GAMING INDUSTRY

NINTENDO WII COMPETITIVE ANALYSIS AND STRATEGIC RECCOMENDATIONS

Nintendo Wii
Competitive Analysis and Strategic Recommendations

Index
1 EXECUTIVE SUMMARY 2 ABOUT WII 3 EXTERNAL ANALYSIS 4 PORTERS FIVE FORCES 5 SWOT ANALYSIS 6 COMPETITIVE ADVANTAGES 7 KEY SUCCESS FACTORS 8 BCG MATRIX 9 ANSOFFS GROWTH MATRIX 10 INDUSTRY AND PRODUCT LIFE CYCLE THEORY 11 STRATEGIC RECOMMENDATIONS 12 REFERENCES 3 4 6 8 10 11 12 13 14 14 15 17

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

1 Executive Summary
We have done a full company analysis of Nintendo Wii. The company analysis includes both external and internal factors. The external analysis consists of an analysis on opportunities and threats, the use of Michael Porters model five forces that threat Wii, PESTEL analysis. The internal analysis consists of Nintendo Wiis strengths and weaknesses that influence the success or failure of the firm. The gaming industry has a large range of competition. Many times people look at competition as only other companies in the gaming industry, however we have found that people play video games during their leisure time so all the activities that he/she could eventually be doing are seen as a substitute. Watching television, working out, taking vacations, playing board games, browsing the internet or playing video games from competitors they are all considered competition. The largest external threat that faces Nintendo is their competition. In order for Wii to stay competitive they must innovate and strategize for future market growth. We have made recommendations for Nintendo Wii that we feel will help it maintaining the market leadership and eventually create a larger market. Nintendo must constantly be looking into the future. Innovation will lead Nintendo Wii to the growth stage of the life cycle. Being in the growth stage ultimately means more profits at a quicker pace. In order to have a stronger relation with its customers, Nintendo needs to get feedback and recommendations for improvement. Customers may not tell them directly what they want but the customer is constantly giving them valuable information. The purpose of our paper is to keep Nintendo Wii profitable for and sustainable for a long time to come.

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

2 About Wii
Product
The Wii is a home video game console released by Nintendo. In December 31, 2008 the Wii leads the generation over the PlayStation 3 and Xbox 360 in worldwide sales. A distinguishing feature of the console is its wireless controller, the Wii Remote, which can be used as a handheld pointing device and detect movement in three dimensions. Another distinctive feature of the console is WiiConnect24, which enables it to receive messages and updates over the Internet while in standby mode. Nintendo hopes to target a wider demographic with its console than that of others in the seventh generation. This is reflected in Nintendo's series of television advertisements in North America as well as Internet ads. The ad slogans are "Wii would like to play" and "Experience a new way to play." Nintendo launched the official name: Wii "simply Wii, not Nintendo Wii". Nintendo's spelling of "Wii" with two lower-case "i" characters is meant to resemble two people standing side by side, representing players gathering together, as well as to represent the Wii Remote and Nunchuk. The company has given many reasons for this choice of name since the announcement; however, the best known is: Wii sounds like 'we', which emphasizes that the console is for everyone. Wii can easily be remembered by people around the world, no matter what language they speak. No confusion. No need to abbreviate. Just Wii.

Hardware
The Wii is Nintendo's smallest home console to date - it measures 44 mm wide, 157 mm tall and 215.4 mm deep in its vertical orientation (top). The system weighs 1.2 kg which

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

makes it the lightest of the three major seventh generation consoles. The console can be placed either horizontally or vertically. The Wii Remote is the primary controller for the console. The design allows users to control the game using physical gestures as well as traditional button presses. The controller connects to the console using Bluetooth and features rumble as well as an internal speaker. Reports generally point to Wii as being an extension or advancement of the Nintendo GameCube architecture. More specifically, the reported analyses state that the Wii is roughly 1.5 to 2 times as powerful as its predecessor. Based on the leaked specifications, the Wii is the least powerful of the major home consoles in its generation. The Wii uses a storage system similar to the GameCube, which uses "block" units rather than bytes.

Features
The console contains a number of internal features made available from its hardware and firmware components. The hardware allows for extendibility through expansion ports while the firmware can receive periodic updates via the WiiConnect24 service. The Wii Menu operating system interface is designed around the concept of television channels. Separate channels are graphically displayed in a grid and are navigated using the pointer capability of the Wii Remote. The Wii console is backward compatible with all official Nintendo GameCube software, as well as Nintendo GameCube Memory Cards and controllers. The Wii system supports wireless connectivity with the Nintendo DS without any additional accessories. This connectivity allows the player to use the Nintendo DS microphone and touchscreen as inputs for Wii games. The Wii console is able to connect to the Internet allowing players to access the established Nintendo Wi-Fi Connection service.
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Nintendo Wii
Competitive Analysis and Strategic Recommendations

Software library
The Wii Series of games, which include Wii Sports, Wii Play, Wii Fit, Wii Chess, and Wii Music, has quickly risen to become one of the most popular and commercially successful franchises in video gaming history. They have sold about 80 million copies combined. New games representing Nintendo's flagship franchises, including The Legend of Zelda, Super Mario, Pokmon, and Metroid, have been released, or are in development for Wii, in addition to many original titles and third party developed games.

