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Industry Organisation Name Organisation Contact Name Website URL Email Address Address City State / Province Zip / Postal Code Country Organisation Background Nintendo of America Inc., established in 1980, is a subsidiary of Nintendo Co. of Japan. They have been the worldwide leader in the creation of interactive entertainment; they have sold more than a billion video games to the world (Nintendo 2010). In 2006, Nintendo created the revolutionary video game console The Wii". The Wii was designed to attract larger demographic users than other gaming systems. It was, and still, very successful; attracted many people from different ages and it resulted in huge profits since it was created. Unfortunately, recently attitude of consumers and environment has been changing unfavourably for the Nintendo. This analysis is to reveal the key successful factors that made Nintendo a leader in its industry, touch the weak points or mistakes it has done and recommend some strategies to keep Nintendo a leading player. : Video Gaming Industry : Nintendo of America : : www.nintendo.com : : 4820 150th Ave. Northeast : Redmond : WA : 98052 : UNITED STATES Organisation Type: Individual : :
Others Conclusion
US is a politically stable market for the console industry with some restrictions. However organisations that focus on green policies and energy efficiency take a strong view against the gaming console industry. 1.1.1.2 Factors Total GDP and GDP per head growth rates (trends) : Economic Factors Rank 4 Reason The GDP is 14.1 Trillion and the growth rate in GDP is positive but has fallen in the last year due to the financial recession (World Bank 2010) Inflation percent ranges from 1.00 to 2.50 % in the US market (World Bank 2010). The US consumer has a greater percent of disposable income (Euromonitor 2010). Interest rates in the US market are low. US currency in the recent years has been a low yielding currency and its value is fluctuating. The console industry receives healthy investments from private investors. During 2008, there was an impression that the video game industry was recession proof, having record sales of US$21 billion in 2008, but growth has slumped in 2009 and 2010.
Inflation
: :
4 3
Investment, by the state, private enterprise and foreign companies Business cycles
: :
0 4 Efficient distribution and communication networks in US reduce distributing costs and energy is moderately priced as well.
Others Conclusion
Gaming console industry has proven to be recession proof as it falls under the category of packaged entertainment and relies on the launch period, disposable income and the spare time.
1.1.1.3 Factors
Socio-Cultural Factors Rank : 5 Reason Shift in perception of video games from being a hobby only for young children, to an activity for all ages and demographics, such as for families and the older generation. The industry has changed from being confined to an individual solitary experience to a large community and lifestyle The United States is a consumer market; the embodiment of capitalism. They emphasize maximizing disposable income, and personal choice of how they spend their money, productive or otherwise. Americans place a high priority on reaping the rewards of their labour. Despite evidence that Americans on average work more hours than the rest of the world, they have a high priority on their leisure time, which most prominently involves using the television (either watching or playing video games) Console manufacturers are accused of producing CO2 and being anti environment (GamePolitics 2009) Video games are partly being blamed for negative educational and health effects. Studies have suggested that video gaming increases aggression and antisocial behaviour, as well as perpetual claims that increased obesity in children are a direct result of the video game culture. Many states have implemented legislation to protect children from potentially damaging video games (Health Central 2004).
Change in lifestyle
Consumerism
Demographic changes
: :
4 5
Average age of gamers is 34, 25% under 18, 49% is 18-49, and 26% is 50+ (ESA 2010). Relatively inexpensive. In reach of many people US has very high social mobility. Video game industry benefits greatly from the entire market's population.
Others Conclusion
Video games have become a part of society and culture, and have been growing rapidly. Due to long stressful working hours leisure time is of importance and people usually resort to either watching Television or play video games. 1.1.1.4 Technological Factors Factors Government and EU investment policy on research Government and industry focus on technological effort : : Rank 0 4 The government focus a lot on technological efforts (USA Spending 2010) The cost for the development of new technologies in rapid cycles cannot be assimilated into the meagre profit margins generated currently in the console industry New technology is the lifeblood of the industry. New concepts and products are what drive the industry and make consumers excited for new products. Technology develops so quickly that products give the appearance of being obsolete very quickly Consumers are highly dependent on the internet. Reason
Rates of obsolescence
: :
5 0
Conclusion In general the environment is favourable to the console gaming industry, but the political and technological factors have, to an extent, an adverse effect on it. USA economy and socio culture factors are most favourable since the success of console gaming needs consumers to be willing to spend their income on luxuries and this is available in countries with good economic factors like USA. On the other hand, technology is crucial to this industry because it's rapidly changing and advancing and political and factors could limit the extent to which the console manufacturers can develop and change.
