Nintendo Wii 2011

Innovation Management and New Product Development Nintendo: Wii

By: Arjun Pratap Singh Tp015352 UC4f1101ME

Word Count: 3400 (Without Virtuous Circle)

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Nintendo Wii 2011

Executive Summary:

Interactive entertainment industry (IED) has grown a lot in recent couple of years. In 2001, the industry was mainly dominated by 3 major companies: Microsoft, Sony and Nintendo. During this period Nintendo had the smallest share of this industry (2001), earlier Nintendo had dominated the industry.

In 2004, dealing with the stiff and strong competition from 2 major companies (Microsoft and Sony), who were much wealthier and technologically advanced, Nintendo came up with an innovative strategy to prevent its exit from the industry, while making a profit to sustain itself against its rival in the interactive entertainment industry.

Nintendo used the BLUE OCEAN strategy instead of the RED OCEAN strategy, while the special weapon developed having this strategy in place was the console NINTENDO Wii having interactive features. The reach of this console was wide; children below 18 years of age to old people, male and female both were attracted to Nintendo Wii as predicted by the organization.

In this paper we will look at, how Nintendo Wii came to be (NPD) the console which dominated the market (IED), and how it got this success and popularity while have strong and technologically more advanced competitors as Microsoft and Nintendo in the ring (IM).

Nintendo Wii 2011

Table of Contents:

S.No 1 2 2.1 2.2 3.1 3.2 3.2.1 3.2.2 3.2.3 4 5 6 7

Content Executive Summary Nintendo Wii Background Ongoing Market Planning Ongoing Technology Management Market Penetration Product Development Wii Console Wii Remote Wii Online Virtuous Circle Pearson Uncertainty Map Conclusion References

Pg No. 3 4 5 6 9 10 11 11 11 14 17 19 20

Nintendo Wii 2011

Question 1: Considerations when developing New Product Development Strategy for Nintendo Wii?

Answer 1: I. Nintendo Wiis Background

Nintendo is one of the 3 major players in $30 billion video game industry along with Microsoft and Sony. It dominated the market for most of 1980s and early 90s with its new designs, better graphics and new games.

However with the launch of PlayStation in 1995, PlayStation 2 in 2000, PlayStation 3 in 2006, Microsoft Xbox in 2001 and Microsoft Xbox in 2005 the competition intensified. The new players in the industry featured more powerful processors, higher definition images and more complex games and graphics. Due to this Nintendos market share were falling fast and company was in tough times.

Nintendo Wii was released in November 2006; it was a radical break with the traditional idea of video games. It proved extremely popular; by end of July 2009 more than 51.01 million Wiis had been sold, with Xbox sales of 31.24 million and 22.45 million sales for PlayStation 3 (Liao, 2010). Wii became the fastest selling console in the video game history. Behind Wiis success was carefully crafted innovation strategy that fundamentally changed how video game industry is perceived. Nintendo executives already realized that they could not hope to win back market share with faster processors and better graphics while continuing to make a profit on consoles. They also knew that lower prices could not sustain sales if consoles continued to perform poorly relative to competitors. It appeared that customers were willing to pay some premium for better performance but, Nintendos dilemma was about increasing the performance (sales) while keeping the
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prices low. So they focused on consoles least expensive component the controller according to Wesley, et al. (2010).

Conventional wisdom says company needs to focus on special needs of its target customers (found using the segmentation analysis) and maximize values to them, while ignoring those outside the segment. Nintendo did the complete opposite, it focused on the non gamers as their percentage was much greater compared to the gamers. Wiis strategic innovation was to focus common elements across various sections of non gamers such as children, women and seniors. Specifically it achieved the following to maximize different set of values. Wii enhanced simplicity, interactivity, ease of control making Wii games enjoyable for the whole family while being affordable (cheaper compared to its competitors).

II.

Ongoing Market Planning

For several past years the video game industry has been following the Red Ocean strategy which focuses on gaining the maximum market share, outselling the competition and capturing the target customers. The main competitors for Nintendo was Sony and Microsoft, who were using the red ocean strategy to gain the market share, by increasing their consoles processor speed, having higher definition graphics and more complicated games, while along the way competing among themselves. Nintendos initial plan was same as the others of using red ocean strategy, developing faster and flashier consoles. During development the executives came to realize the sheer inefficiency of the path they were following after they compared the hardships and costs of development, against any new experiences their customer might have according to the Takeda, GM, IRDD.

