The Wii - Nintendo's Video Game Revolution

Background

Nintendo came into existence in 1889 in Kyoto, Japan. The company is basically a manufacturer of games and toys. It started with producing handmade paying cards, and then ventured into toys and games after World War II. In 1970, it shifted from traditional toys to electronic entertainment products. The company began designing home video gaming consoles and arcade games for arcade centres, shopping malls, and taverns. When computer market emerged in 1983, most console manufacturers did not survive the business and withdrew from the market either through bankruptcy or by diverting their attention to their other product lines.

Despite this decline in home video gaming market, Nintendo still pursued the home video gaming console and made its own Nintendo Entertainment System (NES).

The company also changed the video games from the usual structure of violence to games that have themes of “good and evil, honour and disgrace, beauty and horror.” The company has experienced several challenges especially during the rise of the home computer market.

Nintendo was slow to tap the opportunity of home computer games until such time in 1995 that Sony introduced PlayStation console, then followed by Microsoft’s Xbox. Since Nintendo could not topple Sony and Microsoft within the market of core gamers, it decided to expand its target market to non-core gamers. It started to develop new uses for handheld console DS (e.g. DS is used in Japan to teach English through special character recognition software). Wii was also launched later in 2006, and became a hit due to its innovative feature of motion-sensing controller which is also a multifunctional device.

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As the product is becoming popular, Nintendo cannot cope up with the demand of supply as the holiday moves in.

S.W.O.T. Analysis

Strengths

• Innovative and quality product (advocates cannot be swayed easily to buy other than Wii)
• Excellent management support
• Affordability (reasonable price)
• Human resources (talented company programmers and game developers)
• Simpler game system
• Least expensive next generation console
• Strong third party support

Weaknesses

• Insufficient productivity line (cannot meet demands)
• Cannot compete with the faster processor and better graphics by the competitors
• Possibility of sports injury and property damages caused by controllers flying out of users’ hands

Opportunities

• Tapping other potential segments ( e.g. seniors, non-core adult gamers, children)
• Tapping social networks to spread the good things about Wii and counter the negative publicity

Threats

• Consumer may buy competitors’ product if product stock-out continues
• Uncontrolled increase of price by retailers due to demand (may discourage consumers to buy due to high price compared to competitors)
• Negative publicity (accused of intentional scarcity)
• Pricing war

External Environment

Market Analysis

There is no doubt that home video and computer games are continuously popular in this era of technology. From 1970, the market shifted from traditional toys to electronic entertainment products. The rise of home computer market in 1983 contributed to the growth of home video and computer games. The manufacturers of these video and computer game hardware are not only targeting the traditional 9 to 35 years old males, but rather expanding to non-traditional age brackets of 40’s, 50’s and even senior citizens.

According to Satoru Iwata, president and CEO of Nintendo, games should be innovative, intuitive and inviting. In other words, in order for consumers to always be enthusiastic to play, the game should be easy to learn but difficult to master. This will maintain the interest of the gamers to play (Washington Post, June 21, 1987). This is the reason why Nintendo, Sony, Microsoft and other game console manufacturers are always in pursuit to innovate their products. With the continued enthusiasm of consumers to play video and computer games all over the world especially in America, Europe and Japan, the market for these products is huge with millions of units sold and billions of income generated annually. Also, the time of the year when sales is at its peak is during the holiday season.

Segmentation Analysis

Since Nintendo cannot compete with the faster processor and better graphics of the competitors (Sony and Microsoft), it decided to expand its target segments.

• Traditional / Core gamers – ages 9 to 35 males (Sony and Microsoft focus on this segment; Nintendo will focus less on this segment to avoid head-on competition)
• Casual gamers or non-gamers – includes children, parents and senior citizens (This is where Nintendo is focusing right now. According to Nintendo, while its two competitors will trade share between them as they are both focused on same segment, Nintendo goes off and grab share in completely different way.)

