[Stm] team 4 nintendo final

NINTENDO’S DISRUPTIVE STRATEGY:IMPLICATIONS FOR THE VIDEO GAMEINDUSTRY

Team 4Kim sssssss / Park Sssssssss /Lim ssssss / Yi sssssssss

BUSS402(03) Strategic Management Fall 2012


Contents

Video Game Industry

Intro

Nintendo Strategy : Disruptive Strategy

Problem Definition

Recommendation

Reference



+

01

Intro


No.1Employees per net income company

$160 million (Times,2008)

(No2. Goldman Sachs $120 million)

Nintendo Microsoft SONYFounded 1889. 9. 23 1975. 4. 4 1946. 5. 7

Starting Game Console Business

1970 2001 1994

Businesses Manufacture and sale of home leisure equipment

Entertainment Business, Business Solutions, Of-fice Division, Online Service Division

Televisions, Digital imaging, Audio/Video, PCs, Semiconductors, etc.


1977 1994 2000

Game Business Started

SONY PS1 SONY PS2

2004 2005 2006

Nintendo DS MS XBOX 360 SONY PS3Nintendo Wii

Company Introduction / Intro


1977 1994 2000

Game Business Started

SONY PS1 SONY PS2

2004 2005 2006

Nintendo DS MS XBOX 360 SONY PS3Nintendo Wii


Sep/

06

Oct/0

6

Nov/0

6

Dec/0

6

Jan/

07

Feb/

07

Mar/0

7

Apr/0

7

May/0

7

Jun/

07

Jul/0

7

Aug/0

7

Sep/

07

Oct/0

7

Nov/0

7

Dec/0

7

Jan/

08

Feb/

08

Mar/0

8

Apr/0

8

May/0

8

Jun/

080

500

1000

1500

2000

2500

3000

3500

4000

4500

Worldwide Monthly Sales

Xbox360 Nintendo Wii PS2 PS3


Units: in thou-sands



Past Competition Rule of Market

From Early 2000s, Mainly focus on young males Higher Definition of Video Graphic and Sound Complex Game System and Challenging Difficulty

Clear Winner was Sony with PS2 MS got in, chasing the Sony Nintendo, with low hardware specification failed



+

02

Video Game Industry


Industry Overview / Video Game Industry

of households in UShave video game console

65%

Industry Overview History83 Famiecom89 GameBoy90 Super Famiecom94 Playstation95 Nintendo VirtualBoy96 Nintendo 6402 MS Xbox04 Nintendo DS, PSP06 Wii

Sony

35%

MS10%

Nin-tend

o55%

2007

Sony30%

MS11%

Nin-tendo59%

2008

The Hardware Market Situation

Total Unit Sales : 81,740MTotal Unit Sales : 101,480M

40%


Key Success FactorBefore Wii

Revenue from Console Sales

Revenue from Software

Third-Party S/W

10-15% of Price($6-$9)Block-buster Titles

Sony / MS

In-house S/W

Take all the RevenueDevelop Cost of S/WProfitable for Casual

Nintendo

Develop a New product lines

How they make money?

Sony PS3 Sony PSP MS XBox Nin' Wii Nin' DS0

10

20

30

40

50

60

JapanOthersAmerica

In Millions

Sony and MS get 10-15% of the Sales Revenue

->Unit Sales * Price($30~50) * Rate (10-15%)

Major Software Unit Sales



Key Success Factor / Video Game Industry

Power of Software, Contents“Software make Hardware sale”Make consumers to purchase the console

But, Hardware make difference in the SoftwarePerformanceFlashy graphicsVolume of Hardware

Golden Age of PS2 & SonyPS2 had 4times better Per-formance compare to the past

Title numberPS2 4400Nintendo64 210GameCube 280

War of Killer Software

Example of

Killer SoftwareSuper Mario (Nintendo)Final Fantasy 7 (Sony)Nintendogs, Brain AgePokemon

Casual Games Factors Blockbusters

Relatively Low Development CostVery High

Usually $12M - $20M

EasyComplexity

DifficultChallenging

Mainly focus on easy and comfortable fea-tures

Quality Higher Graphic, Sound, Story

Not very loyal but very broad bases Main CustomersMainly Young Males with high loyalty

