Nintendo Wii - Disruptive Product Strategy

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Nintendo Wii - Disruptive Product Strategy

  1. 1. IMT GHAZIABAD Nintendo Wii Project Report Submitted to : Dr. Rajat GeraSubmited By:Saurabh Singh Tomar 10DCP-0331| 10DCP033
  2. 2. 1. Market and Competitive Analysis ................................................................................................... 3Product Market .................................................................................................................................. 3Market Analysis ¡V 3 Cs ........................................................................................................................ 3Market Evolution and Long Term Trends ........................................................................................... 4Environmental Factors affecting the product ..................................................................................... 5Structural Analysis of product Category ............................................................................................. 5Market Segmentation ......................................................................................................................... 5Target Market .................................................................................................................................... 7Brand Positioning ............................................................................................................................... 7Competitor¡¦s Strength and Weakness ................................................................................................ 7Evolving Competition .......................................................................................................................... 9Marketing Strategies of Competitors for Competitive advantage ..................................................... 9Effect of Technology on Industry ...................................................................................................... 102. Objectives..................................................................................................................................... 10Market Segmentation and Target Market ........................................................................................ 10Expected Market Share and Growth ................................................................................................. 11Primary and Secondary Objectives of the Company ........................................................................ 123. Strategy ........................................................................................................................................ 12Product/ Brand Strategy ................................................................................................................... 12Communication and Promotion Strategy ......................................................................................... 13Distribution Policy ............................................................................................................................. 144. Conclusion .......................................................................................................................................... 142| 10DCP033
  3. 3. 1. Market and Competitive AnalysisProduct MarketThe product market consists of Video Game Console (Hardware Part). The global market is worth$58 Billion in 2010. There are only three major players in the market – Nintendo, Sony and Microsoft.The global games console market consists of the total revenues generated by Nintendo, Microsoft andSony through the sale of their console platforms, including any handheld systems. Market values havebeen calculated using annual average retail prices for each individual market.Market AnalysisPorter’s 5 Forces:Threat of new entrants:The console gaming industry, is a market in which, only very technologically advanced and well-fundedcompanies can enter. Loyal customer bases and established subcultures have made it so new entrantswould have to provide something completely revolutionary to get customers to switch. Microsoft was thelast big company to join the competition and they struggled for a long time, despite being a well-knowntechnology giant.Competitor rivalry:Although this market has few leaders, the competition is fierce. Nintendo squares off with industry giantsSony (PlayStation) and Microsoft (Xbox). Each of the competitors is well funded and has the mostadvanced technological innovations at their fingertips. For example, Sony nearly went bankrupt tryingto beat out the competitors through innovation, and lost close to $700 million (on the PlayStation 3) in thefirst six months alone. Fortunately for Sony, they are a multi-billion dollar company and have cashreserves that Nintendo can only dream of.Threat of substitute products:In such a highly competitive market, there are of course strong substitutes. Each system started withtheir niche, but in order to grow market-share each has added features to eliminate the qualities that haveenabled competitors to differentiate. As they become more similar, the choice between them becomesharder and thus the threat of substitutes is high. Nintendo being the most basic and least powerful ofthe bunch means they have to continuously price themselves well below the competitors to help eliminatethe ease of substitution.Bargaining power of suppliers:Nintendo, like other consoles, does not make all of their own parts. Instead, they contract with experts inthe field of batteries, processors, and video cards. They are using fancy sounding products such as“custom-made Hollywood CPU (IMB) and Broadway graphics processor (ATI),"but actually the specifications are very unimpressive. Since these are pretty standard items comparedwithPS3‟s revolutionary and custom new parts, Nintendo should have substantial bargaining power. SinceNintendo has historically used the same manufacturers in other consoles, they should have solidreputations with their supplier.3| 10DCP033
