NINTENDOS DISRUPTIVE STRATEGY

Implications for the Video Game Industry

MM 5003
MARKETING MANAGEMENT

Created by:
Muhammad Afif (29116476)

MASTER OF BUSINESS ADMINISTRATION

BANDUNG INSTITUTE OF TECHNOLOGY
BANDUNG
2017
1. Marketing Research

1.1 Problem

Nintendo Co., Ltd. develops and markets interactive entertainment products. It

manufactures and markets hardware and software for its home video game systems. The
company has a strong brand name, which gives it an edge over its competitors. Nintendo, the
Japanese video game console manufacturing company, is one of the big players in the
respective industry along with Sony and Microsoft.

In early 2000s, the company was struggling to compete in a market that was dominated
by Sonys Playstation 2 and Microsofts Xbox. But, in 2006, when the competitors were
following the industry norm to improve the product features, Nintendo followed a disruptive
route to target a new market with a new product that none of the competitors had: the Wii.
However, it is quite likely that the rival will try to mimic the most innovative aspect of the
Wii, the motion sensing controllers, in the near future. Nintendo needs to clearly define its
goals and act strategically to improve its design and gaming systems, and most importantly,
remain innovative in this competitive industry.

1.2 Research Design

This marketing research was conducted by using primary and secondary data. The
primary data was gathered through observation and discussion. The secondary data was
collected from articles and previous similar marketing research. After the primary and
secondary data was gathered and collected into sufficient amount, analysis was conducted to
identify which factors that customer needs on a video game console and what kind of proper
strategies that Nintendo should take.

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 1.3 Data Collection

Sales Figures Comparison in the United States (approximate number of units in thousands)

1.4 Analysis and Suggestions

At the corporate level, Nintendo is following an innovation strategy that has played an
important role in building its competitive advantage. The analysis of Nintendos innovation
strategy indicates that it used to position itself completely different from its competitors.
Then, Nintendo used a technological push to target an untapped or incomplete market of

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gamers, as it had to convince the non-gamer adult to play on a Nintendo platform. Recently,
Sony and Microsoft have copied motion-detecting technologies for their consoles. Hence, it is
arguable that Nintendo has set a trend for the video game market, a dominant design that its
competitors are willing to follow.

In order to maintain this momentum, the company should focus on improving current
system performance and other technical features of any product for future releases. Then,
Nintendo should build a strong community and focus on online gaming segment. Also The
video game product has a weak lifecycle, so Nintendo has to innovate more and more and to
stay on the top of the best video game company they have to put invest in R&D more often.

2. External and Internal Analysis

2.1 Porters 5 Forces Analysis for Game Industry

- Threat of new entrants:

Threat of new entrants in the industry of gaming consoles is low due to a

range of several factors. Nintendo, Sony and Microsoft have been around for
several years having established such strong products discouraging potential entrants
from entering the market. Entering the console industry has a high capital
requirement because of the high fixed costs and the continuous investment in
research and development of new technologies, advertising and marketing.

- Intensity of rivalry

Due to the fact that there are few competitors in the market and the
industry is growing constantly, the gaming console industry is a highly
competitive market. Nintendo, Sony and Microsoft compete in order to outsell each
other and increase their market share. They also compete for the same resources and
the same customers. Each of them follows a different strategy in order to achieve
this.

Nintendo mostly target the casual gamer and is more family orientated.
Although in terms of specifications and graphical power, its consoles are not on the
same level as Sony or Microsoft.

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 - Threat of substitute products

Many alternative substitutes exist in the market, with the level of threat
considered to be medium to high. Substitutes like mobile games pose a medium
threat. The biggest threat comes from PC. Many consumers nowadays own laptops,
tablets and mobiles.

- Bargaining power of supplier

Supplier power is considered to be low to medium in the console

industry. Companies strive to supply any of the 3 companies because of the assured
profit they will make. The suppliers of the main hardware components supply all 3
competitors and these components are critical to a consoles success. The brand
equity of Nintendo, Sony and Microsoft and the large number of suppliers available
makes it difficult for suppliers to exert considerable influence over their prices, and
as a result suppliers want to keep a close relationship with these companies. On the
other hand, certain conditions exist where suppliers can wield significant bargaining
power. These include shortage of supplies and the availability of a certain input,
which can lead to increased costs.

