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VIPER, CHU 05/07/2011

The association between Nintendos success and consumer behavior.

VIPER, CHU 05/07/2011

CONTENTS PAGE

1. 2.

Introduction Overview of Nintendo 2.1 Background 2.2 Product and current development 1

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2 2 2 3 5 5 8 10 12 12 12 13 14 14

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Nintendo operating performance 3.1 Overall financial statement 3.2 Market share and competition

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Three influential consumer behavior elements 4.1 Motivation and Value 4.2 Reference group, Family and Household 4.3 Subculture culture and Lifestyles change 4.4. Summary of three key aspects

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Recommendations 5.1 The loss of loyal players 5.2 The thread of iPhone

6. 7.

Conclusion References

VIPER, CHU 05/07/2011

1. Introduction Nowadays, video game consoles allow consumers more options in selecting leisure activities during their spare time. Recently, the Nintendo Wii and Nintendo DS, the latest generation of console system as well as portable game hardware, have greatly outsold their two main competitors, Microsofts Xbox 360 and Sonys PS3 (PlayStation 3) and PSP (PlayStation Portable). Judging by the growth of sales volume, market share and popularity, Nintendo has become a giant in the gaming industry and obtained tremendous profit over the past few years.

During the previous economical recession, from late 2007 to 2009, the entire global financial system faced a series of considerable challenges. Due to the feeble economy, many corporations strove to maintain market share. However, via the sequential launches of Wii and DS, not merely did Nintendo outsell Sony and Microsoft in the gaming competition, but it also successfully set up a solid position of leadership in recreation industry.

2. Overview of Nintendo 2.1 Background Nintendo is a Japan-based recreation company, founded in 1889 by Fusajiro Yamauchi. Initially, it produced a playing card game called Hanafuda. In 1973, it switched direction to family entertainment system, investing heavily in the development of electronic technology. From 1977 to 1983, Nintendo gradually released a series of different home game consoles. Sales increased to 6,000 units and thus established a solid business basis for Nintendo in the industry. Subsequently, from 1985 to 1989, after success following the launch of Nintendo
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Entertainment System (NES) and Game Boy (Nintendos first handheld platform), the company eventually became one of the most competitive gaming manufacturers and established a world-renowned reputation (Nintendo, 2010 & Wikipedia, 2010).

2.2 Product and current development Nintendos headquarters are located in Kyoto, Japan and it runs 26 subsidiaries and five associated companies. Nintendo mainly engages in two business segments. One is the development, manufacture and sale of portable and home game consoles as well as game software. The other is the manufacture and sale of poker cards for example the Pok`emon (a Japanese animation character) (Corporateinformation, 2010). The companys most famous software products are Super Mario Bros., being the best-selling video game in gaming history, and the Tetris game. The latest generation of game consoles is the Nintendo Wii and the Nintendo DSi. Currently, Nintendo has experienced remarkable growth to 36% and its market share has risen to 38% worldwide (Nintendo 2010 annual report, 2010).

3. Nintendo operating performance 3.1 Overall financial statement According to Nintendos 2010 annual report (figure 1), the company has seen a remarkable increase in net sales, operating income and net profit since the launch of its Nintendo Wii and Nintendo DS. Between 2006 and 2009, the companys net sales had grown from 509.2 billion yen (US$4,348 million) to 1,838.6 billions of yen (US$18,761 million), a more than three times revenue boost that includes overseas sales of 1,609.6 billions of yen (US$5,665 million), which accounts for
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87.5 percent of Nintendos entire profit. Meanwhile, the operating income and net profits have also experienced significant boosts during the period. (Nintendo 2010 annual report, 2010, P. 17).

Figure 1: Nintendo 2009 annual report

Data Source: Nintendo 2010 annual report. (Nintendo, 2010).