1.1.2. Strategic Group Analysis Strategic groups are clusters of organisations within an industry that compete on the basis of a similar positioning, product quality and target very similar customers. This analysis is important as some organisations within industry will compete more directly with others positioned in the same group and might not even compete with others remotely positioned (e.g. Rolls Royce is a direct competitor of Bentley but despite being in the automotive industry, can not really be considered a competitor of SEAT)
Price 4 5 6
1.1.3. Industry Life Cycle The life cycle of an industry will strongly affect the level of competition within an industry. This is the case because a high growth rate allows most competitors to grow without having to take margin from other organisations. In opposition, low growth rates will increase competitive rivalry as organisations have to grow at the expenses of their competitors. Year
2005 2006 2007 2008 2009
Analyze Life Cycle *Note* Data is sales in Millions of Units of the Americas http://www.vgchartz.com/hw_annual_summary.php Data for the year 2010 ranges from 2nd January 2010 to 18th September 2010. The console industry grew very rapidly between 2005 and 2007, but as the market matured the growth has plateaued. Interestingly, this shape is very similar to a stereotypical life cycle.
: :
0 5
Brand loyalty
Start-up capital requirements Switching costs Access to supply and distribution channels Legislation or government action Retaliation (e.g. price cuts and advertising campaigns)
: : : : :
5 5 3 0 4
Others
Conclusion The threat of new entrants is relatively low as the market players are strong, well established and have the advantages of pricing and lower fixed costs. The start up costs are also very high and there will be a difficulty for a new company to position itself or its products any differently from the existing players in the market. Intense competition and pricing wars have reduced profit margins causing market players to focus on after-product sales (Games, accessories, online network subscriptions) rather than on the sale of the console itself. All these factors combined would make the threat of a new entrant a low threat for the existing market players.
1.1.4.2 Factors
Threat of substitutes (Determinants of substitution threat) Rank : 1 Reason Mobile and computer industries could be considered a high risk to this industry. Ex. Apple IPod and IPad (Digital Battle 2010) Perceived benefits of substitute may be high. The focus of the console industry is that of customer interaction. If the console is highly interactive the need is met. Short attention spans towards consoles could cause customers to switch if a new development can entice purchase. The product has to be compatible with the target market, at the same time they have to ensure that the console is unique form the others. Customer attention and interaction are the key factors. Consumers will be intensely loyal to the brand and may be hostage loyalists who are attached to a brand due to high switching costs. There may be consumers who are mercenary loyalist as well. PCs and mobiles games are considered high risk on video games. Console games are considered a medium level income luxury. No proof that this is a high risk since the cost of console games is relatively inexpensive
: :
3 1
Product differentiation
Brand loyalty
Product-for-product substitution (E.g. post mail and e-mail) Substitution of need (more reliable transports reducing the need for cars) Generic substitution (disposable income: boats/homes/furniture/holidays, etc.)
Others Conclusion
The three major players in the market are now offering competitively priced products that provide relatively similar features to the each other. The threat of substitution is high and the companies try to reduce this by increasing the switching costs (positive and negative) associated with the products by providing exclusive game titles and gaming accessories. Brand loyalty is high but with short attention spans associated with customers may cause the customers to switch loyalties with more ease. With the need for generic substitution decreasing due to shrinking incomes and the possibility of product-for-product substitution decreasing due to the virtualization of popular alternatives like board games the threat of generic substitution decreases with switching between consoles becomes the major threat. 1.1.4.3 Factors Concentration (number and size of the firms) : Determinants of buyer power Rank 5 Reason The industry is almost an oligopoly, so the power of buyers does not represent a threat. Popular consoles cannot be taken of shelves; this would cause the retailer to loose sales of the product. Consumer needs govern this factor. Does not represent threat since competitors are few in this industry and it's not easy to switch to others for console gaming supply. The costs of backward integration will be very high for buyers, so it's unlikely to happen. It is feasible. For example Sony and Microsoft already sell products online. Since leakage of information is considered a threat to such industry, usually competitors in this industry are highly protective and secretive.