In-house developmentTightly-controlled

Main MethodThird-party Development

Wii, DS Adoptors X-Box, PS3

Blockbuster and Casual Games



Red Queen Effect

Competitive Evolution‘Coevolution’

Develop IndustryDevelop together

Powerful competitor make game industry growForm Red Ocean



Age

Video Gaming is isolated from the wider economic cycle by having a cycle of its own. Every few years a new crop of consoles is launched, spurring a wave of sales as gamers upgrade

Children less than 12Make 45% of the profits

Age 10~12Video game Main consumers

Make largest revenue17% of US population

1 Targeting

18~35 years old

Game Mania

2

Video game industry Recession



Cheap?!Offers a relatively cheap form of entertainment

Cheaper than Computer (1980)Cheaper than DVD player (PS2)

Example : PS2Higher price than other consoleBut lower than other DVD player

MarketingPromotion

‘The Name of the Game is Games”

No matter how marketing doGame contents are most importantIf they do marketing without contentsThey’ll lose ‘trust’ from customers

Use Marketing Mix to attract specific age

41%rely on WOM

PackageExternal design of console

Design



+

03

Disruptive StrategyNintendo Strategy :


Disruptive Strategy / Nintendo : Disruptive Strategy

Disruptive Strategy

The Innovator’s DilemmaClayton Christensen

Change Existing Paradigm Innovation at existing process Innovation at the value of enterprise Resource relocation

Sustaining InnovationContinuous improvement by maintaining existing products

Provide with Higher Price

Disruptive InnovationProvide deficient productDestruction existing marketCreate New marketExisting Player moves to High End marketMake Non-consumer to consumer

Disruptive Strategy is a strategy that focuses on creating a new market and value network.

Eventually goes on to disrupt an existing market and value network in a long term by displacing an earlier competition rule

Improving product or service in ways that the market does not expect

Typically, by designing for a different set of consumers in the new market and later by lowering prices in the existing market.


Start / Nintendo : Disruptive Strategy

Perfect DefeatStart by

Game industryHardware make software

PS2 had 4 times better Performance compare to the past

PS2 was also lower price DVD player

Sales

0

2000

4000

6000

8000

10000

12000

14000 13200

2174

PS2 GameCube

0

2000

4000

6000

8000

10000

1200010249

3293

PS2 Nintendo64

Title numberPS2 4400Nintendo64 210GameCube 280


Unwinnable / Nintendo : Disruptive Strategy

Unwinnable Competition

Base on PS2

Blueray Disc HD graphicCell Processor (Super Computer)

Sony MicrosoftFamous in Red Ocean“Don’t invest in industry where MS goes.”Xbox similar with power PC

Existing industry Rules :No.3 company should step back

NEC Matsushita SEGA

Small sizeLack of Graphic

Nintendo


What happen? / Nintendo : Disruptive Strategy

But…

What Happen?!

WakeMed Health ParkU.S. medical facilities use Wii at Physical therapyMedical verification

157-year-old, 64-year-old coupleDaily life exercise with Wii Sport2

Britain’s QueenNews : enthusiastic fan of Wii3


Gaming Population Expansion StrategyHow did they made innovation


Gaming Population Expansion Strategy / Nintendo : Disruptive Strategy

Start by DS2 touch screenVoice recognitionIntuitive UI

Goal : 1 people 1 DS2.8 people play per household1.8 people have DS per household

2011 Sales 150 million DS(PS2 130 million)

35% of buyers purchase another software within 90 days10% of buyers purchase more than 11 software

NintendoDS PSP

All age Mania

Low graphic Best 3D graphic

Simple, Convenient Complex Control

No Expand GPS, DMD, Digital camera

No loading, fast UMB large storage

$150, cheap game pack $250

Long battery, 15~19 hours Short, 4~7 hours

Start by targeting 20~30(DS have function of keeping 4 peoples data)

Spread to 40~50 parentsSpread to 50~ for dementia prevention, rehabilitation

Brain Age30.09 million

Nintendogs21.67 million


Mother’s Point of View / Nintendo : Disruptive Strategy

Mother’s Point of ViewChildren don’t clean upBuy even they have one

What if consoles increase family fellowship

Complex control make decrease in gaming populationMothers don’t care High quality consoleNo need of high performance

Lower costMaking smallReduce electricity rates (1/4)Able to put on 24 hoursTurn off the fan