3.2 Market share and competition Apart from this extraordinary revenue growth, the prevalence of the Nintendo Wii and the Nintendo DS were also important factors in keeping the business sustainable during the economic downturn. Compared to two other main gaming competitors, the whole performance of Nintendo during the economical crisis can be considered an outstanding success. For instance, figures 2 and 3 indicate that the popularity of the Nintendo Wii and the Nintendo DS greatly transcended that of Sonys PlayStation 3 and Microsoft Xbox 360 in the US between 2007 and 2009. The total sales of both consoles rocketed up to 9.59 million dollars and 11.19 million dollars respectively, bringing in extensive revenue totalling US$9.8 billion dollars to the company on the US marketplace in 2009 (Ars technica,
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Kuchera, 2010 & Gamer Investments, Justin, 2010).

Figure 2: Total console sales in 2009

Data Source: NPD Group; data for US only. (Ars technica, Kuchera, 2010)

Figure 3: Industry revenue by stakeholder from 2007 to 2009 in US

Data Source: Nintendo, Sony and Microsoft estimated revenue and US market share. (Gamer Investments, Justin, 2010)

According to Nintendo's latest financial report (figure 4), the Wii console has topped 70 million units sold worldwide, with 20.53 million units of sales when the fiscal year ended on March 31st, 2010. The figure, 70.93 millions of units,
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represents approximately 49% of the home gaming hardware market, whilst its rivals the Xbox 360 and the PS3, in contrast, consist of 27% and 24% of that market, respectively (Nintendo 2010 annual report, 2010, P. 13).

Figure 4: Wii console market share in 2010

Data Source: Nintendo 2010 annual report. (Nintendo, 2010).

4. Three influential consumer behavior aspects The explanations as to why Nintendo seems immune to the recent economic crisis have three aspects: firstly, motivation and value, secondly, reference group, family and household, thirdly, subculture and lifestyles change. They are presented as follows.

4.1 Motivation and Value Motivation expresses itself when consumers attempt to satisfy needs aroused in the mind; however, consumers desire cannot be completely fulfilled because it is
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changing all the time (Solomon, Bamossy, Askegaard & Hogg, 2006, p.90). The reason why people play video games is apparent: to have fun. Users are able to pursue hedonic needs in terms of pressure relief and relaxation. The expectation for a new console system or a new game has been moving forward since the first games came out. From Pac-Man, to Mario and the first Nintendo consoles, to the advanced games and systems that exist today, players are never easily satisfied with what they are playing. Although having access to greater definition and authentic sound effects, as well as impressive game contents and hi-tech related accessories, players are still eager for something new. As a result, a driving force naturally turns up and then motivates players to seek a different product with a view to satisfying their curiosity and goals.

Initially, buyers primary motives (Blythe, 2008. cited in Jiang, 2010) for purchasing home gaming entertainment systems are purely for fun. However, parallel to the improvement of technology and the emergence of new manufacturers, consumers who are no longer satisfied with current consoles are now allowed to compare and experience different games and consoles before making a decision. In a recession, shoppers intend to budget practically and, therefore, they are looking for some interesting but economical gadgets. The Nintendo Wii is not only the most creative but also the cheapest home game hardware at this time, perfectly answering to the market needs.

The idea of getting healthy through gaming is being further embodied by the Nintendo Wii. The console is characterised by its wireless controller, the Wii Remote, which is used as a handheld pointing device and can detect motion and rotation in three dimensions (Nintendo, 2010). This innovative invention has been
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seen as the most important reason for bringing about the great popularity of Wii (Design Week, 2010). In addition, Wii Sport Resort successfully combines physical exercise with virtual reality. Via a motion-sensitive baton, users are able to wield a paddle or throw a bowling ball, competing with others as a real sports player (Nintendo, 2010). Moreover, Wii Fit Plus allows players to tackle a series of exercises from yoga to calorie-counting to aerobic dance. Users can lose weight and improve balance and posture without going to the gym (Dingle, 2009). Solomon, et al. (2006) indicated that a persons set of values plays a very important role in his or her consumer behaviours. Because the Nintendo Wii had succeeded in creating a virtual world through which players can enjoy an unprecedented gaming experience and a healthy lifestyle, the general value of the company has been significantly reformed, resulting in a proactive impression in the present day.

