NINTENDO’S DISRUPTIVE STRATEGY :

IMPLICATION FOR THE VIDEO GAME

INDUSTRY

Syndicate Group 1
1. Adyansyah Patonangi 29116352
2. Marilyn P.R.L. 29116429
3. Pradipto Swatias Haryono 29116406
4. Aglentia Dwi Fitri 29116503
5. Kharima Noer Hazar 29116002

Bandung Institute of Technology

School of Business and Management
Master of Business Administration
1. Company Background

Figure 1 : Evolution of Nintendo Logo

1.1 The History of Nintendo

In 1907 Fujiro Yamauchi, the founder Nintendo began producing Western playing cards
and by 1951 it had become the Nintendo Playing Card Company. In 1959, it began making
theme cards under a licensing agreement with Walt Disney Company. By 1963, the company had
gone public and taken its current name. During the period 1970 to 1985, Nintendo began
focusing on the manufacture of electronic toys and entered the emerging field of video games.
In 1991, the year Nintendo launched the highly popular Super NES in the United States
was also the year Nintendo’s vision become Sony’s opportunity with Play Station (PS) as the
creation and describe as Nintendo’s “greatest challenge” for over a decade the Sony Play Station.
Nintendo had wanted to incorporate CD-ROM into its Super NES, and Sony had agreed to create
the PS for this purpose.
Over the next two years there were many conflicts of vision between Nintendo and Sony,
and the two finally parted ways. Nintendo went ahead with Philips technology and Sony was left
with the Play Station, which the company decided to continue developing. Given Sony’s clout
and resources, when the PS and its wide range of games were finally released in Japan in 1994,
the console was an instant success.
In 1995, Sony released the PS in the United States, totally uprooting Nintendo’s
established name in the industry. For many years, Nintendo was a dominant player in the video
game industry. It had sold more than two billion games since 1985. Its games were so successful
largely because they appealed to all age groups across different cultures. Suddenly, after the
debut of the Sony PS, it was no longer the leader of the video games industry.
Nintendo tried various strategies to counter Sony. However, competition continued to
intensify and the PS2 also captured a significant portion of the video game market, maintaining a
dominant position in the industry. In May 2001, Microsoft too entered the video game market by
introducing the XBOX console, leaving Nintendo with an even smaller piece of market.
In 2002, Nintendo appointed Satoru Iwata as president of the company. It was hoped that
with his experience and deep insights into how the market evolved, Iwata would help the
company develop a brand-new vision and approach.
 1.2 Innovation and The Launched of The Wii
In 2000, the industry’s focus turned even more
to the technological advancement of the console
hardware, particularly in terms of faster processing
speed, higher definition of video quality and increasing
complexity of the games. The relentless pursuit of
superior technologies became the driver of the
industry’s dynamics.
Nintendo adopted a vastly different viewpoint
about the industry’s future development. Based on
various market trends and data, the key factor causing
this reduction appeared to be the increasing complexity
Figure 2 : Nintendo's Wii of video games, which required players to invest a
significant amount of their time to learn and play them
using increasingly complicated controllers with combinations of buttons and joysticks.
Consequently, occasional gamers with busy lives had stopped playing. Iwata saw that the video
game industry had largely ignored non-gamers and was focused on the existing players. He
decided to devise a radically new strategy as the foundation for leading Nintendo down an
unorthodox path.
The new strategy’s objective was to reach out to non-gamers in order to create a bigger
market. Nintendo first developed a new handheld gaming device called the DS that was launched
in 2004. The innovative design enabled gamers to play without using complicated sets of buttons
or a mini-joystick. The company then launched the Nintendo Wi-Fi Connection, an innovative
service that allowed DS system players to play with other users through a wireless network.
The deciding factor in Nintendo’s success was the video game console segment. With its
new strategy to capture non-gamers and expand the market, coupled with the lessons learned
from the DS handheld device, Nintendo developed its new console, the Wii, which arrived about
the same time as the rollout of Microsoft’s XBOX 369 and Sony’s PS3, and just in time for the
2006 holiday shopping season. The Wii was an impressive, well-designed, tiny machine that was
controlled with a wand-like controller that resembled a TV remote control. Motion detectors
would then translate the movement of the wand into on-screen action, enabling simulation of
real-life games such as tennis, bowling and boxing.
To promote the Wii, Nintendo adopted the same word-of-mouth strategy that had proven
successful in promoting the DS. The company “recruited a handful of carefully chosen suburban
housewives to spread the word among their friends that the Wii was a gaming console the whole
family could enjoy together. The Wii was also featured in the gamers’ self-made video, which
was then shared through YouTube and social networking sites. This once-experimental approach
was more effective than the traditional advertising or mass-media campaigns used by Sony and
Microsoft. The Wii proved to be a runaway success and by September 2007, Nintendo became
Japan’s most valuable listed company after Toyota.

2. Problem
Nintendo is a video game company with the big competitors included Sony and
Microsoft. In 2000, when Sony, Microsoft and Nintendo (the “big three” of the video game
console manufacturers) released their latest products, Sony’s PlayStation 2 (PS2) emerged as the
clear winner, outselling Microsoft’s XBOX and Nintendo’s GameCube. Nintendo was struggling
compete with Sony’s PlayStation (PS2) and Microsoft XBOX, but in the end the competition
continued to intensify and the PS2 also captured a significant portion of the video game market,
maintaining a dominant position in the Industry with XBOX in the second place. In 2004,
Nintendo DS was launched as a portable game and the DS was the huge success in market. But
then Sony uses the Nintendo’s strategy by making the portable game called PSP, then PSP stole
the spotlight as the market leader.
Since 2000, Nintendo had lost control of the fixed console market to Sony’s PS, with a
strategy to capture non-gamers and expand the market, coupled with the lessons learned from the
DS handled device, Nintendo developed its new console Wii, which arrived about the same time
as the rollout of Microsoft XBOX 360 and Sony’s PS3. However, it was the Wii that turned the
market upside down with its disruptive nature. How Nintendo can maintain its position in the
market as a market leader after releasing a new video game console Wii.

