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Game Console Industry:
            Nintendo
1. Characteristics of game console
industry?
 Competitive technology-focused, with hardcore gamer as a target market.
Fast changing industry, since the product lifecycle is comparatively short.
People demand shifted as economy changes. Different specs, model, and
 prices are needed to fulfill the ever-changing demand. Game console
 company have to balance between suitable price and quality.
People are looking for new experience of game playing.
2. The Five Forces
In the game console industry, the competition is a warzone between three big
game console company.
                            Substitute Products:
                                High. PC Game
                         Low. Arcade / Handheld game

         Suppliers:                                        Buyers:
          Moderate              Competitor:
                                                            High
           Expand                  High
                                                            Loss
         from single               Sony.                 Purchasing
           supplier              Microsoft.                Power in
          into many                                       recession

                               New Entrants:
                                    Low
                        Strong brand/High distribution
                                   barrier
2. The Five Forces (continue)
Buyer:
 <High> Customers lose their purchasing power due to economic recession,
 however the customer group expands from just hard-core gamer into elderly and
 female gamer.
 <Moderate> Retailers also lose purchasing power (In order to survive recession).

Supplier:
 <Moderate> Since Nintendo sorted more than one single supplier in year 2007,
 suppliers have lost their bargaining power. In addition, due to the strong brand and
 software development (cd game), suppliers find it hard to forward integrate into a
 competitor.
2. The Five Forces (continue)
 Competitor:
  <High> Sony.
 Higher price as Premium gaming console.
 Fast response to market change.
 Good technology capabilities and Innovation(blu-ray).

  <High> Microsoft.
 Target in different levels of market.
 Produce variety of version with different price and service to target every
  section of customer. (Lowest-end product has the same price as Nintendo
  Wii and high-end match PS3)

  <Low> China product.
2. The Five Forces (continue)
Substitute:
<High> PC game
<Low> Arcade game
<Low> Handheld game (Mobile/Tablets)
New Entrants:
<Low> Hard to penetrate since it needs strong brand, marketing (reputation)
and high distribution power (global scale)
3. Driving Forces
Strong Competition in technology among rivalry.
Nintendo cannot compete in technology with Sony and Microsoft; therefore
 they diversified into targeting more casual customer. (Start from Nintendo‟s
 Game Cube failure).
It is making the industry more profitable since it targets more groups of
 customer. It also makes the competition more intense since it forces
 Mircrosoft and Sony to step down into the same target group.
Especially Sony and Microsoft, they launched console which is similar to Wii.
     Sony : Playstation Move and Eyetoy
     Microsoft: Xbox Kinect
4. Key success factors:
Giving players „new experience of game playing‟
 (physical interaction, new controller).
Attract new casual group of customer who hasn‟t play game before
Strong brand of software game (Super Mario, Pokemon, etc)
 that complements causal gaming.
Partnership with components manufacturing company.
5. Strategy
Nintendo is using broad differentiation strategy as their generic competitive
strategy. They are targeting the market of hardcore gamer, casual gamer and
even someone who hasn‟t play game before. The price of Nintendo is
relatively much lower as compare to Sony and Microsoft.
Offensive:
  Blue Ocean – Strategy to explore and create untapped elders/female and
  non hardcore gamer market. So they always try to be the “first mover” to
  beat out competitor in existing market.
Defensive:
  Be more innovative than competitors since they are getting into this area.
  (Wii Fit)
6. Is Nintendo Wii a Blue Ocean
Strategy
Yes, because they are the first mover to explore this market. For example,
they have begun developing Nintendo Wii since the launched of Nintendo
Game Cube.


.
7. Sign of financial problem?
According to latest 5 years financial report,
1. Quick ratio shows that liquidity is going down, because there is a risk in
holding inventory. They don‟t maintaining a war chest of cash as signaling
their rivals because of signaling is an effective defensive strategy.
2. Financial risk is increasing due to debt to equity ratio.
3. Net profit to revenue ratio shows that Nintendo might have some problem
in operation. The ratio is decreasing.
7. Sign of financial problem?
Financial          2009    2008    2007    2006    2005
Ratio
Quick ratio        2.78    2.71    2.79    5.42    4.59
Debt to equity     0.428   0.465   0.429   0.192   0.228
Net profit ratio   0.151   0.153   0.180   0.193   0.169
8. SWOT
             Strength
              Strong brand                      Weakness
        First Mover (Creativity)           Technology disadvantage
       Internal game developer            Lack of blockbuster games




          Opportunities                           Threat
                                         Competitors targeting casual
   Changing people lifestyle (health,
                                                game players
          fit, fun = Wii Fit)
                                        Recession (Less demand, rising
   E-commerce boom (Online store)
                                                logistic cost)
8. SWOT (continue)
Analysis:

Nintendo‟s performance is not attractive.
 Nintendo‟s main competitive advantage is its creativity.
 Technology barrier makes Nintendo‟s approach is not sustainable.
 “Exhausting endeavor without assurance” – Using „creativity‟ to outrun
  competitor is susceptible to competitors‟ copy and development effort
9.Competitve Strength Assessment
Good product innovation capabilities and cost advantage compared to rival.
Strong brand name image.
Strong global distribution capability.
10. Recommendation
Invest more in R&D to create a proprietary and superior technology.
Build stronger partnership with game-producer companies.
Continue to approach new gaming experience.