: :
4 4
Others Conclusion
The console industry caters to a growing market segment that has an approximate size of 60 million in the United States. The end customer has a number of retail options to purchase from and since the market is a three-way struggle no retailer will try to remove a product from its shelf or switch to another supplier since its a oligopoly .There is a low threat of backward integration and the console industry is large enough to integrate forward in the event of hostile action from the retailers. The buyers in the market are important but do not have enough power to take a controlling right in negotiations due to the large market demand and the success of the consoles.
1.1.4.4 Factors
Determinants of supplier power Rank : 1 Reason There are few hardware manufacturers for Hardware that can meet the demand like IBM, NVIDIA, ATI but the suppliers are large and capable of meeting requirements of the industry Due to the high demand for Console devices and intense competition, the supplier sales are of paramount importance. The supplier may fail to provide necessary components on a timely basis or the company may have difficulty procuring the components due to business disagreements. With Console Industry drawing in market share from the PC gaming industry, the buyers are an important progressive market for the suppliers like NVIDIA and ATI With the fewer suppliers it would be hard to find qualified alternate sources. It would be very expensive to switch from one supplier to another due to the sophistication of the technology involved. The costs to be incurred in venturing backwards into the supplier chain would be high. Big Video Game Card manufacturers like NVIDIA and ATI have the technological advancements to integrate forward into the console industry.
The threat of backward integration by the buyer (the organisation in analysis) The threat of forward integration by the supplier
Others Conclusion
The suppliers to the console industry are few and are large market players. The console industry is an important buyer for these suppliers but is not their only market. There is a limited threat of the larger suppliers like NVIDIA integrating forward as they have the technology to do so while the console industry lacks the technological credentials for the backward integration into the supplier industry. It would also raise the costs of production of the consoles which would be detrimental to the industry that depends on profit margins. Any delay in the supply of the goods or a falling out with a major supplier is a strong threat to every player in the console industry.
1.1.4 (e) Competitive rivalry determinants Factors Market growth rates (life cycle) : Rank 2 Reason The market is reaching its maturity and the console manufacturers are now competing on gaming accessories, variations of bundled packages and pricing of the consoles. The operating costs associated with the console industry are high and that eats into the revenues of the console industry. The main players in the market Sony, Microsoft and Nintendo are sufficient large and powerful in similar ways with regards to the console industry The main players initially targeted different audiences but with the maturing of the market, they are competing for rival market share by innovating and offering services similar to competitors to deter switching. Consumers are loyal to their brand and the companies try to build on their consumer base It is difficult to exit due to the investment in the industry, the number of gaming companies that produce games exclusively or otherwise for the companies and due to the large numbers of consumers associated with the industry. A hasty exit from the industry will tarnish the reputation of the company in public eye.
: :
0 2
Barriers to exit (fixed costs of exit, emotional attachment, government restrictions, etc)
Others Conclusion
The Console industry is in the 7th generation and is nearing maturing in the product life cycle. With the maturing market, the competitors are using competitive pricing through bundled packages and accessory developments that are used to either differentiate the products or offer the same features that are present on other consoles to reduce switching costs. With high fixed costs and barriers to exit, the companies can not hope to build profit margins or leave the market without public fallout. The competition is intense due to the fewer number of players but is healthy as it drives innovation and inhibits monopolistic practices.
Conclusion For the console industry, the entrant costs and restrictions are high making it a low threat and a low priority .Similarly the demand for the product and the large distribution network and the number of alternative suppliers to the products have significantly reduced the bargaining power of the buyers (the retailers). Suppliers pose a significant threat to the console industry as they are fewer in number and cannot be easily restricted or controlled. Poor quality of the products from third party manufacturers can adversely affect the company and the product image. Also the suppliers could raise the costs of the components and affect the profit margins of the company. Substitution is a significant threat and can occur within the existing competitors but the possibility of generic or product-for-product substitution is reducing due to increasing popularity of gaming as a popular leisure activity. Competitive rivalry is really high among the three companies and it is what drives the industry forward. Each company is trying to build products and replicate services that competitors offer in order to reduce the possibility of losing customer share. This is the most significant force in the console game industry.
Age distribution
Education
Skills
Experience
: :
4 4
Turnover
: : : :
0 1 5 4
Recruitment
Industrial relations
: :
4 0
Good relations with other organisations within the industry (Nintendo 2009) High bonuses (Nintendo Annual Report 2010)
Nintendo of America has a favourable advantage in the area of human resources. According to the financial times.com (2010), each employee of the company generates over "million dollars for the organisation annually. Also, the company strives to maximize productivity by motivating their employees through large bonuses and basic employee incentives. Nintendo has relatively more powerful and distinguished human resources than other companies in the same industry. This could be a key factor in their current and future success.