Based on means-end chain model, product features can increase the perception towards terminal values to a certain degree (Solomon, Bamossy, Askegaard & Hogg, 2006, p.119). In other words, consumers are more likely to choose a more ideal approach in order to achieve their goals. Compared to its gaming counterparts in many aspects, the Nintendo Wii is not only a family-oriented leisure activity which benefits the elderly, children and non-gamers, but excels in creativity and accessibility as well. Shoppers might not view Wii consoles as a common game box which is more tailored for young people for a long term. Instead, it has become a medium to interconnect every player around it. Hence, those attributes strengthen Nintendo Wiis competitive advantages, differentiating the perception of Wii from its rivals and further stimulating consumers when hesitating about which gaming systems should be purchased.
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4.2 Reference group, Family and Household Family members are considered as a part of a reference group which has great effect upon a purchasing course (Solomon, Bamossy, Askegaard & Hogg, 2006, p. 350). Hooley, et al. (2008) stated that the buying process is usually influenced by five major roles being initiator, influencer, decider, purchaser and user/consumer. Each factor has different function and purpose. Most of the purchasing decisions are decided through more than one individual depending on various circumstances (Solomon, Bamossy, Askegaard & Hogg, 2006, p. 420). The communal purchasing decision takes places along with two or more members who are involved in it (Solomon, Bamossy, Askegaard & Hogg, 2006, p. 420). Similarly, during a family consumption process, each decision-making unit (DMU) is probably enacted by different family members who are focusing upon distinct benefits as well as different perspectives.

Nowadays, although the main population of video game players consists of children and teenagers, nevertheless, parents and the elderly are still able to make the final decision (Solomon, Bamossy, Askegaard & Hogg, 2006, p. 412). In other words, most parents play a critical role, using a more comprehensive angle to assess and then deal with their childrens wants. Along with the increasing popularity of game consoles, many children and teenagers are keen to possess one of the most popular types of game hardware as an entertainment option in their leisure time. Yet many video games are considered to be inappropriate in terms of violence and pornographic content, which results in a negative impact upon players brain. In particular, children and teenagers are more likely to be affected given that their mental state is more vulnerable (Msnbc.com, Kalning, 2006). As a result, in comparison with the improper material which other video games are
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associated with, game software such as Wii Fit Plus and Wii Sport Resort would be a more appropriate choice for parents and children. In addition, the playing mode of the Nintendo Wii and the Nintendo DS focus more upon accessibility and simplicity, rather than power and complexity. This user-friendly design leads to having fun together, especially for seniors and non-gamers (Cxpartners, Colborne, 2009).

Owing to the authority parents hold in household consumption, even though family members probably have different priorities or preferences, parents would utilize personal experience and predilection to persuade children to fulfill the common goal which is favourable towards the whole family (Solomon, Bamossy, Askegaard & Hogg, 2006, p. 410). Furthermore, Solomon, et al. (2006) stated that because parents contribute more resources to the family they are more influential. Particularly, mothers tend to rule when purchasing groceries, clothes as well as childrens toys. In other words, these sorts of wife-dominated decisions end up being a primary contributing factor upon choosing game consoles and video games.

Nintendo realises that it is imperative to understand who is more likely to be the final decision-maker in the buying process. The target segmentation, in addition to regular video game players, should be more focused upon parents who are normally against game consoles (MBAlib, authors translation, 2009). If conservative parents can be convinced, not merely are they willing to purchase the Nintendo Wii or the Nintendo DS, but they might become powerful advocates affecting other parents choices. Hence, via the power of family influence, Nintendos products might be widely accepted by a large spectrum of consumers.
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4.3. Subculture and Lifestyles change The advent of the Internet has revolutionized the way people live. More than a billion people worldwide take advantage of the Internet both at work and in their social lives (Internet World States, 2010). These days, an increasing number of young consumers who are not financially independent intend to spend significant amounts of time on surfing Internet and blogging, browsing virtual communities such as Facebook and Twitter, as well as indulging in online games. According to Mintels research (2009) at least 65% of respondents had had experience of playing online. Recently, playing online through home console games is the least popular activity of gaming. The economic recession has been regarded as one of the supporting factors: one in ten gamers acknowledge playing online given the lack of money to go out and enjoy other pastimes (Mintel, 2009). This Internet phenomenon has been widely viewed as a new subculture around the globe, converting consumers lifestyle into a new era.

