Nintendo Strategic Recommendation


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A case for change for Nintendo: switch to consumer focus or lose your audience.

This was an individual research project done for the Strategy & Innovation module of Hyper Island's Digital Media Management course.

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Nintendo Strategic Recommendation

  1. 1. A Case for Change Basim Al-Baker, DMM Crew 3, Hyper Island
  2. 2. 2013 COMPANY PROFILE • From playing cards to consoles, we have str ived to provide a high quality entertainment experience for our customers. • We have historically dominated key generations of home consoles with our offerings and created much loved mascots that are recognized worldwide. • We introduced the concept of a blue ocean strategy with the Nintendo Wii, whereby lapsed gamers and non-gamers were drawn into gaming world through intuitive controls and casual software. The Nintendo Wii has sold 99.84 million units worldwide. 1 Kim and Mauborgne (2005) Nintendo Co, Ltd (2011a) Nintendo Co, Ltd (2013)
  3. 3. 2013 PREVIOUS MARKET • The Nintendo Wii held the greatest lifetime market share out of the three major home video game consoles at that time. • The Wii reached maturity before it’s competitors, leading to a “3rd place” position in terms of market share by 2011. • Hardware & software sales peaked in 2009, 2 years after the console’s release. • Our dominance in market share effectively proves the viability of the blue ocean strategy model in context of the Wii. PS3 31% XBox 360 48% Wii 21% PS3 23% XBox 360 36% Wii 41% 7,500 15,000 22,500 30,000 2007 2008 2009 2010 2011 2012 2013 Nintendo Wii Sales (per ten thousand units) Hardware Software Home Console Market Share 2011 Lifetime 2 Mintel (2012) Nintendo Co, Ltd (2013)
  4. 4. 2013 CURRENT MARKET • We released the Nintendo Wii U in November 2012 to lukewarm sales. We have missed our target of selling 4 million units by the end of March. • The Wii U is failing to capture audiences and disrupt the home gaming market like it’s predecessor. • We have altered our blue ocean strategy in response to a lack of brand loyalty amongst lapsed gamers and non-gamers. The Wii U is facing negative critical response from both our casual and our loyal customer base due to a lack of customer-focus. “The second point we focused on was how can we satisfy and meet the needs of everyone in the industry who is developing games now and their desire for HD visuals, and how can we convince them that this will be a system with which “they can take full advantage of their game development.” - President of Nintendo, Satoru Iwata (2011) (During first 7 months of respective release) 0 25,000 50,000 75,000 100,000 Wii Wii U 34500 92700 Wii and Wii U Sales (per ten thousand units) 3 Nintendo Co, Ltd (2007) Nintendo Co, Ltd (2011a) Nintendo Co, Ltd (2013)
  5. 5. 2013 Strengths •Nintendo’s Quality Assurance •Valuable IPs (Mario, Zelda etc.) •Family-friendly values •Educational games (BrainTraining) •Innovative controllers •Backwards compatibility •Focus on providing an immersive and entertaining experience Weaknesses •No unified user account system •Wii U confusing potential customers as upgrade to the Wii rather than a successor •Wii U sales falling short •Lack of “killer software” •Marketing campaign doesn’t target dedicated gamers and long-time fans •Virtual console lacking titles •Lack of innovative video games •Third party exclusives lacking Opportunities •Microsoft XBOX One seemingly missing the mark with consumers •Tablet Games can be ported to the Wii U without hassle •Xmas period driver of sales •Heavy hitting software in development for 2013 release Threats •Sony PlayStation 4 •Oculus Rift (Virtual reality headset) •Valve Steam Box •Ouya (open-source video game console) •Third party publishers will flock to other systems if Wii U sales do not improve SWOTANALYSIS 4
  6. 6. 2013 CURRENT BUSINESS LOGIC Product Focused Approach to Value Creation • Instead of operating within the customer desired outcome, the Wii U is operating as an accessory to it. The Wii U is being marketed as a Media Hub that benchmarks competing consoles instead of it’s primary purpose of a games console. • We have focused too much on providing for the industry that we have arguably lost sight of what the customer wants. Instead of benchmarking the current generation of consoles we should be reinventing the rules. We have been disrupted by actions of our own doing despite being the disruptors in the previous generation. • We have an impressive track-record in providing entertaining experiences yet the Wii U currently has very little to offer. By (unsuccessfully) providing for the industry alone, we have a console that by design is strategically neither blue ocean nor red ocean. Market Space Entertainment experiences from the comfort of your home. • With our previous console we created uncontested market space within gaming. This can be repeated by realigning our strategy from product and industry focus to customer focus. The Wii U’s E3 Reveal had few actual games on show. The name Wii U is made of two components: the “Wii” (we) emphasizing multiplayer enjoyment and the “U” (you) promising focus on personal gaming. 5 McCabe (2013) Nintendo Co, Ltd (2011b)
