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Nintendo: The Power to Stay Ahead of the Game Introduction Nintendo is one of the largest manufacturers and distributors of electronic entertainment equipment in the world. Companys line of products includes hardware and software of home video games systems. Nintendo operates in the home entertainment and handheld market. Companys head quarters are located in Kyoto, Japan. Nintendo's international expansion resulted in situation when its subsidiary branches in U. S. , Canada, UK and Australia have gained a semi-independent status.
Company employs 2, 937 people. In year 2006 its yearly turnover consisted of $ 4, 869 billion. Nintendo underwent a transition from being a monopolist, on the game consoles market, to becoming just one of the main competitors, along with Sony and Microsoft. At present time, Nintendo's share of the market consists of 14 %.
However, with the launch of companys latest Wii game console, its share of the market began to increase. Strengths Nintendo's main competitive strength is the fact that it enjoys a reputation of innovative company with flexible marketing strategy. The reason why Nintendo's products appeal to the customers is that it designs them to address buyers psychological needs. For example, Nintendo designs its games to make them easier for the entry-level players to handle. Company has traditionally been targeting children from 8 to 14 years old, as such for which Nintendo's products appeal the most. By doing this, it was able to gain reputation of children-friendly company, which enabled it to enjoy an unchallenged monopoly of the market of hand held game devices, up until recently.
Nintendo offers a variety of popular games with exclusive titles, which means that they can only be played on Nintendo's game consoles, such as Super Mario 3. This insures that company can never be completely pushed out of competition, as it happened with Atari. In years 1992 1998, Nintendo had lost a considerable fraction of console market, due to the competition, on part of Sony and Microsoft. Nevertheless, the popularity of Nintendo games characters, among younger generation, prevented company from going bankrupt. In recent years, Nintendo strives to insure that the line of its products appeal to price sensitive customers. This approach proved to be effective, because Company was able to combine its gaming philosophy with purely commercial considerations.
In addition, younger children associate Nintendo's games with pantheon of Japanese anime characters, which became immensely popular among children in last few years. In its turn, it guaranties Nintendo good sales, for as long as it continues to pay attention to the psychological needs of its customers. Weaknesses Nintendo's main weakness, as manufacturer of electronic game equipment, is that up until recently, it relied exclusively on cartridges, as carriers of information. This prevented many potential third party developers from signing a contract with Nintendo to develop games for its consoles. It was also a reason why, in the middle of nineties, company was rapidly losing competition to its main rivals. In the late 1990 s, a number of specialty stores had delisted Game Boy because they felt that they were not achieving competitive returns on their sales of Game Boy hardware and software.
While trying to protect its games from counterfeiting, Company came up with a security chip technology. Even though that this technology proved to be quite effective, at the time it was introduced, by nineties it was nothing but anachronism. Moreover, on numerous occasions Nintendo was being sued for infringement of customers rights. This was also one of the reasons why Company failed to recognize the commercial potential of Internet in gaming industry.
Even though that Nintendo's modern products, such as GameCube or Wii game console, have online features, the majority of gamers regard Nintendo products Internet capabilities as being somewhat inferior. Another Nintendo's weakness is the fact that it is exclusively a gaming company; therefore, it cannot win competition with such giants as Microsoft and Sony in the long run, because it is simply unable to invest quite as much into developing of new technologies as its main competitors do. Therefore, even Nintendo's latest game consoles is nothing but gaming devices with few additional features, while Sony and Microsoft game consoles are essentially a portable computers, which incorporate gaming feature as one of many. Opportunities Apart from manufacturing game consoles, as its main source of income, in recent years Nintendo began to explore other business opportunities. One of them is becoming involved in franchising. For example, such games as Pokemon, Pokemon Trading Card, Pokemon Pinball feature characters of Japans anime and can only be played on Game Boy Color.
This makes Nintendo's games especially appealing to younger children. In addition, Company now heavily invests in designing and selling traditional toys, such as playing cards, which signifies the turning point in Nintendo's competitive strategy. Many of Nintendo's products, such as hand held Game Boy, became a cultural symbols, therefore they will continue to remain popular among customers, even though that they slowly loose their technological appeal. Companys management was quick to realize it; this is why it chooses in favor of value-based pricing strategy, because the value of Nintendo's products is largely defined by psychological factors, as it was being mentioned before. On the other hand, it appears that Company is still quite capable of designing technologically advanced game consoles. In 2006, Nintendo's Wii console outsold Playstation 3 by more than two to one in the domestic market.
