nintendo market analysis

4C stakeholder’s analysis of Nintendo Wii Market in 2006 Customers: Nintendo Co Ltd (Nintendo) and its new president Satoru Iwata believed potential existence of a consumer market that distanced itself from gaming. They opined that existing games were not only difficult to understand and play, but also found the consoles complex to operate. The games were built more on fantasy and targeted towards traditional over 18 year old male[1] population. Nintendo made a conscious attempt to bring the non gamers into the spot light and create a new consumer segment.

They decided to concentrate on simplicity and real life game scenarios. Nintendo designed and marketed “Wii” as family entertainments devise involving all age and gender groups including those who enjoy watching others play. This encouraged not only young members[2] of the family asking parents to buy gaming devises, but the elders started showing interest and started buying Wii. Wii was able to remove the traditional negative barrier between “the child” and “the parent”.

Wii also found a competitive edge by getting female (A NDP[3] press release suggests 5% point increase in female gamers during 2009 compared to previous year, mainly attributed to successes of Wii) and other adult population who has not been very keen in playing earlier. Company: Nintendo after entrance of new players like Microsoft and Sony into the industry did not see many successes and was fighting for its survival. Nintendo’s net sales remained static for three consecutive years from 2004[4]. The vision of the new leadership was being tested with launch of Nintendo DS and its other variants.

However the biggest change came in form of Nintendo Wii in November 2006. The company financial results showed tremendous growth with net sales and net income tripling by end of 2008. Share holders received dividends of 1,260 Japanese yen, almost 3 times higher than year 2006. Company’s stock prices rose to 64,500 Japanese Yen by end of 2008 from 17,880 Japanese Yen in year 2006. Since the November launch of Wii until September 2009, company has sold over 53. 97 m[5] representing 48% of the total hardware sales by three main competitors(X Box 360, PS3 and Wii).

Competition: Nintendo instead of going in for a direct competition with Sony and Microsoft, created its own niche market. While Sony and Microsoft increased computing power and graphics of its game, Nintendo used a combination of infrared, motion sensor and blue tooth technology to create a user friendly, plug & play console. The simplicity made it easy for its developers to design new games and helped them to reduce cost, a competitive advantage over its rivals. Nintendo gave a feeling of personalization by allowing users to create characters. (“Mii” feature).

The lack of high graphics could have been a competitive threat, but turned out to be an advantage. The new market segment did not fancy high graphics. Nintendo must though also keep an eye on the ever increasing online and computer games market. During 2006 as per report from ESA[6] 51% of the frequent game players were also seen to be gaming online as well. Low price of Nintendo discussed later in this paper, has proved to be its biggest competitive advantage. Community: There was no major regulatory resistance or restriction from any of the major markets areas.

The company was free to operate in any of the markets and took full advantage to capture a high market share in US and Europe. The simplicity of the games made it easy for the programmers (complements[7]) to design more and more games at very low cost. Nintendo has now over 792[8] games for users to choose from and still counting. Entertainment Software Rating Board (ESRB[9]) a self regulatory body has set some standards and guidelines for the industry to protect gamers and parents rights. Now having analyzed the 4C’s of Nintendo, let us discuss the product mix strategy of the company in terms of 4 P’s.

Product: The company found itself in midst of technological revolution introducing a unique product in the market. The product was a simple console with even simpler remote (termed Wii-mote). Wii-mote was the unique feature that was able to recognize the human body motions. Wii required physical movement from players rather than just being “couch potatoes”. The motion detectors would turn the hand movements into an on screen action through Wii-mote, simulating a real life experience. The product further evolved and included “exergaming” as well. It is combination of action on the screen together with physical exercise.

Wii was launched in only one variant reducing complexity. Wii was also compatible backwards i. e. it was able to play previous games in the new format. The console infact could connect to Wi-Fi system, able to access online information and download old successful games. In order to relate the product with family and togetherness, the product was named “Wii” (pronounced We). The two “ii” represent two people standing side by side. Price: Though technologically advanced, Wii does not have heavy graphics and came with only a small 512MB[10] flash drive.

This enabled Nintendo to not only keep its console production cost low but also ensured a lower software cost as well. Thus they were able to launch Wii at USD 250[11] only, well below USD 300-400 being charged for XBOX 360 and USD 400-500 for a PS3. While Microsoft and Sony relied heavily on profits from software sales, Nintendo due to lower cost could generate profits from both hardware and software. While Nintendo was able to generate profits of up to USD 49 per console in US, Sony and Microsoft were loosing USD 300 and USD 125 per console at their respective launch prices.

The competitors in order to increase their sale have been reducing the prices regularly. Nintendo though kept its price constant until recently. They announced a price reduction of USD 50[12] in US recently to improve recent decline in sales. Energy consumption bill to Wii consumers is as low as USD 10 per year compared to USD 130 per year for the other game devises. Place (Distribution): The Company due to its long presence in the industry had existing distribution network. The company appointed at least one distributor in each state in U. S. ho in turn distributed the product and software to retailers. They were able to place and display the product at major super markets and shopping malls. However even after a year of its launch Nintendo was heavily criticized and confronted for not meeting the demand. This may have been due to genuine shortages of parts and their inability to correctly forecast the demand. The queues to purchase Wii were still there even after one year of its launch. Though there is no concrete evidence, and Nintendo might have created the scarcity to maintain high interest and curiosity.