  4. 4. Bargaining power of customers:The gaming industry is one of luxury and in a bad economy these goods are at the mercy of thecustomers. Without these customers the items would be sitting in shelves unsold and filling warehousescreating substantial debt for their manufacturers. The customers have the power, the money, and themarketing buzz to make or break a company rather quickly. Companies have to be careful how they pricethemselves and be sure to always keep the customer in mind; there is very little room for error.Market Evolution and Long Term TrendsGlobal Industry – Major Markets Major Markets USA Europe Japan Rest of the World 12% 20% 48% 20%Global Video Game Market PwC estimated that the videogame subsection of the global entertainment and media market would be the second fastest growing segment through 2014 (trailing only Internet advertising wired and mobile). Michael D. Gallagher, president and CEO of the Entertainment Software Association: December („09) sales broke all industry records and underscores the incredible value consumers find in computer and video games even in a down economy.4| 10DCP033
  5. 5. Video Game Console Market: Steady Growth Through 2012 Market has experienced dramatic growth since 2007 Web-based video game advertising experiencing the most rapid expansion, with a CAGR of 18.5% E-marketer predicts web-based market size to be $478M by 20125| 10DCP033
  6. 6. Video Game Console Market: Steady Growth Through 20126| 10DCP033
  7. 7. Environmental Factors affecting the productPoliticalFactors such as taxation policies, foreign trade regulations and social welfare policies influence the videogame industry. Video games have a tendency to play with the emotions of people which in turn canthreaten peace and law, a country being multicultural. Therefore Government has the authority to controlthe contents of the video game frames.Economic:Places such as U.S. and Japan are largely dominated by video game business. Therefore contributingtowards the GDP of their countries. Interest rates have not much impact on the video game business asthey manufacture their own units. The disposable income of the consumer in the video game industry hasan effect on their buying behavior. For example people who fall under low income range may not affordto buy a video game on high price. Nintendo‟s low manufacturing cost was also one of the reasons for itto sell its games at a nominal price, therefore increasing its sales.Social:The social factors that influence the video game industry are population demographics, incomedistribution, lifestyle changes, social mobility, attributes to work, consumerism, level of education andconsumer behavior. Nintendo‟s action to open the World of Nintendo showrooms was to attract andinfluence customers and show interest towards fulfilling the customers‟ needs. Also, games have aninfluence to the culture of people; bring aggression n children, etc. all of which has an impact on theindustry.Technological:The role of technology is vital in this industry as it focuses on technological efforts for competitiveadvantage. Every new development uses new technology. Though there are restricted innovations in thegaming industry, the speed of technological transfer is very high. Nintendo‟s role from playing cards totoys to video games and then with each console introduced, included many technological changes.Technological up gradation increased hardware costs and discouraged innovation. The online capabilityof Nintendo Wii was a major change in the technology of the video game industry.Environment:The video game industry uses a lot of plastic resources. Playing games on television or computers doesconsume a lot of power. Nintendo Therefore see to it that their games utilize low power. On the otherhand protecting the environment and practicing a “green” lifestyle is a value many of today‟s parents aretrying to teach their children. Nintendo facilitates in that effort through the creation of “Super MarioSunshine” and “Chibi-Robo:Park Patrol”, which challenges players to improve the environment aroundthem.Legal:The legal issues faced by the video game industry include trademarks, copyrights, licensing, onlineownership, revenue recognition and demands of intellectual property. The other issues that can be7| 10DCP033
  8. 8. considered are product and health safety. It has become an accepted practice for the consolemanufacturers to lose money on the hardware and to recover the loss by charging high licensing fees togame publisher and developers.Market SegmentationWhen releasing the Wii in 2006, Nintendo clearly chose to differentiate itself from its competitors – targeta very different, underserved, segment of the gaming market . • Geographic • Psychographic • Demographic: • Behavioural:  2006: “Our focus is interactive game play, a whole new way to play, that puts fun back into this business. It allows everybody to pick up and play and isnt focused on the core gamer” – President, Nintendo USTarget MarketBehavioral TargetingBenefits sought – what do people want out of the product? A fun, simple, personal, quick, socialentertainment experience [Different than current video games – often complicated, require significantinvestment of time, not necessarily personalised]Usage rate – how often will the target use the product? Not that often. A Nielsen study showed that Wiiowners used their consoles significantly less than Xbox 360 or PS3. Wii games targeting those wantingfun in quick manner, easy to pick up and learn, and not require serious time investment8| 10DCP033
