Nintendo’s Video Game Revolution

1 January 2017

When Nintendo introduced Wii to the market it differentiated itself and opened up a new market segment of non-video gamers to the video game industry. The Wii game console was considered a success as it attracted a wide range of people from children to seniors in playing a wide variety of “physical” games through its unique game controller. As a result, due to overwhelming demand, Nintendo has been facing product shortages. It is important for Nintendo to solve the Wii production shortage issue as soon as possible because competitors such as Microsoft and Sony are just waiting to steal the businesses of unsatisfied Nintendo consumers.

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To deal with the current problem, Nintendo is planning a marketing strategy in order to satisfy customer’s demands and retailer’s needs. There are four alternatives being considered: Direct selling through e-commerce Provide direct global access to consumers. Access would allow consumers to purchase product at a time convenient for them and have the product shipped directly to location of choice. Pre-order incentive programs An incentive program where the consumers can pre-order the product, for which they receive discounts, and have the peace of mind that their Wii will arrive on time.

Increased production and Stock up Increased Wii production and quantity purchase discounts offered to retailers as a trade-off for storing larger quantities of inventory. Status Quo Make no changes the production schedule, and hope that customer demand matches production. After considering several factors including competitors, consumer demands, the company’s capacity, as well as upcoming videogame technology, it is recommended that Nintendo should act immediately to take advantage of the current sales opportunity by increasing production in order o meet high market demand.

In addition to this, they should adjust the retail price of the Wii to compete with the Xbox 360 and the PlayStation 3 which are the main competitors with Nintendo’s Wii. A detailed action plan, covering the next 9 months, is outlined in this report which allows Nintendo to solve the product shortage issue in time for the upcoming 2007 holiday season. Furthermore, a contingency plan has been developed and documented to assist Nintendo in the event the action plan does not proceed as planned. Problem Statements

George Harrison, the senior vice president of marketing for Nintendo of America, is facing a challenging situation while planning the production levels for the latest home video game console, known as Wii, for the 2007 holiday season. Issues that George has to consider are: •Potential shortages of the Wii home video consoles for the upcoming holiday season might irritate retailers and fail to meet consumers’ demands. •The public might view product shortages as an intentional step taken by Nintendo to create demand. •Shortages may lead consumers to purchase the competitors gaming console. Company Objectives

Nintendo places a high importance of customer relationships and consumer satisfaction. Nintendo’s main objective in the upcoming 2007 holiday season is to meet retailer’s and consumer’s demands of its immensely successful new product, Wii.. Further, the company would want to aim to differentiate its product, the Wii, from its competitors, Sony and Microsoft, by choosing different marketing campaign venues of focusing on product’s users. Nintendo would target other segments that include young children, parents, and senior citizens rather than 18 to 35 year-old male gamers which are the core target of Sony and Microsoft.

Nintendo would want to introduce its video games “to be innovative, intuitive, and inviting” to the public. Company Background Founded in 1889 in Kyoto, Japan, Nintendo produced handmade playing cards and from there expanded into toys and games. Nintendo produced its own electronic home console in the early 1980s. The success of Nintendo’s video games including such favorites as Donkey Kong helped Nintendo expand into North America market selling video game adventures including Super Mario Brothers, The Legend of Zelda, and a sequel to Donkey Kong.

The booming success of home computer technologies almost killed the home videogame industry in 1983. However, the introduction of the Nintendo Entertainment System (NES) launched at that time created mass success for the company because there was no direct competition. This monopoly position did not last long; however, as competitive products such as the first PlayStation console from Sony, and the Xbox from Microsoft eventually became the gaming systems of choice, achieving a higher market share than the Nintendo Game Boy in the late 1900s.

Facing tough competition, Nintendo started to focus on another path where competitors had not reached yet. Rather than attempting to outdo Sony and Microsoft in the battle for the best graphics for extreme gamers they changed their view. They decided to target people who have never played video games before, therefore carving out a new market for themselves. Thus, the Wii console was developed and was a enormous hit where the products were constantly sold out as soon as they hit the shelves and product shortages became a concern. Situation Analysis

Strengths •The Wii target price is $249 which is the lowest price comparing to the Xbox 360 and the PlayStation 3. •The motion-sensing Wii controller creates a new way for people to “experience” playing games. It has no buttons at all and it can be used as different tools in different games such as a tennis racket in a tennis tournament or a baseball bat in a ball game. •Users can also use the Wii to access to the latest weather, news, sports, email, and other Internet services. •Wii users can enjoy an enormous variety of games; more than 400 game titles.