The same trend begins to gain a momentum on U. S. market as well. This is because Wii features an unsurpassed processing power, which appeals to hard-core gamers. This points out to a competitive flexibility as something that provides Nintendo with additional business opportunities. Nintendo's management does not hesitate to reconsider Companys commercial philosophy, when it is necessary for attaining a competitive edge.
In fact, we can say that Nintendo did not have a doctrinated commercial philosophy in the first place, even though that it claims otherwise. This allows Company to address the challenges of gaming market with utmost efficiency. Threats As it was being mentioned earlier, Nintendo simply cannot afford to invest into development of new technology as much as its main competitors do. This creates a situation when Companys share of the market might begin to shrink, after initial success with introduction of Wii game console. Current technological trend suggest that it is only the matter of time, before hand held gaming devices, such as Game Boy, will lose their popularity among gamers, because manufactures of mobile phones incorporate more and more gaming features in their products. This is why Nintendo applies a great effort into franchising of its games characters, because only this will allow the company to enjoy steady sales of Game Boy for at least another few years.
Another factor, which undermines Nintendo's commercial efficiency, is legal complexity of copyrights infringement claims, with which Company needs to deal on continuous basis. In 1999 alone, Nintendo spent $ 28 million, while paying for the cost of legal services. One of the reasons why Nintendo was able to make profits is the fact that most of its games are uniquely original. This is why Companys management rightfully considers counterfeiting as the main threat. However, technological progress will inevitably force Nintendo to invest increasing amounts of money into protecting the copyright of its games. In its turn, this will result in Companys commercial efficiency being continuously undermined.
The 4 P's Product At present time, the line of Nintendo's products include: game consoles GameCube and Wii, hand held Game Boy Color, gaming software and variety of traditional toys. So far, Company was able to satisfy needs of the customers by guaranteeing that the quality of its products will meet buyers demands. In 1990, Wall Street Journal mentioned Nintendo Entertainment System (NES) among 100 worlds top quality products. Companys products are being specifically designed to be visually likable. Game Boy items come in variety of bright colors. In recent years, Nintendo began to offer custom designed metal cases for Game Boy, which allowed company to extract additional profits.
GameCube and Wii design is meant to attract older customers, while maintaining its appeal to children. Therefore, we can say that the main principle, upon which Nintendos competitive strategy is built, is insuring the universal appeal of its products. Wii console comes with worlds first wireless remote controller. For the first time in history, Wii controller may be used as a handheld pointing device, which can detect motion and rotation in three dimensions.
By February of 2007, Nintendo managed to sell 4 million of Wii consoles, since its introduction in 2006. The sales of GameCube did not significantly drop, after more advanced console was being designed by the Company. This is because GameCube is the smallest and most compact system in its generation. However, it does not have the ability to match certain aspects of its competitors consoles, such as High Definition graphics. Nintendo relies on popularity of its brand name, as one of the most important means to attract customers. Since the beginning of nineties, Nintendo's logo became an integral part of American pop-culture.
Even old Nintendo consoles, such as Nintendo 64, are being sold at Ebay for the price that ranges from $ 200 to $ 500, depending on consoles condition, because people buy them out of nostalgia. Price By the beginning of nineties, Nintendo was enjoying almost a complete monopoly on the market of electronic games in U. S. Its share of the market consisted of 90 %.
This allowed Company to use a value-based approach for its pricing philosophy. Nintendo used to charge $ 100 for NES console, while the additional accessories people would have to buy separately. At the same time, the manufacturing cost for one NES console was $ 20. This explains how Nintendo was able to transform itself from a regular toy manufacturing company into transnational corporation with billion dollars annual turnover. The situation has changed dramatically, after Nintendo began to experience a growing competition, on the part of Sony, Microsoft, Sega, Konami and Electronic Arts. Every next year, starting from 1995, Company was being forced to invest more and more into development of new gaming technologies, which significantly increased the productions initial costs.
