Documente Academic
Documente Profesional
Documente Cultură
Strategic Analysis
of Nintendo
Consulting Team:
23868055
23864947
23873134
23865955
23876487
To the Nintendo CEO
Table of Contents
Executive Summary ................................................................................................................... 1
List of Figures ............................................................................................................................ 2
List of Abbreviations .................................................................................................................. 3
Introduction ................................................................................................................................ 4
The key elements underlying the past success of Nintendo ....................................................... 4
Environmental Analysis Changes taking place in Nintendos macro and industry
environments .............................................................................................................................. 5
VRIO Nintendos core competences relative to its competitors ............................................. 8
Five possible strategic options Critical evaluation, prioritisation and recommendation ...... 11
Plan of action ............................................................................................................................ 13
Bibliography ............................................................................................................................. 14
Appendices .................................................................................................................................. I
Appendix I: PESTEL Analysis ........................................................................................... I
Appendix II: Porters Five Forces ..................................................................................... II
Executive Summary
In order to improve Nintendos economic situation and re-establish them as the top player in
the gaming industry, this report will propose a strategic realignment for Nintendo, based on
thorough analysis and research.
A conducted analysis of the macro- and industry environment of Nintendo shows several
significant influences on Nintendo. An increased demand for family friendly games caused by
demographic transition of the game playing group can be observed. Further, technological
convergence is establishing smartphones and tablets as gaming devices, thus causing a decline
in sales of handheld consoles. Technological convergence can also be observed in the form of
industry giants entering the living room entertainment market with devices that have
increasingly strong technological capabilities. Innovation in Virtual Reality and the
development of increasingly sophisticated and cheaply obtainable mobile games are further
changing the industry.
A VRIO analysis has shown that substantial potential lies in utilising Nintendos uniquely
valuable gaming brands, the established and differentiated family-friendly set-up, and the
ability to implement a blue ocean strategy.
In accordance with this analysis and through playing on Nintendos strengths, the report will
propose a strategic focus on the utilisation of existing products, the integration of smart
devices into their product portfolio, and an expansion on the strengths of existing IP.
List of Figures
Figure 1: Nintendo Wii Unit Sales, Games and Consoles, 2003-2008 (O'Gorman, 2008) ........ 5
Figure 2: Age Distribution of Game Players (Entertainment Software Association, 2015) ...... 6
Figure 3: Yearly Handheld Sales Comparisons - Global (VGChartz, 2016) ............................. 6
Figure 4: Total global console sales as of January 9th, 2016, Last generation (left), Current
generation (right), (VGChartz, 2016) ......................................................................................... 7
Figure 5: Current strategies followed by the three main providers of home video game
consoles, using the Generic strategies by Porter M. (1980). ...................................................... 7
Figure 6: VRIO Framework ..................................................................................................... 10
Figure 7: SWOT Analysis for Nintendo .................................................................................. 11
List of Abbreviations
CEO Chief Executive Officer
CSR Corporate Social Responsibility
DS Nintendo Dual Screen
FSA Firm Specific Advantage
IP Intellectual Property
PC Personal Computer
PS -
PlayStation
VR - Virtual Reality
VRIO Value, Rarity, Inimitability, Organisation
Introduction
Nintendo is one of three big players in the highly dynamic gaming industry. However, in
recent years Sony and Microsoft have gained a competitive advantage over Nintendo and new
trends in the industry have caused setbacks for Nintendo, thus creating the need for strategic
realignment.
The consultants have conducted a thorough analysis of Nintendos position in the macro- and
industry-environment, as well as a detailed analysis of Nintendos core competences.
Based on the desire to build on Nintendos previous success, five proposed strategic options
have been critically evaluated and recommendations will be made on the implementation of
three of those strategies. Finally, further strategic recommendations will be made that focus
on leveraging Nintendos FSAs in accordance with the identified trends and opportunities.
