Weakness:
Nintendo become too dependent on the industry icon products as Mario and Pokemon, Game Boy and Nintendo 64 video game system have done well. However, the rest of products have not been as good. And customers will bore with the product quickly because other new games and systems are coming out to the market in everyday. Nintendo’s marketing target are too focus on teenage and children. Those customers do not have high consuming power.
Opportunities:
New products: Gamecube, color Game Boy and major video games could be famous when they released. Children and teenagers would pass to each other when a game or game system is attractive. So that any of the game could make a deep impact to the children and teenager’s world.
Threats:
Threats of Nintendo, it is necessary to decide the following:
-Technological threats, when a new technology come out, the old technology would become out of date. Most of the customers will follow the new technology and refuse the old technology.
-Recession, when new products release, Nintendo should think about the recession because Recession would affect all the entertainment products.
-Trade barriers as import tax increase and foreign exchange losses increase dramatically that primarily due to devaluation of foreign currency assets of Nintendo.
Product portfolio analysis by Boston Consulting Group matrix:
High Growth Low Growth
High Share
Low Share
In Stars, I put the Nintendo products which in the high-growth, high share quadrant. They are growing rapidly, use and generate large amounts of cash, and are frequently roughly in balance on cash flow. They present the best profit growth and investment opportunities, and every effort should be made to consolidate their position.
In Cash-Cows, I put the Nintendo products which with low growth but high market share. They should have an entrenched superior market position and low costs. Because of their low growth, their investment needs should be low and they should generate cash surpluses.
In Dogs, I put the Nintendo products which are low growth, low share business. They are assumed to have low profits, and they may have a net cash requirement if investment is needed to keep them in business. They are candidates for liquidation.
In Question Marks, I put the Nintendo products which have a high growth rate and low market share. They are assumed to have high cash requirements for expansion but low cash generation because their low market share is equated to low profitability. They are called ‘Question Marks’ because they raise the question of whether money should be put into them to raise market share and hence profitability.
FIVE FORCE Analysis
Substitute products
↓
Buyers→ Competitors Rivalry ←Suppliers
↑
New entrants
New entrants: Entry into this market would be fairly easy for several reasons. First, capital requirements for Video games assembly could be modest. Second, customers face few switching costs when changing suppliers and probably would not hesitate to buy a Nintendo compatible Video game from a new suppliers if the price was right. Third, product differentiation and economies of scale are elusive in this industry. Numerous small firms can easily and quickly enter this business through subassembly and subcontracting their manufacturing activities. The presence of so many competitors in this market would thus depress profitability.
Competitors: Video game assembly involves low fixed costs, so motivation to resort to cutthroat pricing in order to maintain volume during industry downturns would not be intense. Also, Video game assembly involves few exit barriers, so competitors experiencing profit problems would be able to exit fairly quickly. These two factors bode well for profitability. However, another factor: the product differentiation is much less favorable. Product differentiation would be increasingly difficult to achieve as Video game’s become more and more like a commodity. Competition among Video game suppliers would therefore turn on price, exerting strong downward pressure on profitability.
Buyers: Users are increasingly knowledgeable about video games and increasingly inclined to regard video games as a commodity. These two characteristics would lead buyers or be highly price conscious when shopping for video games. This sensitivity to price, in turn, would exert strong downward pressure on the profitability of video game producers.
Suppliers: Suppliers of memory chips, microprocessors, integrated circuits, and other key components are comparatively few and concentrated. Moreover, these suppliers provide chips not only for video games, but also for consumer electronics and many other applications. Thus, they are not entirely dependent upon the video game industry for sales. Furthermore, they are knowledgeable about the components they sell and about how their products are used. Suppliers would be able to negotiate effectively with video game producers, thereby exerting strong downward pressure on their profitability.
Substitutes: The main substitute for video games was PC games. Even though a PC game arrangement had a lower cost than Video games at the time, it was far less convenient, and convenience was a high priority for Video game players. Video game producers would therefore feel little profit pressure from this source. Furthermore, such pressure would decline over time since Video game cost relative to PC game systems continues to fall rapidly.