  9. 9. User status – Non-user/first-time user/occasional user – Wii was specifically designed to expand themarket. Nintendo wanted to go for a previously underserved target population, and that meant makingtheir games appealing to the first-time userDemographic TargetingAs part of their market expansionary strategy, Nintendo specifically targeted those demographics thatweren‟t being served by contemporary video game offeringsGender: WomenAge: Outside the traditional age range of 12-35Family life cycle: Married with childrenPsychographic targetingLifestyle / Personality: Nintendo specifically targeted active, social people, looking to do things withfriends/family. Much less emphasis on deep single-player game play / intense 3D graphics.Brand PositioningWays that Nintendo positioned themselves to target their previously-selected target market segments:• “Wii would like to play” Campaign: Showcased families, children, women gaming together• Nintendo ensured a selection of simple, time-uninventive, social games (each Wii comes with Wii Sports – pick up and play) [Will look at that more in a second]• Low initial financial investment required (e.g. low price) Perceptual Map9| 10DCP033
  10. 10. CompetitorsThe two main rivals to the Nintendo Wii is Sonys Playstation 3 and Microsofts Xbox360.Without thiscompetition, Nintendo may not be to the point that it is now. It could rest on it laurels and not supply itscustomers with newest and greatest ideas.Competitor’s Strength and WeaknessWe will take the strengths and weaknesses of the following companies and compare them with those ofthe company of our consideration Nintendo WiiEvolving CompetitionPS3 Move is showing more flexibility, trying to differentiate itself in the market – targeting both thecasual and the hardcore, and especially families that have bothXbox360 Kinect are going head-to-head for the casual gamers – fun, simple, quick, active, social gamesfor everyone10 |10DCP033
  11. 11. Marketing Strategies of Competitors for Competitive advantageSony PS3 Move : Sony is targeting the more active side of the gaming demographic (want more of an experience than just using a button-based controller), but not necessarily social people Sony‟s trying to provide a platform for both casual & serious motion gaming Sony‟s trying to appeal to both light users and heavy users Again, Sony‟s trying for broad-based appeal – from the whole family of non-gamers to the hardcore PS Move is differentiating itself in the motion gaming market – users who are interested in motion gaming, but want more serious games than “Wii Sports” or “Kinectimals” Part of PS3‟s recent “it only does everything” campaign – targeting both hardcore gamers and casual ones; likely families that include bothXbox360 Kinect : Largely Same as WiiBenefits sought – what do people want out of the product? Microsoft‟s trying to provide its own fun, simple, personal, quick, social entertainment experience Microsoft wants this product to appeal to those wanting fun in quick manner, easy to pick up and learn, and not require serious time investment Non-user/first-time user/occasional user/Wii user – Microsoft wants to use the same expansionary strategy that the Wii did.Effect of Technology on IndustryResearch and development of new console technology is the frontline in winning over potentialbuyers. –Consoles that can support superior games with outstanding graphics capabilities traditionallywin consumers–Expensive R&D, short PLC INDUSTRYMarketing ObjectivesCreating new segment by launching a disruptive technology product.Market Segmentation and Target MarketBlue Ocean strategy/Disruptive technology:After realizing its past mistake when aiming for a younger audience, Nintendo set out to remedy this: theappeal of the Wii console goes, as a matter of fact, far beyond the “regular” target age groups and enters awhole new dimension. Nintendo has started tapping into the “casual gamers” category; reaching farbeyond the “hard-core gamers” which the PS3 and Xbox 360 target directly. Nintendo‟s mission seems to11 |10DCP033
  12. 12. be “to encourage people around the world to play video games regardless of their age, gender or culturalbackground”, capturing young and old alike.According to Blue Ocean Strategy theory, there are three groups of noncustomers that any company canreach out to: (1). “soon-to-be” noncustomers who are on the edge of the market, waiting to jump ship, (2).“refusing” who consciously choose against the market and (3). “Unexplored” noncustomers, who aresitting in distant markets.The Wii offers the first tier a leap of value that attracts them (casual gamers), and, while the second tiercustomers seem mostly unaffected, it is the thirds tier that seems to have been readily attracted by the Wii.The Wii has even been praised for use as means of recovery as physical therapy for patients, beingprescribed by doctors to regain strength and help with rehabilitation of certain injuries.TargetingWii should be targeting the same consumer base as discussed in topic number 7 of part one with lookingto penetrate the serious gamers segment too.Expected Market Share and Growth12 |10DCP033
