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

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

The industry

Consoles

Games

Accesories

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

The industry

Home

Handheld

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Market

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

The Market: industry strategy

Industry evolving in technological cycles
product generations
(currently at 7th generation)

Change

Incremental

Generation X
life cycle Revolution

Disruptive
Incremental

Generation Y
life cycle

Generation life cycle shortening

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

PESTLE analysis
LEGAL Piracy, intelectual property issues, content age restriction

SOCIAL Population Ageing

ENVIRONMENTAL Environmentally friendly materials recycling packaging

Introduction Market Nintendo Change Benefits Nintendo today & Recommendations

Nintendo

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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
Main Processor Release Date

Xbox
733MHz Nov 15, 2001

GameCube
485MHz Sep 15, 2001

Playstation 2
295MHz March 4, 2000

Source: Own work based on NPD Group Data Base

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

SWOT 2004

STRENGTHS
Reputed brand Global enterprise Best sellers are first-party Exclusive games empower brand Backward compatibility Handheld market leadership

WEAKNESSES
Financial difficulties Strong supply chain dependency Targeting low margin and narrow segment Less capabilities (DVD, music...)

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

SWOT 2004

OPPORTUNITIES
Emerging network technologies Growing industry Big potential market (casual players) Backward compatibility Merchandising Increasing purchasing power

T H R E AT S
Fierce competition Quickly changing demand Emerging network technologies

Short product lifecycle

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Nintendo 2004

Game Console sales (units)

60

50

Follower in a Red Ocean

Microsoft Nintendo Sony

40 Millions of $

30

20

10

0 2003 2004 2005

Source: Own work based on Seeking Alpha article

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Change

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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)

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Change

TIME TO REACT !!!

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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.

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Blue Ocean Strategy

The Wii : Radical changes to the strategy 1. Game Play

2. New Approach
3. New Consumers

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

1. Game-Play

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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)

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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)

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

3. New Consumers

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Benefits

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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
Introduction Market Nintendo Change Benefits Nintendo today & Recommendations

Price Decrease
Release Pricing (US)
Xbox 360 Low-end model $279 (Xbox 360 Arcade) PlayStation 3 n/a Wii n/a

Mainstream model

$349 (Xbox 360)

$449 (Xbox 360 Elite)

$399 (PlayStation 3 40 GB)

$499 (PlayStation 3 80 GB)

$249
n/a

High-end model

Specifications Xbox 360 Micro Processor 3,2 GHZ /3Dual Core PlayStation 3 3,2 GHz/ 7 Core Wii 729MHz 5 Core

Video Memory Bandwith

Main System RAM

21,6 GBps
512 MB GDDR3 (700MHz) 12x Dual-Layer DVD HD DVD Drive

22,4 GBps
265 MB XDR RAM (3GHz) Blue Ray

3,9 GBps
64 MB GDDR3

Optical Drive

Proprietary Optical drive

Source: Own work based on NPD Group Data Base

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Sales Increase
Console sales in the US
16 14 12 Millions of units 10 8 6 4 2 0 Xbox 360 Wii PS3

Source: Own work based on NPD Group Data Base

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Conclusions & Recommendations

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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 & Recommendations

Introduction

Market

Nintendo

Change

Benefits

Current situation

Net sales
20,000 18,000 16,000 14,000 Million of $ 12,000 10,000 8,000 6,000 4,000 2,000 0 2006 2007 2008 2009 2010 2011 2012

Competitors have catched up:

Loss of competitive edge Blue Ocean turning Red

2012 losses: ($526,884,000)

Source: Own work based on Nintendos Annual Reports

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Current situation

Loss of leadership Again a follower

Sales 2012

33% Sales 2009

Xbox 24% PS3 31%

45%

22%

Wii 45%

Source: Own work based on www.vgchartz.com

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Current situation Nov2012

Next launch: Wii U

Widely pointed as an early failure

Incremental change

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & 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

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

Referencies
Patricio OGorman (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/marketpower/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-cs1201wii.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-retirementmedical-centers_N.htm (accessed 03/12/2012)

Questions please

Introduction

Market

Nintendo

Change

Benefits

Nintendo today & Recommendations

A change in strategy at Nintendo