Competitors Analysis:
High Price Low Price
High Quality
Low Quality
The first group, composed of three companies, are Microsoft, Sony and Nintendo. They make up their own group are not surprising, given both the relatively high price for their Video game hardware as well as their higher user friendly nature and operating system quality as perceived by customers. Their use of a different operating system from other video game makers helps insulate them from fierce rivalry; on other hand, it also limits how much market share they can stake out in those industries.
The second group, composed of Sega and Square, represents the two video game makers that attempt to pursue high quality and low prices in the first group compatible market. Video games made by Sega and Square often have more special features (faster chips, more initial memory) and are made by the companies themselves.
The third group, composed of Capcom, Neo-Geo and SNK, represents the three video game makers that attempt to pursue low quality but high prices in the market. They were the market leader in the video games, however the competitors invented new technology to take over their place. Their technology are low, their products in high price because their brandings were famous.
The final group may be described as a collection of small video game makers that border or simple assembly, almost cottage-industry operations. Competitive behavior within this group is highly fragmented, with each small firm seeking to outcompete its rival by using lower-cost components and highly mature technologies. In many cases, the video games made by these firms use microprocessors from earlier generation, posses lower levels of initial standard memory, and often lack highly desired features. Thus, the lack of brand name recognition as well as the use of standardized technology keeps these video game makers in an unattractive group.
A PEST Analysis
Political
Political decisions are out of the control of Nintendo, but the political change can be important for the firm. First, changes in government policy towards industry as a whole may affect firms in a variety of ways: through taxation, exchange controls, public ownership, legislation affecting employment, pollution control, etc.
Economics
Economic comprise both the general development of the national and world economies and also development specific to the industry or enterprise in question. The general economic climate is a major factor, affecting the prosperity of large and small businesses alike, but one whose significance is often underrated. For example, if there may be a recession, leading to reductions in consumer expenditure. Nintendo may have to lower the prices of a range of its products accordingly. Nintendo also has to challenge fixed price and distribution costs, to reduce costs and offer cheaper prices to the customer.
Social
Customer requirements for video games are always changing. Nintendo will continually need to monitor social attitudes, perceptions and aspirations in order to identify new ways of responding for example providing an internet service, internet game, and other new features on video games.
Technological
3D graphic, smooth video game running and other technological innovations have become important in the video game market sector. 3D graphic and smooth video game running can be more attractive for customers and also provide higher quality games. Nintendo has also developed internet network game zone for the Nintendo video game players.
Strategic Options
This following will analyses the various strategic choices accessible to the Nintendo Ltd. As a management consultant for Nintendo Ltd, I am going to select the best specific strategy for Nintendo Ltd, and validate this recommendation. In this document I will also evaluate the product and market choices that are open to the company. In the analyses of the Nintendo Ltd, the product/market matrix (Ansoff matrix), will be based on heavily. Nintendo Ltd has varied choices of strategies that will generate intensive growth in their businesses. These options can be visualized more clearly in the following product/ market matrix:
Current product New product
Current
Markets
New
Markets
Evaluation of options
Product market penetration involves the Nintendo Ltd wants to increase its product’s share in the markets it currently service. It can be achieve this in three following different ways.
∙ Product-line stretching, the firm adds new items to its existing product line in a market segment which it has already penetrated. The aim is to attract more customers from rivals and current non-users of the firm’s products. The ‘current market’ in the Nintendo Ltd, are every game shop over the world. Specific product lines that can be considered are 3D internet multiplayer video games, such as 3D graphic, on internet and can be more than one player at same time. Many video game players are required ‘group game’ which is available on internet only. As a leader of the video game market Nintendo should invent this kind of interesting games, when video game can play on the internet, it means the market is as big as internet wide.
∙ Product proliferation involves offering many different Nintendo product types. In Nintendo Ltd product proliferation can be considered for the fitness games they offer. They do invent interesting games as dancing games with different famous songs which can play for people who wants to keep fit with fun.
∙ Product improvement is the final technique of product market penetration. This involves updating and augmenting the existing product. It entails application of the latest technology to improve the product’s capabilities, improving customer services. Nintendo can provide internet customer services and data updating. This can give more handy for the customers to find a new game and further information for the existing games.
Through a product market penetration strategy, the least risky cell as, by definition, both product and market are familiar and the Nintendo can concentrate on what it knows best.