3 External Analysis
PEST Analysis
The PESTEL analysis consists of opportunities and threats that could potentially influence the industry that of which Nintendo is apart of. PESTEL identifies the political, economic, social, technological, environmental, and legal factors that of which directly affect Nintendo. Political: Since Nintendo operates on a global scale, it must be conscious of the political environment in each of its regions. Key political factors that Nintendo needs to discuss involve employment laws, trade, return, and warranty restrictions. Other issues that Nintendo have to face are: game regulations (such as age and size limit), copyrights, licensing, online ownership, revenue recognition and demands of intellectual property. A political issue that has faced the gaming industry over the past decade has been that of game violence. In our current history games have progressed substantially and the graphics have made the games much more human like. Economic:

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

The economic environment of a firm like EA involves the production and distribution of a multitude of games on a number of systems. It is crucial for them to take into account the specific regions economic growth, inflation rates, and exchange rates. These will affect the firms ability to compete with each other and with other countries. Currently in the gaming industry, the current crisis directly affects the consumers behavior because their consumption had decrease. Nintendos low manufacturing cost was also one of the reasons for it to sell it games at a small price, therefore increase its sales. Socio cultural: This area is of absolute importance to that of the gaming industry. The social factors that influence the video game industry are population demographics, income distribution, lifestyle changes, social mobility, attributes to work, consumerism, level of education and consumer behavior. We should also considerate games as part of the cultural experience. This experience is increasing, not only is the demographic getting broader with the online segment growing substantially, but game players are on the rise with the new mobile technology. People in general are spending much more time playing games. Facing the current birth rate Nintendo tried with Wii to focus on a different segment. It also try with Wii that kids have some physical activity: they dont play outside anymore, they just stay at home and play with Wii.

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

Technological: Technology such as the internet and graphic design have, had a big affect on the

gaming industry. Technological efforts bring to companies like Nintendo a competitive advantage, so they have to be constantly updating its technology. Internet usage has grown substantially over the past decade and has helped the gaming industry distribute, rent, and sell games more effectively. It saves consumers time allowing them to compare prices and enables them to order online and pick up games later at various gaming locations. Nintendo Wii website has become a cost effective way to reach customers on a global scale, thus making it a key strategic tool to the business. Technology and innovation have and will continue to increase in the gaming industry. With the new Technology of the Nintendo Wii, which uses sophisticated semiconductor technology with the use of minimal power consumption, has made it a hit among consumers.

4 Porters Five Forces

Porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979 . Porter derives five forces which determine the competitive advantages that came from the ability to earn a return on investment that is better than the average for the industry sector. This competitive advantage refers to the attractiveness of the market. An "unattractive" industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition".

The threat of potential new entrants Medium

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

The gaming market is a high profitable one so it has a huge attractiveness for the new competitors. However, we cannot conclude that this is a market with high threat of potential new entrants because there are entry and exit barriers which reduce this threat. In order to enter in this industry companies need to make an investment in terms of technology. However, this doesnt mean that a new and smaller company cannot enter in this market. For example, Nintendo was overlooked by Sony because they felt they had the superior system technologically but Nintendo ended up being the success story.

The bargaining power of buyers Very high

In our global market buyers are a key factor in the success or failure of

companies. In the gaming industry, buyers have the possibility to have very complete information about all the existent possibilities in the market. They can also switch inexpensively from brand to brand, for them this change doesnt have any particular cost, while for the company it has. We can conclude that buyers have the ability to control the gaming industry because the products arent so undifferentiated from brand to brand.

The threat of substitutes Very high

This refers to substitutes products in other industries that might be used instead

the video games. For example, any leisure time activities would be considered a substitute. Other examples would consist of sporting activities, watching television, playing board games, working out, and really any activity that would keep you busy. From an industry perspective there is a substitute between Nintendo games and their competitors (mostly Microsoft, with Xbox, and Sony, with Playstation3). However these companies always try to distinguish themselves with different products through technology and creativeness. The bargaining power of suppliers High

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

A suppliers bargaining power will increase if, there are few substitutes, when the supplied product is an important input and when the costs of switching suppliers are high. A segment that illustrates this factor well is the gaming industry. Sony and Nintendo came out with their new products during the holiday season but what good does the system do if there are no games for them. Nintendo has a huge dependence on contract manufacturers. Nintendo reaches out to companies to produce not only the key components of their consoles but also to bring together the finished products. This dependence on suppliers for its products creates the problem that when they have a very high demand the manufacturers are not able to supply the key components or assemble the products fast enough which creates a lack of finished products to be sold.