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Nintendo

  • 2. 1. Characteristics of game console industry?  Competitive technology-focused, with hardcore gamer as a target market. Fast changing industry, since the product lifecycle is comparatively short. People demand shifted as economy changes. Different specs, model, and prices are needed to fulfill the ever-changing demand. Game console company have to balance between suitable price and quality. People are looking for new experience of game playing.
  • 3. 2. The Five Forces In the game console industry, the competition is a warzone between three big game console company. Substitute Products: High. PC Game Low. Arcade / Handheld game Suppliers: Buyers: Moderate Competitor: High Expand High Loss from single Sony. Purchasing supplier Microsoft. Power in into many recession New Entrants: Low Strong brand/High distribution barrier
  • 4. 2. The Five Forces (continue) Buyer: <High> Customers lose their purchasing power due to economic recession, however the customer group expands from just hard-core gamer into elderly and female gamer. <Moderate> Retailers also lose purchasing power (In order to survive recession). Supplier: <Moderate> Since Nintendo sorted more than one single supplier in year 2007, suppliers have lost their bargaining power. In addition, due to the strong brand and software development (cd game), suppliers find it hard to forward integrate into a competitor.
  • 5. 2. The Five Forces (continue) Competitor: <High> Sony.  Higher price as Premium gaming console.  Fast response to market change.  Good technology capabilities and Innovation(blu-ray). <High> Microsoft.  Target in different levels of market.  Produce variety of version with different price and service to target every section of customer. (Lowest-end product has the same price as Nintendo Wii and high-end match PS3) <Low> China product.
  • 6. 2. The Five Forces (continue) Substitute: <High> PC game <Low> Arcade game <Low> Handheld game (Mobile/Tablets) New Entrants: <Low> Hard to penetrate since it needs strong brand, marketing (reputation) and high distribution power (global scale)
  • 7. 3. Driving Forces Strong Competition in technology among rivalry. Nintendo cannot compete in technology with Sony and Microsoft; therefore they diversified into targeting more casual customer. (Start from Nintendo‟s Game Cube failure). It is making the industry more profitable since it targets more groups of customer. It also makes the competition more intense since it forces Mircrosoft and Sony to step down into the same target group. Especially Sony and Microsoft, they launched console which is similar to Wii.  Sony : Playstation Move and Eyetoy  Microsoft: Xbox Kinect
  • 8. 4. Key success factors: Giving players „new experience of game playing‟ (physical interaction, new controller). Attract new casual group of customer who hasn‟t play game before Strong brand of software game (Super Mario, Pokemon, etc) that complements causal gaming. Partnership with components manufacturing company.
  • 9. 5. Strategy Nintendo is using broad differentiation strategy as their generic competitive strategy. They are targeting the market of hardcore gamer, casual gamer and even someone who hasn‟t play game before. The price of Nintendo is relatively much lower as compare to Sony and Microsoft. Offensive: Blue Ocean – Strategy to explore and create untapped elders/female and non hardcore gamer market. So they always try to be the “first mover” to beat out competitor in existing market. Defensive: Be more innovative than competitors since they are getting into this area. (Wii Fit)
  • 10. 6. Is Nintendo Wii a Blue Ocean Strategy Yes, because they are the first mover to explore this market. For example, they have begun developing Nintendo Wii since the launched of Nintendo Game Cube. .
  • 11. 7. Sign of financial problem? According to latest 5 years financial report, 1. Quick ratio shows that liquidity is going down, because there is a risk in holding inventory. They don‟t maintaining a war chest of cash as signaling their rivals because of signaling is an effective defensive strategy. 2. Financial risk is increasing due to debt to equity ratio. 3. Net profit to revenue ratio shows that Nintendo might have some problem in operation. The ratio is decreasing.
  • 12. 7. Sign of financial problem? Financial 2009 2008 2007 2006 2005 Ratio Quick ratio 2.78 2.71 2.79 5.42 4.59 Debt to equity 0.428 0.465 0.429 0.192 0.228 Net profit ratio 0.151 0.153 0.180 0.193 0.169
  • 13. 8. SWOT Strength Strong brand Weakness First Mover (Creativity) Technology disadvantage Internal game developer Lack of blockbuster games Opportunities Threat Competitors targeting casual Changing people lifestyle (health, game players fit, fun = Wii Fit) Recession (Less demand, rising E-commerce boom (Online store) logistic cost)
  • 14. 8. SWOT (continue) Analysis: Nintendo‟s performance is not attractive.  Nintendo‟s main competitive advantage is its creativity.  Technology barrier makes Nintendo‟s approach is not sustainable.  “Exhausting endeavor without assurance” – Using „creativity‟ to outrun competitor is susceptible to competitors‟ copy and development effort
  • 15. 9.Competitve Strength Assessment Good product innovation capabilities and cost advantage compared to rival. Strong brand name image. Strong global distribution capability.
  • 16. 10. Recommendation Invest more in R&D to create a proprietary and superior technology. Build stronger partnership with game-producer companies. Continue to approach new gaming experience.