1.2.1.2 Physical resources Factors Building and equipment: Locations : 4 Nintendo of America has one main office in Redmond, WA and two distribution centres, one in Washington, responsible for the Western US, and another in Atlanta for the east. Warehouses near the coast are an advantage as shipments from China typically come in to Seattle (Payne 2004). The company recently opened new offices in Redmond with a low environmental impact. Its main distribution centre is manned by employees and an elaborate automated system used to increase the speed of packaging and shipping (Payne 2004). The company behind the conveyor system at Nintendos distribution centre cites the facility as a case study of one of its successes, stating the facility can handle any size of container through the process (Hytrol n.d). The facility can also handle huge volumes with throughput reaching as high just under 600,000 units per day prior to the Nintendo DS launch date in 2004 (Payne 2004). Rank Reason
Age
Repair Flexibility
: :
0 4
Configuration
Despite Nintendos main offices being located in the same town as Microsoft, there does not appear to be expansion space issues for the company, as evidenced by their recent move to a brand new headquarters on their campus. Additionally, Nintendo sold off excess land to Microsoft, suggesting they are currently satisfied with their facility size (Bishop 2007). However, it would seem they have few barriers for expansion, but are not actively seeking it. Considering the reports that its main distribution centre is consistently operating at near capacity, it seems doubtful that particular facility will be unable to expand, and future expansion of distribution capacity could require a new facility or a major overhaul of the existing one.
Expansion potential
Nintendo recently sold off some land at their headquarters, suggesting they are currently satisfied with their facility size (Bishop 2007). Its distribution centre is often running at full capacity, so increase distribution may require a major overhaul or a new facility
Capacity utilisation
The Wii suffered from major supply issues in its first few years of release. Unfortunately, it is not well-known why that occurred, whether it was in the manufacturing process, the supply chain, or another reason (Wailgum 2008). So, this could imply that given the lack of supply from manufacturers overseas, the company may not be using its distribution to capacity simply because it doesnt have enough products. Edwards (2007) suggested that the shortage is due to Nintendo Japans [reluctance] to employ a second or third contract manufacturer to get it out of the supply jam.
R&D facilities
Development of Nintendos hardware is located primarily at Nintendos worldwide headquarters in Japan. However, Nintendo does have several of its first-party software developers located in America. Of Nintendos top rated Wii software titles, according to metacritic.com, 6 of the top 10 rated games are developed by Nintendos firstparty developers.
: : :
0 0 3 Of the parts of the console that are able to be traced back to a specific company, they are reputable companies that make quality products. In particular, the Wiis processor is made by ATI, one of the two top competitors in the graphics processing industry.
Quality
Compared to its direct competitors, Nintendo proves to be higher quality system. A research company found the Wii to be significantly more reliable than the Xbox and PS3, with 2.7% of Wii owners reporting a system failure, versus 10% for PS3 owners and 11.7% of Xbox 360 owners (Ivan 2009). NOTE: In this case, quality refers to reliability, meaning how well the machine and all its containing parts perform its roles as specified. Despite the fact that Nintendos console does not have the graphical capabilities of its major competitors, it is the only one to make a profit on selling the actual console. One review of the companys costs suggests that the Xbox 360 loses between $126 and $300 per unit, the PS3 loses $300 per unit, and the Wii makes a profit of $92 (Ehrenberg 2007). The Nintendo Wii faced major shortages from 2007-2009, wherein they were unable to supply the demand. While the company remains tight-lipped on the reasons for the shortage, some theories suggest a shortage of certain components. Since the console is a conglomeration of a variety of different parts from different manufactures, one broken link in the chain can slow the entire process. And, while its unfavourable from a business standpoint, it should also be noted that competitors, particularly Microsoft has experienced shortages in their console too (Reuters 2008).
