Nintendo Market Analysis

Introduction:

The purpose of this assignment is to how do marketing research through analysis data of existing product, Nintendo Wii, competitors, and environment to achieve an increased understanding of the subject matter. Variety of marketing analysis tool, such as PEST, SWOT and Porter Five Force is illustrated in this report that evaluates marketing trend and future potential. Recommendation about Nintendo is given in the last chapter after identification key issue which includes customers, competitors and market place.

Company background:

Throughout its history in the home entertainment arena, Nintendo has created unique hardware and software as one integrated entertainment product, with software being the primary driver.

Nowadays, Nintendo intends basic strategy that extends the worldwide gaming audience. For this purpose, Nintendo offers unique hardware and software to attract as many customers as possible around the world, which brings different experience to enjoy video game entertainment, regardless of their age, gender, language, culture background or gaming experience (Company Annul report, 2008).

However, Sony usurps the pioneered static console market of Nintendo, even upstaged for a brief time by Microsoft, for years. It means that the GameCube console is not company’s successful hope any more. In the same times, “the console of choice for causal gamers the Wii falls short of convincing hardcore gamer that it is an essential purchase but with an estimated 3.5 million units sold in the UK, Nintendo will not be too concerned.” (Mintel)

Market summary

The definition:

The video games & consoles market includes all video games used in conjunction with consoles and all associated hardware including consoles, peripherals and accessories such as gamepads, memory cards and cables.

During in economical downturn, the global video game market maintains growth of 23.7% in 2008 to reach $ 49.6bn and expects to climb at a CAGR of 8.9% over the period 2008-2013, while the growth is slowly compared 2007. Console game dominates video game market as largest segment, however decreases from 54.1% in 2008 to 46.3% in 2013 by forecast. In 2008, the largest consuming market, EMEA (Europe, Middle East and Africa), occupies 35.3% of market share, which will reduce their market share in the total video gaming market by 2013. According to business insight forecast, Asia-Pacific will lead the video gaming market as the largest consumer.

Nintendo, headquartered in Japan, is the largest video game publisher in the world. In the present, the majority of top 15 video game publisher exists in U.S. or Japan. There are three major players in console hardware market, Nintendo, Sony and Microsoft. Nintendo is the market leader in the console hardware field, with around 50% share in global video game market in 2009. PlayStation 3 (PS3) and Xbox owns similarly market share positioning at 2nd and 3rd respectively.

Marco environment

Macro environment is composed of broad environment factors which are considered the most general level environment. However, when many important changes take place in the environment, the organisation will be affected. PEST is illustrated to identify Nintendo future trends and determines the key drives of change. Porter five forces analysis is also used to understand how the competitive dynamics within and around the video game industry are changing from another point of view.

PEST analysis

PEST stands for the political and economic, social (including legal and cultural) and technological environment respectively. PEST analysis on video game industry is implemented on the followed context.

Political

Political environment consists of laws, government agencies, and pressure groups that influence and limit various organizations and individual. (Kotter, 2003, P174) There are many factors impact on video game industry, such as taxation policies, foreign trade regulations and social welfare policies. Due to video game play has associated as emotion of people which introverts some people to threat peace and law, therefore, government control the contents of video game with strong attitude.

Another problem is copyright, which one of the recent products launched by company, Nintendo Wii, is in a controversy involving patent infringement. The company has been sued by Maryland-based Hillcrest Laboratories, which filed a case alleging a patent infringement against Nintendo. The lawsuit that is currently placed with the US International Trade Commission in Washington D.C. alleges the company of being guilty of infringement in four patents, particularly the technology used in handheld pointing device and also regarding the display interface system that manages graphic content. This allegation, if proved right, could cause the company to pay up heavily for the damages and could also result the company refraining to use the product further. The Wii console, launched in 2006, has been a huge hit and a judgement against the company could have a material impact on the company ( ).

Economic

During the global economical downturn, the video game industry still continues growing, driven by expansion of software sales and installed new generation of console hardware. Some places, U.S. and Japan, video game business contributes their GDP with huge dominated market. Nintendo distributes its product globally with overseas sales accounting for approximately 80% of total sales (annual report 2008). Therefore, interest rates have less influenced the video game business as they produce their own units. However, the video game business is depended on disposable income of customer. Nintendo grasps this opportunity with low manufacturing cost that increases sales volume towards normal price.

