BBMM506 Strategic Management Case Study: Analyzing Nintendo's Strategy

This case study examines Nintendo's strategic position within the competitive video game industry. The report begins with an executive summary that highlights the firm's challenges against competitors like Microsoft and Sony, emphasizing the higher bargaining power of consumers and the intense competition and threats of substitution and new entrants. The study then delves into an industry analysis, utilizing Porter's Five Forces model to assess the external environment. An internal value chain analysis evaluates Nintendo's primary and support activities, identifying strengths in brand recognition and innovative products, and weaknesses in past console failures. SWOT analysis is used to identify core competencies and current and future strategies. The report concludes with strategic recommendations for Nintendo to remain competitive, including strategic alliances, technological advancements, and growth strategies such as market expansion. The analysis considers the shift towards mobile and PC gaming and the need for continuous innovation in the face of evolving consumer preferences and technological advancements.

STRATEGIC
MANAGEMENT

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Executive Summary
This report will discuss the condition of Nintendo in terms of the competition they are facing
in the market. In this it was found that this firm is facing tough fight from firms like
Microsoft and Sony. It was found that the bargaining power of suppliers is on the lower side
while that of the consumers is on the higher side. Threat of substitution, competition and new
entrants are higher in this industry. The primary activities of the firm have been designed in a
manner that they are able to improve the lifecycle of their products and ensure higher
customer satisfaction. This also enables them to enhance the value of their products. In this
report it was also found that Tangible and Intangible resources of the company are of high
quality and it enables them to be better than their rivals. Apart from this the analysis of the
internal environment suggested that this firm’s strength includes higher brand name and
innovative products. Its weaknesses are the failures in the past related to consoles. It has large
opportunities in the online gaming development and also in the new markets. They are
utilising different types of strategies such as Skimming pricing strategy, Cost leadership
strategy, focus differentiation, ppositioning strategy and Promotion strategy. In future
company needs to implement the strategies such as Strategic alliance, moving into advanced
technologies and growth strategies such as expansion to remain competitive.

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Contents
Executive Summary...............................................................................................................................1
INTRODUCTION.................................................................................................................................2
Type of Industry....................................................................................................................................2
General environment analysis................................................................................................................3
Understanding of competition...............................................................................................................4
Internal value chain analysis..................................................................................................................5
Primary activities...............................................................................................................................5
Support activities...............................................................................................................................5
Understanding of current resources, tangible and intangible.................................................................6
SWOT analysis......................................................................................................................................7
Core competencies.................................................................................................................................8
Identification of the Current Strategy....................................................................................................9
Future strategies....................................................................................................................................9
Recommendation.................................................................................................................................10
Conclusion...........................................................................................................................................10
References...........................................................................................................................................11

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INTRODUCTION
Today’s gaming industry has become very much bigger. With large numbers of gaming
developers coming in the industry, it is essential that firm finds the way in which they will be
able to attract their customers with new features and higher levels of animation. In this
environment it is crucial for any industry to improve the ways in which they deal with the
challenges confronting the business. In this regards it is again important that an effective
strategies has to be made for it. The strategies need to be made on the basis of the competitive
ability of the firm. Use of different kinds of strategic tools can be effective for the firm.
Nintendo Co. Ltd. is a Japanese multi-national firm dealing in the business of consumer
electronics and video games (Pontiskoski and Asakawa, 2009). It is headquartered in Kyoto.
With many of its games being best console seller, it is one of the largest video game firms in
the world in terms of market capitalisation. They are known for selling of Video-game
franchise that becomes one of the best sellers like Pokemon, Mario and The legend of Zelda.
The major problem that this company is facing is related to competition which has increased
due to hand-held devices such as Mobile phones.
This report will highlight the type of industry in which Nintendo works in. The report
provides analysis about the general environment of the company. It also analyses the
competition that is present within the gaming industry. It also highlights the core
competencies of the cited firm and highlights the current and future strategies of the firm.
Type of Industry
This firm works in the consumer electronics and video gaming industry. This is a product
based industry that has long term scope of development. Video-gaming industry is one of the
fastest growing industries in all across the world. Global games market has risen to $134.9bn
alone in the year 2018. This is a growing industry that has larger control over the operations.
This industry is supported by the enhancement in technology hence needs regular innovation
to be competitive against each other (Subramanian, Chai and Mu, 2011).
General environment analysis
It is crucial for any organisation to understand the environment that they are in. This is
essential for understanding the condition in which they are in. It plays a vital role in the
systematic development of the strategy as well as for understanding the problems that they
might face in their future. There are different factors that are having impact on the

