Nintendo: Facing Challenges - Case Study Example

Nintendo Issues Nintendo is Facing The key issues were the challenge Nintendo was facing from two of its most powerful competitors, Sony and Microsoft, and its loss of market share for several years. The competitors were making use of the single-segment market approach, putting their focus on hardcore gamers. With that approach, they were able to streamline promotion and advertising into a single and consistent message. On the other hand, Nintendo was emphasizing on selective specialization, whereby they targeted both children and hardcore gamers. This kind of approach created confusion among Nintendo’s customers, because the two segments of the market had different needs that called for different messages in the advertisements for each segment. Customer satisfaction was, therefore, not achieved, and Nintendo needed to address that issue in order to reclaim its market share. Analysis of Case Data The main cause of the issue was Nintendo’s failure to invest in new technology. Key customers in the video game industry are in two categories: nontraditional children or teenagers, and the 18-35 year old serious gamers. The industry’s profits and revenues are realized from the second group that spends huge amounts of money and time sharpening their skills. Furthermore, they are tech-junkies, an aspect that Sony and Microsoft noticed. They targeted the segment and created games with high-speed, powerful processors. From the number of Playstation units sold, it can be determined that Sony managed to reach the target group. 120 million Playstations were sold by Sony, compared to only 20 million GameCubes by Nintendo. Data on market share shows that Nintendo was steadily dropping. Alternative Solutions The circumstances facing Nintendo dictated two major alternatives: either fight the competition to get back its market share or shift focus to other markets and avoid direct competition. If they chose to fight, it would have meant putting emphasis on hardcore gamers like Sony and Microsoft, and then attempt to beat them in performance terms. With the high cost of essential components in the manufacture of high performance video games, Nintendo would be forced to sell at a loss. Furthermore, their children-friendly themes was disadvantaged against the new market of M-rated and violent games. The other option was to focus on a different market segment that was not being served by Sony’s PlayStation or Microsoft’s Xbox. Determining and Establish Key Decision Criteria Key decision criteria should be based on a firm’s advantage in a segment, competitive environment, profitability, growth rate and size (Rusetski 211). These should be supported by an understanding of demographic trends, the significance of market segmentation and the uncertainties that are associated with a change of market targets. Viewing the market differently, it is possible to identify several other specialized segments. Nintendo was able to identify the casual and hardcore gamers. From the two available alternatives, Nintendo can either; invest more and fight for the hardcore segment that seems to be setting the trend in video games, with the risk of ending up in more losses; or take yet another risk and focus on the casual segment and the sub-segments found within the category, which also risks a re-launch failure. However, the casual segment provides a wider market that includes families, seniors, women and children. Evaluation of the Alternatives While the pressure from the competition seems minimal in the casual segment, there is uncertainty in profitability, growth rate and size, even with Nintendo’s image being family-friendly. This is because it cannot be known for sure whether the video game adoption process has reached a point of early and late majority buyers being ready to be members of the gaming society, yet they make upto 65 percent of the market. In the same way, the casual segment’s growth rate is not known. The greatest risk lies in the segment’s profitability. This is because hardcore gamers are known to pay premiums for the best and latest products but, conversely, consoles do not seem to be a necessity for casual gamers. Therefore, Nintendo should make games affordable, and cannot charge premiums on hardware. In such a scenario, profits can only be realized from economies of scales, whereby sales volumes must be high and build up quickly, or the company runs a risk of losses However, Nintendo can address the profit uncertainty using two directions that are related. First, set relatively low product prices, aimed at attracting even low income customers, while ensuring that costs of manufacturing remain low (Rusetski 210). Second, given their target market, they can comfortably set performance characteristics slightly and comfortably lower than their competitors’. This way, Nintendo can save on the costs of components as well as research and development. Recommended Course of Action The recommended course of action would be to abandon the hardcore market and focus on the casual segment. Rather than taking the risk of venturing into a segment already occupied by two market giants, it is more practical to focus on the neglected segment and build on it. Nintendo should concentrate on selling the concept of playing the game in a way that can be enjoyed by the identified market in the family unit. Nintendo should take advantage of the creativity of their approach to the notion of market segmentation. Identifying a segment is usually through the way the managers view the market, and Nintendo was able to identify the casual segment (Rusetski 209). It is in the same way that Sony and Microsoft were able to snatch the market leadership from Nintendo and create their downward trend; by noticing on time the appearance of a new market made of potentially profitable young adults who keep pace with technology. Nintendo should follow through their newly created segment and develop new products that will give them their own unique market share. Furthermore, even if it will mean venturing into new grounds, the entry costs are lower compared to the hardcore segment as established from the high costs of manufacturing high power and highly sophisticated systems. With Nintendo’s knowledge that the vital interface in games is the controller, they can partner with developers to follow through their new ambition of getting gamers off the couch and participating in the game. Work Cited Rusetski, Alexander. “The Whole New World: Nintendo’s Targeting Choice.” Journal of Business Case Studies 8.2 (2012): 197-212. Print. Read More