NINTENDOS DISRUPTIVE STRATEGY

Implications for the Video Game Industry

MM 5003
MARKETING MANAGEMENT

Created by:
Muhammad Afif (29116476)

MASTER OF BUSINESS ADMINISTRATION

BANDUNG INSTITUTE OF TECHNOLOGY
BANDUNG
2017
1. Marketing Research

1.1 Problem

Nintendo Co., Ltd. develops and markets interactive entertainment products. It

manufactures and markets hardware and software for its home video game systems. The
company has a strong brand name, which gives it an edge over its competitors. Nintendo, the
Japanese video game console manufacturing company, is one of the big players in the
respective industry along with Sony and Microsoft.

In early 2000s, the company was struggling to compete in a market that was dominated
by Sonys Playstation 2 and Microsofts Xbox. But, in 2006, when the competitors were
following the industry norm to improve the product features, Nintendo followed a disruptive
route to target a new market with a new product that none of the competitors had: the Wii.
However, it is quite likely that the rival will try to mimic the most innovative aspect of the
Wii, the motion sensing controllers, in the near future. Nintendo needs to clearly define its
goals and act strategically to improve its design and gaming systems, and most importantly,
remain innovative in this competitive industry.

1.2 Research Design

This marketing research was conducted by using primary and secondary data. The
primary data was gathered through observation, interview, and discussion. The secondary
data was collected from articles, journals, annual report, and previous similar marketing
research. After the primary and secondary data was gathered and collected into sufficient
amount, analysis was conducted to see which factors that customer needs on a video game
console and what kind of proper strategies that Nintendo should take.

1.3 Analysis and Suggestions

At the corporate level, Nintendo is following an innovation strategy that has played an
important role in building its competitive advantage. The analysis of Nintendos innovation
strategy indicates that it used to position itself completely different from its competitors.
Then, Nintendo used a technological push to target an untapped or incomplete market of
gamers, as it had to convince the non-gamer adult to play on a Nintendo platform. Recently,
Sony and Microsoft have copied motion-detecting technologies for their consoles. Hence, it is
arguable that Nintendo has set a trend for the video game market, a dominant design that its
competitors are willing to follow.

In order to maintain this momentum, the company should focus on improving current
system performance and other technical features of any product for future releases. Also
Nintendo should build a strong community and focus on online gaming segment.

2. External and Internal Analysis

2.1 Porters 5 Forces Analysis for Game Industry

- Threat of new entrants:

Threat of new entrants in the industry of gaming consoles is low due to a

range of several factors. Nintendo, Sony and Microsoft have been around for
several years having established such strong products discouraging potential entrants
from entering the market. Entering the console industry has a high capital
requirement because of the high fixed costs and the continuous investment in
research and development of new technologies, advertising and marketing.

- Intensity of rivalry

Due to the fact that there are few competitors in the market and the
industry is growing constantly, the gaming console industry is a highly
competitive market. Nintendo, Sony and Microsoft compete in order to outsell each
other and increase their market share. They also compete for the same resources and
the same customers. Each of them follows a different strategy in order to achieve
this.

Nintendo mostly target the casual gamer and is more family orientated.
Although in terms of specifications and graphical power, its consoles are not on the
same level as Sony or Microsoft.

- Threat of substitute products

Many alternative substitutes exist in the market, with the level of threat
considered to be medium to high. Substitutes like mobile games pose a medium
threat. The biggest threat comes from PC. Many consumers nowadays own laptops,
tablets and mobiles.
 - Bargaining power of supplier

Supplier power is considered to be low to medium in the console

industry. Companies strive to supply any of the 3 companies because of the assured
profit they will make. The suppliers of the main hardware components supply all 3
competitors and these components are critical to a consoles success. The brand
equity of Nintendo, Sony and Microsoft and the large number of suppliers available
makes it difficult for suppliers to exert considerable influence over their prices, and
as a result suppliers want to keep a close relationship with these companies. On the
other hand, certain conditions exist where suppliers can wield significant bargaining
power. These include shortage of supplies and the availability of a certain input,
which can lead to increased costs.

- Bargaining power of buyer

Buyers in the console market do not have many choices since the competitors
are only three. This coupled with the high switching costs of buying another console
reduces their buying power. Other factors limiting consumers power are games
which are exclusive to one console, therefore forcing buyers to purchase one console
over the other. Also purchases are made in small volumes from a large number of
buyers. As a result buyers have limited power in the market.

Forces Level
New entrants Low
Rivalry High
Subtitute Medium to high
Supplier Low to medium
Buyer Low
Summary of Porters 5 Forces Analysis for Game industry

Based on Porters 5 Forces analysis for game industry, the implication to Nintendo
strategies divide by two type of strategies. The first is offensive strategy which Nintendo
explore and create untapped elders/female and non hardcore gamer market. So they always
try to be the first mover to beat out competitor in existing market. The second is defensive
strategy which Nintendo be more innovative than competitors since they are getting into this
area.

2.2 SWOT Analysis of Nintendo

Internal
Strengths Weaknesses
Important heritage in video games Behind in offering online experience
Strong global brand in video game Dependency on suppliers
market Does not appeal to serious gamers,
Innovative (first motion sensing) because not known for sophisticated
Good at simple friendly family games graphics
First console to approach casual gamers
External
Opportunities Threats
Leading game console brand image Shift in consumer preferences
Increasing demand for online gaming Competition between Sony and
Innovation in video game technology Microsoft
Subtitute product (PC and smartphone)

Based on SWOT analysis of Nintendo, the implication to their strategy

3. Market Segmentation, Targeting, and Positioning (STP)

3.1 Market Segmentation