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Abstract Since 1985, Nintendo has been synonymous with popular gaming systems and software titles
around the world. It first introduced the Nintendo Entertainment System in 1985, and in 2006
Nintendo released the Wii. The Nintendo Wii carved out a niche in the $60 billion dollar
video game industry with motion sensing game play (Madway, 2010). Nintendo¶s direct
competitors areMicrosoft and Sony;as each brings a different way to engage consumers in video
games.However, Nintendo¶s low cost pricing strategy and renewed focus on the expansion
ofitsdemographic gamermarket has led to the re-emergence as the leader in video game consoles.
In the video game industry, substantial risks and challenges are prevalent. The industry is reliant
on discretionary spending, which has been limited since 2008 with the economic
downturn.Moreover, the video game industry is cyclical with the average life of a gaming
console or video game less than four years; making investments into research and development a
priority in the industry. The low cost pricing strategy has proven prosperous for Nintendo over
the last four years by outselling its strongest competitors Microsoft and Sony. Nintendo Company, Ltd. Nintendo 2 In 1985 Nintendo Company, Ltd. of Kyoto,Japanintroduced the Nintendo Entertainment
System (NES) and was an instant success selling over 60 million units. For the first time, people
brought Zelda and Mario Bros into their homes (Nintendo, 2010). Some of the most
unforgettable video games Nintendo released and are re-releasing today with upgraded graphics
are Donkey Kong,James Bond GoldenEye, Mario Bros, and Zelda. These games continue to
generate revenue and deliver to Nintendo¶s bottom line. Nintendo develops,manufactures, and
distributes video game software and hardware worldwide.The company has a long list of video
game consoles starting with the Nintendo Entertainment System (1985); Game Boy (1989);
Super Nintendo Entertainment System (1991); Nintendo 64 (1996); Nintendo Game Cube
(2001); Nintendo DS;DS Lite; and Wii (2006). Nintendo is only producing three gaming
consoles at this time:the DS, Game Boy, and Wii (Nintendo, 2010). Nintendo has established
itself as an industry leader by delivering high demand products; what Jack Welch calls stickiness
According to Takahashi (2010), the Wii gaming console has sold over 70 million
units.The next closest competitor is Microsoft with its Xbox 360, with 39 million units sold;
making Nintendo the number one gaming console sold in the world.Video gamers have been
predominantly male 18-36, however, with the release of the Wii Nintendo has expanded its target
market to include children,men and women of all ages. The Wii has revolutionized the video
game demographics almost overnight making women in their 30¶s the most prevalent market for
Wii (Everybody Plays, 2010). Nintendo was able to accomplish this by out-of-the-box
thinking,offering a new methodology to video gaming by incorporatingthe user¶s body
movements to control the game. Nintendo achieved this by integrating motion and gyroscope Nintendo 3 sensors into the Wii controllers. This new video gaming technology opened doors for a whole
new genre of games,fitness, dance and interactive learning. Combined with the proven first
personaction-adventure games, the Wiihas given Nintendo the largest target market coupled
withextraordinary sales. In time for the 2010 holiday season, Nintendo will be releasing new
games exclusively for the Wii. Some of these new titles include: Disney Epic Mickey;James
Bond Golden- Eye;Donkey Kong Country Returns;and Kirby¶s Epic Yarn (Nintendo E3, 2010).
According to sales volume, there are approximately 46,000 Wii remotes sold daily with the most
popular colors being white, black, pink, and blue respectively (Albenesius, 2010). Albenesius
(2010) also states Netflix can now stream movies through the Wii without a disc; prior to this
breakthrough a special disc from Netflix was needed to enjoy streaming movies.
