In the year 2009, Nintendo was placed fifth in the BusinessWeek’s ranking of the world’s most innovative companies. This confirms Nintendo’s significant rearrangement into an innovative design powerhouse that redefined the predominant business value factors of the video game industry. However, a few years ago no analyst would have anticipated that Nintendo would develop in this direction.
Until the mid-1990s, the global home video game console industry was dominated by Nintendo, a Japanese video game hardware and software manufacturer. Rivalry in this industry only marginally existed. This changed when Sony entered the market in 1994. By offering a console that was technologically superior, Sony outperformed the then-Nintendo console. Thereby new challenges arose for the Japanese company.
Nintendo lost its long lasting market leadership to the new entrant. Despite several trails to recapture market leadership during the end-1990s, Nintendo was stuck in second place. Instead of regaining market share, the opposite was the case when Microsoft, a computer software giant, joined the market in 2001. Nintendo’s market share slipped dramatically because they were not able to keep up the technological progress of its competitors. The former market leader fell back to the third place of the industry. Analysts of the video game entertainment industry even recommended that Nintendo withdraw completely from the highly competitive console market in order to concentrate on developing software.4 However, Nintendo refused to surrender, but they were in biggest need to recover market share.
Nintendo had a very different approach to strategy than Sony or Microsoft. Instead of competing for core gamers, Nintendo tried to expand the market and to win new customers. For Satoru Iwata, the president of Nintendo, the industry had been following a wrong path by only concentrating on core gamers, because the number of overall users was getting smaller and decreased its spending patterns. "You must know when not to follow the traditional way of thinking", Iwata argued. “For some time, we have believed the game industry is ready for disruption. Not just from Nintendo, but from all game developers. It is what we all need to expand our audience. It is what we all need to expand our imaginations.” Their new strategy was called 'Blue Ocean Strategy'.
Table of Contents
1 Introduction
1.1 Background and current situation
1.2 Formulation of Objectives and Problem Area
1.3 Disposition of the Thesis
2 Designing a Competitive Strategy
2.1 Create Competitive Advantage
2.2 The Structural Analysis of Industries
2.3 Generic Competitive Strategies
2.3.1 Cost Leadership
2.3.2 Differentiation
2.3.3 Focus
2.3.4 Sustainability of the Competitive Advantage
2.4 Blue Ocean Theory
2.4.1 Nature of Blue Oceans
2.4.2 Value Innovation
2.4.3 Analytical Tools and Frameworks
2.4.3.1 The Strategy Canvas
2.4.3.2 The Four Actions Framework
2.4.3.3 The Eliminate-Reduce-Raise-Create-Grid
3 New Product Development
3.1 Innovation
3.2 Opportunity Identification
3.3 Design
3.5 Testing
3.6 Introduction
3.7 Product Life Cycle Management
4 The Video Game Entertainment Industry
4.1 Market Demarcation
4.2 History of Nintendo
4.2.1 The Market that the Wii would face
4.2.2 The Current Generation
4.2.3 Recent Trends in the Industry
4.3 The Need for Change
4.3.1 Structural Analysis of the Home Video Game Console Industry
4.3.2 A New Strategy
4.3.3 Nintendo’s Blue Ocean
4.4 Development of the Wii
4.4.1 Identifying Blue Opportunities
4.4.2 Designing a Blue Ocean
4.4.3 Testing the New Console
4.4.4 Introducing the Wii
4.4.5 Managing the Product Life Cycle of the Wii
4.5 Review on success
5 Conclusion
5.1 Concluding Remarks
5.2 Outlook
Research Objectives and Topics
The thesis aims to investigate how Nintendo successfully recaptured market share in the video game industry by shifting its strategic focus from competing for core gamers to creating a new, uncontested market space using the Blue Ocean Strategy and innovative product development.
- Application of the Blue Ocean Theory to identify new, uncontested market opportunities.
- Evaluation of Porter’s Five Forces in the context of the video game console industry.
- Analysis of the sequential new product development process, specifically focusing on the Wii console.
- Strategic comparison of Nintendo's differentiation and cost-management approach versus competitors like Sony and Microsoft.
- Examination of the product life cycle and market introduction strategies in the gaming sector.