  7. 7. 2013 CASE FOR CHANGE We are facing a crisis of both extreme threat and opportunity. Threat: • The Wii U is the underdog of this console generation and is facing competition from the incoming generation of consoles that are more powerful and less current. • We are losing backing from third-party developers due to our sales figures. • We are relying too much on the strength of our incoming first-party software to attract consumers. Most of these titles are remakes or rehashed versions of past games and aren’t set to arrive until next year. A “content-first strategy” is not sustainable. • Nintendo as a company is not customer-focused and needs to “upgrade it’s operating system” (OS). Opportunity: • Microsoft has made an unimpressive first impression with the XBOX ONE. • Sony is focused on directly competing with Microsoft on a market share basis. Their offering is not truly consumer-focused as they are focused on undercutting Microsoft. They are not captivated through true lock-on. • We are in the best position to redefine the market space! Wii U sales on Amazon UK shot up by 386% following the Microsoft XBOX ONE reveal on the 24th of May. Microsoft is receiving backlash for their high price point, lack of backwards compatibility and always-online functionality (amongst other worries). 6 A tweet by an Electronic Arts developer that disparaged the Wii U. EA support for Wii U games is shrinking as our hardware sales are below-par. (2013)
  8. 8. 2013 UPGRADING OUR OS • Being a part of the living room • Lock in intellectual property • Meet customer expectations • Improving and reforming previous generations’ hardware • Competition • Short term profits • Gamer segments • Cut costs and increase profits • Playing it safe OS 1 • Owning that part of the living room • Lock on customers through IP sharing • Redefine customer expectations • Changing the rules of home gaming with the customer at it’s core • Collaboration with consumers • Customer lifetime value • Individuals • Add value and increase revenue • Change gaming forever OS 2 7 McCabe (2013)
  9. 9. 2013 VITAL COMPONENTS OF STRATEGY 1)Swinging the power from Nintendo to the customer 2)Achieving customer lock-on through “enchanting the gamer” 3)Articulating new market spaces beyond the realm of thought 4)Delivering an integrated customer experience - The Nintendo Experience 5)Building sustainable recurring elements of strategy • Eg. relationship building, knowledge and information acquisition, networking opportunities, increase in the numbers of players, increase in the numbers of developers and cost savings. 8 Vandermerwe (2000), p. 28 Vandermerwe (2000), p. 36
  10. 10. 2013 SWINGINGTHE POWER The What: • Get our consumers to think of themselves as vested in our interests. Ordinary individuals can take control over their financial decisions. The How: • Nintendo Crowdsourcing. Vote up or down various elements of upcoming games. Make suggestions directly to the developers at various stages of development. Sketch directly on top of screenshots of preview builds released by developers. The best ideas are fast-tracked to the developer and either end up in the game or as an add-on. Users are able to proudly display what they have contributed to Nintendo and are rewarded by being a beta tester for example. The Why: • Transparency is the key concept here. Customers want to have their say and feel reciprocated, especially on an individual basis. Customers can take control of their financial destiny by being couch-side developers. • The basic architecture for this is already in place. Using Nintendo’s Miiverse platform, players can upload hand drawn sketches on the tablet. Comments are also heavily moderated for the family-friendly factor. A “likes” system is already in place for generic posts about games. Crowdsourcing 9 Vandermerwe (2000), p. 29