After realizing the mistake they were making (about a year into development of new console after launch of GameCube), executives at Nintendo did new analysis and
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evaluations, after which they finally came up with a brilliant new strategy called as the Blue Ocean strategy which focused upon all those, specifically the non gamers and casual gamers who werent targeted by Nintendos rivals (outside the segment), which included females, seniors and children (ratio of non gamers is higher than gamers). Rather than competing with its rival directly for 9 - 24 years old male gamers, Nintendo targeted the broader audience.

Outcome of working with this strategy in mind and with an idea of making something innovative for the new target customers Nintendo came up with Revolution, prior name of Wii (product for the new market [market planning]). Main goal for Wii was that, it could be accessed by everyone in the family, rather than act as just another toy for the children.

Nintendo has always tried to do something new and different. That message was spread not only within Nintendo, but to other companies as well. As a result, Nintendos development partners had naturally tended to present them with new technologies and ideas. It was that background of going against the norm that gave birth to Wii according to Shiota, IRPDD.

III.

Ongoing Technology Management

Nintendo having experienced a rollercoaster ride in the interactive entertainment industry due to which it has developed a culture of constantly searching and developing something new, believing in keeping entertainment fresh and always having ambition to do something new according to Shifeng (2008). Inspired by the success and failure of their earlier generations stationary and portable consoles, Nintendo aimed for new innovation path that aims for superior accessibility than high technology performance. Taking an important lesson from its earlier successful console the NES, that it was operated easily so, everyone could play. Designers at Nintendo decided to make a design which was accessible by everyone.
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One of the major ways of improving competence in the business is to innovate and create intellectual properties; business would become stale and slowly start declining after a period of time if there is no innovation. Innovating something and then getting it patented makes it an intellectual property of the company or the person who created it, thus preventing any usage of it anywhere without the consent of the owner.

Nintendo has recently patented a lot new and weird ideas for Wii which it feels would help its business in long run and help it stay ahead of its competitors. One of the ideas which Nintendo got patented for Wii earlier was the Wii wireless remote controller, which has proved to be a much successful idea as to what Nintendo had estimated earlier. It brought the interactivity between the user and the Wii games to a new level, and also helped Nintendo get back the market share it had been missing for long according to Dutta, et al. (2009).

The most interesting aspect of the Wii console is the Wii remote, a wireless and motion sensitive controller, which attracted non gamers and casual gamers to buy the Wii console. The ergonomic design links the players movement and direction pointed at in the space directly to the display and changes on the screen, acting as warriors sword or a golf club, rather than using the combination of multiple buttons and the joystick. As most multifaceted games ever, the Wii remote plays into the conventional motion that person makes easily, offering natural way of playing the games according to Shifeng (2008). Plus it helped expanding exergaming which is combination of on screen action and physical exercise.

Nintendo has developed and infused some other remarkable technologies into its Wii console thus improving its characteristics and appeal, one of which is the state-of-the-art semiconductor technology, using small semiconductor chips allowed the engineers at Nintendo to reduce the size of console, while also reducing the power consumption of the device, thus allowing it to be left on for 24 hours of a day according to Shiota.

Nintendo Wii 2011

Nintendo has to buy parts off the shelf and outsource manufacture and assembly as it could not design and manufacture parts as Sony. So they bought graphic cards from ATI, processors from IBM and batteries from Panasonic according to Moats (2008), that could be taken care by vertical integration into manufacturing industry, which could help Nintendo to even bring prices lower and expand to other markets as consumer electronics.

Nintendo Wii is backward compatible which means, older console games and softwares such as of GameCube can run on Nintendo Wii. The engineers at Nintendo did not start from scratch they used the technologies of the earlier generation consoles and worked upon it to create a new improved console with new features (saving time and money). One of the main reasons for success of the Nintendo Wii was the firm decision making and clear vision of the top management at Nintendo, without them Nintendo Wii wouldnt be as we know now.

(Ansoff Product\Market Matrix) Taken from Strategic Marketing 2e by West, Ford and Ibrahim)

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IV.

Market Penetration

Nintendo since the times it stepped in interactive entertainment industry developing consoles, it catered to children with games as Mario and Pokmon, as the time passed it started creating games for people between the ages of 9-24 years old as Legend of Zelda. So, it can be seen that there was already a market for the consoles and the games created by Nintendo. With the launch of Wii, Nintendo reached to the untapped market, which were the non gamers as seniors and women and also casual gamers whom Nintendo had not paid attention to earlier. As, its said necessity is mother of all inventions. Nintendo Wii was easy to use, simple and had great interactivity. All the people, males or females from different age groups played it, it brought family together, no more was playing video games was said to be anti social, same like outdoor sports users exercised while playing games which prevented them from being a couch potato. So, we can say the name of the console was appropriately thought of, Wii pronounced as We.

