A change in strategy

at Nintendo
Index

Introduction
Market analysis
Nintendo before the change
The change
Post-change analysis and benefits
Nintendo today & Recommendations
References
 Introduction

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 Nintendo in few words

• One of the three largest video game companies

• Workforce ≈ 5,000

• Based in Kyoto, Japan

• Foundation: 1889

• Three large markets: Japan, Americas and Europe

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 The industry

Consoles Games

Accesories

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 The industry

Home Handheld

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 Market

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Market overview

» Red Ocean strategy

• Compete in existing market space

• Focus on gaining market share and outsell competitors
• Exploit existing demand

Defend current position and beat the rest

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
The Market: industry strategy

» Industry evolving in technological cycles product generations

(currently at 7th generation)

Generation X
Incremental
Change

life cycle
Disruptive Revolution
Generation Y
Incremental life cycle

» Generation life cycle shortening

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
PESTLE analysis

LEGAL → Piracy, intelectual property issues,

content age restriction

SOCIAL → Population Ageing

ENVIRONMENTAL → Environmentally friendly

materials recycling
packaging

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 Nintendo

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Nintendo before the change

» Competition is based on technology performance

» Gaming consoles are sold at a loss
» Suffering years of declining market share and shrinking markets margins
» GameCube is out-competed by Xbox and Playstation 2

Specification Comparison 2004

Console Xbox GameCube Playstation 2
Main Processor 733MHz 485MHz 295MHz
Release Date Nov 15, 2001 Sep 15, 2001 March 4, 2000

Source: Own work based on NPD Group Data Base

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
SWOT 2004

STRENGTHS WEAKNESSES

• Reputed brand • Financial difficulties

• Global enterprise • Strong supply chain dependency
• Best sellers are first-party • Targeting low margin and narrow
segment
• Exclusive games empower brand
• Less capabilities (DVD, music...)
• Backward compatibility
• Handheld market leadership

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
SWOT 2004

OPPORTUNITIES T H R E AT S

• Emerging network technologies • Fierce competition

• Growing industry • Quickly changing demand
• Big potential market (casual • Emerging network technologies
players)
• Short product lifecycle
• Backward compatibility
• Merchandising
• Increasing purchasing power

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Nintendo 2004

Game Console sales (units)

Follower in a
60

50
Red Ocean
40
Millions of $

Microsoft
30
Nintendo
Sony
20

10

0
2003 2004 2005

Source: Own work based on Seeking Alpha article

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 Change

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Change Drivers

» The lifecycle of the 6th generation consoles is nearly over

• 7th generation, strong consoles are coming

• Dead-end strategy
• Poor market focus (7-16 segment)

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Change

»TIME TO REACT !!!

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Blue Ocean Strategy

Strategy focusing on creating new demand in places where

there is none, thus making the pie bigger instead of fighting
over whom gets the largest slice of the pie.

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Blue Ocean Strategy

The Wii : Radical changes to the strategy

1. Game Play

2. New Approach

3. New Consumers

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
1. Game-Play

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
1. Game-Play

» Focus on a more user-oriented strategy (controllers)

» The wireless controller "liberates" gamers

» Endless options (Kart wheel, fishing rod, shield and sword, blaster)

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
2. New Approach

» Game-packs giving many hours of fun and entertainment in a

highly competitive, mobile and fitness-oriented environment.

• Wii Sports package

• Wii Fit

• Just Dance

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
3. New consumers

» From a younger audience into the “casual gamers” category

“More casual players aren't as likely to be attracted by

hardware features, so it's all about delivering a
fun, easy-to-use and addicting game experience”

A. Frazier, Video Game analayst NPD Group (Source Forbes)

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
3. New Consumers

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 Benefits

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Benefits

Complementary Benefits
» Wider customer profile bring more money

» Competitive advantage on cost

» Brand awareness increase

Core Benefits
» Sales explosion

» Profits as never before

Nintendo today &
Introduction Market Nintendo Change Benefits
Recommendations
Price Decrease

Release Pricing (US)

Xbox 360 PlayStation 3 Wii

$279
Low-end model n/a n/a
(Xbox 360 Arcade)

$349 $399
Mainstream model $249
(Xbox 360) (PlayStation 3 40 GB)
$449 $499
High-end model n/a
(Xbox 360 Elite) (PlayStation 3 80 GB)