A final key element in support of their success is seen through their design and innovation
focus. Nintendos innovative culture and orientation has allowed the company to implement a
blue ocean strategy entering new markets. Instead of competing within the confines of the
4
existing industry... Nintendo developed uncontested market space that made competition
irrelevant (Kittilaksanawong & Gillet, 2015, p. 4). Nintendo were able to differentiate
themselves through the development of the WiiMote and games such as Donkey Kong
Arcade and Super Mario Brothers. The WiiMote, eliminated difficulties non-gamers
experienced with the many buttons and sticks in the classic controller (Kittilaksanawong &
Gillet, 2015, p. 4). From this, Nintendo have benefitted from attracting a large demographic
including women, people over the age of 60 and non-gamers, in particular due to its budget
price strategy and mobility. Similarly as the Wii, the DS offered gamers with a new way of
playing handheld consoles through the development of touch screen technology. Thus,
Nintendo were able to tap into a new market with games such as the Wii Fit, as it enabled
Nintendo to attract a larger demographic beyond the traditional gamer. The Nintendo DS
achieved global sales of 154.88 and Nintendo Wii with 101.17 millions of units respectively
(Kittilaksanawong & Gillet, 2015, p. 12) as well as a significant sales of Wii games following
its launch (Figure 1). Both consoles held high sales in North America with a substantial
revenue of 2132m. As of 2014, Nintendo are drawing in the most revenues by product
through handheld hardware with revenues of $1959m and secondly home console software of
$1623m (Exhibit 4) as supported by their success from the Nintendo Wii and DS.
Figure 1: Nintendo Wii Unit Sales, Games and Consoles, 2003-2008 (O'Gorman, 2008)
The macroeconomic changes in the environment have been assessed with the help of a
PESTEL analysis. The full details of this analysis can be found in Appendix I, the most
significant changes influencing Nintendos macro environment will be discussed here.
From a social point of view, a shift in gamers can be observed.
While gamers used to be young males, the age distribution of
gamers is now diverse. As indicated in Figure 2, a major part
of gamers are under 18 or in the age group of 18-35. However,
with 27%, the age group of gamers 50+ is the biggest group.
Additionally, the number of female gamers is increasing
(Entertainment Software Association, 2015a).
A social controversy that is influencing policy making on
games and that is affecting the design of games is the effect of
violent games on gamers. Studies show that there is indeed a
link between violent games and violent behaviour (Bushman
& Anderson, 2001). Recently, a shift to more educational
games can be observed (Entertainment Software Association,
2015b).
The age distribution of gamers shows that there is potential for family games and the negative
effects of violent games in combination with an increase in educational games further confirm
this need. Nintendo should therefore keep following a family friendly game strategy.
A significant change has also been
happening in the technological macroenvironment. As shown in Figure 3, the
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
Date
Nintendo DS
Playstation Portable
Nintendo 3DS
Playstation Vita
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
Yearly Units
Figure 4: Total global console sales as of January 9th, 2016, Last generation (left), Current generation (right),
(VGChartz, 2016)
To further underpin the current pressures influences on the gaming industry, a Porters Five
Forces framework has been utilized, for in depth analysis see Appendix II.
In addition to the big three developers (Sony, Microsoft, Nintendo), new entry has been
undertaken by PC game developer and
distributor Valve Corp. with the introduction of
its Steam machines in late 2015 (Edwards, 2013;
Valve Corporation, 2016). The entry of Software
Giants into living room entertainment market
with the introduction of Google chrome cast and
Apple TV could provide further direct
competition, should these introduce gaming
features in the future, as Amazon Fire TV just
introduced (Evangelho, 2013; Freeman, 2015)
There is a considerable rivalry and pressure to
innovate among the industry incumbents,
currently virtual reality (VR) seems to be a
Nintendos handheld gaming platforms, as the benefits of portability are virtually similar as
with the Nintendo handhelds, however providing gaming experiences at far lower costs for
the customer (Kittilaksanawong & Gillet, 2015), while also providing a communication
commodity. As new platforms are being introduced, the bargaining power of third-party game
developers increase, and mitigating the adaptation needed for release of titles on Nintendos
platforms becomes even more important than in previous years. This is relevant for those
families which consist of different types of consumers both dedicated and casual (focused
audiences), when considering purchasing platforms from several providers, as the strategies
followed by Sony and Microsoft cater mostly to dedicated gamers, valuing graphics as a
major contributor to their gaming experience (Figure 5).
example, during the first two years after the release of Famicom, licensees were not allowed
to develop similar games on other competitors platforms (Kittilaksanawong & Gillet, 2015,
p. 2). The company also has had a long history of successful implementation and marketing of
these brands, meaning it is very organised to continue leveraging this strong core competency.
For example, Nintendo kept updating and releasing new versions of these games throughout
the years such as Donkey Kong Country and Super Mario World (Kittilaksanawong & Gillet,
2015, p. 2).
