41563553-Case-Ninten - Nintendo 1 Abstract Since 1985 Nintendo has been synonymous with popular gaming systems and software titles around the world

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Unformatted text preview: Nintendo 1 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 (2005). Nintendo Wii 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. Nintendo DS 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 respectively. 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. Market Structure 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. Risks 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. Business Cycle 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 References Albanesius, C. (2010). Nintendo Sells 46,000 Wii Remotes in the U.S. Every Day. Retrieved From http://www.pcmag.com/article2/0,2817,2371431,00.asp Everbody Plays. (2010). The Wii Sells 30 Million. Retrieved from http://www.everybodyplays.co.uk/news/Wii/The+Wii+sells+30+million/253 First Research. (2010). Industry Profile: Electronic Gaming Products. Retrieved from http://www.firstresearch.com Hirschey, M. (2009).Managerial Economics. Mason, OH: South-Western Cengage Learning. Madway, Gabriel., Paul, Franklin. (2010). Game On: Nintendo, Sony, Microsoft Wage War. Retreived from http://www.reuters.com/assets/print?aid=USTRE65F04D20100616 Nintendo.(2010). Company History.Retreived from http://www.nintendo.com/corp/history.jsp Nintendo ES. (2010).Nintendo Electronics Show. Retrieved from http://e3.nintendo.com/e3presentation/ Porter, Michael. (2007). The Five Competitive Forces That Shape Strategy. Boston, MA: Harvard Business School Publishing Corporation. Stuart, K. (2010). 3D Games Enter A New Generation: The Launch of PlayStation Move and XBOX Kinect Signals A Revolution In The Way That We Interact Through The Internet. Retrieved from http://www.guardian.co.uk/technology/2010/sep/19/3d-games-xboxplaystation Takahashi, Dean. (2010). The Video Game Console War Could End in a Three-way Tie. Retrieved from http://games.venturebeat.com/2010/06/09/the-state-of-the-video-gameconsole-war-is-remarkably-even/ Welch, J. (n.d.). Column ± The Importance of Being Sticky. Retrieved from http://chancellor.angellearning.com ...
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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.

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