Specifications

Xbox 360 PlayStation 3 Wii

Micro Processor 3,2 GHZ /3Dual Core 3,2 GHz/ 7 Core 729MHz 5 Core

Video Memory Bandwith 21,6 GBps 22,4 GBps 3,9 GBps

512 MB GDDR3 265 MB XDR RAM

Main System RAM 64 MB GDDR3
(700MHz) (3GHz)

12x Dual-Layer DVD HD DVD

Optical Drive Blue Ray Proprietary Optical drive
Drive

Source: Own work based on NPD Group Data Base

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Non-conventional uses

» Fight obesity
» Used for medical rehabilitation

“Helps with range of motion

and helps me extend and
push it as far as I can go”
Chris Schroeder, 24, Walter Reed Army
Medical Center

» Used in retirement homes

"But once they get it, you can see the change in some people.
They are more talkative and have a sense of humor. There's a lot
of joking going on in here."
Earl Davis, 73, retired Marine, USA Today

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Sales Increase

Console sales in the US

16

14

12
Millions of units

10

8 Xbox 360
Wii
6 PS3

Source: Own work based on NPD Group Data Base

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Profit Increase

Overall Nintendo Profit

3000

2500

2000
millions of $

1500

1000

500

0
2005 2006 2007 2008

Source: Own work based on NPD Group Data Base

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 Conclusions
&
Recommendations

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Conclusions

The strategic change was a big SUCCESS

» Low-cost

» Focus on new market (casual gamers)

» Generating revenues from both “sides”

Is the change still appropriate?

NO

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
 Current situation

Net sales
20,000 » Competitors have catched up:
18,000
16,000
14,000 • Loss of competitive edge
Million of $

12,000
10,000
8,000
• Blue Ocean turning Red
6,000
4,000
2,000
0 » 2012 losses: ($526,884,000)
2006 2007 2008 2009 2010 2011 2012

Source: Own work based on Nintendo’s Annual Reports

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Current situation

Sales 2012
» Loss of leadership
» Again a follower

33% 45%
Sales 2009

Xbox PS3
24% 31% 22%

Wii
45%
Source: Own work based on www.vgchartz.com

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Current situation Nov2012

Next launch: Wii U

Widely pointed as an early failure

Incremental change

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Recommendations

In a market that evolves in waves:

Nintendo have resigned itself to compete in a Red Ocean

Dropping sales – loss of market share - follower

1) They need a DISRUPTIVE change! Either blue, green, or purple

2) When they compete in the „classic‟ market no good results are

achieved

3) We suggest to look for competitive advantages that could bring

the differenciation Nintendo needs to get back to the lead

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
Referencies

Patricio O‟Gorman (2007) Wii: Creating a Blue Ocean The Nintendo Way

Nintendo corporate site (2001-2012) Financial Statements

http://www.nintendo.co.jp/corporate/en (accessed 03/12/2012)

The Video Game Industry Why Nintendo Has Dominant Market Share
http://sites.duke.edu/soc142-videogames/global-value-chain/market-
power/why-nintendo-has-dominant-market-share-2 (accessed 04/12/2012)

Gamespot UK (2006) 2005 a record year for US gaming

http://uk.gamespot.com/news/2005-a-record-year-for-us-gaming-6142407
(accessed 04/12/2012)

Seeking Alpha (2006) Seventh Generation Gaming Consoles: Thinking

Outside the Box http://ce.seekingalpha.com/article/22075
(accessed 06/12/2012)
Referencies

Forbes Magazine
http://www.forbes.com/2008/11/28/nintendo-wii-wii2-tech-personal-cz-cs-
1201wii.html (accessed 03/12/2012)

Toy Directory
http://www.toydirectory.com/monthly/article.asp?id=3350 (accessed 03/12/2012)

Time Magazine
http://www.time.com/time/business/article/0,8599,1584697,00.html
(accessed 03/12/2012)

USA today
http://usatoday30.usatoday.com/tech/gaming/2008-05-14-wii-retirement-
medical-centers_N.htm (accessed 03/12/2012)
Questions please

Nintendo today &

Introduction Market Nintendo Change Benefits
Recommendations
A change in strategy
at Nintendo