They realized that due to the uniqueness of the product, consumers are willing to wait to buy this product rather than look for alternatives. This scarcity was especially visible in the US market while European demands were being met reasonably well. Another theory behind this scarcity is linked to the appreciating Yen against the Dollar. The Yen had appreciates over 25% to a USD from 120 (October 14, 2006) to 89 (October 14, 2009[13]) thereby reducing the profits in Yen terms. Promotion: Since Wii was designed keeping all age and gender in mind, its promotional activities reflected the same philosophy.

Nintendo used word of mouth[14] as its advertisement strategy. They made mutigenerational families, hard-core gamers and modern moms as their ambassadors who would play together and share experiences spreading the word. They also setup kiosks at many shopping malls show casing its features and helping people to understand the product better. Commercials always showed groups of people, including multiple generations of families, playing together and interacting. Nintendo has used all the classic methods of sales promotions; ranging from holiday special discounts to sampling, contests and teaming up with different brands and bundling.

They associated themselves with Pringles. com giving away 100 Wii consoles which was supported by 2 million Wii-themed Pringles canisters on display at Wal-Mart stores and 7 million Wii-themed Pringles Snack Stacks packages. Nintendo expected to spend over USD 200 m[15] in all of its promotional activity. Brand Positioning: Positioning of a band is a relative term. It essentially means distinguishing and emphasizing various characteristics of a particular brand relative to others. A perpetual position map is an excellent tool to identify position of a target brand.

I would try to position Nintendo Wii as a product in terms of its pricing and ease of usage as below. Though did not have enough time to collect data, the below map has been drawn based on input from my children and their friends to ascertain complexity parameter for three major consoles. The data on the price has been taken from the material provided in the forum and consumerreports. org. [pic] The target customer assumed for the perpetual map is based on the age of the gamers as under: • U12 – Under 12 years • U30 – Between 13 and 30 years • U49 – Between 31 and 49 years • O50 – Over 50 years

The traditional players, primarily young male population, moved to more and complex, fantasy oriented and violent games. They preferred high graphical images, better sound quality which Microsoft and Sony were able to provide with X Box and PS3 consoles. Nintendo on the other hand identified complexity as main reason for large part of population shying away from video games (mainly females, children below 12 and men over 50 years). Armed with such data, Nintendo developed a console which was not only easy to install, but was easy to operate and a lot of physical fun among the family at a very cheap price.

The above position map shows at least one open opportunity. There are some players who may want to pay any price for pure pleasure and entertainment but the majority would like to have value for money. They will look for more and more exiting and complex games at affordable price. If I was the VP of Marketing for Microsoft Microsoft entered the video game market in year 2000 and upgraded X Box during 2005 with good success. It was clear that Nintendo outplayed everyone in this round. They created a whole new market for the industry and here is the opportunity to bite into the same market.

Wii did not penetrate into the existing video game market and thus there is no need to panic. We will continue to upgrade our existing products and ensure growth in existing market segment. At the same times look to reduce the cost of production and develop games at lower cost to increase profitability. A recent NPD[16] press release suggests that game owners like cross ownership. While 26% Wii owners also own an X Box and 42% of X Box owners own a Wii. The study also clearly indicates that though more X Box owners have purchased Wii it opens up the door to attract more Wii owners to buy X Box.

This would need both short terms and long terms measures. A short terms measure would be to develop some simple and less complex, easy to understand games. We would also develop games on real life scenarios. There must be new games designed to attract women players. These measures expect to encourage gamers to spread positives of X Box and encouraging purchase of more and more games (generating more revenue) As a long term measure we should look to develop the motion sensor technology further and enter into this newly created market.

We will develop games with 4D technology to produce console and games that will not only provide on screen simulation of our motions, but transmit 4th dimensional senses from console to the body[17]. The cost fo development of such a console would be high at this time, and we believe there will be extreme gamers willing to pay for such excitement. BIBLIOGRAPHY 1. The NPD group, Inc (14/09/2009) ‘Press releases’ MAJORITY OF GAMERS RELY ON WORD OF MOUTH AND HANDS-ON PLAY AT FRIENDS’ AND RELATIVES’ HOMES TO OBTAIN INFORMATION ON VIDEO GAMES. http://www. npd. com/press/releases/press_090914. tml [accessed October14, 2009] 2. 2007 ESA report on page 2 indicates 67% of American head of households play a video or computer game. Further it indicates that only 28. 2% of the games are below the age of 18 and 62% of the total games are male. The report can be downloaded from http://www. theesa. com/facts/pdfs/ESA_EF_2007. pdf . 3. Nintendo (2009) ‘Annual Reports 2008’, http://www. nintendo. co. jp/ir/pdf/2008/annual0803e. pdf [accessed October 14, 2009] 4. Data sourced from VGChartz. Com (week ending October 3, 2009) ‘Harware Table’, http://vgchartz. com/hwlaunch. php [accessed October 14, 2009] 5.