Shape of Remote controlWhich mothers like

WirelessFearless

(use CMOS camera sensor)

Anyone want to watchCan’t delete Gaming time, ScoreNews, weather : Mii channelHealth Game : Wii Fit


Success / Nintendo : Disruptive Strategy

Success OF Wii2007 6 million in US2007~2009 Christmas No.1 Product

Wii; 2445

Xbox360; 1900

PS3; 1200

of Xbox360, PS3 player

have Wii42%

World financial CrisisSales increase 54%Europe sales increase 91%Although PSP, PS3 decline

Compare to 2003 vs 20083.3 times Revenue (Y 1820 billion)4.7 times Net Profit (Y 530 billion)

Nintendo

A Good example of “Disruptive Strategy”

1. Changing the Competition Rule of the Mar-ket

2. Brought Non-gamers into the Market

3. Turning technical weaknesses into an ability

4. Commercialized the invention and ability

Factor Caused what?

New Scope on Non-gamers

- Avoid Strict and harsh specification competition and software complexity

- Non-gamer customer base has potential profit

Turning the weak-ness into a strength

- Relatively low graphical performance into a cost lead-ership with fair quality

- Fit for new scope on “non-gamers”

Centralized S/W De-velopment(In-house)

- High Revenue from the Casual Game titles- Cost of Casual game is relatively low- However, Price of Casual game is not too low- Fit for new strategy

Breakthrough of Nintendo Wii

Wii Success Factor



Marketing / Nintendo : Disruptive Strategy

Marketing MixMarket creation rather than Market research

Targeting18~35 years old Male

5~95 years old everyone

Customer First

Star Marketing

One Source multiuse1. Magazine, Cartoon2. Comics3. Trend (secret of Pokemon Mu)4. Card Game5. Animation

LocalizationU.S best partner1. 4kids for animation2. Warner Bros for Movie3. Hasbro for toys4. Wizards for Cardgame

Idea Frame Work

High Quality High Cost

Low Quality Low Cost

Low Cost Strategy

Middle

High Quality Strategy HighQuality

LowCost

Killeridea

Normal

High QualityLow Cost

PS3XBox

Wii

0

100

200

300

400

500

600

700

800

900

499479

249

808

604

200

Unit Price Unit Cost

In USD

Selling price: cheaper than costIn the hope that Long-term revenue from Software could cover.


Console Unit Price and Cost ‘06


Change the rule / Mid Title

How Wii changed

0~1823%

18~4945%

50~33%

Gamer Total players 2/5 is women

Gamer Average age

32Wii Xbox360 PS3

0

10

20

30

40

50

60

70

80

90

41 38

21

80

11 9

Men Women

Before Wii High Definition Graphic & Sound Targeting Hardcore Gamer , mostly 18-35 males Complex Games Titles

After Wii Cheap Price Game Population Expansion: Attract Women And Elder Non Game Users Importance Of Casual Game : Could Be More Profitable Than The blockbuster

games


Change the rule / Mid Title

How Wii Change the Rule

Complexity

Technology

Hardcore Games

Casual Games

Low High

Nintendo Wii, DS

MS XBox 360

Sony PS3, PSP


Current Positioning of Players



+

04

Problem Definition


The question of the Case

It seemed that Nintendo’s Wii had revolutionized and changed the name of the game.

Would this disruptive transformation leave Sony and Microsoft in the cold?

What course of action is available?


Problem 1 Overall Market is changing

Existing Market - Key Successful Factor Changes

Created Market - Much Higher Performance from Enlarging Customer base

Managing and restructuring the business portfolio are necessary

Problem 2 The Profitability of existing market deteriorates

Console Cost Problem

- Console Cost is higher than Console Price (Sony)

Innovation Needed

- Other substitute platforms with SNS and On-line games

Console Products lack special features while substitutes are enhanced

Problem Definition of Sony/MS

Problem 1 Overall Market is changing

CurrentExisting Mar-

ket

- Key Successful Factor Changes (From: Higher specifications, Complex Games) (To: Console Price, Profitability and Revenue improve-ment)

- Expected Performance not fulfilled

NewlyCreated Mar-

ket

- Higher Performance from Enlarging Customer base (Nintendo is not directly competing)

Managing and restructuring the business portfolio is necessary

Problem1.