Competition Analysis

From the 2003 low market share of Nintendo at 16% against Sony and Microsoft, Nintendo rose to top by end of May 2007 in terms of sales of video game hardware. Wii also showed to be the leader compared to the top products of Sony (PS2) and Microsoft (Xbox 360). 2003 Market Share (“All platform” category)

Company| |
Nintendo| 16%|
Sony| 55%|
Microsoft| 22%|
Others| 7%|

Market Share (based on to-date sales of video game hardware as of May 2007; all platform category)

Company| |
Nintendo| 54%|
Sony| 34%|
Microsoft| 12%|

Market share comparison among the top product for each company (based on to-date sales of video game hardware as of May 2007)

Company| Top product| Market Share|
Nintendo| Wii| 43%|
Sony| PS2| 31%|
Microsoft| Xbox 360| 26%|

As Wii’s market share becoming strongest compared to PS2 and Xbox 360, competitors are responding by lowering their prices; emphasizing value added features of their consoles (e.g. better graphics), and launching of new games for casual gamers (e.g. “Scene It?” by Microsoft and “Echochrome” by Sony).

Case Keys

Key Success Factors

• Innovative and differentiated product (Consumers may still not shift to competitors despite stock-outs; they may just wait until they can buy)
• Motion-sensing controller actually serves as productivity tool for players (i.e. make them exercise)
• Simpler design of controller (e.g. no array of buttons which is complicated to the players)
• Least price among competitors
•  Strong third party support (Many game developers shifted resources to the development of Wii titles)
• Viral Marketing (Set-up trial of Wii in the shopping malls and other venues for actual experience)

Key Uncertainties:

* Pricing War by competitors to shift consumers towards them
* Competitors reaction by developing more products towards casual gamers to counter

Wii Analysis of Alternative Solutions

• Alternative 1: Status quo (Ignore the current situation of product shortages)
• Alternative 2: Respond immediately to the issue of possible product shortages this holiday season

Price:

Give limited discounts earlier to encourage consumers to buy ahead of the holiday season

Place:

• Managing Channels
• Require distributors/ retailers to provide pre-order units ahead of the holiday season to determine the reasonable level of stocks to be produced

Product:

• Managing Physical goods, product lines
• Get additional supplier of components to avoid stock out or halt production in case the other suppliers cannot deliver
• Review the demand for the other products within the company. If possible lessen or stop the production of those slow-moving products to use the production line for manufacturing of Wii

Promotion:

• Counter negative publicity of “intentional scarcity“ by positive publicity using advocates in the social networks
• Advertisement of the advantages of the product over competitors so that consumers will not shift towards competitors` products

Recommendations

Recommendation is to follow alternative 2 to manage possible supply shortages. Ignoring the possible issue of stock-out during the holiday season will mean a huge loss to the company when consumers decide to shift to competitors because of the long wait before they can purchase Wii.

Action Plan

• Immediately implement the alternative 2 recommended solutions. Time lost is money lost.
• Strategize the distribution to the channels (distributors / retailers) to manage stocks; monitor the possibility of increasing the price by the retailers due to high demand; must follow within the range of suggested retail price (SRP)
• Think of the better discount to give so that the profit will not suffer
• Announce bidding for additional suppliers as early as possible

Contingency Plan

• Monitor sales, stocks – when demands get higher, increase casual employees in the production lines; increase their hours of work with increased rate or give incentives
• Monitor competition – know the location with tougher competition; ship first the products in those areas

References

1. Perreault Jr., William D., Jerome E. McCarthy, Lindsay Meredith, eds. 2007. Basic Marketing: A Global Management Approach, 12th Canadian Edition. Toronto: McGraw-Hill Ryerson.
2. The University of Western Ontario. Richard Ivey School of Business. 2011. Ivey. The Wii: Nintendo’s Video Game Revolution. United States of America: McGraw-Hill Companies.