Nintendos Disruptive Strategy :

Implications for the Video Game

Industry

Alvin Marveli Kurniawan

29116373
Marketing Management

MM 5003, Marketing Management, Harimukti Wandebori & HerryHudrasyah MBA ITB Sharia JKT UTS March 2014
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Individual Assignment MM 5003, MARKETING MANAGEMENT
MBA Institut Teknologi Bandung
Lecturer : Harimukti Wandebori
Time : Monday, February 13, 2017
Submission : Monday, February 20, 20167
Place : MBA ITB Bandung
Exam Model : Take Home Test
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Related with Gucci case:

1. What can you suggest to Nintendo in terms of what Marketing Research to be conducted to
help restructure the company? (Define Problem, Research Design, Data Collection, and
Analysis).

2. Analyze the External and Internal situation of Nintendo and the implication to the strategy.

3. Analyze the Segmentation ,Targeting, and Positioning of Nintendo.

4. Analye the Marketing Strategy of Nintendo in term of: Value Proposition and Marketing Mix
(Product, Price, Place, Promotion).

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Answer :

1. Problem :
The year Nintendo launched the highly popular Super NES in the United
States, was also the year Nintendo's vision become Sony's opportunity-and the
creation of what could be described as Nintendo's "greatest challenge" for over a
decade-the Sony PlayStation (PS). Nintendo had wanted to incorporate CD-ROM
into its Super NES, and Sony had agreed to create the PS for this purpose.
However, over the next two years there were many conflicts of vision between
Nintendo and Sony, and the two finally parted ways. Nintendo went ahead with
Philips technology, and Sony was left with the PS, which the company decided to
continue developing. Given Sony's clout and resources, when the PS and its wide
range of games were finally released in Japan in 1994, the console was an instant
success. In 1995, Sony released the PS in the United States, totally uprooting
Nintendo's established name in the industry.

Research design :
Data Source :
a. Use interview/questionnaire to collect costumer data as primary data.
b. Use the secondary data from annual sales, sales distribution, product sales report,
article and journal that relevant to Nintendos situation.
Research Approaches :
a. Observational research to observe costumer behavior when they buy Nintendos
product. The moment from they enter the store until they purchase the goods.
b. Focus group research to know Nintendos image from the customer. Designer,
manager, costumer and some prominent figures in Gaming industry meet together to
discuss about Nintendos brand and product.
c. Behavioral data research to collect costumer personal information data by using
questioner (personal identity, satisfaction level, opinion about the product).

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 Data Collection :
Data Source :
a. Use interview/questionnaire to collect costumer data as primary data.
b. Use the secondary data from annual sales, sales distribution, product sales report,
article and journal that relevant to Nintendos situation.
Research Approaches :
a. Observational research to observe costumer behavior when they buy Nintendos
product. The moment from they enter the store until they purchase the goods.
b. Focus group research to know Nintendos image from the customer. Designer,
manager, costumer and some prominent figures in Gaming industry meet together to
discuss about Nintendos brand and product.
c. Behavioral data research to collect costumer personal information data by using
questioner (personal identity, satisfaction level, opinion about the product).

Analysis
In addition, through disruptive innovation, Nintendo was able to
target a new market of gamers, the casual or non-gamers. Nintendo essentially created a new
playing field for the video gaming industry.

2. External situation of Nintendo :

1. Opportunities

From a strategic perspective Nintendo may be seen as having capitalised upon some
key opportunities which rivals have missed in the overall computer games market.
Whilst rivals have focused on high specification products aimed at the serious gamer
as well as incorporating technology aimed at the life style market Nintendo has
capitalised on two missed sub-segments. In there first instance Nintendo through the
launch of the Wii has tried to move away from the serious gamer and target the family
market a strategy which has thus far been successful. In addition Nintendo has also
recognised the large potential but unrealised market represented by female gamers.
Finally Nintendo has continued to capitalise on its position as the market leader in

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 handheld consoles with the lunch of its DX product, again the product has been used
to target an alternative opportunity in with innovative games such as "brain training".