3. Internal Organization Analysis

3.1 Resources
Nintendo’s resources are divided into tangibles and intangibles resources. Tangibles
resources where the assets can be seen, touched and quantified. Intangibles resources where the
assets rooted deeply in the firm’s history, accumulated over time and can’t be seen or touched.

a. Tangible Resources
- Financial Resources
When the console became more expensive, Nintendo turned its hardware to a lower cost
by focusing on characters rather than special effects, developing Wii games needs cost about half
of its competitor was spending on XBOX and PS. This expense could be reached with much
lower sales of volume. Nintendo also equip each console with five simple and addictive games,
so the buyer would think because of the numbers of the games in one console, the product is at a
great price.

- Organizational Resources
The founder of the company is Fusajuri Yamauchi in 1889, the second president is
Sekiryo Yamauchi in 1929 and the third president is Hiroshi Yamauchi in 1949. After the
company had experienced some ups and down, in 2002 Nintendo appointed Satoru Iwata as a
president of the company with hope that Iwata would help the company to develop a brand new
vision and approach.

- Physical Resources
Nintendo had manufactory that located in Kyoto, Japan.

- Technological Resources
Nintendo got a lot of unique technologies from its various products such as in Nintendo
DS that equipped with touch screen and stylus. Nintendo also launched console and handheld
products, along with provided high quality graphics of games.
 3.1 Intangible Resources
- Human Resources
Nintendo recruited a handful of carefully chosen suburban housewives to promote
Nintendo Wii use word-of-mouth strategy to their friends. Besides, as a big company Nintendo
has more than 5000 employees (2017).

- Innovative Resources
Nintendo has so much innovative resources such as ‘Rumble Rak’ feature in N64
controller, touch screen features in handheld gaming products, Wi-Fi connection, and movement
detector in Nintendo Wii.

- Reputational Resources
Nintendo has been known as a video game company which the game is simple and easy
to play. In one product, Nintendo has various games that can be played by whole family member.

3.2 Capabilities
Capabilities are purposely integrated to achieve specific task. Capabilities are divided
into three classifications:
a. Adaptive capability
Adaptive capability is the capability to identify and re-respond the opportunity also
allocating resource to marketing activities. Nintendo has adaptive capability when Iwata
observed the video game market in Japan was shrinking. The key factor causing this reduction is
the increasing complexity of video games which required the player to learn and play them using
complicated controllers with combinations of button and joystick. This problem became
opportunity for Nintendo to make product that easy-to-use, quick to start up, and without an
elaborate joystick and wire.

b. Absorptive capability
Absorptive capability is used to evaluate and use the outside capabilities. Nintendo Wii
has a feature gamers’ self-made video, which can be share through YouTube and social
networking sites. This online feature was adopted from Sony and Microsoft features. Microsoft
had been launched XBOX Live, which it allows subscribers to play online XBOX games with
other subscribers around the world. While Sony also have PS3 which allows users to chat online.

c. Innovative capability
Innovative capability is the capability to develop new product or service. When Nintendo
launched N64 game system, Nintendo attached ‘Rumble Rak’ innovation for the N64 controller,
which enables the game players to feel vibrations while playing the game. In Nintendo DS, they
provided touch screen and Wi-Fi connection, an innovative service that allowed DS systems
players to play with other user through wireless network. When Nintendo Wii was launched,
they set the game scenarios to be based on real life situation, they made the controller easy to
hold like remote TV, then they provided such as baseball and tennis games which make the
player can feel the real life exercises/games using the controller.
 3.3 Core Competencies
Core competency is a business term used to describe the core advantages a company has
over their competitors. Core competency helps a firm develop competitive advantage by
focusing on the unique features or abilities of the firm that competitors find hard to copy, usually
by expertise and experience. There are two tools that firms use to identify and build on their core
competencies, which are :
a. VRIN Framework (Four Specific Criteria of Sustainable Competitive Advantage)
There are four criteria of sustainable competitive advantage. The criteria are Valuable
(V), Rare (R), Inimitability (I), and Non-substitutable (N).
- Valuable Capability
Nintendo can create a bigger market by reaching out non-gamers’ customers. Nintendo
has created various gaming which also suitable for non-gamers’ customers. By doing that,
Nintendo can reach out women and other family members who didn’t like playing game before.
They also use an easy-to-use controller like handheld controller which easy to use and increase
the experience appeal.

- Rarity
Nintendo offers capabilities with their own uniqueness that no other competitor used. The
capabilities is exergaming system, which was the combination of on-screen action with physical
exercise. This exergaming was introduced first in 1989 when Nintendo released the Power Pad
and Power Glove, but those accessories hadn’t sold well. Then Nintendo launched Wii which
introduced a whole new generation of exergaming.

- Inimitability
Nintendo have top software designers at the helm of hardware design. Nintendo’s console
were designed to suit the concepts of the games that would run on them, allowing creation of
early first-party titles that really showcased the hardware. This situation has a low chance to
imitate because it run with first-party titles.

- Non-Substitutable
Nintendo has non-substitutable capabilities, which is easy-to-use controller without
complicated combinations of button and joystick. Those capabilities define the value of
Nintendo.

b. Value Chain Analysis

Value chain analysis allows Nintendo to understand the parts of its operation that create
value and those that do not. Value chain analysis divided into primary and secondary.
 Figure 3 : Value Chain Analysis Diagram
- Primary Activities
- Inbound Logistics
All products are made in Japan, therefore there is no manufacturing plant in each
destination for the products. The products are sent in parts, then they will go through
assembly process in a sub-manufacturing plant. These sub-manufacturing plants are
available in each destination for the products. There is also DC in every destination. The
inbound logistics then would take more cost than the outbound logistics.

- Operations
Nintendo had a vertical integration, each company had own division. All
companies formed as the strong supply chain which able to ensure the delivery process
consistently for domestic and foreign markets, and also keeping the high inventories.

- Outbound Logistics
From each DC, product goes directly to the customers. Because of the spreading
distribution centers, the outbound logistics cost take less cost than the inbound logistics.

