Nintendo’s Current Business Level And Corporate Strategy: Analysis And Recommendations

Executive summary of current business scenario and corporate strategy

Nintendo, which introduced its first revolutionary gaming console in the year 1989, has remained one of the premier choices in the video game industry. The company strategy has been the same from the very beginning – to target an audience interested in video games and lure in potential new customers (Nintendo 2018). However, unlike other companies, the profitability of the company is entirely dependent on video games, which limits its horizons. The video game industry, while one of the most beloved forms of entertainment, has incurred losses in the last few years. Yet, the video game industry drew in more than seventy three billion dollars worldwide. Out of that, Nintendo occupied a nominal share in the market, with other brands like Sony gradually taking over. In the fiscal year of 2018, Nintendo saw a revenue generation of around 4 million dollars. The current business strategy of Nintendo is straightforward and fails to position the brand as the number one choice in the video game industry. This report carries out a detailed analysis of the strategic management at Nintendo, and attempts to present a few recommendations which can improve its performance in the global market.

The business model of Nintendo is based on a conservative practice. In the recent financial report released by Nintendo, their cash reserves had in store more than 4.5 billion dollars. This might seem impressive, but is actually alarming, keeping in mind he 10 billion they reported a few years ago. The corporate strategy of Nintendo is relatively simple and customer oriented. Nintendo’s target audience would be young people between the ages of 13 and 25 who are hardcore gamers. While the company did suffer massive losses in the past few decades, their official annual report revealed that the introduction of the Nintendo Switch has increased the profit generation of the company. Their profits have increased by at least 500 per cent after the Switch consoles were announced (Nintendo.co.jp 2018). The company, as of 2018, forecasts an annual profit of 1.2 trillion yen in this financial year.  The corporate strategy of Nintendo takes into account the following aspects:

• It experiments with new genres. The brand tries to introduce a number of new games every year. However, off late, it had begun to toy around with its existing genres. Measures are being taken by the company to include variety in their games.
• The company has a new marketing strategy where more information is provided to the buyers over a short period of time. This generates more curiosity and excitement.
• The corporate strategy is customer centric. The video games are designed for the customers, keeping their unique needs and demands in mind.

• The company has a far reaching impact on the gaming industry worldwide (Lee, Lin and Yu 2017).
• The company has a skim pricing strategy where the price range of products is intentionally kept high initially and then increased when it catches on in the market.
• A robust marketing team and employee friendly working environment which reduces employee turnover.

• The failure of the Wii was a major loss, as far as Nintendo’s present market situation is concerned.
• Marketing mistakes made by the company in the recent years cost them a few loyal customers.  
• The failure to meet profit margins, unlike their competitors.
• Lack of exciting and innovative new products which would appeal to new audiences.

• The gaming industry is only gaining momentum in 2018. Nintendo has tremendous opportunity to make it big in the industry, only if coupled with effective strategic management.  
• With easy access to internet, the gaming industry has permeated the world of mobile phones as well.

• The only major threat to Nintendo’s success at present is that of competition from other companies like Sony. Sony, which has garnered international reputation in this field, promises better services and more technologically advanced products than Nintendo (Neil et al. 2013).

The video gaming industry can be said to be a part of the Information Technology. As such, the concept of business systems modeling may be used to analyze the operations at Nintendo. Systems modeling may be defined as an interdisciplinary field of study encompassing models and theories to construct systems and conceptualize operations in business (Berglund and Sandström 2013). One of the most common types of systems modeling is the function modeling, which highlights the mode of operations within an organization. A simplified version of business systems model in the gaming industry has been presented below. The first step, as shown by the model, would be the conception. The creative department would be expected to devise innovative new stories and concepts for a new game, which would then be formulated into graphics. Graphics, as Nintendo has shown over the past few years, is the most integral aspect of video games. The interface of the video game is equally important. Failure to incorporate impressive interfaces would cost Nintendo loyal customers. As part of the business operations, the working environment and human resource management is crucial.

Discussion

                                             

                                                       (Figure: Simplified business systems model for Nintendo)

To carry out an external analysis of Nintendo, it is important to carry out an analysis of certain factors which affect the current position of Nintendo. That can be done through a PESTLE  analysis (Ho 2014).

A PESTLE analysis would help one understand the drivers of industrial development that play a crucial role in the gaming industry (Gupta 2013).