Family Friendly Set-up: One of Nintendos largest strengths is its family friendly set-up as it
allows parents to purchase the companys hardware knowing none of the games are
particularly unfriendly to children. This also means that their consoles can become family
activities and appeal to generations outside the main gaming market (Kittilaksanawong &
Gillet, 2015, p. 4). This is a valuable asset due to the different demographics it appeals to
along with creating a strong option for parents more concerned about violence in video games
or other inappropriate content and was identified as such by Nintendo in their 2015 CSR
report. (Nintendo, 2015). While other console manufacturers such as Sony and Microsoft do
offer many child friendly games, Nintendo is the only platform that offers parents an
exclusively child-friendly option they can be confident in, making Nintendos family friendly
set-up rare. The company is well organized to continue leveraging this strength though it
should re-enforce its family friendly values in the minds of customers through marketing to
make certain that potential customers are aware of this.
Blue Ocean Strategy: The other important competence of Nintendo relative to its
competitors is its ability to implement the blue ocean strategy. This extremely valuable asset
allows Nintendo to tap into the industries that have not been touched and contested before.
For instance, unlike its competitors Sony and Microsoft, Nintendo aims to expand video
games to children, women and people over 60 years old rather than try to take away
customers from its rivals (Rusetski, 2012). Nintendo, as a part of its blue ocean strategy,
launched Nintendo DS and then Nintendo Wii, which is a unique system that allows people to
play games by moving their arms naturally and also allows Nintendo to tap into the casual
gamers rather than hard-core gamers that have already been targeted by its rivals systems, PS
and Xbox (O'Gorman, 2008). These assets have a low chance of imitation as it would require
very large barriers of entry for competitors to not only enter the console market but to then do
so against Nintendos brand dominance. This is the main reason why PlayStation Move and
9
Kinect have not been able to compete with Nintendos Wii. However, as Hollensen (2013)
discusses, it is important that Nintendo continue this innovative structure as new ideas in the
gaming market may not be replicated to the same quality quickly but will soon become
expected features across all platforms. The company is well organized to continue to leverage
these strengths though it should focus on making sure consumers are aware of them.
(V)alue
(R)arity
(I)n-
(O)rganizational
imitability
Gaming Brands (Mario,
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
10
Opportunities
-
Weaknesses
-
Threats
-
Based on the identified opportunities and threats through the external and internal analysis of
Nintendo (summarized in the SWOT), the consulting team has made the following evaluation
of the proposed strategic development areas by Nintendos management.
developers to publish small games in exchange for royalties from subscription and eventual
buyouts of titles from customers. This would ensure an increased revenue for the company
while still revitalizing the old machines with minimum effort by Nintendo, which could focus
on their releasing their big titles and future game console, the Nintendo NX (Corbin, 2015).
Actively utilize the intellectual property right on existing characters (Character IP).
It can be argued that Nintendos characters such as Mario, Donkey Kong, and Pokmon have
enabled their success in creating a worldwide brand that the young generation can relate to, as
well as being nostalgic for older generations. Nintendo can exploit this through utilising their
character IPs perhaps by extending product lines of merchandise of which, to some extent,
would be regarded as a collectors item for those who associate themselves with the brand.
Nintendo have already launched a product called the Amiibo, providing the ability to
incorporate characters and provide in game extras allowing the ability for consumers to
customize their experience. Nintendo should extend and explore this concept further,
incorporating merchandise with software of which could add value to the consumer
experience that Nintendo wish to develop and focus on.
12
Expand into other new markets / Expand into other new business areas
In comparison, it seems that the last two proposed strategies to expand into other new
markets and business areas are less feasible for Nintendo, as their appeal strongly rest with
their Character IP, which may not be leveraged as strongly in new geographical locations.
However, the strategy of expanding into other new business areas such as the fitnessgame market would provide a viable opportunity as seen with the success of the previous
experience with the Wii Fit. Should the already proposed revitalization of the franchise prove
successful, the company should consider an alliance with a fitness technology provider, such
as Polar, or Fitbit to ensure technological synergy with their upcoming projects and extension
of this service on their pending gaming console.
Plan of action
We advise the Nintendo CEO to utilize the financial potential of the character IP rights in the
short term, through increases in merchandizing and the continuation of the Amiibo concept,
which may fund R&D into new gaming technologies (including VR) which could be utilized
in the next upcoming console known as Nintendo NX. By revitalizing the existing products
through the development of complimentary smart technology, important lessons and
optimizations may be learned towards this upcoming launch. We recommend further
development and expansion of the Wii Fit concept, as wearable technology is projected to be
the number one fitness trend worldwide in 2016 (Thompson, 2015). Nintendo is in an
excellent position to seize this opportunity as they already have experience in providing an
exercise gaming experience and increase its attractiveness to parents who may also identify
with their exclusive gaming franchises introduced in the 80s and 90s. To do this successfully
Nintendo will need to develop the technology itself, or partner with existing providers of
technology (possibly Polar Systems, Finland) integrating this technology with the Wii U, and
in the future the NX. Another possibility for the management is to be more aggressive in their
pursuit of these strategies would be to increase their allowance of utilization of their IP rights,
possibilities could be kids TV shows with their characters as well as other forms of licensing.