  13. 13. Looking at these charts we can see that Wii is still the market leader but it‟s global saes as well as marketshare is going down year on year. This is also due to new product introduction by Sony 360 Move andXbox360 Kinect. To tackle the competition and to maintain the market leader position Nintendo shouldbring the new product Wii2, which should have the same gaming experience like Wii1 but come withsuperior graphics and processor so that Wii2 can make inroads into serious gamers segment too.Primary and Secondary Objectives of the Company1) Primary objective of the company should be to regain its market share.2) As all major markets are on the verge of saturation or are already saturated, like USA.Wii2 should look to target the developing markets like India and China. To maintain the competitive advantage created by the Wii console, Nintendo must consider many possible courses of action to find new competitive advantages. One way to compete is to broaden its video game genres beyond simple, family-friendly games. Games for the PlayStation and Xbox consoles often focus on intricate fantasy role-playing games (RPGs) for mature audiences. Although Nintendo has some RPGs, notably The Legend of Zelda series its current focus is on puzzle and exercise games. If Nintendo were to introduce a more varied selection of video game genres to its software collection, the company would be in a better position to pull customers from Sony and Microsoft. However, this could risk damaging Nintendo‟s brand, as it would be challenging to move away from the family-friendly image without the possibility of backlash. A second course of action for Nintendo is to continue developing innovative game technology. With the insight of Satoru Iwata and game designer Shigeru Miyamoto, Nintendo should continue looking to the future of video gaming. A recent article by BBC News discusses Nintendo‟s recent introduction in Japan of the 3DS, a hand-held13 |10DCP033
  14. 14. console that allows users to play games in three-dimension (Buerk, 2011). The article points out that Nintendo is a leader in handheld consoles, and this new console definitely helps the company maintain its competitive industry in that field. Nintendo could work on developing a similar 3D capability for the Wii, to further revolutionize the gaming experience. And third strategy will to target the untapped markets like India and china where there is a large consumer base and Wii has the proven expertise of tapping the non gamers market successfully.StrategyProduct and Branding strategy:•Brand Equity Associated with Nintendo•Universal Brand Name–The name Wii is simple and can be easily remembered by people of different languages-the name alsosounds like “we” which is a core representation of their product appeal•Free 90-day warranty ExtensionFeatures–Console with built in Wi-Fi capability–Motion sensor bar–Wii wireless remote controls–speaker, rumble feature and expansion port–Free game included with purchase of console•Wii SportsRecommendations:To improve graphics and processor.Should promote Wii as the symbol of victory.Communication and Promotion StrategyCommunication•Entertainment for All–A new and innovative interactive gaming system for the whole family•Advertising Slogans:–"Wii would like to play"–"Experience a new way to play.“14 |10DCP033
  15. 15. PromotionNintendo should consider expanding its reach to social networking and mobiledevices. Mike Snider, USA Today, recently wrote about the popularity of games for Facebook andsmartphones. According to Snider, Facebook game developer Zynga has increased its value to $9.3billion and “more than one-third of smartphone owners play games” (Snider, 2011). Snider explains,“mobile games do not seem to be cannibalizing traditional games” (Snider, 2011). Nintendo shouldconsider tapping into this industry and designing simple, puzzle-type games for Facebook and mobiledevices. This would align with the company‟s current focus on simple games for non-gamers and mayopen the brand to a new market, given the popularity of smartphones. The company could even developcapabilities to allow users to play social networking games on the Wii console.Distribution PolicyNintendo is not just an American based system. However, they do have two distribution centerslocated in North America: one in Redmond, Washington and the other in Atlanta, Georgia.Nintendo has distribution centers around the world. Each center distributes their regions versionof Nintendo‟s systems or games. Retailers get their inventory from Nintendo, no middlemen areinvolved. This is because Nintendo advertises the MSRP of $249.99 and sells to businesses ataround $241.00. Minimal profit is made with the sale of the Wii through a retailer. All the profitcomes from selling games and accessories.Conclusion:To conclude, Nintendo must continue pressing forward with innovative technology and game concepts.The company faces a great deal of competition, but also has many options to help maintain its currentcompetitive advantage. Careful consideration of the company‟s current strategy, and the environment inwhich it operates, will lead Nintendo toward an effective strategy to maintain competitive advantage andensure success.15 |10DCP033

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