Costs
Availability
Others Conclusion
Nintendo appears comfortable with their current physical resources. They have sourced their materials effectively so that they are able offer a lower price on their products than their competitors and still make a profit. However, Nintendo's well known supply problems for the first few years of the Wii's release suggests there are issues in some part of the supply chain. 1.2.1.3 Financial resources Factors Global sources and availability of finance: Borrowing capacity : 4 Referring to 2010 consolidated financial statements, Nintendo liability is less than 25% of their total assets (Nintendo Annual Report 2010). High returns on investments and sales (Annual Report 2010). They have accounts in 18 countries (Nintendo 2010) Their assets value is higher than their liabilities (Annual report 2010) Rank Reason
: :
5 5
: : :
0 0 2 Changes in taxation system could cause Nintendo financial problems which could bring extra costs on them (Annual Report 2010). Yen is appreciating lately, this expose Nintendo to foreign exchange risk and transportation costs since 80% of its sales are overseas (Annual Report 2010)
Others
Conclusion Nintendo is a long term player in the gaming industry. Though sales dropped lately, their ability to internally generate funds for future growth makes it their most powerful defence against any drop in sales or profits. Nintendo's polity to keep more than 60% as retained earnings give them a powerful financial and liquid position in their industry. These earnings could be used for developing and creating products or for any future expansion. Also their returns on sales are of average 15% and higher than other competitors in the same industry like Sony which return on sales is around 5% in the last 5 years However, Nintendo face the risk of currency fluctuation since large portion of their sales is in USD and some in EUR. Also they face the risk of changes in taxation systems since this will cause additional tax costs which will affect the financial performance of Nintendo (Annual Report 2010).
1.2.1.4 Intangible resources Factors Technology - know how : Rank 5 Reason The organisation has gained experience on both software and hardware development that spans over two decades and they are known for their innovative products. They have a large number of patents (766) and they have really recognizable intellectual property (Mario) (Nintendo 2010) The organisation has managed to maintain their high market share in the face of strong competition. They have efficient and effective production plants with fantastic processing systems. The internet has become an essential tool for gathering industry information Nintendo has a very good relationship with not only its customers and essential suppliers; they also have a healthy competitive relationship with other industry players (Nintendo 2009).
Know how
: :
0 4
: :
0 4
: :
0 5 Nintendo is a very well known brand and they tend to use family-friendly brands for their games. e.g. "Mario" and "Donkey Kong" Looking at the profits they get from selling console games compared to relatives, Nintendo has price premium (Ehrenberg 2007)
Price premium
: :
4 0
Operations
As Nintendo of America is not responsible for transforming any raw materials to finished goods, they are unable to provide any value to customers in this stage. Nintendo tend to control the retail outlets compared with Sony and Microsoft (Dietl & Royer 2003) Nintendo tends to control sales and marketing process (Dietl & Roycer 2003) Nintendos warranty policies do not feature anything unique. Most consoles needing repair require returning to a Nintendo service centre. As is the case with the other major consoles, anecdotal evidence of positive or negative service experiences are mixed.
Outbound logistics
Customer service
Conclusion While Nintendo's outbound logistics is strong, the biggest impact on providing value has been in their marketing of the Wii. The Wii was marketed as a relatively inexpensive and enjoyable experience that everyone can enjoy. The bundling of a simple and easy to pick up and play, Wii Sports, had a major impact on its success, and in 2009 overtook Super Mario Brothers as the best selling game in history, with over 45 million units sold (Ivan 2009). 1.2.2.2 Secondary Activities Factors Rank Describe and Analyze
Firm infrastructure
Being in the Gaming Industry since 1985, Nintendo has a well developed robust infrastructure and is well established in USA with both hardware and software development branches in USA. Strong HR policies and policy driven work ethics drive the company. It corresponds to the accepted industrial HR Practices (Nintendo 2010). Technology and innovation have always been the driving forces and strengths for the Nintendo company. The company prides itself on its innovation. Has 766 patents in US From Nintendo's success, they have well integrated the supportive activities with the primary. Good integration made it able to succeed and gain higher sales since 2006.
