A case for change for Nintendo: switch to consumer focus or lose your audience. This was an individual research project done for the Strategy & Innovation module of Hyper Island's Digital Media Management course.

1. A Case for Change
Basim Al-Baker, DMM Crew 3, Hyper Island

2. 2013
COMPANY PROFILE
• From playing cards to consoles, we have
str ived to provide a high quality
entertainment experience for our customers.
• We have historically dominated key
generations of home consoles with our
offerings and created much loved mascots
that are recognized worldwide.
• We introduced the concept of a blue ocean
strategy with the Nintendo Wii, whereby
lapsed gamers and non-gamers were drawn
into gaming world through intuitive controls
and casual software. The Nintendo Wii has
sold 99.84 million units worldwide.
1
Kim and Mauborgne (2005)
Nintendo Co, Ltd (2011a)
Nintendo Co, Ltd (2013)

3. 2013
PREVIOUS MARKET
• The Nintendo Wii held the greatest
lifetime market share out of the three
major home video game consoles at
that time.
• The Wii reached maturity before it’s
competitors, leading to a “3rd place”
position in terms of market share by
2011.
• Hardware & software sales peaked in
2009, 2 years after the console’s
release.
• Our dominance in market share
effectively proves the viability of the
blue ocean strategy model in context
of the Wii.
PS3
31%
XBox 360
48%
Wii
21%
PS3
23%
XBox 360
36%
Wii
41%
7,500
15,000
22,500
30,000
2007 2008 2009 2010 2011 2012 2013
Nintendo Wii Sales (per ten thousand units)
Hardware
Software
Home Console Market Share
2011 Lifetime
2
Mintel (2012)
Nintendo Co, Ltd (2013)

4. 2013
CURRENT MARKET
• We released the Nintendo Wii U in November
2012 to lukewarm sales. We have missed our
target of selling 4 million units by the end of
March.
• The Wii U is failing to capture audiences and
disrupt the home gaming market like it’s
predecessor.
• We have altered our blue ocean strategy in
response to a lack of brand loyalty amongst
lapsed gamers and non-gamers. The Wii U is
facing negative critical response from both our
casual and our loyal customer base due to a lack
of customer-focus.
“The second point we focused on was how can we
satisfy and meet the needs of everyone in the
industry who is developing games now and their
desire for HD visuals, and how can we convince
them that this will be a system with which “they can
take full advantage of their game development.”
- President of Nintendo, Satoru Iwata (2011)
(During first 7 months
of respective release)
0
25,000
50,000
75,000
100,000
Wii Wii U
34500
92700
Wii and Wii U Sales (per ten thousand units)
3
Nintendo Co, Ltd (2007)
Nintendo Co, Ltd (2011a)
Nintendo Co, Ltd (2013)

5. 2013
Strengths
•Nintendo’s Quality Assurance
•Valuable IPs (Mario, Zelda etc.)
•Family-friendly values
•Educational games (BrainTraining)
•Innovative controllers
•Backwards compatibility
•Focus on providing an immersive and
entertaining experience
Weaknesses
•No unified user account system
•Wii U confusing potential customers as
upgrade to the Wii rather than a successor
•Wii U sales falling short
•Lack of “killer software”
•Marketing campaign doesn’t target
dedicated gamers and long-time fans
•Virtual console lacking titles
•Lack of innovative video games
•Third party exclusives lacking
Opportunities
•Microsoft XBOX One seemingly missing
the mark with consumers
•Tablet Games can be ported to the Wii U
without hassle
•Xmas period driver of sales
•Heavy hitting software in development for
2013 release
Threats
•Sony PlayStation 4
•Oculus Rift (Virtual reality headset)
•Valve Steam Box
•Ouya (open-source video game console)
•Third party publishers will flock to other
systems if Wii U sales do not improve
SWOTANALYSIS
4

6. 2013
CURRENT BUSINESS LOGIC
Product Focused Approach to Value Creation
• Instead of operating within the customer desired outcome, the
Wii U is operating as an accessory to it. The Wii U is being
marketed as a Media Hub that benchmarks competing consoles
instead of it’s primary purpose of a games console.
• We have focused too much on providing for the industry that
we have arguably lost sight of what the customer wants.
Instead of benchmarking the current generation of consoles we
should be reinventing the rules. We have been disrupted by
actions of our own doing despite being the disruptors in the
previous generation.
• We have an impressive track-record in providing entertaining
experiences yet the Wii U currently has very little to offer. By
(unsuccessfully) providing for the industry alone, we have a
console that by design is strategically neither blue ocean nor
red ocean.
Market Space
Entertainment experiences from the comfort of your home.
• With our previous console we created uncontested market
space within gaming. This can be repeated by realigning our
strategy from product and industry focus to customer focus.
The Wii U’s E3 Reveal had few actual games on show.
http://www.youtube.com/watch?v=4e3qaPg_keg
The name Wii U is made of two components: the
“Wii” (we) emphasizing multiplayer enjoyment and
the “U” (you) promising focus on personal gaming.
5
McCabe (2013)
Nintendo Co, Ltd (2011b)