Intensity of Rivalry High

The gaming industry is an example of segment rivalry. There are many companies

in the game console industry, besides Nintendo, such as: Sony and Microsoft that battle between them to dominate the market. There are also some smaller players in this industry. Overall, this industry is growing so the rivalry is obviously more intense. A market with several powerful companies that have competing shares of the market can create an environment that makes it difficult to enter or succeed in. There are many companies all developing different prices, promotions and features that will differentiate them enough to gain market share, but in general the products sold to consumers are very much alike.

5 SWOT Analysis

Strengths Low cost hardware and software Intuitive usage Market leadership Simple and Free Connections for All Wii Users Available for Virtual Console Internet accessible Ability to update content

Weaknesses Joystick liability Limited selection of software Lack of games Lack of Online Console Experience Lack of Original Titles for Virtual Console Poor durability Limited supply
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Nintendo Wii
Competitive Analysis and Strategic Recommendations

Prestige of Nintendo (brand loyalty) Lowest price compared to other consoles Worldwide availability Many people can play at once Opportunities Penetration of new markets in ME / Europe / Asia Marketing to novice gamers including seniors and adults Growing Virtual Console Titles Making Game Demos Available Online Games Increase the variety of games High Demand Failure of the Playstation 3, a console expected to rival the Nintendo Wii

Lack of online purchase as competitors have (i.e. Playstation)

Threats Loss of potential customer because of lack of software selection and sophistication of games. Intense competition Piracy Software developers abandon game development because of lack of adequate profits. Simple Hardware Could Lose innovation Factor Motion Sensing Remotes Created by Microsoft or Sony Lack of Non-Gaming Content Price drops from competition

6 Competitive Advantages
By talking about competitive advantage, we can say that it implies the design of a system with an exceptional advantage over the competitors. There are three possible ways of achieving competitive advantage: by differentiating the product, by cost leadership or by using both of them (focus). We can say that Wii strategy is a focus one. Through the differentiation of the product, Wii is identified by the costumers as unique, singular. The way to get this singularity is limited by the imagination. In fact, one must think about differentiation as something that goes besides the physic characteristics of a product covering any aspect of it that influences the value that the costumer gives to the product. The Wii characteristics that explain its differentiation strategy are known as key success factors (KSFs).

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

On the other hand, through cost leadership, Wii can beat its competition by being cheaper than Playstation 3 and Xbox, which contributes to the attribution of the maximum value from the consumers point of view.

7 Key Success Factors

Key success factors belong to a framework that helps to identify what are the key factors that will help an organization succeed in a certain industry, determining its potential for profit. In a brief analysis, lets work out what makes the Nintendo Wii Console so attractive and successful. As Nintendo is a well known brand, it has the advantage of being owner and attracts the best technicians, something that leads to a high level of resources and capabilities. One of the reasons for Wii being sold so well compared to its competitors is because Nintendo is pulling people from all different ages to buy the console. Apart from being new, the games are created and accessible (i.e. everyone is able to play it) for everyone who is a casual gamer. The particularity of the Wii games is the new playing style that it promotes because it isn't just pushing buttons but also it needs movement. One of the most important key success factors is the creation of games that permit the practice of exercise, an activity that helps consumers to get healthier. The idea of being the whole day seated in front of the television playing games and becoming a fat person is being set aside through this innovation games. Besides, added to the Wii is miis, which is the ability to create characters looking like the player, ones friends or anyone. This characteristic increases the pleasure of playing with Wii, because it gives the opportunity of a virtual revenge or even a single play with the best and most popular player in the world. Furthermore, the Nintendo console gives the ability to show a varied range of information such as weather forecast, the newest updates available on the internet or
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Nintendo Wii
Competitive Analysis and Strategic Recommendations

whats going on in the region. Apart from that, there is the opportunity to surf the internet through the console, something that can save time in ones everyday activity. Moreover, the console features parental controls, which can be used to prohibit younger users from playing games with content that would be considered unsuitable for their age level. It can also restrict Internet access, which blocks the Internet Channel and system update features. Finally, a message board is available so one can message ones friends and family through the Wii. As being a technological attraction, Nintendo is constantly adding new things to the console through updates and new games that are downloadable through the virtual console so that it does not become outdated.

8 BCG Matrix

The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. It has two dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the products market growth the better is for the company.

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

We consider Wii as a star because its a business unit that has a large market share in a fast growing industry. Stars may generate cash but because the market is growing rapidly they require investment to maintain their lead. If Wii is a successful product it will become a cash cow when its industry matures.

