Ques.2 How did Nintendo create a monopoly position in the industry?

Analyze its
strategies.

1. Edge over Competitors : In Nintendo, they directed work on an entirely new video
game system which gave them cost benefits and produced it at cheaper rate than the
competitors while also improving upon their quality in terms of graphics, colors and
actions. By creating higher quality products at a cheaper price gave them an edge over
the competitors offerings in terms of customer acquisition and customer satisfaction. It
led to a greater market share for Nintendo.
2. Lower Manufacturing Cost: Cartridges that were used had several chips and some
had specific features such as a security chip, holding the system and some codes. They
used to assemble the product in the company facility. By placing a large order of the
chips they were able to achieve the economy of scale which helped them buy chips at
the cheapest price. All this helped them to cut down their manufacturing cost. This
helped them get better margins for their product in the market.
3. Focussed resource allocation: They came up with the approach to provide the two or
more hit games per year rather than several minor successes as that helps in focussed
R&D of the games and providing better customer experience. They also kept their R&D
and Marketing department separate which helped them in coming up with new concepts
of the games which led them to focus their resources on a few best concepts of games
and over time complex games using powerful new chips. This led to Nintendomania of
games such as Super Mario Brother, Zelda Metroid etc. among the buyers because of
high quality and engaging and challenging games which they never experienced before.
This eventually made home video game systems withdraw from the market and led to
Nintendo capturing better market share.
4. Licensing agreement between Nintendo and Software developers: Nintendo
outsourced its software development. The licensing agreement with Nintendo restricted
these software developers from moving to other video game machines for two years.
This ensured that there were no other gaming machines that had the same games that
were available on Nintendo’s platforms which in turn encouraged customers to choose
Nintendo’s products over any other video game.
5. Wide distribution channel: Nintendo products were distributed through toy stores (30%
of total volume), mass merchandisers (40% of total volume), departmental stores (10%
of total volume) as well as electronics retailers and other outlets. This wide range of
distribution channels benefited Nintendo in terms of exposure to their products, which
certainly had an edge over their competitors. Leading mass merchandisers like Walmart
and Kmart also carried Nintendo products and Walmart did not stock competing video
game systems. This was a huge advantage for Nintendo as compared to its competitors.
6. Limitations on retailers: According to an investigation done by the Subcommittee on
Antitrust, Deregulation and Privatization, Nintendo threatened it’s retailers with limits on
their supply or with cutting them off if competitors were given shelf space.