Nintendo SWOT Analysis Nintendo Co.

Nintendo SWOT Analysis

Nintendo Co. Ltd. was founded in 1889 in Kyoto, Japan. The software manufacturer is very influential in its industry, being Japan's third most valuable company with a market value of $85bn and being ranked eighth largest software company in the world in 2007 (Wikipedia (a), Accessed Feb 2009). By October 2008, the company had sold more than 470 million hardware units and 2.7 billion software units worldwide. At the end of 2008 FY, net sales reached $16,724 million, showing a 73% increase compared to the prior year, whereas net income reached $4,872 million over the same period of time (Annual Report, 2008).

Nintendo, the parent company, has a relatively small number of employees (3,768 in 2008). However, the company sells a large number of products via franchising.

Nintendo's top competitors as indicated by Hoover's are Microsoft, Sega and Sony. Microsoft is probably the largest software manufacturer worldwide, widely known for its Windows operating system and Office application. Sega, formerly the world's #3 console seller behind Sony and Nintendo was bought by Japan's largest pachinko and slot machine maker, Sammy Corporation and restructured its business to develop software for PCs, wireless devices and game platforms. Finally, Sony, despite having a winning product in terms of games, Playstation, most of the attention is drawn by its high-profit consumer goods.

The Product

Wii is a probably the most famous video game console developed by Nintendo so far.

SWOT Analysis

Strengths

The consoles. Technology-wise, the Wiimote and Nunchuk have been a huge success factor after many years of experience with joypads. It is much easier to use the Wiimote once this is attached to your wrist. Its sensitivity is obvious even in the case of the simple mini-games in Wii Play, and this is just the beginning of this generation as it is pretty clear that developers haven't even scratched the surface for this technology yet. Also, the he Wiimote'n'Nunchuk be very revigorating, stimulating individuals to rediscover their passion for long forgotten games, such as Wii Madden.

First party games. Nintendo's development teams are the games industry leaders in terms of creativity and innovation. One example to support this argument is Nintendo's dynamism with DS, which had one new genre invented (brain training) and another reinvigorated (virtual pets). With a new IP, new ideas focused on the strengths of the device (in DS' case, its style and dual-screen) and keeping the same teams making the games, Wii will never be short of innovation.

Third party games. The third party support is impressive: EA liked the platform so much, they bought a company; Ubisoft are making large amounts of Wii games, and Sega is on board in the software area. The company is making use of the controllers - see Ubisoft's Rayman Raving Rabbids or Elebits. Additionally, cheap development costs and innovative controls are helping a lot, and the strong sales of the console itself are a good reason for publishers to support Wii.

Its simplicity. Wii is probably the most accessible games console for the non-gamers category, including here those individuals with no well-developed joypad skills. it's also probably the best party console of all, being extremely easy to gather a few friends and play together.

Online and multiplayer. Wii IS online has a very good Web browser, and the System Update feature works smoothly, and so does the instant messaging. The weather and news channels, although not very well developed, have a very good potential.

Weaknesses

The consoles. The company doesn't own motion sensing, but this can be done just as easily on a PS3 or Xbox 360. And while Wiimote'n'Nunchuk is one of the console's strengths, it shouldn't be seen as competition-trumping killer features as often as it is.

First party games. In this area, Wii created so far Zelda, Wario, and brain training, Mario, and Pokemon. If Nintendo gets carried away by the DS' barnstorming success and continues with minor Wiimote changes for its greatest hits it will be missing on a lot of opportunities. Consequently, the game designers need more brand new ideas and innovations, just like DS.

Third party games. There are a lot of movie and kiddy games being developed. Nintendo needs to make sure Wii has a balanced library of games to move forward, after having spent so long trying to build its reputation for making consoles for kids. Also, it needs to focus on its leadership for the really big games, such as the Grand Theft Autos for example, which are leading on PS3 and 360.

Its simplicity. Wii's very simplicity could become its own enemy in some households, especially those with another console, such as a PS3 or 360. The latter are used for proper gaming, whereas Wii might end up full of dust in the corner waiting for the next post-pub session.

Online and multiplayer. Playing games online is quite limited and the overriding tracking scores community is not tracking the highest achievements.

Opportunities

Improve the seventh generation console characteristics, which are only in the beginning of their life cycle.