Instead of following traditional print and television campaigns to advertise Wii, Nintendo initially followed to Viral Marketing efforts. They set up consoles in malls, markets and where ever they thought people had time to stop and try their consoles, after which they could speak of their experience of playing game on Nintendo Wii to their friends, relatives and acquaintances. In other marketing efforts Nintendo identified key community influencers in major cited of U.S including gamers, house wives and school going children, and invited them to company hosted events, where they were asked to take chances with Wii and share their experiences with other people (classic diffusion theory) according to Wesley, et al. (2010).

To be an affordable and easier buy for the customer Nintendo priced the Wii below Microsoft Xbox 360 and Sony PlayStation 3. Nintendo low cost hardware and games

Nintendo Wii 2011

which required less hard disk space allowed Nintendo to build Wii games at half the price to what was expend on Xbox 360 and PlayStation 3. Nintendo earned profit from both hardware and software while Sony and Microsoft tried to earn profit from software sales. Nintendo Wii sold at $250, whereas Microsoft Xbox 360 sold at $399 and Sony PlayStation at $499. To sustain the sales in market Microsoft and Sony reduced the price on their consoles by $100; while Nintendo have stable sales also reduced the price by $50 to compete, according to Moats (2008). The demand for Wii was such that in U.S during holiday season in 2007, the consoles used to get sold out in hours of its arrivals at the retail shops.

(Eliminate Raise Reduce Create Grid for the Wii) Taken from Wii: Creating a Blue Ocean the Nintendo Way by Gorman (2008)

V.

Product Development

Nintendo launched Wii into the already existing video gaming market but this time around targeted different set of customers than the usual gamers. Nintendo had already launched a number of stationary consoles in past the most recent once being the GameCube. Seeing its decline Nintendo wanted to add some features to it, to make it more attractive to customers, the feature being the wireless remote controller. For some
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reason they did release the controller for GameCube, instead went on to develop Wii a new generation console with which they released the interactive Wii wireless remote making the console an instant hit according to Wesley, et al. (2010). After the release of the Wii in 2006, Nintendo have kept adding new innovative features to its existing console to keep customers attracted to it and giving them new and fun experience. They need to maintain the momentum created by early success of Wii. Below are explained some of the product development by Nintendo:

1. Wii Console:

The console is built in easy to use and simple fashion. It has state of the art technologies embedded in it. As the small IC chip which reduces the overall size of the console and also reduces power consumption. Due to which it can stay powered on for 24 hours a day, and have mechanism by which fan switches of automatically at night. It looks appealing as the outer body is fashionable and is put upright using a metallic stand. All the effort has been taken to make it strong and sturdy while not making it look like a toy.

2. Wii Remote:

Wiimote is the wireless remote controller which comes with the Wii console. It is the main thing which differentiates Wii from all other consoles. It is much easier to use than the regular controllers which have numerous buttons, Wiimote has motion detector which translates motion of the hand onto the screen. It can be used for exercising, health care and teaching students with disabilities.

3. Wii Online:

Nintendo offered free online service known as Wii channel, it generated revenue from the online advertising and subscription to sites advanced features. Popular feature of
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the online service was Virtual Consoles where users could purchase and download classic games. Other service Nintendo was free Wi-Fi service, which had to be purchased for a price with consoles of other companies.

4. Other developments by Nintendo for Wii were Mii Channel, Wii Games, Wii Fit, Wii Motion Plus and many more are in development process.

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Question 2: How Nintendo better Manage Innovation to stay ahead of its competitors?

Answer 2: Before the launch of Nintendo Wii in 2006, the company was going through rough times, the sales of its previous console (GameCube) were bad, and the companys market shares had fallen to a new low. Nintendo Wii helped in reviving the company, by getting back a huge share of market, dominating the video games industry by being ahead of its competitors, Sony PS3 and Microsoft Xbox 360. There was a great margin of difference between sales of Wii compared to those of PS3 and Xbox 360 in the period as shown below.

(Cumulative sales of Wii, PS3 and Xbox 360 From March 08 Jun 08) Taken from Wii: Creating a Blue Ocean the Nintendo Way by Gorman (2008)

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There are some factors defined by the Virtuous Circle, which have been used by Nintendo Wii to stay ahead of its competitors. Below are explained some of the main factors from the Virtuous Circle.

