NINTENDO’S DISRUPTIVE STRATEGY:

IMPLICATIONS FOR THE VIDEO GAME INDUSTRY

CASE ANALYSIS

BY:

MUHAMMAD FARIS GHIYATS - 29118139

SEGHA RELANGGA KRISWANDI - 29118210
IRWIN PRAWIRA SANTOSO - 29118052
MUHAMMAD HANIF HIDAYAT - 29118233
ANASTASIA AYU - 29118223

Assignment of Business Strategy and Enterprise Modelling, Second Semester

Young Professional 59 Class C

Lecturer : Harimukti Wandebori

Date : January, 28th 2019
1. Explore and analyze the external and internal condition of Nintendo prior to the
launching of Wii

External Conditions
A.1. General Environment

Technological Segment
Nintendo began their Business firstly with the launched in the playing cards or still in the
name of “Nintendo Playing Cards Company” in 1907. In the period of time ahead, Nintendo
started to develop their technology by starting to enter the manufacture of electronic toys and
initiate their business in the field of home video games. They started this movement by launching
the Color TV Game 15 and Color TV Game 6. And also Nintendo established their coin-
operated games with their most famous “Donkey Kong” and also the “Arcade Games” machines
with high-tech base in that year in US and Japan.
Then their move to producing the first home game console which is “Super NES”
product. Super NES was the first Video Game product that was originally developed by
Nintendo as the output of the enhancement from the company for moving their basis of their
concentration in the developing their type of product with their very-own game such as “Super
Mario Bros”. The transformation from only making playing cards as their main output to become
a Video Game producer company in their sophisticated development and helped the Nintendo
became a resounding success with the launching of NES and enlarge their market through
Europe and maintained in Japan and US. Then they also launched their newer console, Game
Boy. The Game Boy was the first major product in the handheld game console industry and
became immensely popular because its portability and accessibility.
Nintendo formed the Super Game Boy, a peripheral for the Super NES, which enabled
Game Boy software to be played on the TV screen and they introduced a 32-bit Virtual
Immersion System. It followed by they launched Pokemon on the Game Boy: the game involved
trading and virtual monsters and was the first in a hugely popular video-game series. The
company also released another blockbuster video game, "The Legend of Zelda: Ocarina of
Time.". Finally they released their newest development of their game, Nintendo Game
GameCube.

Global Segment
In that period, they considered the situation that happened in the current period of time and also
know what the world needs or aware of the development of Gaming Technology. The global
markets that already happened in that period of times triggered Nintendo and affect their strategy
or business mindset and even their goals. Naming their company and successfully claimed as one
of the three major leaders in the video game producer is the result the outcome of the global
market situation in that period. Therefore, the global market that closely to the development of
the technology affected their business and progress in strategy in that period of times.

Demographic Segment
Nintendo considered their customers and users as the mature-age gamers in that period of time
before launching Wii. They just focused their development in technology to become more
complex and high-tech. In can be seen from the development of their products through the years
in that period, the company focused to perform their ability to develop their high tech sector and
sophisticated products. This situation made the non-gamer users who usually in the underage and
adults were not interested in the playing game and using the nintendo product because their
possible desire to learn how to use the product become lower. So this external factor of
considering the age of their customer is become lower.

Sociocultural Segment
In this case, the aspect of the sociocultural as the external factor in this business makes a
differentiation due to the demand of them to play a video game and their needs to make playing
game as the part of their activity. The evidence of this situation when Nintendo use this to
transform their business from producing Playing Cards, to Arcade Games which provided in the
game station in the city and also the last type which is the Console-Game that can be used in the
user’s home without considering the negative effect of gamers-lifestyle. Some ​reviews evidence
that play enhances visual attention and may even help kids with dyslexia improve their reading
skills.