7. 2013
CASE FOR CHANGE
We are facing a crisis of both extreme threat and opportunity.
Threat:
• The Wii U is the underdog of this console generation
and is facing competition from the incoming generation
of consoles that are more powerful and less current.
• We are losing backing from third-party developers due
to our sales figures.
• We are relying too much on the strength of our
incoming first-party software to attract consumers. Most
of these titles are remakes or rehashed versions of past
games and aren’t set to arrive until next year. A
“content-first strategy” is not sustainable.
• Nintendo as a company is not customer-focused and
needs to “upgrade it’s operating system” (OS).
Opportunity:
• Microsoft has made an unimpressive first impression with
the XBOX ONE.
• Sony is focused on directly competing with Microsoft on
a market share basis. Their offering is not truly
consumer-focused as they are focused on undercutting
Microsoft. They are not captivated through true lock-on.
• We are in the best position to redefine the market
space!
Wii U sales on Amazon UK shot
up by 386% following the Microsoft
XBOX ONE reveal on the 24th of
May. Microsoft is receiving backlash
for their high price point, lack of
backwards compatibility and
always-online functionality
(amongst other worries).
6
A tweet by an Electronic Arts developer that disparaged
the Wii U. EA support for Wii U games is shrinking as
our hardware sales are below-par.
Amazon.co.uk (2013)

8. 2013
UPGRADING OUR OS
• Being a part of the living room
• Lock in intellectual property
• Meet customer expectations
• Improving and reforming previous
generations’ hardware
• Competition
• Short term profits
• Gamer segments
• Cut costs and increase profits
• Playing it safe
OS 1
• Owning that part of the living room
• Lock on customers through IP sharing
• Redefine customer expectations
• Changing the rules of home gaming
with the customer at it’s core
• Collaboration with consumers
• Customer lifetime value
• Individuals
• Add value and increase revenue
• Change gaming forever
OS 2
7
McCabe (2013)

9. 2013
VITAL COMPONENTS OF STRATEGY
1)Swinging the power from Nintendo to the
customer
2)Achieving customer lock-on through “enchanting
the gamer”
3)Articulating new market spaces beyond the realm
of thought
4)Delivering an integrated customer experience
- The Nintendo Experience
5)Building sustainable recurring elements of strategy
• Eg. relationship building, knowledge and
information acquisition, networking opportunities,
increase in the numbers of players, increase in the
numbers of developers and cost savings.
8
Vandermerwe (2000), p. 28
Vandermerwe (2000), p. 36

10. 2013
SWINGINGTHE POWER
The What:
• Get our consumers to think of themselves as vested in our
interests. Ordinary individuals can take control over their
financial decisions.
The How:
• Nintendo Crowdsourcing. Vote up or down various elements
of upcoming games. Make suggestions directly to the
developers at various stages of development. Sketch directly
on top of screenshots of preview builds released by
developers. The best ideas are fast-tracked to the developer
and either end up in the game or as an add-on. Users are able
to proudly display what they have contributed to Nintendo
and are rewarded by being a beta tester for example.
The Why:
• Transparency is the key concept here. Customers want to
have their say and feel reciprocated, especially on an individual
basis. Customers can take control of their financial destiny by
being couch-side developers.
• The basic architecture for this is already in place. Using
Nintendo’s Miiverse platform, players can upload hand drawn
sketches on the tablet. Comments are also heavily moderated
for the family-friendly factor. A “likes” system is already in place
for generic posts about games.
Crowdsourcing
9
Vandermerwe (2000), p. 29

11. 2013
ACHIEVING CUSTOMER LOCK-ON
The What:
• Customers may be disenchanted with the video game industry but still
persuaded to buy in because everyone in the industry operates
identically. Customer lock-on is different in the sense that the
customer comes to Nintendo as their preferred choice and not by
lack of choice. We will be chosen as the dominant choice if we are
able to deliver continuing superior value within a low-cost model.
The How:
• Nintendo Crowdsourcing (outlined previously)
• Nintendo Creative Common. This platform allows for fans to host
video games they have created. Similarly to Nintendo Crowdsourcing,
the best ideas are picked by the crowd to avoid vaporware and low-
quality titles. Games are branded as Nintendo Creative Common and
are made for non-profit (at least initially). Nintendo Creative
Common is for the people, by the people and endorsed by us.
• NintendoVirtual Console Revamp. In order to combat piracy and
give back to the customer, we need to release as much of Nintendo’s
back catalogue as possible and promote monthly streaming access at a
nominal fee. Currently we are over-charging for these older titles and
the Wii U’s on-board storage space is limited to 32 GB.
The Why:
• Change the way the industry operates rather than following it. This
is not achieved through asking gamers to patiently wait for their
upcoming big releases. Fan-made games will see their efforts realized
with Nintendo’s quality control in place, creating a win-win situation.
• Every time Nintendo attempts to benchmark in a “standard
manner” (ie. graphics and processing power) we fail. The Nintendo
Gamecube is an early example of this. We are beyond the age of
analogue and motion control as literal game-changers. We need to
change what Nintendo is defined by for every potential consumer.
We are in the age of creative control by the consumer.
An unofficial fan-made Pokémon game titled Pokémon Type Wild. Fans
have been clamoring for a game like this for years. Instead of stamping
out fan-made efforts we should collaborate and stamp our seal of
quality on them.
10
Vandermerwe (2000), p. 29