- Marketing and Sales

Nintendo has their own way to market their products by word of mouth way. The
company recruited a handful of carefully chosen suburban housewives to spread the word
among their friends that the Wii is a gaming console the whole family could enjoy
together.

- Service
Nintendo doesn’t have any service center. There is no specific outlet or stores that
they establish to sell their product either. However, Nintendo has websites and customer
line service to take customers’ suggestions, complains and problems
 - Support Activities
- Firm Infrastructures
Nintendo’s infrastructure is based on vertical integration. It has assembly factor in
every destination the products are shipped such as the United States. The sub-assembly is
manufactured in Japan. Therefore, Nintendo doesn’t have to import the parts from other
company.

- Human Resource Management

Nintendo recruited housewives as the advertising tools to spread the Nintendo Wii
with word-of-mouth method. Housewives are expected to secure the products so that the
whole family can use it.

- Technology Development
Nintendo launched console and handheld products. Nintendo also helped to
expand the “exergaming” which is a combination of gaming and exercising.

- Procurement
Nintendo doesn’t rely on the third party games developer. In fact they relied on
the first party game developer and make a game which is focusing on characters rather
than special effect. They also develop a simple but highly addictive game.

3.4 Competitive Advantages

The competitive advantages of Nintendo is to create a bigger market by reaching out non-
gamers’ customers. By creating bigger market, Nintendo can reach not only by gender (women)
but also other family members who didn’t like playing game before. Nintendo has created
various gaming which also suitable for non-gamer’s customers. They also use an easy-to-use
controller like handheld controller which easy to use and increase the experience appeal.

Figure 4 : Video Games That's Enjoyable For The Whole Family

3.5 Strength and Weakness

a. Strength
- Brand awareness already high and brand name already established.
- Have loyal customer based on their exclusive brand games.
- Company innovativeness has led the company to win the market competition.
 b. Weakness
- Left behind from their competitor in terms of technology, and the graphical interface.
- Nintendo tight control over game content making it hard to develop fresh new idea.
- Smaller game selection than competitors.

4 External Organization Analysis

4.1 General Environment
The general environment is the broader society dimensions that influence an industry and
the firms within it. It is grouped into 7 dimensions, which are :
a. Demographic
The market was shrinking, the occasional gamers with busy lives had stopped
playing, further for novices and non-gamers, the time required to learn and play these
games was a major deterrent for potential newcomers to join the camp.

b. Economic
Even though the economic environment is not on the great position, but it’s not
too affected the video games industry at that time. People are still willing to spend their
money on video games.

c. Political/Legal
The political and legal environment is not too affected the video games industry,
besides there’s no a special political/legal environment for the video games industry.

d. Sociocultural
People tend to form a loyal community, like to share their daily lives into internet
and people tend to make a healthier life with exercise and other things. That’s why there
is a new socio technological movement, which means a console product offering a greater
role in people lives than mere entertainment.

e. Technological
The first is technological advancement of the hardware console, particularly in
terms of faster processing speed, higher definition of video quality, and complexity
increasing of the games have become major improvement. The second is the availability
of broadband internet with its speed increasing, access into large quantities of data and
the sophistication increasing of HD video technologies have become major improvement
in technology.

f. Global
The outsourcing parts of console or the third party game developer are easier to
find around the world. Besides, the distribution is easier now with the improvement of the
internet system.

g. Physical Environment
The video game company uses a lot of plastic and metal resources for its
hardfware. Nowadays majority of people are environmentally aware. It’s important to
make a go green environment in a company.
 4.2 Industry Environment
The industry environment is set of factors directly influencing. It is relate to Porter’s 5
Forces.

a. Threat of New Entrants

There might be new entrants on the market, but Nintendo, Sony and Microsoft are the
biggest company in the console gaming industry. It’s quite difficult for new entrant to enter the
market and challenge the three of them.

b. Bargaining Power of Suppliers

Sony and Microsoft are producing the console gaming by their own, while Nintendo are
outsourcing nearly all production with strategy to have more than one supplier for the same part,
while maintaining the licensing. Today the suppliers don’t have the ability to develop themselves
to forward integration (even though Sony did this in 1995 when they want to be supplier for
Nintendo).

c. Bargaining Power of Buyers

The buyers of video games are both the existing gamer or non gamer. Most of them buy
the product to enjoy the entertainment feature of the product. They most likely buy just one of
the product and most likely the existing customer are loyal customer.

d. Threat of Product Substitutes

Playing enjoyable games could be done in smartphone, handled gaming or other type of
games. But it is hard to find the substitute game to enjoy that have a total entertainment with
technological advancement of some games that can only be played in console.

e. Intensity of Rivalry
It is known that Nintendo, Sony and Microsoft are the “big three” of the video game
console market and they have been trying to be the leader in console gaming industry. Therefore,
they will do all they can to be the leader in the console gaming industry.

4.3 Competitor Environment

a. Analyzing the Competitor Environment
To analyze the competitor environment, there are some competitor analysis component that
need to be explained, which are:
- What drives competitors?
The relentless pursuit of superior technologies became their driver in the competition.
Creating console gaming that has more technological advancement, particularly in terms of high
definition and increasing the complexity of the games.

- What the competitors is doing and can do?

They developing and create the very technological advancement game console. They
have been continuing their previous strategy of increasing the computing power of new product
and adding more impressive graphical interface, while still focusing on existing gamers, but
completely neglecting non-gamers.
 - What the competitors believes about the industry?
They didn’t realize that the market is shrinking because the increasing of video games
complexity. They still believe that to be a leading console gaming company they need to focus
on existing gamer and improve the technological side of the console, also increasing the
complexity of the video games.

- What the competitor’s capabilities are?

