The uses of such analysis to Nintendo are to an extent very valuable. By creating a scatter graph like the one above, Nintendo can spot trends and forecast future events. For example, they could estimate demand at a certain point in the coming year. One would expect demand to surge at Christmas time when people are buying each other gifts, and dip in January when (generally) consumers have less money due to spending so much on presents, and figures could be devised to estimate how many units will need to be produced. This allows Nintendo’s operations department to build up stocks of goods beforehand in preparation, for example the ‘Nintendo Wii’ which was under stocked in all major retailers, and hence was selling on eBay (the online auctioning site) for triple the price. Because games consoles are durable goods and do not perish, Nintendo could store them in a warehouse, so the manufacturing facilities aren’t exhausted around November time. This would be positive to both Nintendo who can sell a lot of units and thus increase profit, and consumers who will not be left wanting a Wii.
In addition to this, it could aid Nintendo when designing a new advertising campaign. They could gather past data from previous campaigns and plot the values on a scatter graph to see if there is any correlation. This would aid decision making for the management staff – as they could see whether the operation would be profitable on the whole, and ultimately be worth doing. Albeit, this would only be an estimate of the intended benefit, and in reality things are much more complicated.
Following on from the previous paragraph, the main downfall of this analysis is the fact it assumes that previous patterns will continue into the future, and doesn’t account for qualitative factors. Qualitative means customers opinions and is not numerically measured. This is a huge factor when considering extrapolating for Nintendo, as technological advancements could revitalise the way games consoles are played in this rapidly changing market. A prime example is the growth of online gaming, which Nintendo have not responded to as quickly as its main competitors the x-box and the PS3. Many years ago when online gaming was not as popular, this would have had a minimal impact on sales, but the data today is less reliable and can make predictions redundant if they don’t account for such factors and changes in consumer tastes.
A final disadvantage is the effect of competitors on the validity of the data used to forecast values. Nintendo operates in an oligopolistic market (a market where there are a few large firms) where there tends to be less price competition. The other major players in the market are Microsoft and Sony with the x-box and PS3 products respectively. Said businesses have to take into account likely reactions of rivals to any change in price and output, which can be unpredictable and therefore damage the precision of statistical analysis. Nintendo could predict a £200billion increase in sales by running a bundle promotion, but the forecast would be nullified in Sony ran an equal campaign, which ultimate leads to Nintendo losing a large amount of money.
The extent to which correlation and extrapolation are useful for Nintendo for forecasting sales is arguable. On one side, it seems foolish not to forecast thoroughly before planning on running a multi-million pound operation, but on the other, in the ever changing world of business (and especially the computer games industry) the validity and accuracy of the forecasts could be destroyed in a few months with a new technological breakthrough from one of Nintendo’s competitors.
It also depends on how strong the correlation is between the two variables. A weak correlation is likely to have a higher degree of uncertainty than a relationship that is strong. It is up to the businesses marketing team whether to go project values based upon a weak correlation. Outliers or (anomalous results) can also hinder the accuracy of the regression line unless they are ignored, which again is a decision of Nintendo. The level of uncertainty makes me conclude that ultimately such analytical tools are not of use to Nintendo.
Ultimately the use depends on all the previously mentioned factors, some which cannot be accounted for. This leads me to take the conclusion that these statistical tools are not of great worth to Nintendo and they should use a fixed point moving average method to smooth out the overall and underlying trends in their forecasts. This will reduce uncertainty and remove some of the disadvantages and problems which is more beneficial for a large firm such as Nintendo.
Here's what a star student thought of this essay
Quality of writing
The spelling and grammar was very good. I do not think there were any errors. The layout was fantastic, as each point of analysis was in its own paragraph, doing this is thoroughly recommended, as it makes the essay easier to read. The author uses good connective words as well, which give a good balance to essay, which is vital in business studies/ economics essays, an example of the connective would be: Ã¢â‚¬ËœOn one sideÃ¢â‚¬Â¦.but on the other.Ã¢â‚¬â„¢ This essay received all five stars, for having great analysis, good spelling and grammar, and having a balanced approach.
Level of analysis
The level of analysis was good as well, as the author went in to some depth looking at the pros and cons of each method. Praise is due for not just saying what each method was, as there is a danger in these sorts of questions of describing, but actually analyzing. He improved his analysis substantially by using own knowledge, as it increased the level of depth they could go into. Another good thing to take away from this essay was the authorÃ¢â‚¬â„¢s use of an imaginary example to help explain some of his/herÃ¢â‚¬â„¢s analysis, namely the example of using a bundle promotion. The use of a graph was very good as well as it gave the reader an exact idea of what they were discussing.
Response to question
The author answers the question fantastically well. As he clearly sets out the pros of using correlation and extrapolation and highlights the cons as well, whilst using his/hers own knowledge of the industry to improve his points. Using own knowledge is very good, for instance the author highlighted the industry as oligopolistic; as it shows you have a good understanding of the topic and that you are Ã¢â‚¬Ëœkeen.Ã¢â‚¬â„¢ The essay starts very well, due to the fact he defined the two techniques in the question, whenever you get an essay (can be any essay) always try to define the key terms and assess what the question is asking, which the author does. He concludes the essay, exceptionally, by bringing all the points he/she made in the essay together. In business studies essays it is important to have a balanced approach, so as to seem impartial and neutral, you shouldnÃ¢â‚¬â„¢t be trying to force your argument, but to convey the data in a way that forms an argument, this is something the author does very well, as he/she doesnÃ¢â‚¬â„¢t just say Ã¢â‚¬Ëœextrapolation is the best because it can be accurateÃ¢â‚¬â„¢ but says that they can be good, but they do have their draw backs (good examples of this in last three paragraphs.)