In addition, Nintendo had no choice but to adopt a competitive pricing strategy, which is based on prices charged by competing firms for competing products. Therefore, even though that Nintendo was originally going to sell GameCube for $ 400 an item, it reduced its price to $ 350, after Sony had announced that it would be selling Playstation 2 for $ 380. At the same time, the initial cost of Game Cubes production only allows Nintendo to extract of fraction of the profit on each sold item, comparing to the situation in nineties. It appears that, in the future, Nintendo's pricing policy is going to be affected by growing competition on gaming market. However, since Nintendo was able to establish a well recognizable brand name, it might return to value-based pricing, on some of its products. Place Nintendo traditionally relies on large retail companies, when it comes to selling its products.
In 2005, the amount of Nintendo's products distributed through mass merchandisers consisted of 65 %. Toys are Us used to be Companys main retailer, up until 2000. Today, the bulk of Nintendo products sales are done through Wal-Mart. In 2002, Wal-Mart signed a deal with Nintendo, in which it agreed not to stock competing video games.
Practice shows that Nintendos distributing policy is very effective. This is because, even though that Company uses third parties to retail its products, it manages to keep the ratio of commercial entropy on very low level. For example, Nintendo demand retailers to pay for the received products as soon as shipment arrives, even though that usually, retailers pay manufactures at the end of the year, out of received dividends. This allows Company to maintain its budget well balanced at all times, which provides it with competitive edge. Nintendo's distribution strategy is based on the principle of selective distribution, which narrows it down to a few businesses, while allowing retailers to maintain a comparatively high price for the products.
At the same time, it is obvious that Nintendo will be willing to adopt an intensive distribution policy, if necessary. It seems that, at present time, Nintendo's management overlooks the importance of distributing expansion, because it is focused on securing immediate profits. This has to do with the fact that Nintendo's competitive strength is undermined by technological factors, as we have pointed out earlier. Nevertheless, for the time being, Nintendo's current distributing approach appears to be appropriate. Promotion Nintendo was the first manufacturer of game console that realized the importance of promotion, as something that boost sales. At the beginning of nineties, Company was able to sign a promotion deals with such companies as McDonalds, Pepsi and Procter and Gamble, which entitled them to have a share in Nintendo's profits, for as long as they were willing to advertise Companys products.
One of the most effective promotion initiatives, on the part of Nintendo, was setting up interactive displays in the stores, where its games are being sold. This allowed people to try them out before buying, which increased the popularity of Nintendo's products among customers. In order to strengthen its public image, in 1991 Nintendo acquired Mariners baseball team. This allowed Company to have its logo displayed during every National Baseball League game, which resulted in Nintendo becoming associated with sport. Nintendo participates in philanthropic activities, even though that firm is not being too enthusiastic about it. For example, in 2002, it donated $ 50. 000 to Seattle's Oncology Center.
This, of course, is being motivated by purely commercial reasons. Since 1990, Company was being increasingly criticized over its unethical business practices, such as temporary withholding its products, during the periods of high demand, so that it could raise price. This is why; Nintendo applies a great amount of efforts to fix its reputation. Recommendations I would recommend Nintendo to pursue with its current business strategy, although that Company needs to begin diversifying the line of its products. Companys top officials think that dynamics, on the market of electronic games, are going to be defined by the same factors as they used to 10 years ago. Back than, it was important for the game makers to insure that the manufactured games could be easily controlled.
However, today we have a whole generation of people who poses a great spending power and who are only preoccupied with playing video games. The controls simplicity of game consoles do not appeal to them. In fact, such customers are attracted to games complexity, because being able to handle these games makes them feel better about themselves. It appears that Nintendo is failing to address the needs of rapidly growing segment of video games market, which is associated with videos. Therefore, Nintendo needs to invest more in designing games that would attract adults, because the popularity of Mario Brothers alone will not guarantee Companys commercial well-being in the future.
Bibliography: Andreadis, Kosta Nintendo vs. Sony. September 3, 1999. Nintendo World Report. Retrieved June 7, 2007 from web Stanton, Aaron The Console Wars: A Comparison of the GameCube, Xbox, and PS 2. 2007.
About. Com. Retrieved June 7, 2007 from web Yirrell, Sara Nintendo Riding High on Rocketing Wii Sales. 30 April, 2007. CRN. Retrieved June 7, 2007 from web
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