Excerpt from the Book
2.4.1 Nature of Blue Oceans
Kim and Mauborgne’s idea is to make competition irrelevant, instead of competing with rivals. They argue that it is more sustainable to create new demand, than to fight for existing markets and customers. To explain their strategic approach, they distinguish between red and blue oceans, which describe the overall market universe. According to their theory, red oceans symbolize already existing and established industries. Here the market space is known. Whereas the idea of blue oceans is to seek entirely new markets that create a previously non-existing demand. The conventional approach of red ocean companies is to defend their existing customer base and to maintain the established industry order. Their strategy consists of dividing up the ocean and competing with rivals for market share. In other words, their means how to achieve competitive advantage over rivals are usually based on monitoring and outperforming the competitors. As a result of benchmarking and imitating, rivals’ products and services increasingly become commodities with shrinking differentiation. With no clear differentiation and converging brands, the buying decision will be based only on price levels, which will result in price wars and shrinking profit margins. Due to cutthroat competition, markets end up as red, ‘bloody’ oceans.
In contrast to this, blue ocean companies follow a different strategy. They try to develop new demand by creating new markets. These new markets are brought into being by challenging the boundaries of established industries. Thereby sometimes completely new industries are created. To lever out the existing industry constraints and with this, the traditional value-cost trade-off, companies have to make use of what Kim and Mauborgne call value innovation. As mentioned before, this value innovation is the key point of the Blue Ocean Strategy.
Summary of Chapters
1 Introduction: Provides an overview of the video game industry's development, highlighting Nintendo's shift in strategy from traditional competition to innovation to recapture market share.
2 Designing a Competitive Strategy: Explains theoretical frameworks for competitive strategy, including Porter’s Five Forces and the Blue Ocean Strategy, to understand how companies create sustainable advantages.
3 New Product Development: Details the sequential stages of the innovation process, from opportunity identification and design to testing and life cycle management.
4 The Video Game Entertainment Industry: Analyzes the history of Nintendo, the industry environment, and the specific application of the Blue Ocean strategy in developing and launching the Wii console.
5 Conclusion: Summarizes the thesis findings, confirming that Nintendo successfully created a new market by aligning innovation with value rather than merely competing on technological specifications.
Keywords
Nintendo, Wii, Blue Ocean Strategy, Value Innovation, Competitive Advantage, Product Development, Video Game Industry, Innovation Management, Market Positioning, Strategic Management, Red Ocean, Noncustomers, Product Life Cycle, Motion Control, Gaming Industry.
Frequently Asked Questions
What is the core focus of this thesis?
The work focuses on how Nintendo transformed its business strategy to recover market share in the video game industry, transitioning from a struggling competitor to a leader by creating a new market through strategic innovation.
What are the central themes discussed in the research?
The central themes include competitive strategy frameworks (Porter’s Five Forces), the Blue Ocean Strategy, new product development processes, and the historical evolution of the video game console market.
What is the primary objective of the study?
The primary objective is to demonstrate how Nintendo utilized the Blue Ocean Strategy to create uncontested market space, effectively moving away from the "red ocean" of intense price-based competition with Sony and Microsoft.
Which scientific methodology is utilized?
The thesis employs a combination of theoretical analysis of strategic management literature and a detailed practical case study of Nintendo's development of the Wii console.
What is covered in the main section of the document?
The main section covers the theoretical foundations of competitive strategies and value innovation, followed by an in-depth analysis of the video game market, Nintendo's historical trajectory, and the specific steps taken to design, test, and launch the Wii.
Which keywords best characterize this work?
Key terms include Nintendo, Wii, Blue Ocean Strategy, Value Innovation, Competitive Advantage, and Product Development.
How does the Wii differ from its competitors, the PS3 and Xbox 360?
The Wii focused on low-cost hardware and intuitive motion-based control (Wiimote) to attract non-gamers and casual users, whereas the PS3 and Xbox 360 focused on high-end processing, multimedia capabilities, and "core" gamer appeal.
Why did Nintendo decide to ignore "high-tech" trends for the Wii?
Nintendo recognized that the pursuit of increasingly complex technology was narrowing the target audience and driving up costs, so they chose to prioritize "fun" and accessibility to expand the total market.
- Quote paper
- Jörg Ziesak (Author), 2009, Wii Innovate. How Nintendo created a New Market through the Strategic Innovation Wii, Munich, GRIN Verlag, https://www.grin.com/document/140601