They are able to make a game console with advance technology in computing and
graphical interface. They create console that can all encompassing home entertainment centers.
Besides, they are able to spend a large sum of money to develop games with third party
developer.

b. Attributes and Benefits of Existing Game Console (Before Wii)

There are two main competitor of Nintendo. They are Sony with PlayStation, and
Microsoft with XBOX

Figure 5: Two main competitors of Nintendo Wii, Sony PlayStation and Microsoft XBOX

Nintendo first launched the Wii in 2006 as a strategy for Nintendo against Sony PS3 and
Microsoft XBOX 360. One generation before Nintendo Wii, they already famous with Nintendo
DS that was launched in 2004. Nintendo DS or we can say as “double screen” is the first
Nintendo’s developed new handheld gaming device with touch-screen that gamers could tap or
write with stylus feature. Other feature is Nintendo DS had Wi-Fi built in that allowed users play
with other users through a wireless connection. The innovative design also enabled gamers to
play without using complicated sets of buttons or a mini-joystick. This Nintendo DS is a prove
that Nintendo really care about company innovation.
Back in 1970s video game industry in a form of arcade games was popular among
teenagers. This was bought from players such as Atari and Namco. In the 1980s and early 1990s
new players increasing popularity of PC (personal computer), although the market was affected
by the introduction of PC video game makers achieved steady growth.
Target customer of video game consoles was narrowly confined to teenagers. Sony with
PlayStation in 1990s revolutionized the perception of video game consoles and successfully
captured new players. Video gaming suddenly became the new popular entertainment. It was
especially well received by young adults, mostly males in their late 20s or early 30s.
In 2000 Sony launched the PS2 when Microsoft started to release the first video game
console in 2001 called XBOX. With the new socio-technological movement and a wider
audience base, the big video game console markers such as Sony and Microsoft began to realize
that there were new opportunities for their video gaming and console product offering.
 Below is the explanation of each video gaming companies before the release of Wii :
- SONY

Figure 6 : Sony’s PlayStation 1

When the company first introduced the PlayStation in 1994-1995, it brought the
technology of video gaming to a whole new level. With Sony’s strategy of attracting
older teenagers and young adults by offering more sophisticated and often more violent
games, the PlayStation dominated the market. PlayStation2 was released in 2000 and
completely won over the video game market. For most people who bought the PS2, it
was their first DVD player. In order to compete against Nintendo, the ruler of the
handheld video game market Sony introduced the PSP (PlayStation Portable).

- MICROSOFT

Figure 7 : Microsoft's XBOX

Microsoft released the XBOX in 2001 when they recognized the remarkable
success of Sony’s PS2. This Microsoft XBOX was launched to compete directly with
Sony’s PS2 and Nintendo’s GameCube. The previous success of Sony’s PS2 was partly
due to its advantage in reaching the market earlier than its rivals.
- NINTENDO

Figure 8 : Nintendo's GameCube

Nintendo adopted a vastly different viewpoint about the industry’s future
development in the game industry. In 2006 before launching the Wii, Nintendo observed
that the video game market in Japan was shrinking. The key factor causing this reduction
appeared to be the increasing complexity of video game, which required players to invest
a significant amount of their time to learn and play them using increasingly complicated
controllers with combinations of buttons and joysticks. The video game industry had
ignored the non-gamers and focused on the existing players. Those were a major
deterrent for potential newcomers to join the camp.
Before Nintendo released the Wii, most of gaming console such as Sony and
Microsoft targeting customer narrowly for teenagers. They armed with insightful
targeting and positioning, image conscious branding and superb graphics technologies.
The introduction of Sony PS in the mid 1990s video gaming suddenly became the new
popular entertainment and received well by young adult, mostly males in their late 20s
and early 30s. When Sony launched the PS2 in 2000, Microsoft launch their video game
console called XBOX in 2001.
As the dramatic the social and technological change, the video game console
makers such as Sony and Microsoft began to realize that there were new opportunities for
their video gaming and console product offerings, which would play a far greater role In
people’s lives than mere entertainment.
The availability of the broadband Internet, increasing sophistication of HD video
technology and decreasing cost of hard-drive storage, video game console manufacturers
such as Sony and Microsoft created a console that not for gaming only. They created
game consoles that encompassing all home entertainment centers. These consoles
developed and offered online libraries as a new service enabling users to download and
stream a variety of movies, music and television shows through their consoles.
As top-quality video materials became more readily available through HD
broadcasting and Internet downloads, a new recording medium with increased storage
capacity was required. Two formats, the Blu-ray format developed by a consortium led
by Sony.
Console makers provide similar social-networking or virtual-world services to get
online gamers to play, connect and form loyal communities. Such communities were
expected to help create a perpetual demand for services and products created by the video
game makers and their alliance partners. In fact, in-game advertising had already started
and offered a new revenue stream to video game developers.
 As the consoles became more expensive, the cost of developing games for the
also increased. Nintendo turned its lower-cost hardware into another competitive
advantage by focusing on characters rather than special effects.
Nintendo thrown in five simple but highly addictive games so that buyer getting a
complete product at a great price. They also focused on developing first-party titles.
While Sony and Microsoft incurred losses on the consoles they sold despite their high
price and sold their games with high licensing royalties. Sony and Microsoft also relied
heavily on third parties to develop titles.
In the end, Nintendo created a new strategy objective to reach the non-gamers in
order to create the new bigger market.

4.4 Opportunity and Threat

a. Opportunity
- The non-gamers segments are being look away by other competitor.
- There are many independent games developer.
- People are already familiar with their exclusive game character.

b. Threats
- Other competitor can imitate Nintendo strategy.
- The threat of other substitute of gaming console which can target the non-gamers
customer.
- Nintendo strategy to focusing on character rather than special effect may make some
gamers do not want to buy the product.

5 Segmenting, Targeting, Positioning

5.1 Segmentation
When releasing the Wii in 2006, Nintendo clearly need to choose differentiation itself
from its competitors, based on segmentation of geographic, demographic, psychographic and
behavioral. Below is the explanation of the segmentation:

a. Geographic Segmentation
Geographic segmentation calls for dividing the market into different geographical units
such as nations, states, regions, counties or neighborhoods. The geographic segmentation of
Nintendo is actually all around the world across nations and the major markets for Nintendo are
in United States and Japan.

b. Demographic Segmentation
Demographic segmentation is divided into groups on the basis variables such as age,
family size, family life cycle, gender, income, occupation, education, religion, race, generation,
nationality and social class. The demographic segmentation of Nintendo are based on age, family
life cycle where the whole family can enjoy the game, gender and people who is non-gamers or
existent gamers.

c. Psychographic Segmentation
Psychographic segmentation is divided into different groups on the basis of lifestyle or
personality or values. The psychographic segmentation of Nintendo are the people with busy life
or not, people who want games who is easy or hard to play and people who want games that
based on real life situation or fantasy.

d. Behavioral Segmentation
Behavioral segmentation is divided into groups on the basis of their knowledge of,
attitude toward, use of, or response to a product. The behavioral segmentation of Nintendo are
the people who like to play alone or with other people.