Technology development
Procurement/Purchasing
Conclusion Nintendo has a well established infrastructure, internationally accepted HRM policies and has a strong focus on technology development that helps it bring innovative products to market. Nintendo value chain shows a higher extent of integration compared to competitors which gives it a competitive advantage over them (Dietl & Royer 2003)
Opportunities Shifts in values and culture Change in lifestyle Consumerism Social mobility Speed of change and adoption of new technology The impact of the Internet Economies of scale Differentiation Start-up capital requirements Switching costs Entry deterring price Others-Threat of new entrants Concentration (number and size of the firms) The threat of backward integration by the buyer Other Opportunities
Threats New patents and products Rates of obsolescence Relative price/performance of substitutes Effectiveness in meeting specific customer needs Product differentiation Concentration (number and size of the firms) Importance of suppliers sales that an industry represents Switching costs Similarity of the size and power of the competitors Barriers to exit (fixed costs of exit, emotional attachment, government restrictions, etc)
Other Threats
Strengths Education Skills Turnover Productivity Quality Costs Internal funds generation Global accounts Global assets and liabilities Technology - know how Patents & Copyrights Brands Marketing & Sales Technology development Other Strengths
Weaknesses Flexibility
Other Weaknesses
Strengths + Opportunities 1. Consumer lifestyle in the US is rapidly changing even a person aged 45 has taken an interest into casual gaming. With the launch of Wii Nintendo has captured this opportunity and will continue to serve this need. 2. Nintendo has advantage over price as they do not incur heavy costs as compared to Sony and Microsoft. Their objective is to encourage gaming, and a low pricing structure will initiate easier adoption by new segments, growing a bigger market share for the company. 3. The employees at Nintendo are highly skilled and have an advantage of technical know-how; this will save the company on higher investment into development of consoles thus gaining differentiation over product and perceived quality. 4. Nintendo has been in the Gaming business since 1983, and is the only focused business giving them a better exposure and market awareness. This wins the company a Good Brand image and greater customer loyalty. 5. Being innovative they have captured a small part of the online gaming through Wifi feature in the DSi. This can also help broaden the focus of the company. Weaknesses + Opportunities 1. Due to their lower pricing strategy, the threat of switching cost is resolved. 2. In-house training for staff a. Deeper knowledge of customer need b. Better development of Products More innovation 3. Broaden Focus in Market through Complementing products and accessories. 4. Better portfolio spread as they are Innovative and target specific
Strengths + Threats 1. Single product focus: consoles and games is the only focus for Nintendo, this poses to be a threat as the company lacks diversification. 2. Lack of employee flexibility, No out of the box thinking. 3. Low pricing, but slow innovation erosion of Market share by Sony and Microsoft (KINECT) with similar product offerings. Weaknesses + Threats 1. Games and their consoles have a very short life span in the industry. Nintendo only focuses on gaming and has no other variations in its portfolio. The staff are only fixated to developing Video game consoles, this poses as a threat to the company. Competitors like Sony and Microsoft have a range of products in the portfolio which complement each other. E.g. Purchase of the PS3 will add value to a consumer who already acquires a Sony Bravia HD TV. 2. Cracked games are a serious issue, Consumer purchase falls when crack versions are available. 3. They have let other competitors gain market share by not innovating
1.4.2. Mission
Please state the mission of the organisation At Nintendo we are proud to be working for the leading company in our industry. We are strongly committed to producing and marketing the best products and support services available. We believe it is essential not only to provide products of the highest quality, but to treat every 1.4.2. (A) Evaluation Matrix of Mission Statements Criteria 1. Customers 2. Products or services 3. Markets 4. Technology 5. Concern for survival, growth, and profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees Who are the firm's customers? What are the firms major products or services? Geographically, where does the firm compete? Is the firm technologically current? Is the firm committed to growth and financial soundness?
What are the basic beliefs, values, aspirations, and ethical priorities of the firm? What are the firms distinctive capabilities or major competitive advantage? Is the firm responsive to social, community, and environmental concerns? Are employees a valuable asset of the firm?
