Strategic Positioning of Nintendo Co. Ltd - Essay Example

Strategic Positioning Of Nintendo Co., Ltd   Introduction: In a long term perspective Strategic Planning ensures the growth and stability of a firm,and even helps in coping up with competition. Thus for any industry where there are major players operating, having a focused strategy is now becoming more essential and the video game industry is no exception. The pioneers of the video game industry, Atari fist introduced television compatible videogame named “Home Pong” in the year 1975. (Elliot, 2008) Since then lot has changed. According to a study made by a research firm The NPD Group, the game industry is now making more money than movies. In this study we will try and evaluate the key strategic issue that Nintendo is facing and what are their current strategic options. Question1 Strategic positioning of Nintendo and key issues: The three major players in the industry are Microsoft, Nintendo and Sony. For all the players the market is broadly being divided into two major segments such as the hardware segment and the software or the gaming segment. Though there is a major drift in sales for all the three major companies in the recent year we can analyze their positions and strength from the data of the previous year that is 2008. Nintendo noted a 49 percent market share for their consoles i.e. Wii and about a 73% market share for the handheld, which are called the DS. (Elliot, 2008) So it is quite evident Nintendo is a market leader in the hardware segment of the industry. Also notably there were five gaming software made by Nintendo which acquired the top ten spot of NPD software (Elliot, 2008). So the constant mix of the quality hardware and innovative software making Nintendo a prospective leader in the industry. Sony’s product in the hardware segment called the PS3 attributed a growth of 99% on year-to-year basis (2008). Apart from that, though Nintendo is the market leader in the hardware segment. According to the Consumer Behavior Report of 2007 Nintendo’s consoles are readily accepted by the target consumers. But Sony’s playstation (which is their hardware console) recorded over 10 million accounts all over the world. But the USP of Sony remains with the innovativeness and varieties of gaming software they introduce with quick succession. According to Microsoft, their hardware product Xbox 360 enjoys a 49% market share in USA. Also Xbox 360 title, a product in the software segment accounts for 34% in software sales for July 2008. (Elliot, 2008) Though Nintendo is more successful in developing game platforms, but the real focus of the company is on producing games rather than only platforms. (Ackerson, 2008). This is main distinguishing point where Nintendo differs from the other two competitors. The intention of Nintendo is to make quality innovative games while the other two players concentrate on having strong network and distribution channel.(Ackerson, 2008). Nintendo’s Wii Fit as a product has innovatively mixed activity and fun thereby connecting to different segments of customers all together. (Ackerson, 2008). Among the three front runners Nintendo is the only firm which began its journey as an entertainment company, which is reflected in the way they operate during previous years (“An analysis of Nintendo” 2009). Whereas Microsoft’s strength lies in their software development, Sony’s unique selling proposition is with the hardware quality, Nintendo concentrates on the innovativeness of games they produce. So Nintendo can be branded as a pure game company. (“An analysis of Nintendo” 2009) Nintendo is relying on its key strength of innovation. There is a strong line up of in-house games software like, “Legend of Zelda: Twilight Princess” and third installment of the lately released “Metroid” Series are there key areas of strength. (“An analysis of Nintendo” 2009) Also Wii consoles of big time Nintendo is certainly in the driving seat. Sony now has a major threat, with Wii paying of shaking their base of the hardware leaders in the game industry. Now the major problem with Sony is the high prices of their consoles. (Terdiman, 2009) Analysts feel that Sony has unnecessarily pushed up the price tag with its product Blue-ray high definition movie format by introducing highly expensive hardware in their console. But eventually they forced to reduce the price of their console with fierce pressure from Microsoft and Nintendo who were operating in a lower price segment.  Microsoft on the other hand has launched their consoles a year before Sony. But there is a problem for this company. As Microsoft’s Xbox 360 enhancing the competition, it is impacting in a negative in their PC industry also, because more console-oriented video games are driving out the PC games from the market. (Elliot, 2008) However, this is for certain that quality wise the competition between these three giants are certainly having a good impact, as we are being able to see some extraordinary games and consoles being produced in the recent past. Now if we look into the matter of concern for Nintendo, we will se that though they are the market leaders in the hardware but it should be noticed that they are showing a long slow decline gradually. It may be because of the impact of the economic recession on the overall industry, but for the last few months Nintendo’s system sales are going down. Another study by NPD interestingly shows that how Nintendo has fared in selling more number of games per system. This is an important study to analyze the position in both sections that these companies operate. A constant