Rotimi Oyewole November 9, 2010 INBM 400 Seminar Case Study #20 Nintendo Nintendo has demonstrated tremendous success using a firm differentiation strategy in order to gain a competitive advantage over its rivals Sony and Microsoft in the Video Gaming industry. While other video game console designers focused on improving graphics and multimedia offerings of gaming systems, Nintendo instead worked on repositioning their console to disrupt the industry. Further, Nintendo’s clever economics enabled them to quickly earn enviable profits that took much longer for Microsoft and Sony to realize. While Nintendo has certainly been a pioneer in movement-enabled video gaming with the Wii, they will certainly face fierce competition from both Xbox Kinect and PS3 Move motion-detecting hardware attachments. In order to maintain their advantage, they must stay true to their innovative core, but keep their pricing competitive in order to distinguish themselves from their competitors. Rather than continue to make video games more complex, and thus less accessible and appropriate to new users, Nintendo realized the lack of sustainability in this current business model and wisely expanded the boundaries of video gaming to new, non-traditional gamers. Their portable DS and motion-detecting Wii remarkably interested both young girls as well parents and senior citizens. Other video game software makers had been creating a multitude of violent and gory action and adventure games; however, Nintendo was impressively able to grow the market through simple family-friendly games as opposed to more complex games aimed directly at hardcore gamers. While Xbox and PS3 appealed to the shrinking market of 20-30 year old gamers willing to spend their disposable income on expensive games, Nintendo became profitable by focusing on new customers while maintaining their traditional emphasis towards easy and family games. The conventional business model for video game companies was to sustain losses by selling the expensive hardware at a loss, while trying to recoup manufacturing and research and development costs through the gaming software. For instance, the Xbox loses about $125 per console sold and PS3 loses an astonishing $307. This contrasts greatly with Nintendo, which has integrated its hardware and software efforts and grosses $49 per console sold. Further, the Wii is the cost leader in the industry with an initial selling price of $250 when compared to Xbox 360’s $399 and Sony’s PS3 at $499. The formula of innovative, disruptive product priced so competitively by a second mover proved crippling to their competitors sales. Additionally, each new game for the Wii is prices at $49 while Xbox 360 and PS3 games are typically priced at $59. At both the hardware and software level, Nintendo’s products are priced lower, with more favorable profit margins. This combined with its impressive product differentiation presents a difficult challenge for Sony and Microsoft to overcome. While Nintendo is demonstrating sustained innovation through its WiiFit product attachment, they must stay alert to its competitor’s ambitions and continue to price their products competitively. With the absurdly high cost of research and development involved in the industry, each company is looking to build hardware and software improvements and refinements, rather than entirely new products. The Wii was certainly groundbreaking in motion-responsive gaming in the home, but Microsoft and Sony have taken note of this and have recently released their own competing technology, Kinect and PS3 Move respectively, that increase functionality when attached to the existing consoles. These motion-enabled attachments are reported to be more precise and accurate than Wii’s, with Microsoft’s Kinect not even requiring a controller to play. In the advertising for these products both Sony and Microsoft reflect a desire to move away from traditional gamers into the family realm that Nintendo has firmly captured. One advantage Nintendo has in light of this assault from its competitors is the fact that motion is fully baked into the Wii, as opposed to requiring an expensive addition. Another advantage is that while Kinect and PS3 Move attempt to introduce the idea of family gaming with these attachments, their accompanying software is not necessarily intended for families at its inception; Nintendo has always created family games as part of its company’s mission, whereas Sony and Microsoft’s games have typically involved more violence and been targeted towards older audiences. Nintendo must continue to deliver a family oriented experience and keep prices lower than competitors in order to stay ahead of its competition.
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