13
Bibliography
Barney, J. B., 2002. Gaining and sustaining competitive advantage. 2nd ed. Upper Saddle
River: Prentice Hall.
Brigden, K., Santillo, D. & Johnston, P., 2008. Playing Dirty: Analysis of hazardous
chemicals and materials in games console components, Amsterdam: Greenpeace.
Bushman, B. J. & Anderson, C. A., 2001. Effects of violent video games on aggressive
cognition, aggressive affect, physiological arousal, and prosocial behavior: a meta-analytic
review of the scientific literature. Psychological Science, 12(5), pp. 353-359.
Corbin, D., 2015. Say hello to iMario: Nintendo goes mobile as it buys 10% stake in DeNA.
[Online]
Available at: https://www.techinasia.com/nintendo-dena-alliance
[Accessed 17 January 2016].
Edwards, C., 2013. Valve Lines Up Console Partners in Challenge to Microsoft, Sony.
[Online]
Available at: http://www.bloomberg.com/news/articles/2013-11-04/valve-lines-up-consolepartners-in-challenge-to-microsoft-sony
[Accessed 15 January 2016].
Entertainment Software Association, 2012. Annual Report 2011, Washington DC:
Entertainment Software Association.
Entertainment Software Association, 2015a. 2015: Sales, Demographic and Usage Data Essential Facts About the Computer and Video Game Industry, Washington DC:
Entertainment Software Association.
Entertainment Software Association, 2015b. Annual Report 2014, Washington DC:
Entertainment Software Association.
Euromonitor, 2015. Virtual Reality: The Next Generation of Video Gaming, London:
Euromonitor.
Evangelho, J., 2013. Google's Chromecast A Brilliant Play For The Living Room -Especially With $35 Price Tag. [Online]
Available at: http://www.forbes.com/sites/jasonevangelho/2013/07/24/googles-chromecast-abrilliant-play-for-the-living-room-especially-with-35-price-tag/#63cc38095207ed7b7b752079
[Accessed 14 January 2016].
Freeman, J., 2015. Introducing the New Amazon Fire TV and Fire TV Gaming Edition Powered by Fire OS. [Online]
Available at:
https://developer.amazon.com/public/community/post/TxBKAU1SVQ97CE/Introducing-theNew-Amazon-Fire-TV-and-Fire-TV-Gaming-Edition-Powered-By-Fire-OS
[Accessed 14 January 2016].
Greenspan, D., Boyd, G. S. & Purewal, J., 2014. Video Games and IP: A Global Perspective.
[Online]
14
16
Appendices
Appendix I: PESTEL Analysis
Political
Economic
Theories exist which state that the sale of video games and consoles
is recession-proof, as games give people a fairly cheap escape from
reality. While sales numbers of recession times show slight
declines, one may argue that these are come from a lack of game
development (The Economist, 2010)
Social
The average age of gamers is 35. 26% of gamers are younger than
18 and 30% are between 18 and 35 (Entertainment Software
Association, 2015a).
Technological
Ecological
Legal
There are different ways and institutions analysing games and their
impact on children, rating them accordingly (Entertainment
Software Association, 2015b)
Considerations
Rivalry
among
competitors
Sony and Microsoft offerings more similar than Nintendo, top sellers for last
generation platforms are third party releases (vgchartz.com, 2016)
II
Threat of
new entry
Software (Games)
-
High, independent developers have shown ability and success previously i.e.
the substantial success of Minecraft by Mojang AB (Yarow, 2014)
Threat of
substitutes
Mobiles threaten 3DS and other mobile gaming consoles, and provide
gaming at lower prices
Bargaining
power of
suppliers
Bargaining
Considerable bargaining power rests with the buyers, only a few exclusive
power of
titles and features separate the offerings of the big three (i.e. Gran Turismo,
Buyers
Halo).
-
A strong base of console owners enables companies attractiveness for thirdparty developers for release of their titles (Kittilaksanawong & Gillet, 2015)
III