Increase game variation for all age segments, while focusing on big games, such as Grand Theft Autos.

Threats

Fluctuation in foreign exchange rates - Japanese yen appreciation against the U.S. dollar or Euro would have a negative impact on Nintendo's profitability because (a) the company distributes its products globally with overseas sales for more than 80% of total and also because (b) the company keeps a substantial amount of assets denominated in foreign currencies without exchange contracts and so any fluctuation in foreign exchange rates impacts the earnings.

Fluctuation of and competition in the market - the emergence of new competitors as a consequence of technological innovation and the shift in consumers' preferances for video games could have a negative impact on the company.

Development of new products - Despite Nintendo's power to innovate, in the software development industry there is no certainty that the products will be accepted by the customers as their preferences are extremely volatile. Additionally, the development of hardware is complex and time consuming and because the technological advancements are very fast, Nintendo may be unable at a certain point in time to acquire the necessary technology to generate a successful product in the gaming segment of the entertainment field.

Product valuation and adequate inventory procurement. The fast pace of technological development, characterized by products with a short life cycle coupled with ever changing consumer preferences requires a good inventory system, through which the company manages to avoid excess inventory of obsolete products.

Marketing Strategy

Marketing Mix

Product. Wii's size is a competitive advantage as all competing products are larger and harder to fit in a room. As discussed in the Product section, Wii is definitely thinner and lighter than GCN, N64, North American SNES and NES, but also shorter than most of those.

The two main competing products are Microsoft's Xbox 360 and Sony's Playstation 3. Xbox is using a Power PC technology by IBM for its processor just like Wii. However, 360 processor is by far more powerful than the one used by Wii. Sony also had a strong processor with a massive sever cores line up. In Sony's case the processor's high quality came with too high prices that were heavily criticized and had to be cut especially in markets like Japan with sophisticated customers and a large variety of competitive products.

Just like in the case of horsepower, Wii can't deliver at the same level as the competition in terms of graphics. Sony, just like Microsoft invested a lot of resources to improve graphics and push them to a high definition era. Microsoft adopted a "media hub" approach, stimulating consumers to use their 360 for more than games, such as watching movie trailers and DVDs and also share content with your "Media Center" PC, such as videos and photos. Additionally, there is a heavy emphasis on connecting their consoles to the Internet for additional services. Sony's graphics on HDTV look fantastic, but can be improved for the classic 21"TV.

Wii is user friendly and doesn't require special gaming skills to play. Thus, people interested in playing games for a short period of time will chose Wii over the competing products because of its pick-up-and-play characteristic, whereas those interested in more than that will chose 360 or PS3. Also, unlike the competing products, Wii offers players a new way to play games through its high and original interactivity feature.

Price. Both Microsoft's Xbox 360 and Sony's Playstation are more expensive than Wii, as both these products are superior in terms of horsepower and graphics. But this simplicity characterizing Wii is what makes the product both more user friendly and cheaper than the competing ones. Moreover, since Nintendo was among the pioneers to launch this kind of products, it also managed to reach a certain maturity in the product life cycle and therefore the ability to reap benefits from economies of scale and learning processes.

With the smallest price tag and with fun games, Nintendo's Wii has managed to attract non-casual gamers, such as women and children. In an attempt to compete Wii, Microsoft put together all the features from its Xbox 360 gaming platform and offered the result in the shape of a bundle of two games at the price of $279.99 in which the following were included: five family-friendly games, a wireless controller, a high-definition multimedia interface (HDMI) connection enabling high-definition output (if desired) and 256 MB of memory, useful for storing games and entertainment content. These five games included: "PAC-MAN Championship Edition," "Uno," "Luxor 2," "Boom Rocket" and "Feeding Frenzy."

Microsoft's attempt was the only one that came close to being a good competing product for Wii. Nintendo, however, is struggling with production issues for Wii product as despite U.S. economy meltdown, the company can't keep us with the increasing demand - 45% from 2007 to 2008. Thus, consumers might have to switch to one of the more expensive, but with similar specifications products if Nintendo is not able to satisfy this demand.