  11. 11. 2013 ACHIEVING CUSTOMER LOCK-ON The What: • Customers may be disenchanted with the video game industry but still persuaded to buy in because everyone in the industry operates identically. Customer lock-on is different in the sense that the customer comes to Nintendo as their preferred choice and not by lack of choice. We will be chosen as the dominant choice if we are able to deliver continuing superior value within a low-cost model. The How: • Nintendo Crowdsourcing (outlined previously) • Nintendo Creative Common. This platform allows for fans to host video games they have created. Similarly to Nintendo Crowdsourcing, the best ideas are picked by the crowd to avoid vaporware and low- quality titles. Games are branded as Nintendo Creative Common and are made for non-profit (at least initially). Nintendo Creative Common is for the people, by the people and endorsed by us. • NintendoVirtual Console Revamp. In order to combat piracy and give back to the customer, we need to release as much of Nintendo’s back catalogue as possible and promote monthly streaming access at a nominal fee. Currently we are over-charging for these older titles and the Wii U’s on-board storage space is limited to 32 GB. The Why: • Change the way the industry operates rather than following it. This is not achieved through asking gamers to patiently wait for their upcoming big releases. Fan-made games will see their efforts realized with Nintendo’s quality control in place, creating a win-win situation. • Every time Nintendo attempts to benchmark in a “standard manner” (ie. graphics and processing power) we fail. The Nintendo Gamecube is an early example of this. We are beyond the age of analogue and motion control as literal game-changers. We need to change what Nintendo is defined by for every potential consumer. We are in the age of creative control by the consumer. An unofficial fan-made Pokémon game titled Pokémon Type Wild. Fans have been clamoring for a game like this for years. Instead of stamping out fan-made efforts we should collaborate and stamp our seal of quality on them. 10 Vandermerwe (2000), p. 29
  12. 12. 2013 ARTICULATING NEW MARKET SPACES The What: • Companies are able to see increasing returns by concentrating on dominating activities in new market spaces that customers are wholly engaged in. The How: • By releasing Nintendo Developer Toolkits, Nintendo Crowdsourcing and Nintendo Creative Common platforms on mobile phones, tablets and desktop. The Why: • The sustainability of home gaming consoles is primarily threatened by itself. Trying to accrue market share from competitors in a non-consumer focused industry is an unwise move for Nintendo. • Instead of developing games for mobile phones and tablets in an attempt to make short-term gains, we are providing tools to enhance our own platforms on Android, iOS and more. OS 2 11 Vandermerwe (2000), p. 30
  13. 13. 2013 DELIVERING AN INTEGRATED CUSTOMER EXPERIENCE The What: • The ability to articulate and define the market spaces that we want to occupy. Within those market spaces we intend to hold par ticular influence on customer activities and spending. The How: • Articulate the market space. Be bold and take risks. The Why: • The organization can be pulled together and new capabilities built and designed to lock on customers. Crowdsourcing 12 Vandermerwe (2000), p. 31
  14. 14. 2013 DEFININGTHE CUSTOMER DESIRED OUTCOME & MARKET SPACE Customer Desired Outcome Making the most of my leisure time at home or on the go by crafting and interacting with captivating video game experiences. Market Space Crafting and enabling entertainment experiences from the comfort of your home or on the go. 13
  15. 15. 2013 A NEW NINTENDO • Giving value and meaning to the “Wii” and the “U” in Wii U. • Collaborate with our customers. End the software drought on the Wii U and give the customer complete control. • Align our goals with the customer’s. If we are not able to provide enough entertainment experiences, we facilitate the creative process more effectively. • Deliver on our word as an expert crafter and enabler of creative and engaging video game experiences. 14
  16. 16. 2013 REFERENCES • 2013. Movers and Shakers:The biggest gainers in PC & Video Games sales rank over the past 24 hours. [online] Available at: [Accessed: 17 Jun 2013]. • Kim,W. and Mauborgne, R. 2005. Blue ocean strategy. Boston, Mass.: Harvard Business School Press. • McCabe, P. 2013. Non-Linear Business Logic & Value Creation. [Lecture to DMM Crew 3]. Hyper Island, 3 June 2013. • Mintel. 2012. Video Games and Consoles - UK - October 2012. London: Mintel. • Nintendo Co, Ltd. 2007. Consolidated Financial Highlights. Available at: [Accessed: 17 Jun 2013]. • Nintendo Co, Ltd. 2011. 2011 E3 Expo Analyst Q&A Session. Available at: index.html [Accessed: 17 Jun 2013]. • Nintendo Co, Ltd. 2011. Nintendo’s 2011 E3 Press Conference. [press release] 7 June 2011. • Nintendo Co, Ltd. 2013. Consolidated Sales Transition. Available at: consolidated_sales_e1303.pdf. [Accessed: 17 Jun 2013]. • Vandermerwe, S. 2000. ‘How IncreasingValue to Customers Improves Business Results’. MIT Sloan Management Review: Volume 42:1. p. 27 - 37. • Wakabayashi, D. 2013. Nintendo Cuts Outlook As Wii U Sales Disappoint. Wall Street Journal. Available at: [Accessed: 17 Jun 2013]. 15