Nintendo Case Study by rotechi


									Rotimi Oyewole
November 9, 2010
INBM 400 Seminar
Case Study #20


       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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