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Brooke Sennott
Dr. Litzky
BA 422W
10th February, 2014
Assignment 1: Nintendo’s External Environment
Between the macro-environment and the immediate industry and competitive environment, there are a number of opportunities and threats for Nintendo to consider while drafting its strategic movements. As an overview, Nintendo is relevant within many different industries -primarily electronics, gaming and entertainment. Demographically speaking,
Nintendo reaches one of the widest audiences for its products; people of all ages and genders can find something for them at Nintendo. Socially, it is seen as a more “family-friendly” type of entertainment compared to some rival firms. Considerations for political, legal and regulatory environments are increasingly important seeing as Nintendo is a foreign company.
Technological, economic, and global forces will also be discussed as to how they play a role in
Nintendo’s future. Finally, the buyers, suppliers, rival firms, new entrants and substitute products will be analyzed to construct a clearer picture of Nintendo’s competitive environment.
Demographically, the videogame entertainment software industry is broadening. What used to be a younger, male-dominated industry is becoming more diversified with new needs, interests and demands from consumers. 40% of all gamers are female; the average age of a gamer is 34 years old; and 75% of gamers are 18 or older.1 These few, simple statistics highlight incredible opportunities for Nintendo. In fact, Nintendo is currently pursuing this strategically; it is pioneering the way for gamers, old and young, male and female, new or experienced, to

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enjoy its products. In a 2010 poll, the Entertainment Software Rating Board (esrb) found that
80% of female console users primarily played the Wii, compared to 11% Xbox360 and 9% PS3.1
Similarly, older gamers are utilizing Nintendo software such as Wii Fit to stay in shape2, and the
3Ds game “Big Brain Academy” to keep their minds sharp. Nintendo is rebranding their image to appeal to newer gamers, women, and older generations in attempt to not only expand the industry, but to establish a family entertainment experience that will breed brand loyalty and longevity. 3
A potential threat is losing sight of its target market segment and becoming too broad to successfully pitch its products to the consumer. Similarly, because Nintendo’s image is thought to be family friendly, it may turn off certain gamers who are more interested in hardcore games, or titles outside the general genre that Nintendo offers. Being seen as “childish” or
“immature” is already a problem that Nintendo is working to overcome.
Political, legal and regulatory challenges pose real threat to Nintendo and its reputation.
Nintendo is an international company based in Japan, and its products are used in even the most remote of places. Nintendo, therefore, faces certain challenges specifically involving: product liability, limitations for enforcing intellectual property rights, and leakage of personal and confidential information.. A product malfunction could cripple Nintendo because of its widespread reach and appeal. In 2012 alone, Nintendo sold 95.85 million Wiis, and 151.52 million 3DS systems.4 With the sheer number of products in circulation, Nintendo’s liability for any and all defects pose a calamitous threat.
As for limitations for enforcing intellectual property rights; in many countries outside of the
Western world, it is commonplace to create knockoffs and replicate products as if it were genuinely

3 from Nintendo. It is difficult to pursue legal action in many of these countries due to unstable and dangerous governments, as well as complex or underdeveloped court systems.
As many businesses do, Nintendo has confidential information recorded and stored about its consumers. It is very commonplace to hear about security breaches at some of these companies, with
Target being the most recent in the news. These security breaches can compromise financial information, ruining both the consumers trust as well as Nintendo’s reputation. On another side,
Nintendo tactfully releases new information and media about upcoming game. If someone working on the inside were to release private information, it could create unwanted buzz or misunderstanding and confusion about upcoming products.
Nintendo is making great strides in going green and positively impacting the world we live in.
Nintendo employs intensive recycling and repairing programs to reduce the number of electronic products discarded. Nintendo is also increasing the variety of digital software available to purchase directly to Nintendo systems. Compared to packaged products, this eliminates plastic waste and saves the company money in the process. Consumers are able to download the software instantly, without having to leave the comfort of their homes. Finally, Nintendo is paving an eco-friendly supply chain through the SmartWay program by increasing fuel efficiency to reduce greenhouse gas emissions and air pollution.5 However, the natural environment does pose severe threats to Nintendo. One such threat is the ever present reality of earthquakes and potential for devastating tsunamis, such as the one Japan suffered in 2011. Though Nintendo’s headquarters and manufacturing plants were unaffected by the devastation, a large population of Nintendo’s primary consumers were. Many were killed, stranded or left with little financial stability or interest in videogames as these Japanese citizens sought to rebuild their homes and lives. This disruption in Japan affected Nintendo’s sales and there is a strong possibility of a similar recurrence.6