pressure is always there to run successfully in both of these markets. The four major types of systems that Nintendo deals with are Game cube, SNES, N64, and NES. (“An analysis of Nintendo” ,2009). Among these four, Game Cube’s result was noticeable. In 2009, it recorded a sale of about 9.05 games per system, closely followed by NES. This result is interesting while judging the market position of Nintendo and the way they are targeting their focus group. (“An analysis of Nintendo” 2009) Game Cube game in America has a huge popularity. This system produced by Nintendo has enjoyed much success in US than anywhere else in the world. (“An analysis of Nintendo” 2009) Not only that more systems are sold in US, but also more number of games per systems is distinctively more in US, thereby identifying a prospective market. This level of segmentation is vital for any company to operate. Though Nintendo consoles and handhelders are still popular, though there is a drift in the sales volume, the company must look into its other areas of threat as well. In the handheld market segment of the hardware section, Nintendo’s product DS is now not as dominant, as it used to be. This is due to the fact that Sony has taken over almost one-third of the share in the recent past as Sony has released PSP. (“An analysis of Nintendo” 2009) This is the first instance since Nintendo after introducing their handhelders called Gameboy are having a real threat from the competitors. Another major threat is again from Sony. Sony’s Playstation and PSP both enjoy a huge network which Nintendo lacks in.( Wolf, 2008). Also Sony with its technological advantage has a bigger resource for online downloadable games in their console network.(“ An analysis of Nintendo”, 2009). Now with these rapid changes Nintendo have to focus on the other aspects apart from their innovative strengths.   (Wolf, 2008)   Question 2 Strategic Options Nintendo Should Follow: Before conducting a complete TWOS analysis of Nintendo we must first summarize the issues which Nintendo is currently dealing with. It is quite evident that rapidly it is becoming a sort of fierce challenge for all the three competitors in the market to coupe up. In this study we will focus on bringing up a proper focus strategy for Nintendo, realizing its concerns and limitations. (Grant and Neupert, 2003) To conduct a TWOS analysis we must first list down the External opportunities and threats. In the external opportunities, Nintendo may look upon to improve their network and technology in which they are lacking. The future of the video gaming industry is increasingly being focused on online games. Though Nintendo also started on that line but a huge scope of improvement even now lies with them. To improve on revenue generation Nintendo may look upon to the prospect of In-game advertising. (Williams, 2002) In- gaming advertising is also becoming popular with the corporate sponsors, as the gamers (mainly consisting of the youth) are more often playing games and watching less television. A major step has already been taken by Microsoft in buying off Massive, who is one of the biggest players in the in-game adds business (Anderson, 2006). So here is a huge opportunity for companies like Nintendo to grab the opportunity and compensate the fall in sales in the recent months. Nintendo contracted with You Tube to get connected to the web videos that the later had in its storage. So that a person can get access to the Internet and watch the videos on You Tube, if he have a Wii console. (“An analysis of Nintendo”, 2009) Therefore in this new form of Internet, creates a whole new area of opportunity for the gaming industry. Now if we focus on the external threats we can see that apart from the fierce competition from the other two players, this year the economic crisis has also hit large in the gaming industry, which is causing the sales to go down. It is a major external threat that all the players are facing currently and so the demand for better performance is more. To make it worse, the slowdown in the US and the European market and also in the market of Japan is more compared to the other countries. These markets were the target areas for the gaming companies. Another threat for Nintendo is the scope of substitute slowly increasing, like Apple iPhone 3G performs the same function as a Nintendo DS. Yet, Nintendo has an advantage of having wide range of video games. Now we will focus on the internal strengths of Nintendo. As mentioned earlier Nintendo as an entertainment company is always innovative both in the case of product promotion and market targeting. Another key strength that Nintendo enjoys, which is likely to be in the case of any Japanese company is that they generate a strong cash flow from the operation. The internal weaknesses that Nintendo has are as mentioned a weak network and outbound logistic. Apart from that, its’ technological up gradations are also not up to the world standard, when compared to Sony and Microsoft.(Ackerson, 2008) Apart from that, unlike other two competitors Nintendo’s focus is only in the gaming industry. There is no other industry the company is working on. So when economy falters it has to solely depend on its core processes only, which makes its business vulnerable.       