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environment of the company. In this the role of the strategic tools becomes essential. For
understanding the industry condition, the porters five force model can be effective.
Porter’s five force analysis
 Bargaining power of suppliers: The bargaining powers of the suppliers remain to be
on the lower side. The major reason for this is the fact that the numbers of suppliers
that are available in the industry are in huge numbers. With many big suppliers
reducing the cost of the technology this bargaining power has gone to further
downwards level.
 Bargaining power of the buyers: The option of gaming that is available with the
buyers is quite large and there are different varieties of games that are also available
hence the bargaining process of the buyers is on the higher side. On the other hand the
quality of the games and its interest building capacity plays a critical role in the higher
purchase of any game hence it sometimes reduces the bargaining power of the
individuals. So the overall bargaining power of the individual remains on the
moderate side.
 Threat of competitors: There are larger numbers of competitors that are available in
the market that is giving tough fight to the already established firms such as Nintendo.
Since the numbers of people that are interested in the gaming is increasing day by day
hence it is attracting many of the firms in the software and other electronic industry to
come into the industry. Due to this increasing competition, the numbers of challenges
that are confronting the growth of the firms are also enhancing.
 Threat of substitution: In the long term threat of the substitution is on the higher side.
This is because the innovations that are going on in the industry along with the
innovations that are enhancing the technology are bringing many substitute products
in the market. For instance the play stations have been replaced by the mobile games.
Mobile based games have become more popular since they can be operated with the
help of the mobile technology through which most of the individuals are connected in
larger part of their day.
 Threat of new entrants: Since the attractiveness of the industry is increasing due to its
higher profit generation capacity hence larger numbers of firms that operate in the
technology industry are trying to come in this industry as well (Harris, 2014). Since
the cost of making the mark in the industry is on the lower side and more
requirements is of skills hence the threat of new entrants is on the higher side. At the

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same time, this is an industry where the scope of growth is on the higher side hence
larger numbers of investors are interested in the industry hence the threat of new
entrants is further on the higher side.
Understanding of competition
As discussed above this industry is facing intense rivalry where most of the firms in today’s
time are dealing with the eight generation of video game consoles. The major competitor of
this company is Sony Computer Entertainment with their play Station 4 home console as well
as PlayStation Vita handheld system.
To understand the competition the products of their competitors need to be understood. Their
competitors are:
 Sony: This firm first product Play Station came after its disagreement with Nintendo
in the year 1991. Right now it is a market leader with PS4 sale reaching to 3739
million units having 21262 million games along with PS Vita nudging 1340 million
and 5416 million games sold. Alone in the financial year 2014, the sale of their
products such as Play station network, PS3, PS vita and PS4 accounted for US$11.5
billion.
 Microsoft: It is another bigger competitor of Nintendo. Its product Microsoft’s Xbox
One has also achieved higher sales after its release in 2013. The sale reached to 19.88
million units where 115.52 million games have been sold by the firm. In Japanese
market which is again a major market for the industry this product of Microsoft was
not so successful with only 70000 units being sold in the market. In the same year
2014 when the PS4 of Sony was one of the most successful products in the market, it
was seen that there is decrease in the sale of Xbox One by 20%.
The competition in the industry has shifted towards the mobile phone and PC based gaming.
The games that are played on the iOS, Window devices and Androids have captured the
larger section in the market. The values of the sales have increased US$25 billion in 2015 and
hence are overtaking the console games (Guttenbrunner, Becker and Rauber, 2010). Microsoft
Windows is mostly played games on the PC. The trend of the industry can be understood by
the example of Sega, which was one of the major competitors of Nintendo has shifted its
business from game console manufacturer to software developers for the companies that were