The exchange rates is another majority condition to be considered that company holds a substantial amount of assets consisting on cash deposit denominated in foreign currencies without exchange contracts. When the exchange rate fluctuates, the company revaluated for earnings while foreign currencies are converted to Japanese yen. In other hands, Japanese yen appreciation against the U.S. dollar or Euro would have negative affect Nintendo’s profitability.

Social

The social factors impact on the video game industry from population demographics, income distribution, lifestyle changes, social mobility, attributes to work, level of education, consumerism, and consumer behaviour namely. Nintendo use the World of Nintendo showroom to attract and show interest to customers in order to affect customer through satisfaction their needs. Games also have magic to influence the culture of people, especially brings violent to children. These all elements will be exercised influence over the industry.

Technological

Focused on technological is giving Nintendo higher competitive advantage than normal video game console. The speed of technological innovation always restricts gaming industry developing. Nintendo has attributed the success of the Wii to idea of blue ocean strategy that reflects from “price, movie playing, graphics, physics, fun, game library, and magic wand”. Nintendo create new technologies both in game and console. For game, brain training of Nintendo DS Lite, and Wii sport brings new experience to players which they never played before. For console, it is the most distinguishing technology, Wii Remote, which contains motion sensing capability that allows the user to interact with and manipulate items on screen via gesture recognition and point through the use of accelerometer and optical sensor technology. At last, the online capability of Nintendo Wii is a major change in the technology of the video game industry.

Micro environment

In this part, porter five forces and SWOT analysis are illustrated to analyze micro environment.

Porter five forces

Michael Porter established five forces to identify the intrinsic long-run profit attractiveness of a market or market segment (Kotler, 2003) which base on analysis supplier, customer, substitute product and potential entrants. Porter five forces model is identified source of competition in video game industry to determine competitive advantage.

Supplier

The Power of Suppliers is very high as there are more suppliers available to a handful of companies in the video game industry. The suppliers are companies themselves that companies are developing their own video games. There are lots of products to innovate and develop may consist of CD’s disk, hard disk, electronic components, software’s, game writers, packaging of the consoles, printing of manuals and additional features like graphics and so on for marking the game more acceptable and popular.

Potential entrant

Although Sony and Microsoft are strong competitors to Nintendo, industry rivalry exists in the strategic alliances, for instance straggling to control market. These huge players such as Nintendo, Sony and Microsoft, are already becoming tuff battle between companies to control market. This means that the threat of entrant into the industry can be ignored with existence of player during these big players.

Customer

The Power of Buyers in the video game industry is low as there are very few successful companies in the video game industry, therefore a small variety of video games available to the buyers. The individuals playing video games comprise an increasingly large and definition-defying group. According to the Entertainment Software Association, the average gamer is 35 years old and has been playing for 13 years.

Today video players comes from different diverse segment of students, employees, military troops, seniors, mothers and fathers who have driven the evolution of games into new territory. When these first players grow up, their family will enjoy more fun during game with their children and parents. This is so called multiplying the pool of multi-generational gamers exponentially. As volume of player increasing, the market forces push the video game developed and bring new and diverse audience.

Substitute product

There are too many products, such as online game, PC game and mobile game; however, no product can replace console game. They have special fun during init, such as Wii Remote.

Strengths

Nintendo plays the important role of console hardware which is a market leader position. It means that the primary target is video game market instead of other product portfolios. This is considered to increase aggressiveness in bolstering sales through its existing formidable product line up.

Nintendo also reduces the manufactory cost due to only focuses game function. As previously chapter, the console game depends on customer disposable income, which Nintendo low price strategy will reach an extensive number of loyal users transferring to customer expectation and demands into sales. Be worth mentioning, Wii’s arsenal is totally different to its competitors, which innovates motion-sensitive controllers made for game.

Weakness

Nintendo is market leader in the moment, however still concentrates on remaining and expanding market share instead of developing new brand or games. Nintendo maintains profitability via extensive price competition. Designing new game requires large financial investment and research which cost numerous resources. That is why it depends on more existing brands rather new game.

Nintendo abuses the strong censorship and restriction implement on new software game, which bound new game developer creative and innovation. For instance, Square Enix cooperates with Sony PlayStation for its Final Fantasy VI stand of Nintendo, owning to strictly censorship.