Changing Market


Changing Market / Problem Definition


Existing Base got Worse / Problem Definition

Problem 2 The Profitability of existing market deteriorates

Console Cost

Problem

- Much Higher Console Price than Wii

- Console Cost is higher than Console Price (Sony)

InnovationNeeded

- Other substitute platforms with PC and On-line

- Decreasing Attractiveness of Console against PC, On-line and Cell Phone

PS and XBox Console Products lose price attractiveness while substitutes are enhanced with low price and special features

Problem2.

Existing Base got Worse

The Console Price and Cost Fact(In USD)

Sony PS3 MS XBox360 Nintendo Wii

Year Price Cost Price Cost Price Cost

‘06-’07 499 808 479 604 249 200

08 399 448 399 323 - -

Unit Revenue from the Software After sales of Console

Method Third-party Software Third-party Software In-house Software

Rate 10-15% ($6 to $9) 10-15% ($6 to $9) 100%

Data From : http://vgsales.wikia.com

DATA: Price and Cost


Data / Problem Definition


Why? / Problem Definition

Focused on hardware’s technical competition

Both envisioned their game consoles as becoming all encompassing home enter-tainment centers.

Why?

Expensive priceHigh manufacturing cost Results!



+

05

Recommendation

Level Target Implementation Option for Sony / MS

Corp. Level

Existing Base Maintaining Getting Out

New Market Getting In Ignore

Buss. Level

Price/CostMargin Sell Console cheaply Make Console Premium

Software Third-party Contract In-house Developing


Strategic Activity Options / Recommendation

Recommendation

Strategic Activity Options

Maintain the existing base!Do not engaging in the low-end market competition!

Level Target Choice Why choose it?

Corp. Level

Existing Base Maintain!- Existing Customers are Loyal- Slow but Increasing market size

New Market Ignore!- Uncertainty is too high- Managing two product line is costly

Buss. Level

Price/CostMargin

Cost Reduc-tion

- Existing Market initial console price as a deterrent factor

- Even cost is higher than Price

Software Third-party - In-house development appropriate for low-end market

PossibleHard-ships

- Market still grows but some evidences that market is declining- Existing market is not a stable cash-cow- Possible substitutes market could be very critical


1 / Recommendation

Recommendation 1

Maintain the existing base!Also engaging in newly created the low-end market!


Corp. Level

Existing Base Maintain!- Existing Customers are Loyal- Slow but Increasing market size

New Market Getting in!- Still huge opportunity exists- Low-end market is more profitable

Buss. Level

Price/CostMargin

Cost Reduc-tion

/Restructur-ing

- Even cost is higher than Price- Restructuring is needed to fit for

manufacturing low-end console

SoftwareThird-partyIn-house

- Third-party for Blockbuster titles- In-house for low-end users’ titles

PossibleHard-ships

- Balancing two market is a hard task- Making innovative move in the existing market could be very hard


2 / Recommendation

Recommendation 2

Getting out of the existing base!Do not engaging in the low-end market!


Corp. Level

Existing Base Getting out!- The market would decline and currently

profitability deteriorates

New Market Getting in!- Still huge opportunity exists- Low-end market is more profitable

Buss. Level

Price/CostMargin

Cost Control/Premium

- Imitate but copying is not enough- Position in “Premium” in new market

SoftwareIn-house/

Third-party shift

- Outsourcing effect by shifting S/W provider

- In-house for stable low-end S/W develop

PossibleHardships

- Entire transforming is a risky choice- R&D for In-house developing and shifting cost for S/W companies will be

burdensome


3 / Recommendation

Recommendation 3


Creative Imitation StrategyOur Team Choice

Creative Imitation StrategyCompetitive imitation strategy :Laggards acquire larger sales by imitating pioneers product

Used Apple Policy Theory

Not like Me-Too strategy(just mimics pioneers product) Improve weakness Complement the concepts by Mass-Production, Mass-Sale, Aggressive Marketing Entry at the lower position and jump up over the pioneer


Creative Imitation Strategy / Recommendation

AppleMcDonald VISAWal-Mart

By Imitation

Safety, Low Uncertainty Even though it can’t guarantee market domination They can get the market leader position