A.2. Industry Environment

Threat of New Entrants

In this case, before introducing their main product which is Wii, they were still struggled in
making their position as the main pioneer in the video game market. Microsoft, which was the
latest company to enter this market can be notabled as the new entrants for video games industry.
The microsoft came after they knew the success of Sony of launching PS2 and making them
could no longer ignore the great run of that product. Nintendo, who was the first company in
gaming sector, saw the breakthrough arrival of Microsoft in 2001 after expand their business
from making the traditional PC and software into their very first video game console, Xbox, in
2001. It can be seen the reason of the Microsoft to join this market beside only watching the
success of Sony with PS2, they also want to pose a threat with adding additional production
capacity. The potential way can be seen of the barriers to entry and the retaliation expected from
current industry participants. Economies of scale act as one barrier. The new entrant will have to
build its own games and would have to market it well since the existing players are a household
name.

Product Differentiation
Over time, customer may come to believe that those three companies, Nintendo, Sony, and
Microsoft product is differentially unique. Nintendo who started their business from making
playing cards transformed their focus into digital video games with many development of its
products. They made their business in straight way line development with making those
products’ technological aspect as their major evolution. Those evolutions are also implemented
by Sony and Nintendo to make the products with their own capacity and strength to make a
crucial step in differencing their video game products to be more noticeable by the customers.
And also, the features development is the key point and step of every company in this industry.
A.3. Competitor Environment

Competitive Strategy - Future Objective - Enhance Strength and Reduce Weakness

The strategy between Nintendo and its competitors is the key of the company to develop their
business and for placing their position in this industry. The gaming console industry has been a
Red Ocean with the three main players competing for market share for the last decade. The
Strategy adopted by the console players prior to launch Nintendo Wii (6th generation) was based
on value creation rather than innovation. As we can see from the case that this company develop
their product by concentrating in technology and tied up their customers depended on the needs
and hype. They achieved this by focusing more on technology advancement by providing more
inbuilt storage, better graphics and improved processing capacity. Such as bundle deals such as
console makers introduced bundle deals by offering additional controllers, remote controls or
games in order to tempt them away from competitors.

Pricing Strategy - Current Strategy

One of the important tools used for gaining market share is the aggressive pricing strategy. They
have adopted a loss leader strategy where the products are prices below the production cost and
they expect that lower input cost over the years will make their product profitable. It can be seen
from specific evidence the price of the Nintendo’s product relatively under the competitor’s
price.

Captive deals
As price of games consoles fall, console manufacturer release much hyped games that can only
be played on their platform. Games console manufacturers usually make most of their money on
software sales. They get the console into the household by selling it cheaply then they capture
the customer on the premium price for new game releases. For example if you wanted to play
Halo, it could only be played on the Xbox 360. All these strategies are for value creation and
thus created a Red Ocean. With Nintendo Wii, Nintendo created a blue ocean to attract new
customer base.

2. Explore and analyze the customer along with the segmentation and positioning

Tabel 1. Segmentation and Positioning of Nintendo

Focus Analysis

Segmentation For Wii, Nintendo targeting the non-gamers

segmentation who can easily know how to use
the console itself which can be spreaded by
simple gamers and simple controller which
usually a part of housewives and lower
gamers in youtube. Then we can say this is
going to be the constraints of the customer
because new movement of the Wii shows
their segment is new compared to the other
competitors which this product is ready to
use, quick to start up and serves simple game
for the new user.

b. Positioning Target Market​ : non-gamers which can be

the part of the Non-Gamers who rarely use the
consume the game console.
Problem :
Generic Product :​ Nintendo Wii as the new
comers game console in the new type of
motion-based gaming by using the wand-like
controller
Core Product ​: Game product adapt as for
non-gamers user by the certain value.
Expected Product​ : Growing the type of the
product which provides an exercise gaming
with the type of real sport game such as
baseball, yoga, and ect
Augmented Product ​: A product which is the
console that access news, internet, weather
updates and casual needs.
Frame of reference​:
This product was launched to compete against
its direct competitor from Sony (PS3) and
microsoft’s XBOX 360.
Basic Requirements​:
Fun, friendly controller and various.
Reason to Believe​ :
their consideration about expanding their
market for non-gamers is good movement and
initiation for amateur people in this industry
to start using the product.
Distinguished from competition​ :
Nintendo Wii have a certain value that
another gaming console doesn’t have to fulfill
non-gamers segmentation such as easy-to-use,
quick-to-start up and etc.
Emotional End Benefit​:
Use for family time and can be easily used for
the parents who is “foreigner” in this industry.
3. Based on the previous analysis mention the attributes and benefits of the existing game
console (before the launching of Wii). Compare this among the players in the industry
(PS 2, PS 3, and Xbox).