5.2 Targeting
Based on Nintendo’s segmentation, Nintendo’s targeting are :
- All age
- All gender
- Existing players and non-gamers
- Young, adults and all family members
- Active, social people, looking to do things with friends or family
- People who don’t like complicated games
- People who want games that based on real life situation

5.3 Positioning
Actually Nintendo positioned Wii as “A machine that puts smiles on surrounding
people’s face”. Nintendo make Wii as a gaming console that can be play by everyone and
together, as a machine that easy to set up and to play and as a gaming console the whole family
could enjoy together. Besides, Nintendo positioned Wii as “A device to do some physical
exercise”. Nintendo make Wii as gaming console that largely based on real life situation.

6 Value Proposition
Nintendo addresses needs by putting forth a value proposition, which is a set of benefits
they offer to customers to satisfy their needs. Nintendo’s value propositions are:
- Easy to use anytime (portable)
- Easy to play by everyone
- Games that bring the whole family together
- Games that support movement and exercise
- Games that can only be played on Wii
7 SWOT Analysis
7.1 SWOT and TOWS Analysis

Table 1 : SWOT and TOWS Analysis

Strength Weakness
Internal - Brand awareness - Left behind from
already high and brand their competitor
name already in terms of
established. technology, and
- Have loyal customer the graphical
based on their interface.
exclusive brand games. - Nintendo tight
- Company control over
innovativeness has led game content
External the company to win the making it hard to
market competition. develop fresh
new idea.
- Smaller game
selection than
competitors.
Opportunity Strength – Opportunity Weakness –
- The non-gamers - Company innovation Opportunity
segments are makes Nintendo - Nintendo should
being look away product had own cooperate with
by other market that none more
competitor. competitors reach yet. independent
- There are many - Iconic game characters game developer.
independent and sustainable - Nintendo should
games developer. gameplay makes developing the
- People are already customer loyality graphic if
familiar with their became higher. competitor with
exclusive game - The uniqueness and higher
character. familiarity of their specification
products are made for enter the same
gamers and non- market.
gamers.
Threat Strength – Threat Weakness –Threat
- Other competitor - Nintendo should - Nintendo
can imitate increasing the quality shouldn’t have
Nintendo strategy. of the graphic, because tight game
- The threat of there are gamers that content, because
other substitute of prioritize the special nintendo might
gaming console effect. Also, this may be lost in
which can target make customers don’t gaming console
the non-gamers easily get bored. competition.
customer. - Nintendo should - Nintendo should
 - Nintendo strategy expand their market create back up
to focusing on segment so they strategy and
character rather wouldn’t lost their innovative
than special effect customer. product if
may make some someday
gamers do not competitor
want to buy the imitate the same
product. strategy as
Nintendo.

7.2 Quantification of SWOT and TOWS Analysis

Table 2 : Internal Factor (Strength and Weakness)
Internal Factors Weight Rating Weighted Score
Strength
Brand awareness 0.21 4 0.84
already high and
brand name already
established.
Have loyal customer 0.17 3 0.51
based on their
exclusive brand
games.
Company 0.20 4 0.8
innovativeness has
led the company to
win the market
competition

TOTAL 2.15
Weakness
Left behind from 0.22 4 0.88
their competitor in
terms of technology
and the graphical
interface.
Nintendo tight 0.10 2 0.2
control over game
content making it
hard to develop fresh
new idea.
Smaller game 0.10 2 0.2
selection than
competitors.
TOTAL 1.28
Additional information on internal factor rating :
4 : Major strength
3 : Minor strength
2 : Minor weakness
1 : Major weakness

Table 3 : External Factor (Opportunity and Threat)

External Factors Weight Rating Weighted Score
Opportunity
The non-gamers 0.22 4 0.88
segment are being
look away by other
competitor.
There are many 0.11 2 0.22
independent games
development.
People are already 0.10 2 0.2
familiar with their
exclusive game
character.
TOTAL 1.3
Threat
Other competitor can 0.19 4 0.76
imitate Nintendo
strategy.
The threat of other 0.22 4 0.88
substitute of gaming
console which can
target the non-
gamers customer.
Nintendo strategy to 0.16 3 0.48
focusing on
character rather than
special effect may
make some gamers
do not want to buy
the product.
TOTAL 2.12

Additional information on external factor rating :

4 : Very good response
3 : Above average response
2 : Average response
1 : Below average response
 7.3 Position of the Company
Below is the result of SWOT and TOWS Quantification :
a. Total Weighted Score
- Strength = 2.15
- Weakness = 1.28
- Opportunities = 1.3
- Threat = 2.12

b. Coordinates Analysis
Internal Analysis Coordinates = Total Score of Strength – Total Score of Weakness
AXIS X = 2.15 – 1.28
= 0.87

External Analysis Coordinates = Total Score of Opportunity – Total Score of Threat

AXIS Y = 1.3 – 2.12
= -0.82

Nintendo’s Coordinates = (0.87 , -0.82)

Opportunity

II I
Stability Growth
Weakness Strength

III IV
Restructuring Diversification

Threat

Based on Nintendo’s coordinates, it is known that Nintendo is in diversification strategy.