Players are able to confront a variety of challenges they might come across in real life when playing online. For instance, players learn how to manage and control a number of team members when becoming a leader in games. Those leaders actually undertake a similar role to that which they would hold in reality in terms of organizational management or strategy implementation. Whether it is online or offline, the way players coordinate as a team to overcome a problem basically shares the same modes of decision-making process (Haug, 2010). Thus, through success and being accepted via other members on the Internet, players can find it easier to establish a sense of belonging as well as social status and sense of

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self-fulfillment, which is highlighted in Maslows hierarchy of needs (Solomon, Bamossy, Askegaard & Hogg, 2006, p. 99).

Lifestyle refers to a pattern of consumption reflecting a persons choice of how he or she spends time and money, but in many cases it also refers to the attitudes and values attached to these behavioural patterns (Solomon, Bamossy, Askegaard & Hogg, 2006, p.558). Moreover, Andreasen (1984) stated that each type of change in life status has its own unique requirements for change in consumption patterns. In other words, people living a similar lifestyle are likely to possess similar values and norms. Solomon, et al. (2006) argued that a craving to fit in or to be accepted by desirable individuals or groups is the fundamental incentive for many purchases and activities. Consequently, if a product or service can be positioned in the right place, being looked upon as a correct and desirable option by the target segmentation, the future of a product or service can be led along a positive trajectory.

In order to enhance players awareness and sense of belonging, Nintendo devotes itself to developing different sorts of powerful online services. In 2007, Nintendo launched an online channel, Check Mii Out, which allowed users had the ability to download games via the web. Through creating a virtual avatar Mii users are able to not merely to visit other participants profiles and share information with them, but also to interact with players across the world. Players can even vote for their favourite Mii, collecting and downloading into their own Wii (Nintendo, 2010). Overall, Nintendos online services can be separated into three parts: information sharing, communication and virtual community. To both
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Internet enthusiasts and technologysavvy interests, those advantages can be seen as important trigger when purchasing a product or service.

4.4. Summary of three key aspects Overall, I personally believe that depending on the influence of the above three elements, Nintendo has shown considerable skills in penetrating the various levels of worldwide markets. The series of features of the Nintendo Wii and the Nintendo DS to a certain extent revamp the general view of gaming industry, greatly arousing shoppers interest and further inspiring them to become more deeply involved in video games. Meanwhile, several linchpins such as the transformation of living style and the appearance of Internet subculture, as well as parents positive perceptions and the leverage of reference groups play important contributing factors to Nintendos prosperity.

5. Recommendation Although Nintendo has acquired a great harvest in terms of many aspects, the following are two underlying hazards which Nintendo might confront in the future.

5.1 The loss of loyal players Owing to the lack of software complexity and content sophistication, as well as the low definition of Wii consoles, hardcore Nintendo players might gradually lose interest and faith in the company. In comparison to current games associated with Wii, Nintendo used to create a series of famous games, for example Super Mario, Zelda, and Metroid. These content-rich games successfully attracted countless consumers for Nintendo. Nevertheless, because the function of Wii is
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more family-oriented and user-friendly, inevitably it to some extent has to sacrifice software complexity and game challenges. As a result, hardcore Nintendo fans might constantly be confused by the fact that Nintendo is not a company aimed at the mature or hardcore players (Roberts, 2009). Thus, I recommend that Nintendo can take advantage of current resources to balance its development between hardcore games and casual games. For instance, the company can capitalise upon the potential profits which can derive from the companys integral growth to develop a premium product category which aims to capture hardcore players attention. As a result, Nintendo might satisfy various types of players through different product lines.