There are fourportable Nintendo DS handhelds currently available including the DS Lite,
DSi, DSi XL, and the new 3DS (3 Dimensional available March 2011). Each has its own
uniqueness and offerings to gamers globally. The game titles are comparable across the board
with the exception of the 3DS, as it is a 3D video experience. The DS has 2 screens, a camera
(except DS Lite), Wi-Fi, download capability, SD card, sound recorder, and a stylus for touch
screen gaming. The DS has sold over 129 million units worldwide, outdoing its biggest
competitor Sony¶s Play Station Portablewith only58 million sold (Takahashi, 2010). Nintendo
will be releasing the new 3DS in March 2011 featuring 3D gaming without the need for glasses;
again bringing a new level of experience to the gaming industry and the first new DS portable
player in over 6 years (Nintendo, 2010). The 3DS has a motion and gyro sensor much like the
Wii controllers. The new 3DS has two camera lenses so users can take and view 3D digital
pictures. It also has the capability to play 3D movies for users to watch such as DreamWorks Nintendo 4 ³How To Train Your Dragon,´ and Disney¶s ³Tangled.´ The first game Nintendo developed for
the 3DS is Kid Icarus ± Uprising. Nintendo has also opened the new 3DS to software developers
to create third-party games much like Apple and Google did for the iPhone and Android phones
Porter¶s Five Forces
According to Porter (2007), an organization must reshape the five forces to its favorto
enhance success. The barriers to new entrants are high as the three companies have enough
control to fend off outside threats (Porter, 2007). Technology parts are abundantand with
Nintendo standardizing its specifications on electronic parts it can switch suppliers more easily
than Microsoft and Sony. Each of the three companies is continuously looking to outdo each
other in the video gaming industry. The barriers to entry and supplier power pose little risk to
Microsoft and Sony. Nintendo, views Apple as a major threat in games now (Reilly, 2010).
Nintendo¶s COO, Reggie Fils-Aime,believes the company¶s biggest threat in the near term is
Apple with its extremely popular iPhone device rather than Microsoft (Reilly, 2010). He also
suggests everything is a competitor these days as it¶s all about time. Reggie comments further
that Nintendo¶s competitors also encompassZynga, surfing the net, and the newspaper (Reilly,
2010). Nintendo used first mover strategy by releasing a motion sensing gaming system in 2006,
leading the way for both Microsoft and Sony whichwill be launchingrespective versions of
motion sensing products in the fall of 2010. By adding cameras to capture movement, both
Microsoft and Sony will be taking the motion sensing gaming to the next level (Madway, 2010).
According to Stuart (2010),
The new devices are noticeably more sophisticated: PlayStation Move still
involves a hand-held controller, but a player's movements can now be tracked in
3D space with incredible precision using its own "Eye" camera placed near the
screen. The Xbox Kinect is a wholly hands-free device that employs a camera and Nintendo 5 infrared depth sensors, translating any movement into game action. Both systems
also feature microphones that allow voice input (para. 2).
There is little differentiation between the three different consoles, as each console plays
off the strengths and weaknesses of the others. The gaming consoles for each company has
negligible differences from the other twoand could be considered benefits or weaknesses
depending on the consumer¶spreferences. The fundamentalmerchandise from each of the three
gaming devices are quite similar, all offer an input/output to play software titles,which for the
majority are available for any of the three systems; making each product at riskfor substitution.
An oligopoly exists in the video game arena as it isprimarily controlled by Microsoft,
Nintendo, and Sonywhich engage in aggressive competition (Hirschey, 2009). Microsoft and
Sony utilize the latest in technology to provide high quality high definition graphics and motion
sensing devices. Due to powerful and faster processor chipsrequired to yield high quality video
graphics and sound, both the Xbox Kinect and PlayStation Move are significantly more
expensive. Nintendo placed its focus and approach to consumers on interactivity and low cost.
The Wii places less emphasis on the game graphics and high definition content. Instead, the
focus was put on the way the commands are input into the system via the controllers. Compared
to the Xbox Kinect and PlayStation Movethe Wii is much smaller in size and the ease of moving
it from one room to another is an added benefit. Gyroscopes are used in the Wii Remote to
analyze user movements and to control the gaming outcomes (Nintendo, 2010). The low cost of
the Wii and interactivity has propelled it to virtually as many sales as Microsoft¶s Xbox 360 and
Sony¶s PlayStation3 combined (Takahashi, 2010). A pricing strategy the industry has come to
adopt is price bundling. Microsoft, Nintendo, and Sony use this pricing method to help create Nintendo 6 additional sales. Nintendo bundles a console, remote, nun chuck, and either Wii Resort or Wii
Fit in its retail packaging.