Diversification is a corporate strategy to enter into a new market or industry in which the
business doesn't currently operate, while also creating a new product for that new market. The
deciding factor in Nintendo’s success was the video game console segment. With its new
strategy to capture non-gamers and expand the market, coupled with the lessons learned from the
DS handheld device, Nintendo developed its new console, the Wii.
8 Strategy Canvas
Strategy canvas is to capture the position of Nintendo in the market, so we will
understand diagnostic and an action framework for building Wii’s blue ocean strategy. There are
two main purposes, first determine where the competition will invest, second is to know the
customer perception after the Wii launched. The vertical axis describes the value derived from
each of the attributes the industry competes in (horizontal axis).
We have identified the following range of attributes that seem to be defining of the video
game industry:
- DVD/HD-DVD Playback
- Graphic and Resolution
- The Complexity of Video Game
- Hardware Accessories
- Fitness and Sport
- Social Gaming
- Wireless Controller
- Backward Compatibility
- Web Download and Online
- Price
- Self-Made Video
- Motion Detectors
- Character Customization
Above are the attributes that are competed in the video game industry as well as the
attributes that continue to be developed or invested in order for the video game company can
survive.

Figure 9 : Video Gaming's Strategy Canvas

Note :
0 = None
1 = Low
2 = Medium
3 = High
 The graphic illustrates the attributes of Sony’s, Microsoft’s and Nintendo’s console after
launching of Wii. From the graphic above, we can see that Nintendo adopted a vastly different
viewpoint about the industry’s future development. The Wii is cheap because they don’t include
the DVD and Hard Disk. Nintendo also had the lowest Graphic and Resolution compare with the
other competitor. But, Nintendo had easy to play because the game itself mostly are simulator
games (based on real life), so the players not required to invest a significant amount of their time
to learn and play them using increasingly complicated controllers with combinations of buttons
and joystick. Wii launched the motion detector as an innovative product and became Wii’s
strength. The motion detector is integrating the movements of a player directly into video game.
Wii also had a feature to create and customize players for making their own avatar based on the
real life. With this feature, Nintendo is trying to bring non core gamers back to gaming with
focuses on the consumer’s feeling rather than its product because Wii aims at meaning fun.
The descriptions above are the characteristic of Blue Ocean Strategy that make Nintendo
market leader of video game industry :
- Had value innovation that became a strength (motion detector)
- Cost reduction (eliminated DVD/ Hard Disk)

9 Blue Ocean Strategy

The video gaming market is a multi-billion dollar business. A video console, which is a
big chunk of that market, are currently dominated by two giants : Sony with its PlayStation (PS1,
PS2 and PS3) and Microsoft with its XBOX (XBOX and XBOX360). As we know from the
case, the industry was shrinking due to its ignorance of the casual and non-gamer population.
Complexity of games and complexity of controllers make casual, novice and non-gamers would
not invest the time to play. Nowadays product could not be only for gamers, but it has to be for
everyone both gamer and non-gamer to create a bigger market. Itawa decided to devise a
radically new strategy as the foundation for leading Nintendo down an unorthodox path.
Nintendo’s introduction of the Wii gaming systems that allowed the company to take an
innovative and commanding stance in the video gaming industry.
From what Nintendo have done, they adopted different viewpoint about the industry’s
future development. Since then, the industry focus on outperformed each other, become the
market leader and increasing the existing gamers described as a Red Ocean, beside that Nintendo
didn’t use competition as their reference. Instead, they follow a different strategic logic step
called value innovation. Value innovation is the base of the Blue Ocean Strategy. Blue ocean
strategy is strategy that generally refers to the creation by a company of a new, uncontested
market space that makes competitors irrelevant and that creates new consumer value often while
decreasing costs.
To reconstruct buyer value elements in crafting a new value, there are four actions
framework of Blue Ocean Strategy :
 Eliminate Raise
•DVD/HD-DVD Playback •Hardware Accessories
•Wireless Controller
•Social Gaming
•Fitness and Sport
•Backward Compatibility
•Web Download and
Online Play

Reduce Create
•Price •Motion Detectors
•Graphic and Resolution •Character Customization
•Complexity of Game •Self-made Video

Figure 10 : The Four Actions Framework of Blue Ocean Strategy in Wii Gaming Systems

a. Eliminate (What factors should be eliminated that the consumers don’t require?)
Nintendo eliminates the most expensive elements which are DVD/HD-DVD Playback
components that also have the connection with reducing the price.

b. Raise (What factors should be raised well beyond the industry standard?)
More than a year after the Wii launch, Wii expand “exergaming,” which was the
combination of on-screen action with physical exercise. Nintendo released the simulator games
for fitness and sport which called Wii Fit with additional hardware accessories (Power Pad and
Power Glove) for its gaming console. Now, with introduction of the Wii into millions of
households, boxing, tennis, bowling, golf and baseball games would require players to act out the
physical movements involved in these sport. Some games are specially designed to interact with
the board, thus also driving game revenue.
Besides, Nintendo positioned the Wii as a social gaming that can puts smiles on
surrounding people’s faces, encouraging communication among family members as each of them
found something personally relevant and were motivated to turn on the console every day in
order to enjoy “the new life with Wii.” The Wii could also be connected to the internet for
online news and weather updates and to access Nintendo’s classic game catalogue which could
be downloaded from the Web.