The NPD group, Inc (09/06/2009) ‘Press releases’ Video gaming attracts larger female audience in 2009. http://www. npd. com/press/releases/press_090629b. html [accessed October14, 2009] 6. Entertainment software association (2007) ‘2007 Sales, Demographic and usage date’, Essential facts about computer and video game industry. http://www. theesa. com/facts/pdfs/ESA_EF_2007. pdf [accessed October 14, 2009]. 7. PVC forum accessed on October 14, 2009 from http://www. pcvsconsole. com/features/consoles/ shows Wii hard drive capacity as only 512 MB compared to Xbox 360 (20-80 GB) and PS3 (20-120 GB). . Consumerreports. org (2008) ‘Blogs Electronic’ Get in the game. http://campus. college. ch/resources/Harvard_Referencing. pdf [accessed October 14, 2009] 9. The FT. com (2009) ‘Nintendo cuts prices of Wii for the first time’ http://www. ft. com/cms/s/0/ea15ed4c-a8bf-11de-9242-00144feabdc0. html? nclick_check=1 [accessed October 14, 2009] 10. http://www. xe. com/ict/? basecur=JPY&historical=true&month=10&day=14&year=2006&sort_by=name&image. x=55&image. y=16 11. Ali Farhoomand (2008) ‘Asia case research centre’ Nintendo’s disruptive strategy: implications for the video game industry. ———————- [1] 2007 ESA report on page 2 indicates 67% of American head of households play a video or computer game. Further it indicates that only 28. 2% of the games are below the age of 18 and 62% of the total gamers are male. The report can be downloaded from http://www. theesa. com/facts/pdfs/ESA_EF_2007. pdf . [2] The same 2007 ESA report on page 7 suggests that 86% of the time a child receives their parents’ permission before purchasing or renting a game. [3] The NPD group, Inc (09/06/2009) ‘Press releases’ Video gaming attracts larger female audience in 2009. http://www. pd. com/press/releases/press_090629b. html [accessed October14, 2009] [4] Nintendo (2009) ‘Annual Reports 2008’ Five year summary on page 15. http://www. nintendo. co. jp/ir/pdf/2008/annual0803e. pdf [accessed October 14, 2009] [5] Data sourced from VGChartz. Com (week ending October 3, 2009) ‘Harware Table’, http://vgchartz. com/hwlaunch. php [accessed October 14, 2009] [6] Entertainment software association (2007) ‘2007 Sales, Demographic and usage date’, Essential facts about computer and video game industry. http://www. theesa. com/facts/pdfs/ESA_EF_2007. pdf [accessed October 14, 2009]. 7] As defined by Prof Freddy in his input to the student forum, a complement is a product that causes an increase in the demand of the product. [8] Nintendo (2009) ‘Games Guide, http://www. nintendo. com/games/guide#qhardware=Wii [accessed October 14, 2009] [9] Entertainment Software Rating Board (2009) ‘Home page’ http://www. esrb. org/index-js. jsp [accessed October 17, 2009] [10] PVC forum accessed on October 14, 2009 from http://www. pcvsconsole. com/features/consoles/ shows Wii flash drive capacity of only 512 MB compared to hard drives of Xbox 360 (20-80 GB) and PS3 (20-120 GB). 11] Consumerreports. org (2008) ‘Blogs Electronic’ Get in the game. http://campus. college. ch/resources/Harvard_Referencing. pdf [accessed October 14, 2009] [12] The FT. com (2009) ‘Nintendo cuts prices of Wii for the first time’ http://www. ft. com/cms/s/0/ea15ed4c-a8bf-11de-9242-00144feabdc0. html? nclick_check=1 [accessed October 14, 2009] [13]http://www. xe. com/ict/? basecur=JPY&historical=true&month=10&day=14&year=2006&sort_by=name&image. x=55&image. y=16 [14] A recent press release from NPD group suggests that 41% of the gamers rely on word of mouth to obtain information about video games. 15] Joystiq (2006) ‘Nintendo Wii marketing to exceed $200 million’ http://www. joystiq. com/2006/11/12/nintendo-wii-marketing-to-exceed-200-million/ [accessed October 17, 2009] [16] NPD group, Inc (14/09/2009) ‘Press releases’ MAJORITY OF GAMERS RELY ON WORD OF MOUTH AND HANDS-ON PLAY AT FRIENDS’ AND RELATIVES’ HOMES TO OBTAIN INFORMATION ON VIDEO GAMES. http://www. npd. com/press/releases/press_090914. html [accessed October14, 2009] [17] 4 dimensional movies on today makes the audiences feel the characters touch and feel based on what is happening on the scree.

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