• Political factors – In the gaming industry, a large number of laws, taxation policies and regulations must be taken into consideration (Cabot 2015). Most countries have strong regulations in place with respect to the content of video games.
• Economic factors –The video games industry is expanding at a rapid rate across the globe, regardless of the economic crises around the world (Marchand and Henig Thurau 2013). As a result, innovative hardware and software costs have gone up.
• Social factors –There are a large number of social factors which determine how Nintendo performs in the market. Some of these are income distribution, social mobility, age, gender, consumer behavior, lifestyle and so on. These factors would determine how the company is perceived by the target market.
• Technological factors –Over these years, Nintendo has introduced into the market several new technologies which would improve the games they sell. For instance, the brain training technology or that of “blue ocean” has revolutionized the world of gaming (Hollensen 2013). They have a dedicated team of professionals who strive to come up with new and innovative technologies every day.  
• Environmental factors -Environmental factors play a crucial role in industrial development. It is important for every company to take into account its strategic management with regards to corporate social responsibility.
• Legal factors –Most companies, as mentioned earlier, have strict laws with regards to video games. This is because it is assumed that the content of video games have a strong psychological impact on the players. Thus, it would be the responsibility of the company to keep in mind these legal aspects while manufacturing games.  

Nintendo, which held one of the top positions in the global video gaming industry for a prolonged period of time, has now suffered a number of setbacks. This is mainly due to flawed strategic management which failed to position it favorably in the market. Some of the major issues faced by Nintendo could be summarized as follows:

• Large scale conglomerates like Nintendo tend to focus on their prominent games with higher budgets. As a result, a number of small scale companies have emerged which cater to the same audiences, but have a more affordable pricing strategy (Egenfeldt-Nielsen, Smith and Tosca 2013). Similarly, companies like Sony are offering equivalent products which guarantee better quality than Nintendo. Naturally, customers are more inclined towards these companies, as compared to Nintendo which has become more or less stagnant in the recent years.
• More and more of these video gaming companies are expanding their horizons into the world of smartphones. It is thus imperative for companies like Nintendo to venture into newer avenues as well. The video game industry is a dynamic one and has undergone drastic changes in the last few years. However, Nintendo has failed to incorporate these changes into their strategies.   

Based on the business analysis of Nintendo, the following recommendations have been presented, keeping in mind current business trends:

• Nintendo needs to have a more focused and specific marketing strategy that would lure in newer audiences.  
• Nintendo should include more innovations in their products to lure in more customers, thus giving the company a competitive edge.  Nintendo needs to broaden its horizon, and include variations in their products. It would also be beneficial for the company to venture into newer platforms like mobile phones.  

Conclusion:

To conclude, it can be said that Nintendo is a name to be reckoned with in the video gaming and console industry. The above paper studies the business and marketing strategies of Nintendo, thus highlighting the strengths and weaknesses of the company. An analysis of the company’s external environment has been carried out to identify the various social, economic, political, legal, environmental and technological factors that act as drivers of industrial development in the video gaming industry. One of the main issues that Nintendo faces is the tough competition from rival brands. The corporate strategy of the company should be such that it improves the competitive positioning of the brand in the market, with respect to its performance and profitability. Accordingly, recommendations have also been provided which can be used to improve the company’s current status in the market.  

References:

Baack, D.W., Harris, E.G. and Baack, D., 2016. Nintendo: Marketing Strategies in a Turbulent Environment. SAGE.

Berglund, H. and Sandström, C., 2013. Business model innovation from an open systems perspective: structural challenges and managerial solutions. International Journal of Product Development, 18(3-4), pp.274-285.

Cabot, A., 2015. A Checklist: Questions That New Gaming Jurisdictions Need to Consider in Adopting Gaming Laws and Regulations. UNLV Gaming Research & Review Journal, 19(1), 6.

Egenfeldt-Nielsen, S., Smith, J. H., and Tosca, S. P., 2013. Understanding video games: The essential introduction. Routledge.

Gupta, A., 2013. Environment & PEST analysis: an approach to external business environment. International Journal of Modern Social Sciences, 2(1), 34-43.

Ho, J. K. K., 2014. Formulation of a systemic PEST analysis for strategic analysis. European academic research, 2(5), 6478-6492.

Hollensen, S., 2013. The Blue Ocean that disappeared–the case of Nintendo Wii. Journal of business strategy, 34(5), 25-35.

Lee, S. J., Lin, G. T., and Yu, W. H., 2017. The Strategic Analysis of Driving Forces Determining Success for a Console Manufacturer in the Console Market–the Positioning Strategy of Nintendo.

Marchand, A., and Hennig-Thurau, T., 2013. Value creation in the video game industry: Industry economics, consumer benefits, and research opportunities. Journal of Interactive Marketing, 27(3), 141-157.

Neil, A., Ens, S., Pelletier, R., Jarus, T., and Rand, D., 2013. Sony PlayStation EyeToy elicits higher levels of movement than the Nintendo Wii: Implications for stroke rehabilitation. European journal of physical and rehabilitation medicine, 49(1), 13-21.

Nintendo – Official Site., 2018. Retrieved from https://www.nintendo.com/

Nintendo.co.jp.(2018).[online]Availableat:https://www.nintendo.co.jp/ir/pdf/2018/180427_2e.pdf