c. Reduce (Which factors should be reduces well below the industry standard?)
Nintendo reduce the complexity of video game that required players to invest significant
amount of their time to learn and play them using complicated controllers with combinations of
buttons and joysticks by create the motion detectors would then translate the movement of the
wand into on-screen action (without an elaborate joystick and wire), enabling simulation of real-
life games such as tennis, bowling and boxing. Besides, Nintendo focus on reducing the price by
eliminating some expensive elements.
 d. Create (What factors should be created that the industry has never offered?)
The motion detectors makes hardware much more necessary at the Wii platform than any
of its competitors; and the accessories (driving wheel, sword, blaster, fishing rod) become the
new experience for the gamers. The Wii could also be connected to the internet for online news
and weather updates and to access Nintendo’s classic game catalogue which could be
downloaded from the Web and invite friends to share their customized characters. Besides, the
Wii could also featured in the gamers’ self-made video, which was then shared through YouTube
and social networking sites. This once experimental approach was more effective than the
traditional advertising or mass-media campaigns used by Sony and Microsoft. The Wii could
also be connected to the internet for online news and weather updates and to access Nintendo’s
classic game catalogue which could be downloaded from the Web and invite friends to share
their customized characters and be in constant contact, which could be downloaded from the
Web.
Wii was able finally to implement their blue ocean strategy because their strategy is fit
the situation in the market at those times, they are able to make value innovation that attract the
non gamers people that haven’t been able to attracted to the video games industry. Even
successfully to affect several industries as a whole that have not been attracted to video games
before.
One of the example is like the family market, as previous video games only attract the
teenager because of the violent and hardness of playing the video games, because of the easiness
in playing Nintendo’s Wii and the ability to become console that can unite the family as a whole,
then many parents bought the Wii, even the marketing strategy that Nintendo Wii uses is a
mouth-to-mouth strategy from a suburban housewives.
Other industries that have been attracted by Nintendo Wii are health industry and small,
independent software producers, etc. these industries actually did not able to attracted to video
games before, but with Nintendo Wii value innovation and their improvement to make video
games easy to use and have a utility for fitness too, then these industries finally use the video
games too and complement their value in the industry. these new industries that Nintendo have
been able to attracted, become Nintendo Wii greatest factor to successfully implement the blue
ocean strategy through value innovation.

10 Disruptive Strategy
The Blue Ocean Strategy that Nintendo use to implement for Wii is disruptive strategy
which results in Disruptive Technology. The term “disruptive technology” was made because for
some leading companies despite having followed all the right practices (i.e. keeping a close
watch on competition, listening to their customer, and investing aggressively in new technology),
they still lost their top position when confronted with disruptive changes in technology and
market structure. While keeping close to customers was critical for current success, it was
paradoxically also the cause for company’s failure to meet the technological demands of
customer in the future. To remain at the top of their industries, managers must be able to spot
disruptive technologies. To pursue these technologies, managers must protect them from the
processes and incentives that are geared to serving mainstream customers. And the only way to
do that is to create organizations that are completely independent of the mainstream business.
Nintendo disruptive strategy affects several industries which had not correlated each
other before:
 1. In December 2007 Nintendo released Wii Fit (an extension of the Wii for exercise
activities utilizing the Wii Balances Board peripheral). Wii fit aimed to integrate
health and entertainment and featured approximately 40 different activities. It was
described as a way to help get families to exercise together. Its effect on the health
industry was already evident, with doctors and therapists recommencing it for various
purposes. Such as body balance, strength training, keeping patients interested in
performing repetitive and tedious exercises, and for the elderly to enjoy expanding
their ranges of motion. Then Nintendo made a new gaming market that target people
in health industry, also the customer that can not only be reach by the previous
technology provided by the competitors. Within six months of being released, the
product had sold two million copies in Japan and had long queues waiting for its
delivery in many parts of the world.
2. In May 2008, Nintendo made the strategic move of loosening its traditionally tight
control over content by launching WiiWare in the United States and Europe,
capturing potentially a new market for small, independent software producers.
WiiWare is an online channel for distributing downloadable games, enabled users to
download new games by independent developers.
Nintendo’s Wii disruptive strategy by using disruptive technology had revolutionized and
changed the nature competition, and not just in the video game industry. Nintendo disruptive
technology also capturing other industry which before did not correlated each other, like the
health industry and also capturing small, independent software producers.

11 Implementation
Microsoft introduced the XBOX 360 in November 2005, and Nintendo also Sony
followed about a year later with the Wii and PS3. In May 2008, Microsoft announced that its
XBOX 360 game machine had beaten the Wii and PS3 to reach 10 million units in US sales.
This happened due to the selling of Microsoft’s XBOX that started first, the head start of several
months in selling the XBOX 360 gave Microsoft an edge over Sony’s PS3 and Nintendo’s Wii.
The lead time also helped Microsoft and its partners build a vast library of games, which was a
major factor for consideration when gamers chose a particular console.
However, within a month of Microsoft’s announcement that it was the leader in the US
console war, in June 2008 figure were released and it was evident that the Wii had usurped the
XBOX 360 as the leader. This situation matched exactly about how the disruptive strategy is
implemented, as in the short run the strategy seems might result in bad performance, but in the
long run as times goes by the strategy started to give good result.
A total of 10.9 million Wiis were sold in the US since its launch in November 2006,
whereas a total of 10.4 million of XBOX 360 were sold since its launch a year earlier. The PS3
came in a distant third with 4.8 million units sold. In US which were Nintendo’s largest market,
the Wii had taken off the fastest by selling 600.000 units in the first eight days, generating
US$190 million in sales. In fact, because of its high demand and market buzz, many consumers
found it difficult to get their hands on the machine even months after the launch. The same story
about demand existed in other parts of the world, and Nintendo emerged as the clear month-on-
month leader with the outstanding success of its new console.
In terms of profitability, Nintendo was in an enviable position of making a profit on each
Wii console sold from the first day. Sony on the other hand, had already slashed the price of PS3
by US$100 to US$499 to help boost sales of the console. This was still US$20 more than
Microsoft’s most expensive version of the XBOX 360 and about twice the price of Nintendo’s
Wii. From the income statement of Nintendo, it can be seen that after the release of Nintendo
Wii, Nintendo revenue growth is almost increasing 300% compare to the Nintendo’s revenue
before the released of Nintendo Wii. The stat is more marvelous when seeing the gross profit
growth of Nintendo that above 300%. Lastly the net income growth of Nintendo is just above
150%. These stats proved that the disruptive strategy of Wii console helped Nintendo to reach a
very great growth rate of the company, and proved that Nintendo Wii is a very successful
console that helped Nintendo as a company to achieve a very high growth rate.
It was becoming clear that, in this latest battle between the XBOX 360, Sony’s PS3 and
Nintendo’s Wii, Nintendo with their disruptive strategy was the clear winner of the game console
wars.
Table 4 : Sales Figure of Wii, PS3, and XBOX 360 in Worldwide
Month XBOX 360 Nintendo Wii Sony PS2 Sony PS3
Sep-06 446 0 859 0
Oct-06 431 0 793 0
Nov-06 1263 1068 2016 516
Dec-06 2028 2418 3282 843
Jan-07 692 1308 981 546
Feb-07 648 1315 954 389
Mar-07 438 900 708 954
Apr-07 395 1060 648 530
May-07 482 1522 746 418
Jun-07 392 1245 647 298
Jul-07 350 1371 735 419
Aug-07 636 1612 882 609
Sep-07 837 1149 754 428
Oct-07 1007 1234 699 632
Nov-07 1516 2698 1334 1525
Dec-07 2215 4267 2456 2389
Jan-08 1064 2961 1271 1480
Feb-08 648 1606 830 948
Mar-08 710 1730 765 929
Apr-08 886 2545 668 1189
May-08 796 2331 488 939
Jun-08 618 1921 499 995
Total 18498 35596 23015 15981