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previously their competitors. Now they are planning to exit from the console market so as to
give their entre focus on the mobile and PC games.
Internal value chain analysis
For understanding the internal environment of the Nintendo, it is effective to utilise value
chain analysis. For this company, the analysis is as follows:
Primary activities
 Inbound logistics: This function of the company is effectively managed by them with
the help of the resources they have. They have effective mechanism for storing,
distributing and receiving of the raw materials which helps them in creating services
and goods for the operational processes.
 Operations: Operations are done within the industry in such a manner that they are
able to transform their inputs and skills of their employees into effective products.
Packing of the game consoles are also done by the company in an effective manner.
 Outbound logistics: This Company delivers its consumers products on time which
suggests that its outbound logistics are managed in an appropriate manner.
 Marketing and sales: Their marketing does not only focuses on kids like their other
competitors do rather they focus on all age groups. They are using lower cost when
compared with their competitors as their marketing strategy. Their major marketing
and sales region is Europe, Asia and America. The sales volume of the company was
44% in America in the year 2009 (Hollensen, 2013).
 Service: The service that is offered by the firm adds value to the products they are
producing. The services in the form of software help the company in enhancing the
value to their products. They also provide after-sale services to their consumers.
Support activities
These activities help the company in enhancing the efficiency of the primary activities:
 Procurement: This Company has larger numbers of suppliers that ensures that raw
materials are available with the firm as per their requirement of the company so as to
perform primary activities. They procure all their resources from best companies so as
to ensure that the overall quality of their products remains on the higher side.
 Technology Development: This Company is highly focused towards technology
development. This is major reason that they have been making innovation in each of

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their products on the continuous on a regular basis. Both software and hardware that
are required in the gaming industry are being developed by the company on the
regular basis so as to remain competitive in the industry. Nintendo has introduced Wii
and 3DS technology which has the capacity to transform the mobile gaming industry.
This firm has a plan to move to the virtual digital technologies as it is the future of the
industry.
 Human resource management: This Company has highly skilled labourers that are
able to improve the efficiency of the operations. Nintendo has total of 4425 workers
who are trained with the help of in-house training programmes. They are promoting
innovation with the help of employees.
 Infrastructure: This firm has an excellent infrastructure where all the hi-tech
technologies have been placed by the company. This allows workers to utilise their
skills at full-potential without facing any such problems.
Understanding of current resources, tangible and intangible
The resource quality of the Nintendo is of high quality and this is the major reason they have
been successful over the years.
Intangible resources
 They have an R & D team that is capable of producing products that are according to
the market demands and gives them competitive advantage over the rivals. At the
same time this has increased the numbers of intellectual property rights.
 They have a marketing team that is highly innovative and have been able to market
their products effectively in the larger part of the market.
 This company has an excellent suppliers group from all across the globe and are
providing them with the technologies and materials that are world class.
 Manufacturing and inventory system is of high quality. This helps in improving the
overall quality of the products being delivered by the company.
Tangible resources
 Strong cash flow has been their strength. The gradual increase in the revenue has been
one of the major reasons for this.
 Equipment that is used inside the workplace is of higher quality hence the handling of
the overall operations becomes smoother for the firm.

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SWOT analysis
Strength
 It is having a strong brand name having higher reputation which gives them
competitive advantage over the rivals.
 Innovative and unique product offerings make their games attractable.
 Their skimming pricing strategy has been their strength along effective marketing and
distribution channels.
 Partnership with brands like Disney.
Weakness
 This company has faced console failure where its console could not click and hence
resulted in huge loss for the company.
 Inability to meet margins has been their major problem as the games are not able to
make huge profits.
 Lack of diversification in terms of focusing on multiple products.
 Core business is not performing in the way as desired.
 Lesser presence in the online market.
Opportunities
 New segments such as smartphone gaming has become highly popular hence this
company has huge opportunities in the growing markets.
 Internet based games is attracting more numbers of people hence is an effective
opportunity for the company to come in this business also.
 They can develop new games with the technologies such as virtual reality and 3D
technologies.
 Game software market that is increasing in the new emerging economies can be an
excellent opportunity for the company to grab on.
Threat
 This firm is facing higher amount of competition from different small and bigger
companies.
 The continuous decreases in the profit margins by the companies are having impact
on the overall revenue of the company.
 Short product lifecycle.
 Downfall in the economic conditions of the world.