Evaluate Mission The mission statement is considered very general regarding products and customers. Nintendo does not specify what kind of customers they are targeting. Also Nintendo does not specify the products they are creating except confirming that they are of
1.4.3. Objectives
Please list the objectives of the organisation: - Nintendo will keep trying to further the penetration of the Wii - Nintendo will encourage more people to try the Wii by offering innovative games -Nintendos market share and boost sales without losing touch with the current market of 5-17 Evaluate Objectives and Stakeholder's Expectations Nintendo does not have clear general objectives; yet it has objectives regarding each product they create. Nevertheless, the above objectives are mentioned in the annual report. They want the Wii to be highly spread among people, and they are implementing this strategy with the
When we look at the BCG both the consoles are positioned as DOGS this is because they do not reap high margins for the company. Reason for this is that the creation or development of consoles requires a high investment and huge costs, but the company cannot set a high price. Technology is rapidly changing and consumers are looking for good innovation but at reasonable rates. Casual gamers (main market segment) are not willing to pay a high amount to acquire a console. Hence Nintendos innovation meets its consumers' needs and is kept simple. The market growth rate for DS is slow as it has been in the market for a while, but its contribution margin is much higher to the business than Wii. Wii on the other hand is relatively new but its market share is growing rapidly as it is positioned to target not only the teens but the whole family and older segments. Life cycle of consoles is short lived but it is the heart of the business, hence they should be harvested. In this case the company should invest 40% of extra revenue generated from the cash cow into the consoles to improve them, thus capturing a higher market share. Even if the company develops variations to their consoles, they will still be positioned as dogs, as consoles dont sell as much as the softwares. Software: These are vital sources of revenue to the company, they do not include high costs and margins set are much higher. DS games are positioned as Cash cows, as they have been in the market for a while and adoption process is much quicker, hence generating high revenue. Games like Pokmon, Mario etc. are high in demand and awareness. These games have a high market share but a slow growth rate, and generate much more than what has been invested into development. But they cannot be relied on in the long run. Wii software is positioned as a Star, with much higher market growth than the DS and a higher market share. They cater to a wide audience ranging from Kids learning games to fitness for adults. The revenue generation is much higher and these softwares have to be developed to keep the portfolio strong. Conclusion: The consoles are not the main source of income to the company, due to high investments the cost of production is HIGH, but the price cannot be set with high margins. The Software is what reaps the profits for the company. Consoles grow gradually but software developments have to be quick as their life span is shorter, games have to be developed. Attention span of customers is short towards games and that is what the industry thrives on. Revenues Generated by the Stars and Cash cows should be re-invested into the business 60% into Hardware as it is the main unit and 30% into software development. Also bear in mind that the consoles will remain in the current position as they do not sell at the rate of games. Each household may purchase only one console but require 10 games depending on the users. The current software spread by Nintendo is perfect as it attracts every segment of the Population, and caters well to the need.
Best Offer: Targeting well informed quality conscious and price sensitive customers. Only sustainable if company holds a competitive advantage in terms of difficult to imitate low costs combined with strong strategic capability in terms of unique resources and core competences. This strategy carries the risk of provoking price wars or creating adverse effects in terms of customers perceptions towards the company's brand image. To overcome this risk, excellent brand management and communication to the market is required. Good Offer Value for Money: Targeting price sensitive customers in search for value for money. Company needs to have low costs to maintain reasonable margin. This strategy can provoke price wars. Good brand management and communication to the market is required in order to preserve brand image. Excellence Premier Quality: Targeting the lowest segments by offering the cheapest products/services through a very low cost base. Company should not pretend selling quality but simply assume and reinforce its lowest price proposition - "You get what you see." Good Price Value for Money: Targeting price sensitive customers in search for bargains. Company needs to have low costs to maintain reasonable margin. This strategy can provoke price wars. Nowhere Play Safe: This is a conservative strategy as the company tries to please all customers by offering products of moderate quality at moderate prices. The risk is that their offer might end up not being good enough for those prepared to pay more for quality, or being cheap enough for those to whom low price is a key purchasing factor. As a result, there is a risk getting stuck in "no man's land" Too Expensive Value for Money: This strategy is doomed to fail as customers will not continue paying an average price for products they perceive to be of lower quality. The company should expect decline in sales and market share. Cheap: Targeting the higher segments by promoting best quality at a premium price. Only companies with a very strong brand identity and premium quality should aspire to follow this strategy based on differentiation. No Value for Money: This strategy is doomed to fail as customers will not continue paying a higher price for products they perceive to be of average quality. The company should expect decline in sales and market share. Nonsense: This strategy is nonsense. Why would customers pay a high price for products they perceive to be of lower quality? Companies should consider change their positioning or expect disastrous results. 3 2 1