2. Threats

Finally despite the success of the company Nintendo may be seen as facing
significant threats which may be seen as largely coming from rival companies. There
is the consideration that Nintendo's success has largely been based around the
elements of price and the targeting of previously ignored areas of the market. As such
the major threat to Nintendo may be seen as the ability of rival firms to start to target
these sub-segments which Nintendo may be seen as currently being the market leader.

Industrial Environment
Porters Five Force
Porter (2004) identified five forces which may be considered as making up the
overall attractiveness or not of an industry and thus highlighting the key elements to be
considered in business strategy in relation to a single industry. The following elements
will now be considered in relation to the case study. The overall level of rivalry in the
industry may be seen as relatively high. As the case study highlights there are just a small
number of players in the industry including Nintendo, Sony, Microsoft and to a lesser
extent Sega.

1. Power of buyers

The power of the buyer may be seen as mixed, initially the power the buyer is pretty high
with an array of alternative systems and substitute products available giving the consumer a real
choice and thus the ability to exert their buying power. However once a consumer has a made a
purchase their power may be seen as greatly diminished given the high cost of switching systems
and the fact that once a console has been purchased the consumer is locked into that particular
system.

2. Power of suppliers

The power of suppliers may be seen as average for that of any industry with a standard
array of inputs into incumbent player's products such as plastics and electronic hardware. There
may be the consideration that were one considers the element of intellectual property then the
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power of suppliers has a slightly more important value. Intellectual property considerations may
include licensing for games which have an association with a product or film tie in such as
games like the Star Wars series launched on the Game Cube.

3. Threat of substitutes

This may be seen as one of the greatest threats for any incumbent in the computer games
industry. In the first instance consumers are able to substitute between rival systems for instance
a Nintendo games system may be substituted for the relevant Sony based system. In addition to
the ability to substitute within the sector there is also the consideration the consumer has the
ability to substitute for products which at similar the provision of benefit but in a different
market. For instance if the consumer is considered to be buying the benefit of entertainment
rather than a computer game then the consumer may choice to substitute for a whole range of
products ranging from DVD players through to products and services with an even greater level
of obscurity such as a night at the cinema.

Despite this consideration there is the fact that incumbents may have used the easy nature of
substitution to improve their own product offerings hence why incumbents have included such
lifestyle offerings in which their products have included the ability to play music and DVDs as
well as fulfilling the core mission of offering a games console.

4. Threat of entrants

The threat of entrants may be seen as relatively low over all. There are significant barriers
to entry for the industry including the need for significant investments in both capital resources,
intellectual property and distribution channels. This may be highlighted by the fact that in recent
years the industry has seen people leaving as opposed to entering the market as with Sega.

Internal Situation of Nintendo:

1. Strengths

Nintendo's key strengths may be seen as the company's ability to implement a strategy of
greater focus on a single market segment than that of its rivals products. For instance whilst
alternative systems have tried to offer products which a broadly entertainment systems including
such extras as Blu-ray and music playing capabilities in addition to being a games system
Nintendo has focused on the core area of the product, games. Another key strength of Nintendo

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may be seen as the company's ability to design a product which is truly innovative, whilst
competitor products contain innovations in many cases they may be seen as only adding current
innovations as a bolt on to the game system such as with DVD and Blu-ray capabilities. On the
other hand Nintendo has brought a genuinely new innovation to the market in the form of the Wii
in which games interact physically with the system in a way which is not present in competitor
products.

2. Weaknesses

Whilst Nintendo has been shown to be largely successful with the launch of its Wii
console the company does have some significant weaknesses. In the first instance the company's
products may be seen as technically inferior to competitor products with lower levels of
technology used in the product specification. In some cases this may affect Nintendo's ability to
target the "serious gamer". Secondly Nintendo has used a low pricing strategy which has so far
be successful for the company, however there is the consideration that should other companies
start to follow Nintendo's niche within the market as a whole such a low pricing strategy could
see further fall which would make the product unprofitable for the company.