The simplicity of Nintendo’s console made it manageable for software publishers to develop game software without the usual delays. The cost of a Nintendo game is around 25% to 50% lesser than that of Xbox 360 or PlayStation 3 games. •Nintendo has used a unique way of advertising by allowing the public to try its products to determine for themselves how fun and different the products compare to the traditional videogames in shopping malls and other venues such as the American Association of Retired Persons Annual Meeting. •The TV commercials focused on users rather than the game.

Weaknesses •The Wii does not allow users to benefit from advanced online services and does not have Blueray or DVD drive for users to watch movies. •The graphics in Wii are not as good as the Xbox 360 and the PlayStation 3 where the graphics are significantly better. •Nintendo’s manufacturing department is still facing product shortages around the world. •Too many game titles developed by third parties which are supported on the Wii platform could lead to confusion for end-users, and this may negatively affect the chance of good game titles reaching customers. Opportunities Nintendo targets gamers, mothers, and multi-generational families. This segmentation is much bigger than the core 18-35 year-old male gamer which is the target audience of Sony and Microsoft.

The extended online service (Virtual Console) has the ability to attract more customers who are willing to pay for advanced features. In addition, the potential of online advertising revenue is feasible. •The demand for the Wii remains high and Nintendo enjoys the largest market sharing in gaming systems Threats •Competitors have lowered their initial retail prices to be within the same price range as Nintendo Wii. Sony and Microsoft have also introduced new games for casual gamers such as “Scene It? ” and Echochrome therefore expanding their customer base. •Product shortages may create a negative image for Nintendo as the public may think that Nintendo is intentionally shorting supplies to gain higher profits and increase demand. •Future technologies such as the Android and the IOS will begin to compete with Nintendo. •Mobile games are more and more popular and the price of mobile games is extremely affordable.

Television related games may lead to a future games market, therefore threatening traditional games. Apple games are already becoming another strong competitor because of their low price and many choices. Market Analysis Nintendo’s market share remained strong from 2007 to 2009 when the company had about 49% market share compared to Xbox 360’s 27% and the PlayStation 3’s 24% (Appendix 1). The strong growth was mainly due to the low price range and bigger market segmentation combined with the new marketing strategy venues. However, Nintendo’s competitors, Sony and Microsoft, are aggressively competing with Nintendo by lowering their prices and introducing more games similar to the Nintendo Wii (Appendix 2).

This can be a real battle field for Nintendo. Furthermore, the new trend of technologies of Android (ie. from Samsung) and IOS (ie. from Apple) is merging into the market. These technologies allow users to download games online and play them directly on their smart-phones, access the internet for interesting apps, watch online movies, and access their email anywhere and anytime. This is a real potential threat for Nintendo. These smart-phones have higher retail prices at around $400 to $600 but with the current fast pace of technology the prices are likely to go down quickly.

There has been an indication of a significant increase in market share for the Android and IOS. Nintendo should consider this trend in the development of their long-term strategy. Segmentation Nintendo has capitalized on a previously mostly untouched market with their release of the Wii, bringing people who had no interest in gaming to the gaming “table” with their keen design and marketing style. We have determined four separate segments for game use as follows: •Video “Gamers” •Fun seeking family members •Weight conscious Wii-users •Saavy Seniors

Video “Gamers”: These are individuals who are constantly seeking out a new video game challenges, and are always on top of the latest systems and trends. Generally, people in this category tend to be male, within the ages of 19 to 35. They utilize video games for entertainment, to compete via online gaming and in social surroundings and as a way to relieve day to day stress.. Generally they have a high level of video game usage and pride themselves with their title of “gamer” as it differentiates them in the crowd. Fun seeking family members:

Members in this category can be of all ages, looking for an opportunity to spend some quality time with other family members, in an activity all members can enjoy. Generally these members are value and time conscious, are concerned about fitness and health and are regular users of the video game console as part of their weekly family time. Weight conscious Wii-users: These are specific individuals who utilize the Wii as a fitness tool for health and wellness. With the addition of the Wii “fit”, maintenance and weight loss can be achieved through regular routine use.