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Core competencies
For any firm to understand its position in the market, it is crucial to understand the core
competencies it has. The core competencies are:
 They are developing games that are simple and casual.
 Their cost of productions is on the lower side hence increasing the chances of their
profits.
 This company has a strong brand name and has higher brand recognition in different
countries of the world.
 They have a Nintendo’s console and in-house game development departments.
Identification of the Current Strategy
On the basis of the core competencies it is essential that every firm analyses the strategies
they are using. Nintendo also utilises different types of strategies they are as:
 Skimming pricing strategy: There is a skimming strategy used by this company. This
allows firms to regain its market share in the environment where there is tough
competition among the rivals. This also allows the company to target larger set of
customers on the basis of their economic capacity. Skimming pricing allows in
improving the capacity they have in the market (Huang, et al. 2014).
 Cost leadership strategy: This firm concentrates on the cost leadership strategy. This
allows firms to deal with the competitiveness in the market. They always ensure that
they have lesser prices than that of their competitors. This business strategy allows the
firm to enhance the scope of attracting larger set of consumers.
 Focus differentiation: This Company is highly focused on developing products that
allows them to improve their differentiation capacity. Following this strategy
Nintendo has designed several kinds of games that focus on particular kinds of
consumers. Uniqueness is represented through its products and helps them to satisfy
the demands of the narrow market segment.
 Positioning strategy: This Company has developed very different kinds of positioning
strategy when compared with their competitors. They have positioned themselves as a
gaming console that is designed for non-casual and casual gamers.
 Promotion strategy: Their promotional strategy ensures to target larger set of
consumers. This company develops huge promotional events for every new product

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launch. It is also advertised through different ways such as distributing t-shirts and
utilise Ad campaigns. In technological mediums, they are utilising prime channels,
children’s channels to advertise about their new products. They are also utilising
social media channels for their promotions.
Future strategies
In the time to come, since competition is going to get enhanced hence it has become critical
for the firms like Nintendo to ensure that they design their future strategies in such a manner
that remain competitive in the market and are able to deal with the challenges that are
confronting their business. Some of the strategies that can be designed by the company for its
future are:
 Strategic alliance: This firm needs to ensure that they can make strategic alliance with
new companies especially the ones that are advanced in the technology to improve
their product quality. Company needs to make strategic alliances so that they could
enter into new areas such as online gaming industry which is huge.
 Moving into advanced technologies: Nintendo are looking for developing new games
that are based on the 3D technologies and virtual reality firms. Appropriate
implementation of these technologies will ensure that firm remains ahead of their
competitors.
 Growth strategies: Company needs to extend its arms into the new countries
especially the expansion strategies. This will help them in ensuring that new source of
capital keeps adding to the company.
Recommendation
From the analysis, it can be recommended for Nintendo that they improve their digital
strategies in different operations especially online sales and marketing in a more aggressive
manner. It is also recommended that company switches its focus on the online gaming
especially in the developing markets as there are large numbers of customers available in
these markets. It is also recommended that Nintendo ensures that their game consoles are
designed in such a manner that they do not have to face similar challenges that they faced in
Wiis. Company also needs to improve their resources especially the ones that are related with
the technology so that they remain ahead of their rivals. They also need to concentrate on

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their corporate design especially the corporate structure so that more innovative model for
business can be produced.
Conclusion
From the above based report, it can be concluded that Nintendo is a highly reputable
company and has developed many of the successful games such as Mario, Pokemon and the
legend of Zelda. The industry environment is changing as there is change in the way in which
gaming industry is changing at much faster rate. Tangible resources such as cash deposits and
cash flows of the company are according to the requirements of the industry. The strength of
the firm lies in their research and development and their brand name. Some product failures
in the past have been their prime weakness. At the same time, they have opportunities in the
online gaming market and higher competition is the major threat they are facing. In future
they can utilise more online strategies to remain competitive.
References
Guttenbrunner, M., Becker, C. and Rauber, A., 2010. Keeping the game alive: Evaluating
strategies for the preservation of console video games. International Journal of Digital
Curation, 5(1), pp.64-90.
Harris, B., 2014. Console Wars: Sega Vs Nintendo-and the Battle that Defined a Generation.
Atlantic Books Ltd.

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Hollensen, S., 2013. The Blue Ocean that disappeared–the case of Nintendo Wii. Journal of
business strategy, 34(5), pp.25-35.
Huang, C.Y., Hsu, C.H., Chen, D.Y. and Chen, K.T., 2014, March. Quantifying user
satisfaction in mobile cloud games. In Proceedings of Workshop on Mobile Video
Delivery (p. 4). ACM.
Pontiskoski, E. and Asakawa, K., 2009. Overcoming barriers to open innovation at Apple,
Nintendo and Nokia. World Academy of Science, Engineering and Technology, 53, pp.372-
377.
Subramanian, A.M., Chai, K.H. and Mu, S., 2011. Capability reconfiguration of incumbent
firms: Nintendo in the video game industry. Technovation, 31(5-6), pp.228-239.