5.2 The thread of iPhone Because of the prevalence of wireless networks, information becomes ubiquitous as long as one possesses a 3G handset. The launch of iPhone has even altered the way people live. Generally speaking, users can download a large number of free games directly through their iPhone or consume other games at reasonable prices. Take America as an example. According to the NPDs sales figures, Apples published data and Flurry Analytics (Mashable, 2010), Nintendo DS and Sony PSP saw a decrease concomitant with the boost of iPhone from 2008 to 2009. Consumers now do not have to spend much money to purchase a handheld platform that is exclusively for playing games. It is predictable that the market share of Nintendo DS is going to shrink if the company continues ignoring the threats posed by iPhone. I personally suggest that Nintendo can attempt to collaborate with Apple, developing certain games which are accessed by iPhone users exclusively and utilising the great popularity of the iPhone to improve its market coverage, creating a win-win situation.
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6. Conclusion In this report, I have endeavoured to draw on a range of different information to illustrate my ideas. Firstly, I looked at the statistical analysis of Nintendo concerning its operating performance in terms of market share and sales volume, as well as popularity and competition with its rivals. Secondly, the possible reasons why Nintendo is immune to the economic recession and why consumers are willing to purchase the Nintendo Wii and DS, based upon a variety of consumer behaviour factors, including motivation and value, lifestyle changes as well as the impact of reference group. Thirdly, I examined the underlying hazards which the company might encounter in the future and potential suggestions to the problems.

7. References Andreasen, A. R. 1984. Life status changes and changes in consumer preferences and satisfaction. Journal of Consumer Research. 11, P.784. Colborne, G. (2009). Vision: beating competitors on your terms. [online]. [Accessed 15 November 2010]. Available from: http://www.cxpartners.co.uk/thoughts/vision_beating_competitors_on_your_terms .htm. Corporateinformation website [online]. [Accessed 9 November 2010]. Available from: http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C3922556 0. Dingle, S. 2009. Gym Will Fix It. Finweek. 26 November 2009, p.16. Hooley, G. Piercy, N. F. & Nicoulaud, B. (2008). Marketing Strategy and Competitive Positioning. Fourth Edition. England: Pearson Education Limited.
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Haug, L. 2010. Unlocking the positive potential of video games. 1st, September, 2008. Laurent Haugs blog [online]. [Accessed 19 November 2010]. Available from: http://liftlab.com/think/laurent/category/gaming/. Internet World Stats website [online]. [Accessed 21 November 2010]. Available from: http://www.internetworldstats.com/stats.htm. Jiang, T. 2010. Motivation and value, lecture notes distributed in LUBS5402M Consumer Behaviour. University of Leeds, 11 October. Justin. (2010). Nintendo, Sony and Microsoft estimated revenue and US marketshare [online]. [Accessed 11 November 2010]. Available from: http://gamerinvestments.com/video-game-stocks/index.php/2010/01/18/nintendo-s ony-and-microsoft-estimated-revenue-and-us-marketshare/. Kardes, F. (2002). Consumer Behaviour and Managerial Decision Making. Second Edition. England: Pearson Education. Kuchera, B. (2010). Looking back at 2009 console sales and ahead to 2010 trends [online]. [Accessed 11 November 2010]. Available from: http://arstechnica.com/gaming/news/2010/01/looking-back-at-2009-console-salesand-ahead-to-2010-trends.ars. Kalning, K. (2006). Does game violence make teens aggressive? [online]. [Accessed 15 November 2010]. Available from: http://www.msnbc.msn.com/id/16099971/ns/technology_and_science-games. MINTEL. 2010. Analysis: Gaming shapes up. London: Design Week. MINTEL. 2009. Gaming in the interactive world - UK. London: Mintel International Group. Mbalib website [online]. [Accessed 10 November 2010]. Available from: http://wiki.mbalib.com/zh-tw/%E4%BB%BB%E5%A4%A9%E5%A0%82%E5% 85%AC%E5%8F%B8.

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Mashable website [online]. [Accessed 27 November 2010]. Available from: http://mashable.com/2010/03/23/ipad-psp-ds-games/. Nintendo website [online]. [Accessed 6 November 2010]. Available from: http://www.nintendo.co.jp/ir/pdf/2010/annual1003e.pdf. Roberts, J. 2009. Gaming wars hot up. Brand Strategy. February 2009, p.8-8. Solomon, M. Et al. (2006). Consumer Behaviour. A European Perspective. Third Edition. England: Pearson Education Limited. Wikipedia website [online]. [Accessed 7 November 2010]. Available from: http://en.wikipedia.org/wiki/Nintendo.

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