Nintendo has pursued a fundamentally different strategy and business model with the Wii console than that of its competitors, the Microsoft Xbox 360 and Sony PlayStation 3. The heart of Nintendo’s strategy was the assumption that consoles do not necessarily require leading-edge power and performance. This is a radical stance since the gaming industry traditionally competed on technological performance, graphic quality, and game realism: factors valued primarily by die-hard gaming fans. Nintendo shifted its focus to providing a new form of player interaction targeted at a wider demographic than the traditional avid game audience. Nintendo’s new business model has the following characteristics: 1) a shift from hardcore to casual gamers, which allowed the company to reduce console performance and add a new element of motion control that created more fun; 2) elimination of state-of-the-art chip development and increased use of off-the-shelf components; 3) reducing costs which allowed lower console prices; and 4) elimination of console subsidies resulting in profit on each console sold. Nintendo’s current strategy for the Wii, which is known as a “Blue Ocean” strategy, has led the product to become the market leader in sales of game consoles. The extra functionality and features appeal to diverse areas of the market such as health conscious people, seniors and families. With its blue ocean approach, Nintendo has found a niche in the market and is successfully exploiting it. 1.2
It is unknown how far the gaming market could expand, and it is considered to be high risk that Wii is focusing on the new gaming market but not the core gaming market. Consequently, Nintendo is facing significant challenges including: 1) How to continue to expand its customer base;
2) How to maintain its current customer base; and
3) How to defend its market from its rivals.
ANALYSIS AND EVALUATION
The video game console industry can be characterized by fierce competition among three major companies: Nintendo, Microsoft, and Sony. The companies continuously fight to gain more consumers by developing products that are technologically superior and more powerful than the offerings of rivals. They focus on the degree of creativity, innovation, and each continue to turn profits from their new products, but have never gained a significant edge over one another. The industry is characterized by high velocity, fast evolution of consumers’ requirements, short product life, and technologically oriented clients. 2.1.1
Industry Key Success Factors
There are several key success factors in the video gaming industry. Innovation and Creativity – The product life cycle is short. New products which are more creative and innovative are quickly launched to capture more market share. Low Production Cost – In the highly competitive industry, it is difficult to make profits. If a company controls the product cost through applying new technologies to improve their productivity and assure high product quality, it is possible the company will remain financially viable. Strong Distribution Network – A strong network of wholesale distributors or dealers increases the product visibility to the consumers, establishes a strong brand image, and increases the possibility of sales. Well-fit to Consumers Needs – Listening to the consumers’ voice is very important in this industry. More features and functions that fit consumers’ increasing needs lead to higher demands of new products. 2.1.2
Porter’s Five Forces Analysis
Supplier Bargaining Power – High
The suppliers to the video game console industry are few and are large market players. The console industry is an important market, but not the only one. The gaming software requires the services of talented software developers, whether working in-house or as third parties. Thus, suppliers’ bargaining power is very high. For example, Nintendo used to engage a single...
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