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Technologically, Nintendo is faced with a single, oppressive threat. Seen as being “less powerful” than competing hardware systems such as the Xbox 1 and the PS4, the Wii U has turned off many consumers. While the competitors are regarded as “next-generation” in terms of technological advances, the Wii U is receiving negative press about graphics and capabilities. There are opportunities that stem from this threat, however. First, the Nintendo systems ARE less powerful, but that doesn’t inhibit the intended purpose. The less powerful graphics results in much cheaper prices, which are passed on as savings to the customer, which means that Nintendo systems are more affordable than competitors. This aligns perfectly with their strategy to appeal to broader target markets that may not have the money or interest to invest in a much more expensive, powerful system. A new Wii U bundle with software is $300, compared to the PS4 which is $400 for just the system, as well as the Xbox 1 which is $500 for the hardware alone.7 Another advantage is that many consumers felt the need to buy an HDTV product in conjunction with the xbox360. In order to fully enjoy the “superior graphics” that the console offered, consumers were forced to make another costly purchase.8 This further advances
Nintendo in that these requirements were not placed as burdens on Nintendo customers.
The video game industry is booming and growing at an incredible, unheard of rate. In the US alone between 2003 and 2006, the entertainment software industry’s growth rate exceeded 17 percent at a time when the entire US economy grew at less than 4 percent. The good news, and the opportunities for Nintendo, is that a study found that “Family Entertainment” was the most popular game genre sold in 2008, which accounted for 19 percent of all games sold, and is a statistic that is trending upwards.8
Buyers, suppliers, rival firms, new entrants and substitute products all pose as challenges that
Nintendo faces while crafting strategies for success. Buyers have various forms of bargaining power that can place constraints on the Nintendo and the products that it offers. However, in Nintendo’s case, the

5 buyer’s bargaining power is weak due to the cost of switching to a competitor, the number of buyers relative to the number of sellers in the industry, and the buyer’s knowledge of products, cost, and pricing. These three components work in favor of Nintendo and grant them opportunities to exploit.
Suppliers are a non-issue as Nintendo has vertically integrated to maximize efficiency within its supply chain and eliminate risks and threats from suppliers. Rival firms and substitute products are frequent; Nintendo faces challenges within the video game industry from Sony, Microsoft, as well as PC,
Mac, and mobile app gaming. In the broader spectrum of entertainment, Nintendo also finds competition in movies, outside entertainment activities, reading and various alternatives to playing video games. Any way that a customer can spend their time other than playing videogames can be considered a substitute product.
Finally, new entrants are always emerging within the video game industry. With the emergence of various financial drivers such as Steam’s Green Light program or KickStarter, indie game developers are finding the initial financial backing they need to create their own videogames. The Green Light program allows developers to showcase their ideas and concepts for a videogame, and then players can upvote the games they want to see be developed. Valve, the company who runs Steam, contacts the developers if chosen, and helps fund the development.9 Kickstarter works in a similar fashion, but the players themselves can donate money to help the game get started.10 This virtually eliminates the financial barrier to entry for new developers.

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Works Cited
1) (n.d.). Retrieved from http://www.esrb.org/about/video-game-industry-statistics.jsp
2) Borland, S. (n.d.). Retrieved from http://www.telegraph.co.uk/news/uknews/1563076/Elderly-addicted-to-Nintendo-Wii-at-carehome.html 3) LeClaire, J. (n.d.). Retrieved from http://www.technewsworld.com/story/50826.html
4) Iwata, S. (n.d.). Retrieved from http://www.nintendo.co.jp/ir/pdf/2012/annual1203e.pdf
5) (n.d.). Retrieved from https://www.nintendo.com/corp/csr/index.jsp
6) King, A. (n.d.). Retrieved from http://wiiudaily.com/2013/07/nintendo-on-earthquake-3dswii-u/
7) (n.d.). Retrieved from http://www.gamestop.com/
8) (n.d.). Retrieved from http://videogames.procon.org/sourcefiles/video-games-and-theeconomy.pdf
9) (n.d.). Retrieved from http://steamcommunity.com/workshop/about/?appid=765§ion=faq
10. (n.d.). Retrieved from https://www.kickstarter.com/hello?ref=footer

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