Now we will have a look at the TWOS matrix Analysis    External Opportunities Online games, Internet-via-television, In-game advertising External Threats Economic slowdown, emergence of substitute, slowdown in target markets. Internal Strengths Innovative product promotion, Identifying untapped market, strong cash flow from operation Innovation is what the company is all about; it can tap on different modes of advertisements via gaming and also will give access to TV to its different range of customers. The company should use its innovative skills to tap relatively untapped market like South-Asia and middle East. Internal Weakness Weak network and logistics, focusing on single industry, lower technological quality The company should try to maximize its revenue from the gaming industry by through different channels like internet and game advertising To avoid the threats the company must look for some other markets where technological demands are low. Now we will focus on the three major strategies that the company can adapt to coupe up with the current level of crisis.  1) The “Maxi-Maxi” strategy that the company may follow is to use its strength of innovative   thinking to route to different modes of income like introducing online games, giving access to Internet-television and game advertising. This strategy may very well make to the loss in revenue arising out of reduction is sales volume. This strategy will ensure a steady turnover as they already have a huge consumer base and when it keeps on increasing they can demand extra incentives from the corporate that are providing game-advertisements. Thus with more commercialized approach to the business the company can invest time and money on their key strength of innovation. These strategies will also suite the type of firm Nintendo has been. As regarded as more of an entertainment firm, the company can think of various ways to display the ad. According to a report from research firm Parks Associates, forecasts that the game advertisement spending will grow more than $2 billion by 2012 and it is expected to grow with a compounded annual growth rate of 33 %. (Brightman, 2007) 2) The “Maxi-Mini” strategy is also very relevant and important. Again as innovation is the main artillery in the hand of the company, it can target newer market in form of geographical regions. With the purchasing power of the South-Asian countries especially India increasing day by day the company may follow a more concentrated plan for the region. With a ready market available, the company should look to bank on the opportunity. The main advantage is that the market is already well informed and educated about the subjects and characters on which their games are being developed. So there is no additional pressure of introducing the products in the market. 3) The next strategy suggested is also very similar. The company is certainly not known for its technological advancement. And with a constant pressure from the other two competitors the demand in the present market is growing day by day. So Nintendo may look upon those markets where the consumer demand for excellent technological products is less. There by they can operate in the same level without taking the pressure of investing huge amount for technological development.  (Johnson, Scholes, and Whittington, 2005) Question 3: Recommendation and Conclusion: As we see that all the three strategies are equally viable and can be implemented but the first strategy suggested is looking at the shorter term of the aspect. Concentrating on revenue generation is though the primary focus of the company but this strategy will only give oxygen for a limited time period. But if the company looks upon a concentrated mix of the last two strategies it will help the company to run even more successfully in the long run. There they can operate cheaply and with a huge potential and knowledgeable market ready, it is a huge chance to grab. So in accordance with the “Blue Ocean” strategy followed by the company over the past few years, they should try and tap the untapped markets and make the most out of it. According to Harry-Potterish, the fourth president of Nintendo “Blue-Ocean” strategy is adapted by reaching out to the market which is free from competition. (Blakely and Monica 2007)  India’s gaming industry which’s current worth is about $30-million, is expected to grow to $700 million in the next five years (Fox News, 2009). So there is a huge opportunity to grab. Microsoft’s console already created a phenomenal impact. So the awareness level is also high. The issue that deeply relates to this strategy would be the price points. Both Xbox (Microsoft) and Playstation (Sony) are steeply priced in India. (Fox News, 2007) So the issue which remains is the careful pricing of the consoles and handhelders. As both of the two players are keeping their price down, the market naturally becomes price sensitive. So a high price company may loose the battle instantly. What Nintendo can do is, instead of establishing its’ setup and establishment in India and other South-East Asian countries, they can introduce the products at a cheaper rate in the market, through distributors and channels. This will also give a solution to the logistic problems they have. There are other problems in India’s game market. The market in India is mostly unregulated (De and Glancy, 2002). This is due to the presence of several pirated games and also some locally made video game offerings present in the market. (De and Glancy, 2002). According to Vishal Gondal, Founder of IndiaGames, it is this piracy problem that is affecting the growth of the industry in India. Nintendo as a console and handhelder game producer have to deal with other problems too. There is huge numbers of gamers present in India who are solely indulged in online games and mobile games (De, and Glancy, 2002). A Pearl Research study reveals that this particular