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: Moderate Expand from single supplier into many Buyers: High Loss Purchasing Power in recession

Competitor: High Sony. Microsoft.

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 Nintendos 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 hasnt 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 hasnt 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 dont 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 Ratio
Quick ratio Debt to equity Net profit ratio

2009
2.78 0.428 0.151

2008
2.71 0.465 0.153

2007
2.79 0.429 0.180

2006
5.42 0.192 0.193

2005
4.59 0.228 0.169

8. SWOT
Strength
Strong brand First Mover (Creativity) Internal game developer

Weakness
Technology disadvantage Lack of blockbuster games

Opportunities
Changing people lifestyle (health, fit, fun = Wii Fit) E-commerce boom (Online store)

Threat
Competitors targeting casual game players Recession (Less demand, rising logistic cost)

8. SWOT (continue)
Analysis:
Nintendos performance is not attractive. Nintendos main competitive advantage is its creativity. Technology barrier makes Nintendos 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.