3. A. Nintendo Segmentation and Targeting

Nintendo Co. practices market segmentation by offering their customers a wide
variety of electronics, gaming consoles and toys. Their practice helps them create
diversity among their customers by offering different products instead of one particular
product. Products of Nintendo such as the Nintendo Wii and the Nintendo DS creates a
different approach to what the market seeks to have based on segmentation. One of the
segmentation bases that the Nintendo DS classifies under is demographic segmentation.
The Nintendo DS target market is basically people who are willing and able to buy this
product. All age types are considered to be Nintendo's target market but most people that
purchase the Nintendo DS are in Generation Y, around the ages of 25-35. Nintendo
positioning is different from their competitors, Sony and Microsoft because both Sony
and Microsoft creates gaming consoles for those who are considered to be a "hard-core
gamer" or casual gamer. On the other hand, Nintendo creates gaming consoles designed
for those who are a casual gamer and a non-casual gamer which means that they don't
actually play competitively only for fun.

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 B. Nintendo Positioning.
Nintendos position in handheld gaming systems remained strong. Nintendo pioneered
this market in 1989 with its Game Boy that became an instant hit. Although Sony tried to
penetrate this market by launching its PlayStation Portable (PSP) device in 2005, it could not
replicate the success it had with consoles. On September 15, 2006 Nintendo announced that it
still held 70% market share in handheld devices represented by its Nintendo DS and Game Boy
Advance models. Moreover, company revenues were growing rapidly driven by Nintendo DS
sales. That brought Nintendos bottom line up too: in 2006 operating profit was expected to rise
38% compared to 2005. But this success could not overshadow the problems in Nintendos core
business.

4. Nintendo Value Proposition :

1. Cheaper than Playstation
2. New Innovation (Wii)
3. New Market Strategy (Segmentation, Positioning)
4. High licensing royalties

Nintendo Marketing Mix :

Price :

The pricing of games is quite interesting. Nintendo will use a series of pricing strategies
throughout the life of the product. Prior to launch the business will take orders for new games
and consoles, which will all be premium priced and the business will apply a price skimming
strategy. As the product becomes adopted they will begin to reduce price to competitive parity,
and as they reach the end of their life-cycle games will be priced promotionally until they hit the
bargain bucket.

Place :

The product is distributed in a number of ways. Nintendo manufactures products and then
distribute it via wholesalers to retailers to you. Some very large national accounts will be dealt
with directly because of the huge volumes they buy. Nintendo is available on the high Street in

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all key electrical and gaming retailers, as well as being sold online by well-known retailers such
as Amazon.com and play.com, and you might find one or two second-hand bargains
on eBay.com. Distribution is mature for Nintendo and there are few avenues to market which
they do not pursue.

Product :

Nintendo operates in the manufacturing and distribution of innovative, interactive

entertainment products. For example the business markets home entertainment, handheld devices
and also provide the hardware and software which is necessary for the use of electrical products.

Popular amongst its product lines over the years have been GameCube, GameBoy, Wii, Nintendo
64, Super NES, Nintendo DS, Super Mario, Pokmon, Brain Age and many other well-known
gaming brands.

Promotion :

Nintendo will launch new products. For example, when the company launched the
Nintendo 3DS there were a series of special launch days, and even some midnight launch events.
Fans of the Nintendo product get the chance to have a go on the new Nintendo system, early
purchasers get a free carrying case, and there are always free giveaways such as T-shirts and
beanies.

The launch campaign demonstrates a huge effort on the part of Nintendo. For example, more
than 85% of the UK audience saw the Nintendo 3DS campaign called Believe Your Eyes. The
campaign itself was to emphasise the benefits of the 3D experience. The campaign was a mash
up of consumers experiencing the product and innovative advertising.

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