These individuals utilize the Wii on a routine basis, are conscious of fitness and health benefits and focused on achieving a healthy life balance. Saavy Seniors: These individuals, over the age of 65, are looking for a method to stay fit, maintain their mental health all while enjoying a unique method of entertainment. Segment #1234 NameVideo “Gamers”Fun seeking family membersWeight Conscious Wii-usersSaavy Seniors Qualifying dimensions Who? 18 to 35 year old “gamers”Family members of all ages People of all ages looking for a fun weight loss and maintenance techniquePeople over the age of 65 What?

Wii video game useWii video game useWii video game useWii video game use When? FrequentlyRegularly/ OccasionallyRegularlyOccasionally Where? At home, online gaming and sociallyAt homeAt homeAt home Why? To compete with other players, as a relaxation and social activity and to remain in the “mainsteam” gaming worldOpportunity to spend time with other family members doing something everyone enjoysTo lose and maintain weight, while having a good timeFor fun and relaxation, to maintain physical fitness and to maintain mental acuity. Segment size30%40%15%10%

TrendsSeekers of the “latest and greatest” technology, competitive and sometimes social Fun and quality family time seeking, value and health consciousHealth and life balance conscious, open to new ideas and experiencesHealth and wellness conscious, open to new things, motivated to explore new ideas Other Determining dimensions Benefits soughtEntertainment and thrills, game differentiation and competitionValue for money, quality family time, entertainment and fitness and health benefitsFitness and health benefitsFitness and health benefits, mental and physical stimulation and entertainment Usage rateFrequentlyRegularly/

OccasionallyRegularlyOccasionally Nintendo’s Wii game system really hit the mark when they opted to change the rules of the gaming world to target users who previously did not use video games. Expanding the range from the typical 18 to 35 year old market to a range of 6 to 75 has helped to achieve this goal. Nintendo designed a system that was easy to operate for all users, not just “gamers” constantly searching for the new technology.

In doing so, they caught the current market off guard, creating market share for themselves in families, seniors and people looking for different options to keep healthy and work out. Their current market caters to individuals in all walks of life, and at all ages. Rather than focusing their campaigns at the typical 9 to 24 year old male audience, Nintendo utilized a marketing campaign showing families and individuals in all areas of business, culture and family life. As such their market grew to everyone rather than the atypical video game use.

Pricing is another key issue as Wii, has been priced at much lower price than its main competitors, Microsoft’s Xbox 360 and Sony’s Playstation PS3 game consoles making it more easily affordable and accessible to more people. The potential for continued growth continues to expand for Nintendo’s Wii.. Wii not only provides games, but learning opportunities, weight loss programming, and intellectual puzzles. The potential market extends from families looking for a way to spend time together, to seniors looking to keep their memories sharp.

Competitive Analysis Nintendo’s main competitor’s of their Wii gaming system are Sony’s Playstation 3 (PS3) and Microsoft’s Xbox 360. As noted above, the Wii still held almost half (49%) of the market share of the gaming system market with the Xbox 360 and the PS3 almost splitting the remaining market share at 27% and 24% respectively. Initially upon the release of the PS3, which was expected to be a huge success, they were marketed at a whopping $599 each, which excluded additional games.

Wii was positioned for the value conscious edge of the market with its much more affordable $249 price tag which included a variety of games. However, in response to the Wii’s massive success, both Microsoft and Sony reduced the prices of their PS3 and Xbox 360 consoles to $499 and $279 respectively in order to be more competitive. With the new Nintendo Wii packages being retailed for around $350 to $600 because of the huge demand for the product, this could decrease the edge that the Wii previously held with value pricing compared to its competitors.

Sony and Microsoft’s new focus on casual gaming options such as “Scene-It” for Xbox 360 also shows their change of focus to casual gamers from their prior 9 to 24 year old male target audience increasing Nintendo’s competition in the casual gaming market. Despite these improvements, Nintendo continues to dominate the market, with continued and expanded market share through 2011 through its unique, “simplified” gaming systems focused on user experience rather than attempting to compete with the extreme graphics of the PS3 and Xbox it has carved out its own market share and redefined the video gaming experience.