Position/Distribution. According to Iwata, the company's CEO, Nintendo's original distribution plan for the Wii had been to sell the console through a network of retail outlets alongside videogame stores in order to reach a greater market penetration. That plan is currently off the table, he said, because "[we] have to supply enough to meet the demands from our existing customers before we try to expand to new outlets" (CNET News, May 2007). Nintendo is currently facing a production bottleneck for Wii, not being able to forecast demand with precision and thus fall behind with the supply. On the hardware distribution side, Nintendo has a healthy network of distributors, over 50 in the Americas and plenty more abroad. Additionally, the company set up a new channel for games distribution -- WiiWare. Games are downloaded over the internet by using WiiPoints, available to be purchased at the Wii Shop Channel or at retail outlet. This system's advantage is that kids can now buy the points over the counter with cash, rather than rely on an adult with a credit card (although there are parental controls).

Promotion. Wii's promotion strategy includes: mass selling, middleman (Wal-Mart, Best Buy and Game Shop) and push and pull techniques. Push techniques refer to advertising through commercials, ads, circulars, magazines, and internet, while pull techniques refer to keeping on-hand inventory low leaving customers returning to check availability.

A people standing side by side, representing players gathering together.

One specific promotional activity adopted by Wii is the mall experience. It consists in getting the people out to a nearby mall to show off their skills in public. The method draws attention to the game console and increases product awareness among new comers to play and get involved.

Target Market

In terms of behavior, Wii competes with Xbox 360 and Playstation 3, which are similar game systems. The Nintendo brand is familiar to gamers through older products such as: Nintendo, Super Nintendo and Gamecube, which made Wii backwards compatible.

In terms of demographics, Wii is aiming for a generous age target. Recently, the company launched a $200 million ad campaign targeting the adults. Thus, the company is trying to get rid of the perception that Nintendo games are for children and teens. Nintendo is communicating to all potential buyers that Wii is a game for the entire family and therefore any member of the family can play regardless of their age.

In geographic terms, Nintendo Wii is distributed worldwide. The Wii is a big hit in Japan and the United States, which account for 7.7 million of the 10.57 million Wii products that have been sold worldwide.

Positioning

Many Wii ads are trying to convince consumers that the Wii is fun for the whole family.

Our message is that everyone's a gamer, Whether it's bringing joy and happiness to mothers and fathers as they experience Wii for the first time playing Wii Bowling or Wii Tennis, or whether it's bringing a game like Nintendogs to a fifteen or sixteen-year-old girl who has a puppy that responds only to her voice. That passion is what's driving us, and that passion to be part of shaping the future is really why we're here," stated Reggie Fils-Aime, President and COO of Nintendo of America (Gamasutra, 2007).

Financial-wise, Wii is positioned as an affordable game. Casual gamers (Nintendo's target market segment in this case) don't buy games at $100, let alone $110 or $120. They buy them when they're $30-50, as the success of the Sony "party starters" has shown.

Global events

Today is dominated by seventh generation video games. The major players are fighting for the top spot in a market where overall revenue is expected to increase by 42% in 2009. Total sales of current top three - the Nintendo Wii, Sony PlayStation 3 and Microsoft Xbox 360 - are expected to reach 210m by 2012, when the companies are likely to move to the eighth generation of machines.

Currently, Nintendo is the uncontested market leader. In FY 2007, the company reported an 89% increase in sales and a 77% increase in net income, its market cap rising to ¥8.4 trillion. In the same year, it became the second most valuable Japanese company after Toyota. In the UK, the Wii has become the fastest selling console ever, selling over 1 million units in the 38 weeks since its launch. And this success has been perpetuated worldwide. Thus, the Wii has sold 9 million units worldwide compared to Microsoft's Xbox with 8.9 million for, despite the latter being launched over a year earlier. Wii is also far more profitable than both its competitors - Sony and Microsoft, who lose money on consoles, in the hope to make some profits from game royalties.

Nintendo's success story is very simple. Its star product, Wii, is cheap because it is comparatively unsophisticated. Despite hardcore gamers having labeled the product as inferior for its below-par graphics and lack of feature-length games, the firm managed gain success by leaving this market behind. Nintendo has targeted the Wii at a new kind of consumer: the casual gamer. This is the kind of buyer that has neither the time nor the talent to spend hours mastering complex games, instead preferring to spend five or 10 minutes a day playing a simple, challenge-based game. The Wii is easy to play and extremely tactile, thanks to the Wiimote, a remote control sensor which mirrors the player's actions.