Business Strategy of Nintendo
The performance of all companies is affected by many external factors such as the economy and population demographics however the most important factors in a company’s macroenviroment that have the biggest strategy shaping impact typically relate to the company’s immediate industry and competitive environment such as the actions of rivals and ever changing buyer demand. What are the industrys dominant economic characteristics?
The video gaming industry overall has generally been in a decline since 2007 the industry according to mintel is expecting to see a further fall of 11. 7% this year. The grim reading continues and shows the current woes this industry is facing when compared to its value in 2007 which was i?? 1937m compared to 2011’s estimates which sees the industry worth only i?? 790m.
The recession has played a great role in the current decline we are seeing, as consumers have been put off with high ticket purchases and decreasing amounts of disposable income for consumers to spend, a story which has become familiar throughout the world. The industry has 3 major companies which compete on a global level Nintendo being one of them, the other two are Microsoft with the Xbox 360 console and finally Sony with their Playstation brand. These 3 currently dominate the market but are facing a severe threat from the Smartphone industry which will be looked at later.
Nintendo Gaming guru( ….. his name) in an article for the ‘economist’ website noted that the current decline in sales in the market may be for the current choice of games on offer in the industry1 It also must be noted that this current generation of games consoles have gone more than half way past their product cycles and we are seeing the maturity phase currently where sales generally begin to decline. Nintendo has seen a sharp drop in DS and Wii sales, with the Wiis sales falling from 3million units sold to 1.
5million units a 50% drop2, However the Sony and Microsoft have fared slightly better with Microsofts sales up slightly year on year mainly due to the launch of their new Kinect add on for the Xbox 360, whilst sony have had a 18% decline with their Playstation 3 console. 3 The video games industry in particular Nintendo and Sony have had to lower prices to increase demand, Nintendo successfully lowered prices in August 2011 for their new ‘3DS’ which experts believed the price was inigially too high for the market.
With manufacturers lowering prices to try to stimulate growth this has had a satisfying effect for the manufacturers with both Sony and Nintendo increasing sales in some cases such as the ‘3DS’ there have been a 3 fold increase in sales4 . Also Nintendo will be pleased that although the ‘3DS’ launch had slow sales in the first, three months the outlook for the first year is looking good as it matches the sales of the ‘original DS’ which was launched 7 years ago5 and sales have been comparable even though the latest version was launched in a recession. Industrys’s driving force for change
Most industrys’s will have driving forces for change as this is important for the market to remain competitive for all involved, however if a company’s management is able to devise a unique strategy it can give the company a leading edge against the rest of the market, an example of this can be Nintendo’s Wii console when it was released it was unique, however now other manufacturers have realised that ‘motion’ technology is an area in which they can also tap into such as Sony’s rush to create the Playstation Move add on which has similar motion functions to the Wii.
Gamble and Thompson list 3 steps to complete the analysis on the industry are driving forces these are. 6 Firstly the need to identify what the driving forces is. Secondly assessing whether the drivers are individually or collectively, acting to make the industry more or less attractive. Finally determining what strategy is needed to prepare for the impact of the driving forces. Identifying an industry’s driving forces . 1) Product Innovation
Microsoft and Sony both have High Definition (HD) output in their consoles the Playstation 3 and Xbox 360 at a time in 2007 when HD TV sales were still relatively low; however since then there have been dramatic changes as back in 2005 when the Sony’s and Microsoft’s consoles were in development their was only a 3% penetration in HD TV’s in the market, however by 2016 it is expected that 100% of TV’s sold will be HD. 7 This has left Nintendo in a major disadvantage due to the lack of quality of their graphics as most consumers have powerful HD TV’s but are left disappointed because of the inferior graphics of the Nintendo Wii.
The impact this will have in the industry is that it will make it more competitive and will place Nintendo in line with Sony and Microsoft. The strategy devised by managers will have to analyse where the real payoff for this driving force will be they may find out the Nintendo may be able to attract more serious games publishers who make cutting edge games which are graphic focused. 2) Changes in who buys the product and who uses it. This Driving force in the industry can enable Nintendo, Microsoft and Sony to tap into additional markets in which traditionally they have not paid too much attention to.
Market segmentation shows that between 2011 – 2016 retired population will have a 13% rise and families will also grow by 3. 1%8. In regards to the retired market segment which is becoming continually more and more tech savvy this is an attractive area in which In particular Nintendo can expose due to their portable options of the ‘3ds’ and user friendly Wii. The impact which this will have is that if consoles and portable consoles are appealing to this segment then sales will increase. However not every retired person will find gaming attractive as most prefer other things.
So management will have to strategise on whether additional research and development costs aswell as marketing for this segment will actually be worth while and increase the profits of the games manufacturers. So Management of the manufacturers may focus on the family segment instead as marketing will be easier as it is already similar to what they already do, but is a more focused approach. And by trying to sell to the family market will build brand loyalty over the long term. However it must be analysed if manufacturers want to be cutting edge or more user friendly. Nintendo falls in the latter category.
3) Emergence of Apple iPhone and Andriod Apples iPhone and Googles Mobile operating system android have revolutionised the way in which people play games. Nintendo, Sony and Microsoft can potentially use brand loyalty to enter this segment by creating an all in one mobile phone / gaming system. However the mobile market is extremely saturated and given the costs of set up and launch this would be a high risk venture which needs careful consideration and planning. The above list is not exhaustive there are many other factors which can drive an industries change. The most relevant ones have been discussed.