Table 5 : Sales Figure of Wii, PS3, and XBOX 360 in the United States
Month XBOX 360 Nintendo Wii Sony PS2 Sony PS3
Sep-06 259 0 300 0
Oct-06 217 0 235 0
Nov-06 511 476 664 197
Dec-06 1132 604 1400 491
Jan-07 294 436 299 244
Feb-07 228 335 295 127
Mar-07 199 259 280 130
Apr-07 174 360 194 82
May-07 155 338 188 82
Jun-07 198 382 270 95
Jul-07 170 425 222 159
Aug-07 277 404 202 131
Sep-07 528 501 215 119
Oct-07 366 519 184 121
Nov-07 770 981 496 466
Dec-07 1260 1350 1100 798
Jan-08 230 274 264 269
Feb-08 254 432 352 281
Mar-08 262 721 216 257
Apr-08 188 714 124 187
May-08 187 675 133 209
Jun-08 220 667 189 406
Total 8079 10853 7822 4851

Table 6 : Nintendo's Selected Income Statement from 31 March 2006 until 31 March 2008
March 31, 2006 March 31, 2007 March 31, 2008
Revenues 4736 8988.8 15553.5
Gross Profit 2000.6 3699.7 6510.6
Operating Income 849.3 2105.2 4532.8
Net Income 914.9 1620.9 2393.3

US Console Sales Month-to-Month

1600
1400
1200
1000
Microsoft Xbox 360
800
Sales

Nintendo Wii
600
Sony PS2
400
200 Sony PS3

0
Mar-06
-200 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08
Month
Figure 11 : US Consoles Sales Month to Month Line Chart
 US Console Sales Month-to-Month
1600
1400
1200
1000
800
600
400
200
0
Jul-06 Oct-06 Jan-07 Apr-07 Aug-07 Nov-07 Feb-08 Jun-08 Sep-08

Nintendo Wii Sony PS2 Sony PS3 Xbox 360

Figure 12 : US Console Sales Month to Month Scatter Plot

US Market Share

15%
26%

25%

34%

Xbox 360 Nintendo Wii Sony PS2 Sony PS3

Figure 13 : US market share pie chart after the release of Wii

 US Total Console Sales

12000 10853

10000
8079 7822
8000

6000 4851

4000

2000

0
Xbox 360 Nintendo Wii Sony PS2 Sony PS3

Figure 14 : US total console sales bar chart after the release of Wii

US Total Console Sales

SONY PS3 4851

SONY PS2 7822

NINTENDO WII 10853

XBOX 360 8079

0 2000 4000 6000 8000 10000 12000

Figure 15 : US Total Console Sales Clustered Chart After the Release of Wii
 Worldwide Console Sales Month-to-Month
4500
4000
3500
3000
2500 Microsoft Xbox 360
Sales

2000 Nintendo Wii

1500 Sony PS2
1000
Sony PS3
500
0
Mar-06
-500 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08
Month
Figure 16 : Worldwide Console Sales Month to Month Line Chart

Worldwide Console Sales Month-to-Month

4500
4000
3500
3000
2500
2000
1500
1000
500
0
Jul-06 Oct-06 Jan-07 Apr-07 Aug-07 Nov-07 Feb-08 Jun-08 Sep-08

Nintendo Wii Sony PS2 Sony PS3 Xbox 360

Figure 17 : Worldwide Console Sales Month to Month Scatter Plot

 Worldwide Market Share

18% 20%

24%
38%

Xbox 360 Nintendo Wii Sony PS2 Sony PS3

Figure 18 : Worldwide Market Share After the Release of Wii

Worldwide Total Console Sales

40000 36261

35000
30000
23015
25000
18498
16976
20000
15000
10000
5000
0
Xbox 360 Nintendo Wii Sony PS2 Sony PS3

Figure 19 : Worldwide Total Console Sales After the Release of Wii

 Worldwide Total Console Sales

SONY PS3 16976

SONY PS2 23015

NINTENDO WII 36261

XBOX 360 18498

0 5000 10000 15000 20000 25000 30000 35000 40000

Figure 20 : Worldwide Total Console Sales After the Release of Wii

Nintendo's Revenue Trend

18000
16000
14000
12000
10000
8000
6000
4000
2000
0
31 March 2006 31 March 2007 31 March 2008
Figure 21 : Nintendo's Revenue Trend Before and After the Release of Wii
12 Conclusion
From the Wii product, Nintendo proved to be a runway success. By September 2007,
Nintendo became Japan’s most valuable listed company after Toyota, at US$72 billion in market
value, nearly tripling in value since the launch of the Wii. Harvard Business School
Professor Clayton Christensen, the architect of and the world's foremost authority
on disruptive innovation believed that leading companies, despite having followed all the right
practices (keeping a close watch, listening to the customers and investing aggressively) still lost
their top position when confronted with this disruptive changes strategy in market. He suggested
that while keeping close to the customers for current success, it was paradoxically also the cause
for the companies’ failure to meet the technological demands of the customers in the future. If
Nintendo wants to be a market leader for a long time, Nintendo have to create new
differentiation with special value.

Reference :
Joshi, Havovi Samuel Tsang. Case 28 Nintendo’s Disruptive Strategy : Implications for the
Video Game Industry. The University of Hong Kong, Asia Case Research Centre