- Bargaining power of buyer

Buyers in the console market do not have many choices since the competitors
are only three. This coupled with the high switching costs of buying another console
reduces their buying power. Other factors limiting consumers power are games
which are exclusive to one console, therefore forcing buyers to purchase one console
over the other. Also purchases are made in small volumes from a large number of
buyers. As a result buyers have limited power in the market.

Forces Level
New entrants Low
Rivalry High
Subtitute Medium to high
Supplier Low to medium
Buyer Low
Summary of Porters 5 Forces Analysis for Game industry

Based on Porters 5 Forces analysis for game industry, the implication to Nintendo
strategies divide by two type of strategies. The first is offensive strategy which Nintendo
explore and create untapped elders/female and non hardcore gamer market. So they always

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try to be the first mover to beat out competitor in existing market. The second is defensive
strategy which Nintendo be more innovative than competitors since they are getting into this
area.

2.2 PESTLE Analysis

The PESTLE Analysis is a tool that is used to identify and analyze the key drivers of
change in the strategic or business environment. The idea is, if the project is better placed
than Nintendos competitors, it would be able to respond to changes more effectively.

Factor Analysis
Target of political activist concerning controversy about violence
in gamers
Political
Entertainment Software Rating Board (ESRB) that assigns ratings
for gaming content
Purchasing behavior is influenced by consumer purchasing power
Economic Consoles are not upgradeable, consumer has to buy complete new
system
The current social trend on the rise are non gamers who have no
Social prior experience or interest in video games
The number of female gamers are also on the rise
Technology has improved processor speed, visuals and memory
capacity for gaming consoles
Technological
Disruptive innovation in the form of smart phones and tablets
have significantly altered consumer lifestyles
The legal issues faced by the industry are trademarks, copyrights,
Legal
licensing, online ownership and demands of intellectual property
The video game industry uses a lot of plastic and metal resources
Environmental for its hardware
In the current era majority people are environmentally aware

2.3 Internal Analysis

Nintendo is currently using these key internal resources to create competitive

advantage: (1) financial resources; (2) creativity/human resources; and (3) brand name.

- Financial resources

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 Financially, Nintendo is still a very solid company. This good financial
position does not only allow Nintendo to have access to cheaper credit terms, it also
allows the company to conduct new investment programs in R&D.

- Creativity/Human resources

Nintendo is well known within the industry for producing intuitive consoles
and games; and its skills in producing legendary game characters and story lines are
accepted by specialist analysts as being Nintendos main core competency. The
creativity, talent, motivational potential, and experience the indicated employees and
others can transmit to younger generation Nintendo employees.

- Brand name

Nintendos brand name is one of the most recognized and trusted brands
within the industry. Nintendos dedication to quality and detail is well known.
Loyalty to the brand is well established and documented within the industry.

2.4 SWOT Analysis of Nintendo

Internal
Strengths Weaknesses
Important heritage in video games Behind in offering online experience
Strong global brand in video game Dependency on suppliers
market Does not appeal to serious gamers,
Innovative (first motion sensing) because not known for sophisticated
Good at simple friendly family games graphics
First console to approach casual gamers
External
Opportunities Threats
Leading game console brand image Shift in consumer preferences
Increasing demand for online gaming Competition between Sony and
Innovation in video game technology Microsoft
Subtitute product (PC and smartphone)

3. Market Segmentation, Targeting, and Positioning (STP)

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3.1 Market Segmentation
Unisex games (both male and female)
All age (from young to elder)
Middle to upper class income
Gamers and non-gamers in worldwide

3.2 Targeting

Below are shown the target market of Nintendo, especially for the Wii:

Wii games targeting those wanting fun in quick manner, easy to pick up and learn, and
not require serious time investment
Wii was specifically designed to expand the market. Nintendo wanted to go for a
previously underserved target population, and that meant making their games
appealing to the first-time user
Nintendo specifically targeted active, social people, looking to do things with
friends/family. Much less emphasis on deep single-player game play / intense 3D
graphics.