Imitation strategy has same value with innovation strategy

‘Innovation and Entrepreneurship’Peter Ferdinand Drucker

1. Same Quality, Lower Price2. Higher Quality, Similar Price3. Higher Quality, Lower Price

Creative ImitationDifferentiationNew Start

Imitation company use 70% of time making the product

Average imitation cost is 65% of innovation cost



Limitation Short term Strategy Capacity of High Quality or lower cost Finance, Technology Market research, Market creation Before entry : check technology, speed, system they need

Short termImitation of Software, Hardware

Long-term (Possibilities)1. Maintaining or developing better quality, lower price2. Discover the potential application of the innovation (ex Tylenol)3. Building customer-centric service by strengthen the customer service

Step 1 Choosing benchmarking target : Wii Confirm the Company requirements Confirm the specific success factors and field Make exact criteria



Step 2 Configuration of a team

Diverse experienceProfessional skills

Project Team : administrators, data analysts, man-agement support, outside experts


Sony & Microsoft / Recommendation

Play Station

Change the perception of Video Game

The new hype entertainmentWhole new level of video gaming technologyMore sophisticated and violent games

Consumer (Target)Yong Adults, Mostly Male In Their Late 20s Or 30s


XBox

Launched in 2001 to compete with PS2& GameCube.Xbox Live: allowing subscribers to play online Xbox games with network.

Consumer (Target)Yong Adults, Mostly Male In Their Late 20s Or 30s

one of the diversification movesrecognized potential threat the video game market of its PC market

Why did they get in?

Sony & Microsoft / Recommendation

PS3XBox

Wii

0100200300400500600700800900

499479

249

808

604

200


In USD

Selling price: cheaper than costIn the hope that Long-term revenue from Software could cover.

PS3XBox

Wii

0

500

1000

399 399

249

448

323

200


In USD

Cost Reduction availableStill Sony recording loss, but what matters now Software revenue

‘06 ‘08

Console Unit Price and Cost



Microsoft SONY

Financial Status(working capital as of ending balance for 2008)

$13,356mil $9,124mil

Console Development cost $3bil * 0.5 * 0.65 = $975mil$3bil * 0.25 * 0.65 = $487.5mil

Technological Factors No matter

Customer Factors Are there still enough customers?- Low-end market already full

Video Game industry is still growing

Feasibility of New Investment / Recommendation

Feasibility of New Investment


Low graphic performanceNot many usable software titlesInadequate for the adults playersNot suitable for playing aloneLow degree of difficultyExcessive repeatability

Weakness of

WII

Weakness of Wii / Recommendation


Imitation Strategy

Strengthening Strategy

Incremental Strategy

Product

R&D

Marketing

Operation

Differentiation

Aggressive marketing Customer Oriented Market-

ing

Imitation of Wii

Maintaining the existing base: Hard core users

Improve Console’s Technological PerformancesConvergence with

TV(SONY), Computer(Microsoft)

Cost Reduction Process ImitationProcess Differ-

entiation

Action Plan / Recommendation



+

06

Reference


Reference

김영한 , 2009, 닌텐도이야기 , 한국경제신문

김정남 , 2010, 닌텐도처럼 창조한다는 것 , 북섬

이노우에 오사무 , 2010, 닌텐도‘놀라움’을 낳는 방정식 , 씨실과 날실

셰프 , 2009, 닌텐도의 비밀 , 오렌지

Clayton Christensen, The Innovator’s Dilemma

The Video Game Industryhttp://sites.duke.edu/soc142-videogames/global-value-chain/market-power/why-nintendo-has-dominant-market-share-2/

http://shjeon.blogspot.kr/2011/06/iphone-disruptive-innovation.html

http://blog.naver.com/cgeorge07?Redirect=Log&logNo=10044243094

http://sutamu.tistory.com/56

http://cafe.naver.com/a4size/262

http://blog.naver.com/paust21?Redirect=Log&logNo=50115131203

http://www.globalwindow.org/wps/portal/gw2/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd4238DEDSYGZAR76kWBGoAFczMsEKoakztsZU8zLFCHm65Gfm6ofpO-tH6BfkBsaGh-pR7ggAJHc7jw!!/?id=2129703&workdist=read

Thank You

Date post:	13-Nov-2014
Category:	Business
Upload:	yiyongsup
View:	494 times
Download:	0 times