Competitive Analysis Brand NameBrand “Focus”Target marketCompanyPriceMarket Share (2009 – Appendix 1) Exceptional top of the line graphics, catered towards the extreme gamer at a premium price18 to 35 year old “gamers”Sony $49924% Mid-range to high range graphics, catered towards the “gamer” audience at a mid to premium pricing level18 to 35 year old “gamers”Microsoft $27927% Value pricing, lower to mid range graphics, but targeted at an “all user” audience gaming experience everyone can enjoyAll target audiences of all agesNintendo $249 (with retailers offering package from $350 to $600)49%

Nintendo Wii Positioning Table: Key Factors Key Opportunities •Further increase of market share by extending consumers into all ages, demographics and individual walks of life through appropriate marketing campaigns and techniques •Future game design and software engineering to ensure unique and exciting games and consoles •Opportunities for further growth in the seniors and students sectors as mental stimulation and learning utilization tools Key Success Factors Production maintenance to reduce or eliminate shortages to meet customer demand •Competitive pricing against key competitors of Xbox 360 and Playstation 3 in order to maintain value advantage

Maintaining and increasing consumer awareness of product releases and success through advertisement campaigns •Maintaining the market share by introducing exciting and challenging gaming products Key Uncertainties •Competitive reaction is unknown as Nintendo’s current competitors could release a similar “improved” version to gain market share •Continued consumer acceptance of the product New entrants to the market could steal Nintendo’s market share Alternatives Product shortages are a problem in the video gaming industry due to various reasons. First of all it is very difficult to precisely forecast the demand for a particular product given the very nature of this type of entertainment as new products keep coming into the market at a very fast rate. A missed sales forecast could either mean that the supply exceeds the demand and the product sits in the manufacturer’s warehouse or the demand is so high that the consumer gets frustrated when the product is not available anywhere.

Any particular console or game may be in huge demand one month but not the next depending on the consumer’s mood. Harrison as the vice president of Marketing is in an enviable position as the demand for Wii has surpassed the company’s most optimistic sales projections. Nintendo has experienced product shortages with Wii before and Harrison does not want to make the same mistake again. Harrison knows that if product shortages continue into the 2007 holiday season, the retailers and consumers will get very discontented and this may lead to a loss of market share of the gaming industry.

In order to ensure that the Nintendo does not face any product shortages the company could adopt various tactics. 1. Direct Selling In addition to selling through retailers, use web site-based e-commerce system to give direct access to customers. This would be a suitable marketing channel to target consumers who find it hard to go to the retailers to purchase the system. The direct sales channel would be accessible globally and the product would be shipped directly from the manufacturer. The consumers will be able to order the product at their own convenience and if there is a shortage, the consumer can have the Wii put on a back order.

Nintendo can use live camera feeds to show how the game is played and enjoyed by gamers of all ages. The direct sales would however also mean that the consumer does not get to touch or see the product. The consumer might also want the product to be demonstrated before the purchase. For shortages during the holiday season, consumers should be provided a discount of $40 and sent a personalized gift card that could be provided to the future gift recipient. •Pros oThe product can be marketed to a larger market oSales and customer response can be tallied at any time oBackorders can be tracked Sales cost will be lower as the middleman retailer will not be required. oConsumers can provide online reviews oConsumers can track the shipping and availability of product •

Cons oWebsite for direct sales may not be up and ready in time for holiday season oConsumers cannot see a live demonstration oConsumers are not able to talk to a salesperson regarding their concerns oGlitches with Web site means lost sales oConsumers may face inconvenience if the product needs to be returned/repaired oDirect sales can potentially compete with Nintendo retailers and may upset them due to this competition .

Pre-order Nintendo could start an incentive program where the consumers can pre-order the product well in advance of the holiday season. Wii demonstrations can be held on an ongoing basis at various retailers where interested gamers can have first- hand experience playing the games and then pre-order the console with the games. The company can offer discounts on pre-orders that are placed a few months before the holiday season. The consumer will have the peace of mind that the product will arrive on time and the company will know in advance about the production quotas.

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