Product market development is a strategy that requires Nintendo to form new product markets, within the already existing markets. In Nintendo video games software and hardware producer, this strategy can be offering the AV market a greater variety of quality DVD player in the Nintendo hardware. Invent a DVD system inside a video game hardware will be famous for students, even student’s parents will accept that too.
Diversification can be used as a strategy, in Nintendo Ltd, to achieve extensive market growth. This strategy of diversification involves the company entering into a new product market that is external to its present business. Nintendo Ltd would benefit by engaging in a conglomerate diversification strategy. This entails the company expanding into a new business that has little connection to its current product lines or current market. A suggestion for a diversification line is fitness game equipment, Nintendo Ltd are known for providing ‘surprise’ to their customers. They are currently offering products such as player action video games. Through diversification the company should offer new product line of fitness games, dancing games; i.e. up to date pop music dancing games and equipments. The company will have well opportunity to introduce a new video game market and line of products to their business.
Market development involves developing new markets for the firm’s current products lines. This is commonly used where minimal product modification is required, the product’s lifecycle is similar in various markets, profit margins are reduced. Nintendo should contemplate developing a market that provides more for the non-student in their product lines in Nintendo the fitness video games. Much of the housewives prefer to do fitness at home and have great fun. Offering a good range of these fitness games at a reduced price for housewives will encourage many older clients to buy their video games rather than other competitors. A great deal of business can be obtained in the older consumers market and it should not be brushed aside.
Preferred Option
After analysing these four main strategies that can be implemented into the Nintendo Ltd, I shall recommend the technique of the product market development. This strategy proves most suitable and more advantageous to the business. Product market development will bring extensive growth in the market for the Nintendo Ltd.
New products into an existing market is an essential strategy when product life-cycles are short (like video games). The strategy can be adopted in order to fill a gap in the market and thereby deny an opportunity to a competitors, to gain sales or to spread the risk. The most suitable strategy for Nintendo Ltd is Product market development. I believe that this strategy can help Nintendo Ltd and it can gain more success with this strategy. Product market development can introduce new products into an existing market is an essential strategy when product life-cycles are short. Therefore, this development is suitable for technology market organisations as Nintendo Ltd.
Furthermore, the finance department have to consider how they are going to work out the budget and how much money they need to expand their brands, how much money they are going to spend and where are they willing invest on.
Recommendation
From my opinion, I recommend the following changes for Nintendo Co., Ltd., to run the new strategy.
The finance department have to give a reasonable amount to the invention department, because invent technology is the most important factor can prove new or improved products in video game market.
The personnel development should recruit more new inventors and technicians, because they can give new and fresh ideas to the Nintendo to invent the technology and the products.
The Technology department have to change up to date equipment for the new invention.
Nintendo’s proposed to invent a mobile video game market. They believe video games will develop as telephone and Hi-Fi. Today, mobile phone and pocket walkman are developed to be famous and popular all over the world. The mobile video games are developing but not popular as mobile phone and walkman yet. Nintendo should give at least 3 more years for the mobile video games market to growth and invent the up to date technology for the customers over the world. In this 3 years Nintendo can start to invent video games playing with mobile phone, internet and wireless etc. Video game company Nintendo, the only console maker without a strategy for online game play, will unveil plans for Internet-based services for the GameCube at a key industry trade show later. By adding an online capacity to its $199 GameCube, Nintendo would be keeping pace with its major competitors in the market for game hardware — Sony and Microsoft, both of which charge $299 for their consoles.
Nintendo would also be placed to dominate the online gaming for its core market of children between 6 and 14 years of age.
References, bibliography
-Business for higher awards, second edition (D.Needham et al)
-Strategic management (Ronald Rosen)
-Nintendo Co., Ltd., Annual report 2002 ()
- Johnson & Scholes (1997), Exploring Corporate Strategy (Text and Cases), Prentice Hall
- Meyer, West (1994), Strategy Process, Content, Context, an International Perspective
- Ansof, Sidgewick and Jackson (1986), Corporate Strategy
- Pearson (1990), Strategic Thinking, Prentice Hall
- Quinn, Mintzberg and James (latest edition), Strategy Process, Prentice Hall
- Class notes
- Internet