Opportunities

Online video game continuously grows and many of software sales also drive a growing base on console hardware and accessories.

Nintendo also launch new product known as “Touch generation” DS, and Wii which expands new definition of video game industry. Specially, Wii promotes lots of fun via “Wii Remote” and accessories, conventional operation.

Threats

Development of hardware is complex and time consuming. With technology growing fast today, it is possible limitation factor if company may be unable to acquire necessary technology. It leads to delay hardware launched and lost market share.

Cooperation with third party is also important element because third party manufactures key components and assemble final product. If some of these businesses are failed, Nintendo procures or manufactures its products difficultly. In addition, these elements, short of key components, quality of product and high base cost, causes margin decline and impairs the relationship between Nintendo and third party.

Key issue

Competitor analysis

The major competitors of Nintendo are Sony and Microsoft. Microsoft’s Xbox 360 had been in market since November 2005 and Sony’s next generation system, PlayStation 3, would to launch November 17, 2006. With a combined 93% existing market share, these industry behemoths shared a winning strategy: obsessing over the hardcore male gamer who invested tons of money and time into video gaming

(Source: NPD, Sept. 2006).

Sony:

Sony has strong competitive advantage that Playstation 1 dominates 37% of the market and Playstation 2 (PS2) is even better, which only launch in the 4th quarter of 2000, shares 8% of the console market. Now, new generation product Playstation 3 (PS3) with improved technology controlled 21% market share for the latest generations of players in the U.S. in 2007. Sony still focuses 18-34 year old as target group, sophisticated video game consumers.

Microsoft Xbox Live:

Microsoft forays the console game industry that Xbox 360 has sold 2.4 million in UK by mid-2008 compared to around 2.3 million original Xbox console. Position somewhere between the hardcore player’s console that is the PS3 and the family-friendly Wii, the 360’s main strength are its Xbox Live product and its exclusive games, such as Halo (Mintel). Xbox Live owns 12 million subscribers in worldwide, but less 3 million lives in Europe. Xbox is one of major online game provider.

Market issue

Global economical downturn influence too many areas, Japan, North American and Europe, which dominate Video gaming market. For example, Japan’s real GDP growth rate dropped from -0.7% in 2008 to -6.4% in 2009. Combination of unemployment and low wage of weight, customer purchases necessary goods instead of toy and video game.

Wii launches into market until now to prove two strategies correct, which is low price of console and focuses family game. According to SWOT analysis, Wii market’s issue is “sub-standard software” which means censorship. Fish Games CEO believes the Wii market’s issue that “have partly been the result of poor quality games that flooded the market, leaving consumers who had bad experience to spend money only on the key franchises.” Nintendo relies on third party software developer and publisher, however the strictly censorship system leads to too many valuable and interesting game miscarried. Final Fantasy VI is good example of Nintendo censorship. It directly leads to limitation of game and loss aggressive to its competitors. As we known, the majority of players are made by male that are unable to accept childish and changeless game. They prefer more exciting game, such as activity game rather than “Cook Mama” female game.

Nintendo attempts to create new market, home video game, overseas and expand the range of its product in the toy sector. In response this objective, the company is developing new characters other than Ben 10 and collaborating with overseas TV networks on their respective promotions (business inslight).

Recommendation

Nintendo should not only focus market share, but also develops variety of game to increase aggressive. Only depending on low price cannot win customer loyalty. PS3 and Xbox owns over 200 titles games attractive customer’s mind, whereas Nintendo Wii is only famous as Wii sport. Although there are a serve of sport games, customer do not satisfy monotonous games. They demand the more exciting, interesting and variable game.

Nintendo works as global company, which do not only sale its products in several specific county or area. The company should develop more region as its market, such as China and Indian. Until now, there is no product sale in China, which loss lots of opportunity and margin as well.

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Web references

• The Video Gaming Market Outlook: Evolving business models, key players, new challenges and the future outlook (2009) Business Insights http://blog.royaltyuniverse.com
• www.money.cnn.com
• www.Nintendo System History.com
• www.revolutionportal.com
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• www.mevuk.com
• www.ninetendowiifanboy.com
• www.nwiizone.com
• www.rpsite.net
• www.theesa.com/gamesindailylife/health.asp
• www.wii.com
• www.wiisworld.com