9 Ansoffs Growth Matrix

After analysing Wii, we can say that it has the Market Development strategy, once it is the development of an existing product video game console trying to target new customers, creating a new segment of the market. As we have presented before, Nintendo hopes to target a wider demographic with its console than that of others in the seventh generation. Satoru Iwata, Nintendos president, said "We're not thinking about fighting Sony, but about how many people we can get to play games. The thing we're thinking about most is not portable systems, consoles, and so forth, but that we want to get new people playing games." Gaming Industry

10 Industry and Product Life Cycle Theory

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Nintendo Wii
Competitive Analysis and Strategic Recommendations

The gaming industry life cycle is situated in an expansion phase. This is a phase after growth and before decline. In this stage, companies revenues are increasing as customers become more aware of the product and its benefits. During the growth phase, the main goals will be: convince and gain consumers preferences; and increase sales. In order to do that, companies try to differentiate its products from both direct pre-existing competitors and new entrants, fighting to achieve the biggest possible market share. Firms strategy in this phase can be based on quality or on price. Sometimes companies use promotional costs to convince customers that its products are better than the competitors. About the product life cycle, we have considered that the Wii product is situated in the first stage, introduction. During this stage the primary goal for the company will be establish a market share and build primary demand for the product. In terms of marketing mix, Nintendo had chosen: penetration pricing strategy in order to build the market share rapidly; heavy promotion to inform and educate potential consumers about the product and with that increase customers awareness of the product; selective distribution while consumers dont show totally acceptance of the product.

11 Strategic recommendations
Nintendos strategy focused on people who werent regular videogame players as the main target. This strategy worked; however, it has several disadvantages that may prove troublesome in the future. Wii is the weakest product, in terms of technology, in
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Nintendo Wii
Competitive Analysis and Strategic Recommendations

the current generation of consoles; this affects not only the quality of the games but also a whole number of other experiences that the other products offer: online gaming, BluRay compatibility (in the case of Playstation 3), demos and other content download, among others. In order to keep up with the competition and since Wii will not be able to compete with many services the other products offer, Nintendo will have to constantly improve the gaming experience by making the best possible use out of their innovative remote controllers. In order to go around the technological disparity between Wii and the current generation of consoles, some kind of hardware upgrader could be launched. This upgrader could, itself, have several levels of differentiation in order to appeal as much as possible to several different market segments. For example, an edition designed for old individuals could be created; this edition could make Wii a central robot that controlled several aspects around the house (temperature and light intensity, for example) in order to make their life easier. Not only that, Wii could even become a reliable nurse for older individuals: it would be able to measure blood pressure and heartbeat rates, and even help in controlling diabetes. For younger people, the central robot aspect could be maintained, but Wii could try to take a step forward in Virtual Reality. A Virtual Gymnasium could be created, where people would go while they were using Wii Fit, thus enjoying the company of everyone else in the world who was also taking that exercise routine. This way the experience would be more realistic and immersive. We believe that a heavier market segmentation and exploration would probably benefit the company. There are many ways to explore the market Nintendo chose. For example, Wii Fit could be tweaked in order to be applied to elderly individuals, so they could perform basic exercise routines to keep their shape without leaving the house. Or, another example, Nintendo could create a game which purpose was to teach children learning how to count or how to spell words correctly. Since they targeted the occasional player, the consumer wont make as much of an effort as a regular videogame addict to keep up with the new products on the market; therefore, Nintendo will have to promote the videogames for their console heavily in
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Competitive Analysis and Strategic Recommendations

order to create an efficient awareness and desire on consumers. Another way to ensure that sales keep up would be to acquire exclusivity on certain videogame titles that sell a lot of copies due to their heavy fan base and cult status (somewhat like Halo on Xbox, or Metal Gear Solid on Playstation). Maybe they could also try to turn Super Mario, Nintendos old mascot, into a more versatile character that would appeal to all ages instead of younger players only. Maybe have several versions of him drawn, one for each market segment (a darker Mario for the adult audience, an old Mario who enjoys simple games, like cards or checkers for old people etc). In the US, Nintendo Wii is the console that sells more copies (a study done in May 2008 concluded that there are: two Wiis for every Xbox 360 and four for every PlayStation3. However, the gaming industry abroad US can be explored better. A new and harder penetration in new markets should be attempted: Europe, Asia and Middle East can increase the companys sales. In terms of outbound logistics, Nintendo could improve its delivery times. The company could increase its sales if its order processing became more efficient, with that the waiting time to buy the products will decrease.

12 References
http://www.nintendo.com/wii http://wiiportal.nintendo-europe.com/15706.html http://www.nintendo.com/countryselector http://pt.playstation.com/ www.wii.com www.wiisworld.com www.Nintendo System History.com

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Competitive Analysis and Strategic Recommendations

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