5

Marketing Strategy: ..................................................................................................................................................... 7

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

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

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. ..................... 10

Porter’s 5 Forces: ................................................................................................................................................. 10

Discussion Questions: .............................................................................................................................................. 11

Was Nintendo just lucky, or does the Wii’s success have strategic merit? .......................................................... 11

Has Nintendo put the “fad” question to rest? State a case as to why the Wii is or is not here to stay. ................. 12

In which stage of the product life cycle is the Wii? Based on that stage, is Nintendo employing good marketing mix strategies? ....................................................................................................................................................... 12

Develop a strategy for the Wii’s next product life cycle phase. ........................................................................... 12

Discuss the potential threats to Nintendo’s future success. What will help Nintendo avoid a premature decline for the Wii? ........................................................................................................................................................... 13

CONCLUSION: ........................................................................................................................................................ 13

Lessons Learned: ...................................................................................................................................................... 14

Epilogue: .................................................................................................................................................................. 14

BIBLIOGRAPHY: ........................................................................................................................................................ 15

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.

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

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

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

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.

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

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

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

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

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

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

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

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.

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.

9 http://nintendo.about.com/od/toppicks/tp/top5familygames.htm

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.

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

10 http://www.businessweek.com/.../2006/09/nintendo_wii_want_to_expand_games_appeal.html

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:

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

11 http://www.thesun.co.uk/sol/homepage/news/72112/Nintendo-sells-out-in-7-minutes.html12 http://www.usatoday.com/tech/gaming/2006-08-14-nintendo-qa_x.htm

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.

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

13 http://seekingalpha.com/article/17605-why-the-playstation-3-will-bankrupt-sony

(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

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

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?

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:

16 http://us.playstation.com/ps3/playstation-move/product-information/17 https://store.microsoft.com/microsoft/Kinect-for-Xbox-360/product/C737B081

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.

BIBLIOGRAPHY:

• Benedetti, Winda. "It's official: Nintendo has sold a whole lotta Wiis ." MSNBC.

NBC, 08 11 2010. Web. 14 Dec 2010.

<http://www.msnbc.msn.com/id/38649513/ns/technology_and_science-

games/>.

• Blum, Matt. "Happy 120th Birthday, Nintendo!." Wired.com. Wired, 09 23

2009. Web. 15 Dec 2010. < http://www.wired.com/geekdad/2009/09/happy-

120th-birthday-nintendo/>

18 http://news.yahoo.com/s/ytech_wguy/20100506/tc_ytech_wguy/ytech_wguy_tc1948

• Hall, Kenji. "Nintendo: Wii Want To Expand Games' Appeal." Businessweek.

Bloomberg, 09 14 2006. Web. 2 Jan 2011.

<http://www.businessweek.com/blogs/eyeonasia/archives/2006/09/nintendo_

wii_want_to_expand_games_appeal.html>.

• Herold, Charles. “The five best Wii games to play with your kids.” About.com

Web. 12 Dec 2010.

<http://nintendo.about.com/od/toppicks/tp/top5familygames.htm>

• Savitz, Eric. "August U.S. Video Game Industry Sales Down 10% Vs. Yr Ago."

Barrons. Wall Street Journal, 09 09 2010. Web. 4 Jan 2011.

<http://blogs.barrons.com/techtraderdaily/2010/09/09/august-us-video-game-

industry-sales-down-10-vs-yr-ago/>.

• Schoenberger, Chana. "Wii's Future In Motion." Forbes.com. Forbes, 12 01

2008. Web. 10 Dec 2010. <http://www.forbes.com/2008/11/28/nintendo-wii-

wii2-tech-personal-cz-cs-1201wii.html>.

• Wailgum , Thomas. "Nintendo Wii Shortage: Shrewd Marketing or Flawed

Supply Chain?." CIO, 08 22 2008. Web. 4 Jan 2011.

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

ng_or_Flawed_Supply_Chain>.

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

• "Nintendo." Refrence.com. N.p., n.d. Web. 15 Dec 2010.

<http://www.reference.com/browse/Nintendo>.