Tabel 2. Comparison between PS2, PS 3, and Xbox (Live and 360)

PS2 PS3 XBOX (Live and 360)

Images

Attributes ● Dual shock ● WiFi wireless ● First console with

2-compatible vibration internet Dolby Interactive
feedback ● The ability to read Content-Encoding
● Macro button for various flash ram Technology for
enhanced cards produce encoding
programmability ● Larger Capacity Dolby Digital in
● 12 analog, storage ( 60 gb console.
pressure-sensitive hard drive) ● Larger Capacity
buttons for enhanced ● Blu Ray format storage ( 120 gb hard
● Mode button with DVDs drive)
analog, digital and ● HD graphics ● HD graphics
steering modes ● Complex cell ● WiFi wireless
● Innovative trigger processor internet
firing buttons ● Uses the triple-core
● Dual analog sticks for IBM​ designed ​Xenon
precise range of as its CPU, with each
motion core capable of
 ● Start and select simultaneously
buttons processing two
● Precision-engineered threads
angles and curves
designed for
maximum ergonomic
comfort and extended
game play.

Benefits ● It compatible play for ● Can play ● Good design

ps1 games. multiplayer (more ● Xbox Live allowing
● Cheap Price than 2 players) subscribers to play
● Can use to play VCDs ● Designed to be a online games with
and DVDs. multimedia other subscriber
● Have 3870 games entertainment hub around the world
● Its Computing ● Many accessories are
power that also available for the
allow users to chat console, including
online and listen both wired and
to music wireless controllers​,
● Very high quality faceplates for
animation and customization,
graphic headsets for chatting,
a ​webcam​ for video
chatting, ​dance mats
and ​Gamercize​ for
exercise

Information PS2 console is the best Sony lost the Production if the xbox
selling console in history. dominant position in ended in favor of the
 the console market. It Xbox 360. Microsoft
happened because the was determined to
supply problem and capture the top spot in
the high price of the the market with the
PS3. Sony slashed the launch of the Xbox 360.
price of PS2 to boost
sales in mid-2007,

4. What was the new revealed segment targeted by Wii? and what were the attributes and
benefits required by this segment?

The new strategy objective of Wii was to reach out to non-gamers. Wii targeting all
customers, irrespective of age, gender, or gaming experience in order to create a bigger market.
The increase in purchasing of video games appears to be coupled with an increasing debate about
positive and negative effect of these games. In negative effect, video games could be addictive,
social skill could suffer under prolonged playing and aggressive behavior will appear especially
for children. Based on data from University of Twende study, teenager who had been playing a
violent videogames were not displaying significantly more aggressive behavior in a
teacher-learner paradigm. After playing a video game, these teenager had to punish a learner by
deducting money, a measure aggression, whenever the learner made a mistake. Other study said
that not only playing aggressive video games was related to increase in aggressive behavior, but
there was also relationship with time spent playing video games. They found that the more time
young people play video games, the more aggressive they are considered by their teachers and
the more these young people think of themselves as behaving aggressively.
It is possible that a child becomes socially isolated by spending much time playing video
games. Heavy users of videogames were more likely than less frequent videogames players to
agree that playing video games is more fun and more desirable than being with other children.
Children might see the as their electronic friend. They can communicate each other and play
together without going out from home. They just sitting on their room and can meet their friends
on video screen.