segment of online games will exceed about $ 200 million in 2010. So with more penetration of broadband internet across the households in India the challenge is becoming huge. Also there is a cultural blockage in the minds of Indian consumers for video games. (De and Glancy, 2002).According to them games are mere waste of time or they only for children or the younger section of the society (De and Glancy, 2002). Also apart from this problem there are several other issues that Nintendo may face while marketing in India. One is the cost of technology, which a marketing company must keep in mind. As stated earlier to compete in India cost is one of the major drivers that will decide on the penetration level. (De and Glancy, 2002) Previously the introduction level of video games among Indian youth was less with lesser number of cyber cafes and game parlors. (De and Glancy, 2002) But now that problem has been eradicated. According to a survey conducted by Nielsen, though most of the respondents are aware of video games but it has been found that majority of Indian gamers prefers online games in PC over console or handhelder games. Only 27% of the respondents prefer playing games in console or handheld systems. (Goyal, 2009) So though the opportunity is there the situation looks challenging. But the scenario is not as bad as it looks. With the purchasing power of the country increasing, a research conducted by iSuppli forecasts that there will be a 75% growth in the console market in India by 2010.Now with competitors already operating the company must follow some concentrated strategies to capture the market- 1) Competitive pricing: In compared to other sources of entertainment, games in India are relatively highly priced. (De and Glancy. 2002) So the company must adapt a pricing policy which will not only make it advantageous to compete with its competitors, but also it can emerge as a substitute for the other forms of entertainments. For this as also mentioned earlier the company may tie up with some local distribution and marketing company to channel and localize their products. It does not have to build on its operation in India at first, but it can introduce its product in a cheaper manner. Like game vendors in India are always in a constant effort to make game prices affordable to the Indian consumers (De and Glancy, 2002). Nintendo to capture the market can use older version of the games for its introduction which will make its price affordable. Unlike the western part of the world, most of games which are backdated according to them are still very popular in the Indian market. So what Nintendo can do is to make cheaper packages of six to seven games of older versions and sell. This attempt will also reduce the threat that arises out of the piracy that is eminent in the market. Once with these cheaper packages the Indian consumers gets acquainted, and habituated then the company might try launching its expensive single game packs slowly. 2) Indianization of Products: According to a report published by Thaindian News, the Indian media and entertainment business has shown a constant growth of 15 percent annually since 2006 and it is being projected that it will exceed $21 billion in the next five years. To successfully market in India the company needs to know about the consumer sentiments and their likings (Goyal, 2009). A thorough study should be made about the preference of games among the Indian gamers. So we can see that the choice varies a lot and to be Indian, from a marketer a lot is desired. The company can come up with video games of cricket and others which Indian consumer generally go for. Systematic launching of related games to the Indian market will not only ensure its survival but also will help in generating huge amount of profit. If Nintendo works on both understanding the Indian market as well as utilizing its innovative power, it can create a great deal of movement as Indian game developers still lack in the innovativeness in game designing. So if the consumers get international standard quality matching to their tastes they will be quick to respond. 3) Online promotion and creating brand image: As the studies show that, online game market in India has a great prospect; Nintendo can use this platform to create brand awareness among consumers. It can tie up with any promotional, gaming or emailing site which are most popular in India, to show their links for the free games. Once the online gamers gets used to the type of the product, the brand awareness will be created. Indian online gamers will become more familiar with the name “Nintendo”. This will in turn affect their sales for the other products. So, with a focused outlook towards business, the company can become a front runner in the Indian video game market. With a huge prospect lying in front, the company should follow these strategies to over come the hurdles that it may face to enter India. The process must be slow and steady but once penetration is done to the fullest extent possible, the profits will start coming.                      References: 1. “An analysis of Nintendo” (2009), Buzzle news, available at: http://www.buzzle.com/editorials/9-12-2006-108558.asp (accessed on May 15, 2009) 2. Ackerson, A. (2008) Innovation Award Winners Revealed, CGT, available at: http://www.consumergoods.com/ME2/dirmod.asp?sid=234FFCW1E8DF4FACBAFF60DFFD8AD37C&nm=&type=MultiPublishing&mod=PublishingTitles&mid=A533BDC6582947448BBFA37BFF6394FF&tier=4&id=FF6A8943EC18487FB1876B7766640CE6 (accessed on May 16, 2009) 3. Anderson, N. 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