12. 2013
ARTICULATING NEW MARKET SPACES
The What:
• Companies are able to see increasing returns by
concentrating on dominating activities in new
market spaces that customers are wholly engaged in.
The How:
• By releasing Nintendo Developer Toolkits,
Nintendo Crowdsourcing and Nintendo Creative
Common platforms on mobile phones, tablets and
desktop.
The Why:
• The sustainability of home gaming consoles is
primarily threatened by itself. Trying to accrue
market share from competitors in a non-consumer
focused industry is an unwise move for Nintendo.
• Instead of developing games for mobile phones and
tablets in an attempt to make short-term gains, we
are providing tools to enhance our own platforms
on Android, iOS and more.
OS 2
11
Vandermerwe (2000), p. 30

13. 2013
DELIVERING AN INTEGRATED CUSTOMER
EXPERIENCE
The What:
• The ability to articulate and define the
market spaces that we want to occupy.
Within those market spaces we intend
to hold par ticular influence on
customer activities and spending.
The How:
• Articulate the market space. Be bold
and take risks.
The Why:
• The organization can be pulled
together and new capabilities built and
designed to lock on customers.
Crowdsourcing
12
Vandermerwe (2000), p. 31

14. 2013
DEFININGTHE CUSTOMER DESIRED OUTCOME
& MARKET SPACE
Customer Desired Outcome
Making the most of my leisure time at home
or on the go by crafting and interacting with
captivating video game experiences.
Market Space
Crafting and enabling entertainment
experiences from the comfort of your home
or on the go.
13

15. 2013
A NEW NINTENDO
• Giving value and meaning to the
“Wii” and the “U” in Wii U.
• Collaborate with our customers. End
the software drought on the Wii U
and give the customer complete
control.
• Align our goals with the customer’s.
If we are not able to provide enough
entertainment experiences, we
facilitate the creative process more
effectively.
• Deliver on our word as an expert
crafter and enabler of creative and
engaging video game experiences.
14

16. 2013
REFERENCES
• Amazon.co.uk. 2013. Amazon.co.uk Movers and Shakers:The biggest gainers in PC & Video Games sales rank over the past 24 hours.
[online] Available at: http://www.amazon.co.uk/gp/movers-and-shakers/videogames [Accessed: 17 Jun 2013].
• Kim,W. and Mauborgne, R. 2005. Blue ocean strategy. Boston, Mass.: Harvard Business School Press.
• McCabe, P. 2013. Non-Linear Business Logic & Value Creation. [Lecture to DMM Crew 3]. Hyper Island, 3 June 2013.
• Mintel. 2012. Video Games and Consoles - UK - October 2012. London: Mintel.
• Nintendo Co, Ltd. 2007. Consolidated Financial Highlights. Available at: http://www.nintendo.co.jp/ir/pdf/2007/070725e.pdf
[Accessed: 17 Jun 2013].
• Nintendo Co, Ltd. 2011. 2011 E3 Expo Analyst Q&A Session. Available at: http://www.nintendo.co.jp/ir/en/library/events/110608qa/
index.html [Accessed: 17 Jun 2013].
• Nintendo Co, Ltd. 2011. Nintendo’s 2011 E3 Press Conference. [press release] 7 June 2011.
• Nintendo Co, Ltd. 2013. Consolidated Sales Transition. Available at: http://www.nintendo.co.jp/ir/library/historical_data/pdf/
consolidated_sales_e1303.pdf. [Accessed: 17 Jun 2013].
• Vandermerwe, S. 2000. ‘How IncreasingValue to Customers Improves Business Results’. MIT Sloan Management Review: Volume
42:1. p. 27 - 37.
• Wakabayashi, D. 2013. Nintendo Cuts Outlook As Wii U Sales Disappoint. Wall Street Journal. Available at: http://on.wsj.com/TVshYR
[Accessed: 17 Jun 2013].
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