Tabel 2. Overview of Studies of the Relationship Between Playing Video games and Prosocial Behavior
and Social Skills

Authors Type of study Age Results

Chambers & Ascione Experiment 8-12, 12-15 After playing a

(1987) prosocial video
games, there was no
influence of this
game on donating
money to a good
cause

Shimai, Masuda, and Survey 3-5 Children who played

Kishimoto (1990) with the Family
Computer are more
socially skilled than
children who did not
play with this way

Selnow (1984) Survey 10-14 Children who spent a

lot of time playing
video games think
more that playing
these games is more
fun and exciting with
other children;
videogames are a
substitute for
 friendship and social
interaction

Lin and Lepper Survey 4th-6th grade Playing video games

(1987) is not at the cost of
social activities; there
is no indication that
the use of video
games have relation
with social isolation

Mitchell (1985) Survey 5-17 Within the family

there is an increase in
positive social
interaction after
purchasing a
videogames

Colwell, Grady, and Survey 11-17 Boys who play

Rhaiti (1995) videogames often
more likely to see
friends outside school

The most children prefer to play video games alone, so playing video games might often
be an individual activity. Based on all data above, nintendo made game console not only for the
children but also for whole family. Nintendo made a new gaming console based on emotional
capture, Nintendo Wii. Wii had fun and easier games for older audiences. They can play sports (
tennis, softball, basketball) and do the healthy exercise ( yoga, push up, sit up) in nintendo Wii
with using the game console. So, the children can persuade their parents to buy the nintendo Wii
and play together. It will affected the sale of video games. In most industry games, Age of group
18-24 and children 6-15 was the main target. Wii change that target into the whole family. Wii
strategy was that the console that easier to use and addicting to play with other people. Besides
nintendo use the situation for increase their sales in this video games industry, nintendo also
want clear the assumption that videogames could make children isolate and appearance of
aggressive behavior.

5. Compare the attributes and benefits among the players after the launching of Wii and
visualize this into a Strategy Canvas.

Figure 1. Graphic depicition of a company’s relative performance across its industry of

competition
 Figure 2. Business model canvas of Nintendo Wii
6. What were the attributes and benefits to be: reduced, eliminated, raised, and created? and
How Wii was able to successfully implement the blue ocean strategy through value
innovation?

Nintendo was able to successfully implement the blue ocean strategy through value
innovation, because Nintendo able to see video game industry in different viewpoint. Iwata saw
the potential threats facing the industry. He observed that the video game market in Japan was
shrinking. Base on various market trends and data the key factor causing this reduction is
increasing complexity of video game. Consequently gamer with busy live had stopped playing
and the new player and non-gamers need to invest in their time to learn the complicated
controllers. Iwata saw that the video game industry had largely ignored non gamers and focused
on the existing players.

Tabel 4. The attributes and benefits to be: reduced, eliminated, raised, and created

Attribute Benefit

Reduce Complexity control of video More easy to play and set up,
games (controller and can play be all customer,
gameplay) irrespective of age gender and
new-player

Eliminated Wired controller/joystick Player can move freely while

Hardcore games playing games.
Game based on real life
situation (Baseball,
Basketball, tenis, athletic
sport and yoga.

Raised Family friendly, More interaction among

Easy-to-play and learn, player while playing games
More player in multiplayer
game More physical movement
while playing games

Created Motion navigation Determine the physical

intelligent software fitness level of player
 Nintendo use blue ocean strategy to reach out to non-gamers to create a bigger market.
Nintendo develop simple game targeting all customers, irrespective of age, gender and gaming
experience. These new games take no more than few minutes to set up and play, easy to use
controller and based on real-life.
Base on the blue ocean strategy Nintendo make new console called Nintendo Wii.
Nintendo Wii doesn't like other console, wii use a simple joystick without cable, tiny size as a
TV remote and could navigate the system by moving the controller. Wii controller could detect
more subtle movement through intelligent software to determine the player physical fitness
levels. Not only easy to use but also game in this console encouraging communication among
family member, Wii was a gaming console the whole family could enjoy together.