Best Offer H I G H
Q U A L I T Y
A V E R A G E
Low price L O W
Nonsense 1
LOW
AVERAGE PRICE
HIGH
Analyze / Evaluate Internally, the company emphasizes high creativity and innovation. A strong work force due to specific hiring of educated and skilled employees and retention of employees through financial and training incentives. Additionally, they have committed to high efficiency in their distribution and in inventory management practices. This is meant that the company is well positioned to do create and market their products effectively and efficiently. Nintendo of America value chain activities are generally above average in the industry. In particular their technology development, while not necessarily being the most state of the art, is creatively applied to be the most appealing to consumers. Therefore they don't produce the most expensive product rather the most attractive ones. Both the micro and macro environmental factors are generally positive for the industry. The companies that are going to do well are the ones that can best capitalize on favourable conditions. One of the biggest parts of Nintendo's stated purposes is expansion of the world wide gaming population by introducing it to new segments that were previously neglected. From this perspective, Nintendo strategy of providing a higher value gaming experience compared to the other rivals has been successful. However, they have also stated that they did not want to lose touch with a major existing market segment, 5-17 years old males. From this perspective, their current strategies are less successful than their rivals because this particular segment has significantly different values than the "new gamer" market. However, gaining both segments with a single product has not proven to be possible yet for any company. If Nintendo is to focus on one particular segment they risk alienating the other and if they target both simultaneously then they dilute the impact to both segments. Nintendo: adopts a TICKING STRATEGY as they focus on the casual gaming market. The reason for doing so is because the leisure time gaming market is growing rapidly, but these consumers do not want to pay a high price on the purchase of consoles. Hence Nintendo follows a low price and medium quality route as they are trying to keep it simple and want to comply with the target segments. The Company keeps up with innovation but simplifies it for its customers to makes it more user friendly and a more reasonable purchase. Nintendo has been in the gaming business far before Sony or Microsoft stepped in, and the Brand is recognised for fun and interactive games. It is a brand that is much appreciated for its leisure time interaction. Sony: Adopts a ROLLS ROYCE strategy as their product carter to hard core gamers. They follow the route of high price and high Quality, as their target market requires them to keep that standard. The perceived value for SONY among its consumers is much higher as it ranges in different products that support the gaming experience like the HD TV, 3D TV, and Surround Sound etc. So if a consumer owns a Bravia TV, it would be reasonable for them to buy a PS3 and enjoy the benefits of a live gaming experience, hence increasing the value of purchase. Microsoft: has a TRYING HARD strategy as their focus is also on the Hard core gamers but they are trying to yield a higher market share hence follow the route of high quality at medium price. Microsoft also has a high perceived quality as its former and dominant business is that of computer software.
1. Market Penetration/ Consolidation Opened different branches Segmented product variation Focus on Casual Gamers Lower pricing for products Relaunch old SNES games iQue Player
2. Product Development No planned updates for Wii 3D update for the Nintendo DS Successor to Wii?
Selling assets Withdrawing outdated products Competitive pricing Launching new game titles Product bundling
New Game Titles Updates to existing titles Bundled packages Wii Accessories Netflix Netflix Cheap Gadgets/Expensive games Bundled packages
3. Market Development
Exercise with Wii Fit Streaming Movies & TV Accessing internet Shopping Distributors in every state Joint Venture: iQue Global Distributors
Repair services
The Pokmon Company Love Hotels Taxi Cabs Food Industry TV Network Toy Industry Seattle Mariners
2.3.1.2. Consolidation
2.3.1.2.1. Withdraw or Downsizing Description Nintendo in 2009 sold of some of its assets in America. This strategy although prompted by the recession, was a consolidation strategy for the company. By selling assets the company reduced its fixed cost which allowed them make more profit. Keypoint/Fact Selling assets Withdrawing outdated products 2.3.1.2.2. Maintain Market Share Description Nintendo uses its competitive pricing to maintain a higher share of the console gaming industry. According to Financial times.com (2010) Nintendo maintains a 43% hare of the industry in America (in terms of sales). By bundling up games along with their consoles, Nintendo gives its brand an edge over competition and this enables it maintain its lead in the American market. Keypoint/Fact Competitive pricing Launching new game titles Product bundling
2.3.2.3.2. Cross Subsidisation Strategy Description Nintendo employs cross subsidisation by providing gaming accessories at low prices. For example the Nintendo Wii Motion Plus sells for $ 20 while the games that are sold for it are priced between $14 and $50.Purchasing the accessories would lead the customer to purchase the games that would work using it thereby accounting for the lower hardware costs. (Nintendo 2010, Amazon 2010). Keypoint/Fact Cheap Gadgets/Expensive games Bundled packages
Keypoint/Fact 2.3.3.2. New Uses Description Nintendo's primary audience was gaming but with the development of the device and infrastructure it has branched out into newer uses like Exercise (Wii Fit and the Wii Mat),Streaming movies and TV channels, accessing internet ,shopping online etc (Nintendo 2010). Keypoint/Fact Exercise with Wii Fit Streaming Movies & TV Accessing internet Shopping
Keypoint/Fact 2.3.4.1.3. Related Horizontal Integration Description Nintendo created the The Pokmon Company a company to manage its Pokmon franchise. The company produces games, television shows, anime movies, trading cards etc (Pokmon 2010). Keypoint/Fact The Pokmon Company