External environment analysis of Nintendo Wii: demographic, economic, and technological factors

Nintendo Wii

The most important factors in the external environment for the Nintendo Wii are the demographic, economic, political/legal, sociocultural, technological and global environments. Each of these different environments is important to the Nintendo Wii product and will be discussed in turn.

Video game consoles appeal to a wide demographic. Consumers in both the boys 2-18 bracket and the men 35+ bracket both favor the Wii above all other consoles. The product also has strong appeal among females. There is no one typical console consumer, but they skew towards the male and the developed world. The largest cohorts in the United States are the baby boomers, who are not a prime target market for consoles, and the baby boom echo, who are. The core of the echo is 18-35, and they favor other consoles such as the PlayStation 3 (Nielsen, 2008).

The economic environment is characterized by long-term economic slowdown in core markets in the West and in Japan. The economic outlook for much of the West is poor, with little chance for recovery. The stronger, growing economies of the world are to be found in China, India and Brazil (Alderman, 2010). Video game console sales are subject to downturn in difficult economic times, but this slump could be erased when the next generation consoles are launched. Of specific current concern is the threat representing by a decline in the U.S. dollar, which would make important goods such as Wii consoles more expensive (ibid).

There is little threat of the political/legal environment. Trade ties between Japan and the U.S. remain strong, so there is little threat of interference on the part of government in the operations of Nintendo with respect to the Wii. There are some political concerns with respect to emerging markets.

The sociocultural environment is positive for the Nintendo Wii. Video game consoles enjoy widespread popularity among a broad range of demographics. There are some minor concerns with respect to violence in video games. Because of the direct interaction between the Wii game and the user, the console runs the risk of becoming a flashpoint for concerns about video game violence (MAVAV, 2007). In general, however, such concerns have not dampened the widespread popularity and acceptance of video games among the general population. For a time, the Wii benefited from a reputation as a console that could help users to get exercise while playing video games.

The technological environment is the most challenging for Nintendo. The three major console makers each compete vigorously with each other and with computers for share of the video game industry. Technological advances -- with respect to graphics, sound, processing speed and other elements of gameplay -- are rapid and at times significant. A relatively new console can be rendered obsolete quickly. This challenging environment requires Nintendo to invest hundreds of millions in console development in order to maintain a competitive edge in the console industry.

The global environment is generally positive. While core markets in the West and Japan are slumping, many major emerging markets are growing rapidly and offer substantial potential to console makers. There are major challenges associated with these markets, such as method of entry, weak intellectual property protections and lower levels of per capita income, but in general there remains tremendous opportunity for growth around the world for video game consoles.

Of these factors, a couple stand out at the most important. The most important of these is the economic environment. The challenges presented by a slowdown in the economies of Nintendo's major markets include depressed demand, lower prices and lower game sales. The company then receives lower revenues, which could in turn have an impact in its ability to develop the next generation of consoles. This is an especially big concern for Nintendo because unlike its major competitors Sony and Microsoft, Nintendo does not have other businesses from which to funnel profits towards console development. The economic environment is therefore strongly related to the technological environment with respect to Nintendo's ability to keep up to the competition. Nintendo must therefore find ways to overcome the economic challenges in its core markets, or find alternate sources of income in order to maintain its technological competitive advantage.