As with many industries the economy and one¶s personal income play a vital role with
discretionary income. The video gaming industry is no different. Strong competition within the
video gaming industry poses large risk factors for Nintendo. A primary driver for sales is the
personal income level of potential consumers of the product. When the economy is good so are
sales in the video gaming industry, but when income levels decay, the industry feels the effect as
the products areacquired with discretionary income. According to Madway (2010),the video
game industry has experienced a ten percent decline as consumers are spending less on nonnecessities. After the economic downturn in 2008, consumer spending has declined and the
recent economic uncertainties have promotedrestraint on discretionary spending. Regardless of
the personal income risk, Nintendo¶s low cost strategy has been effective,with the Wii being
aless expensive substitute compared to the Microsoft Xbox 360 and Sony PlayStation 3.
Innovation is a risk Nintendo must undertake if wants to continue to be a leader in the
industry. Microsoft and Sony have invested heavily in research and development of new gaming
consoles and games due out before the holiday season this year. Both Microsoft and Sony have
pushed the creative innovation of motion sensing gaming to the next level. Innovation is lacking
at Nintendo when it comes to a new Wii console. The video gaming industry is cyclical causing
the merchandise to have a very short life cycle. The short life cycle forces all entrants in the
industry to be innovative. In order for Nintendo to stay ahead of its competitors and maintain
the industry first mover strategy it must inject large amounts of capital into the research and Nintendo 7 development of new products; by doing so Nintendo will continue to deliver sensational video
gaming experiencesto consumers.
Video game products typically have a four year life span followed by a rapid downturn in
sales as consumers anticipate the next big video game product (First Research, 2010). With
consumers craving more from the video gaming industry it behooves the industry to invest
heavily in research and development. Companies must have new products and experiences in
the pipeline to launch as existing products move through the product maturity lifecycle and into
the decline stage.
The holiday season is a perfect time to launch new gaming consoles and games as the
holiday season drives 40 percent of annual revenues for the video gaming industry (First
Research, 2010). A last quarter peak in sales is critical for Nintendo to deliver profits to its
shareholders. Nintendo must also meet the holiday deadlines for both software and hardware
launches to kick start sales during this time frame. Nintendo must stay on target when meeting
deadlines or it is faced with sunk costs on marketing and advertising. Microsoft and Sony stand
to capitalize if Nintendo falters meeting its deadlines by selling to Nintendo¶s customers,
resulting in loss of operation costs and prospective sales (First Research, 2010).
The low cost strategy implementation Nintendo uses for its products coupled with its ever
increasing target market has resulted in phenomenal sales increases, which deliver to the bottom
line. Nintendo must also be mindful of the perpetually changing regulations governments put on
the video game industry. What might be perfectly fine in one country may not be acceptable in
another; resulting in hefty fines, product confiscation, or both limiting its sales and potential
revenue. Nintendo 8
Conclusion Nintendo has established itself as a major player in video game industry since its debut in
1985 (Nintendo, 2010). Since the release of the NES, Nintendo has launched other successful
gaming and personal handheld consoles as well. In 2006, Nintendo unveiled the Wii gaming
console and it became the number one selling console in the world with 70 million units sold.
Nintendo has a long history of popular game titles such as Zelda, Donkey Kong, James Bond
GoldenEye, and various Mario Brothers games. Nintendo and its biggest competitors, Microsoft
and Sony, function in an oligopoly market (Hirschey, 2009). Competition between the three
companies is aggressive as each one tries to one up the other and seize control of the market
share. The lack of differentiation between the core products leaves the three companies without
a substantial market gain. Given the cyclical nature of the video gaming market, Nintendo has
done an outstanding job of capitalizing on seasonal sales. Between now and 2014, the video
gaming industry is anticipated to increase at an annual rate of 6.5 percent (First Research, 2010).
With Nintendo launching the first three dimensional portable gaming device in March of
2011,the Nintendo 3DS will secure the company¶s continued success into the future. Nintendo 9
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This note was uploaded on 07/21/2011 for the course BUS 10001 taught by Professor All during the Spring '11 term at Shaheed Zulfiqar Ali Bhutto Institute of Science and Technology.
- Spring '11