3.3 Positioning

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 From the picture, the positioning of Nintendo is for social and active
entertainment that easy to use and brings the whole family together and supports
movement and exercise. Ways that Nintendo positioned themselves to target their
previously-selected target market segments: (1) Wii would like to play Campaign:
Showcased families, children, women gaming together, (2) Nintendo ensured a selection
of simple, time-uninventive, social games (each Wii comes with Wii Sports pick up and
play), (3) Low initial financial investment required, because the Wii has lower price than
its rival such as Sonys PS3 and Microsofts Xbox 360.

With this vision, Nintendo has been trying to position its console as a
comparatively inexpensive device, easy to use and aimed at the whole family. It has been
increasingly creating games without regard to age, gender or gaming experience, and it
also has greatly expanded the exergaming experience, which is the combination of on-
screen playing with physical activities.

4. Value Proposition and Marketing Mix Analysis

4.1 Value Proposition of Nintendo

Product Customer
Experience Wants
Benefits

Features

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 Value Proposition Canvas

Nintendos Product Customer Wants

Unique motion controlled games Interactive and fun
Track body movement Easy to use, simple and quick
Intuitive console Inexpensive device
Budget-friendly games All age and gender

Nintendo provide the interactive experience through their unique motion controlled
games, track body movement to satisfy their customer. Nintendo believed that people wanted
to have fun and relax in an intuitive and inexpensive way. Thus, Nintendo spends more in
games characters creation skills rather than on pure technological performance.

With this vision, Nintendo has been trying to position its console as a comparatively
inexpensive device, easy to use and aimed at the whole family. It has been increasingly
creating games without regard to age, gender or gaming experience, and it also has greatly
expanded the exergaming experience, which is the combination of on-screen playing with
physical activities.

So, Nintendos value propositions are (1) unique gaming experience, (2) innovative,
inexpensive, and intuitive console hardware and software, (3) family and community
fun and enjoyment, (4) get fit while having fun, (5) family values, (6) extensive customer
base.

4.2 Marketing Mix Analysis (4P) of Nintendo

In this section, well analyze the strategy of Nintendo through marketing mix analysis
(4P): Product, Price, Place, and Promotion.

Product
1. The new product is developed in a way
that it supports many different segments
in almost all age
2. Nintendo has already established a good
Place
1. Available in 32 countries under Nintendo
Co. Ltd (Japan, Hongkong, Korea,
Taiwan), Nintendo of America (America,
Canada), Nintendo of Europe (France,

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 branding structure and a well established Benelux, Iberica, Germany, Italy, UK,
image positioning RU), and Nintendo of Australia.
2. Online and offline stores or distributors
Price Promotion
1. Nintendo wii game console products 1. TV and Web TV
2. Official Website and social media
have the most inexpensive price
3. Participate in some trade fair for
compared with the PS and Xbox
computers & video games (i.e. E3:
2. Wii have been sold to consumers for
Electronic Entertainment Expo), before
$200 at stores
launch a product

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REFERENCES

Farhoomand, Ali. 2012. Nintendo: Disruptor Being Disrupted. The University of Hong Kong,
Asia Case Research Centre.
Gualano, Cosimo. 2010. Nintedos Disruptive Strategy: Implications for the Video Game
Industry. University of Wales, Robert Kennedy College.
Joshi, Havovi and Samuel Tsang. Nintedos Disruptive Strategy: Implications for the Video
Game Industry. The University of Hong Kong, Asia Case Research Centre.
R. K, Claudio de Almeida. 2014. Nintendos Pursuit for Probability: A Pedagogical Case
Study. Lisbon: ISCTE Business School.
[Online] Ben Gilbert. 2016. A Complete History of Nintendo Consoles, By The Numbers.
http://www.businessinsider.co.id/nintendo-game-consoles-sales-photos-2016-
11/?r=US&IR=T#RwUrh6Pz9gQbZreO.97 (diakses 25 Februari 2017).

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