(Virtuous Circle) Taken from Lecture 3: Managing Innovations within Firms (2011)

I.

Virtuous Circle

1. The Organization Reputation for Innovation:

Reputation is valuable asset to any organization; it helps organization to get business solely on its name. It takes number of years to develop it by hard work, innovation and good leadership.
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Nintendo has always tried to do something new and different (innovate), that message has been send across the interactive entertainment industry. With the release of Nintendo Wii, that statement was solidified. Nintendos innovation changed the way people look at the video game industry now. In past Nintendo has developed number of consoles such as NES, SNES, GameCube and many more. It has also developed legendary games such as Mario and Donkey Kong (innovative products).

Nintendo has shown innovation in many aspects such as gaming consoles, games, marketing strategy, advertising and commercializing. That was the reason why, Wii dominated the market, ahead of its rival Microsoft and Sony.

One of the many other reasons was also that, Sony and Microsoft had other main business, electronics and software respectively, while Nintendo only focused upon developing gaming consoles and games.

Thus Nintendo has a reputation of being a complete gaming industry, unlike its nearest rivals. This has a tremendous effect on sales of Nintendo Wii and future products developed by the organization.

2. Willingness to accept new ideas:

After the development of GameCube, Nintendo immediately started developing its new console (Wii). Earlier the idea was to make a console faster and flashier, but with time they realized that, it wasnt the way to be followed. So instead of developing a console to compete directly with Microsoft and Sony on basis of speed and graphics, Nintendo developed a console with much wider mass appeal, having high level of interactivity between user and the games.

Nintendo has been setting new benchmarks in video gaming industry using its innovation skills, they think of a long term process rather than a short term one. They
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are willingly to take the risks with new ideas hoping it would help building something better and different from the rest. Nintendos history gives us enough opportunities for us to see their willingness to accept new ideas.

3. High Moral and Retention of Creative People:

The interview organized by the President of Nintendo, Satoru Iwata, shows people the enjoyable working environment at Nintendo. If one reads the interview, he/she can see the degree of freedom of speech, expressing ones personal views and decision making given to the employees at Nintendo. There is an understanding between employees working at various hierarchical level in the organization, which helps in working without fear and improves the per person output.

For example, Kenichiro Ashida, IRDPD & PDD a young design engineer at Nintendo came up with an idea of using metallic stand, in which Wii could be placed upright. Being a young designer his idea could have been rejected by the seniors at Nintendo, but instead they used the idea which gave a new appeal or expression to Wii.

This kind of environment and leadership in the organization helps in maintaining high moral in the employees of the organization and retain them, so that in future together they can develop more innovative products.

Managing uncertainty is the central feature on managing the innovation process. During the process arise often setbacks and unpredictable surprises according to Varjonen (2006). Organizations have to respond to these events, some of which are beyond their control. Pearsons uncertainty map provides a frame work for analyzing and understanding uncertainty in innovation process according to Pearson (1991).

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(Pearson Uncertainty Map) Taken from Uncertainty and the Innovative Process (2001)

II.

Pearson Uncertainty Map for Nintendo Wii

Quadrant 1: Exploration (Strategy and Technology)

It is largely unspecified in terms of both knowledge of the likely outputs and means of progress of the activity. There is little scope of formal planning. In this quadrant we see
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there is high uncertainty of means and high uncertainty of ends. For the case of Nintendo, after the bad sales of GameCube Console, the company was doing research to find a way to gain back the market share, company did not have any idea about what they were going to construct (console), how they were going to construct (engineering) and for whom they were going to construct (target customer). At this point the company was completely uncertain about the future innovation process.

Quadrant 2: Development Engineering (Blue Ocean Strategy)

It includes activities where desired end results or output is relatively well specified, but is not at all clear, how or even if its achievable. Good deal of technical development activity appears here, with many success and failures according to Varjonen (2006). For the case of Nintendo, after lot of research and evaluation, the company came up with a new strategy that would target all the non gamers and casual gamers, who have not been paid attention earlier. New commercial opportunity had been found, but the developers at Nintendo were still unsure how to attract them to their consoles, earning profit while competing with other companies.

Quadrant 3: Applications Engineering (R&D)

In this there is uncertainty regarding needs but the technology is relatively well known. The activities here include exploring the most effective applications for relatively well known technology; prioritization of applications is the key word for success according to Varjonen (2006). For the case of Nintendo, it had developed new features and advanced technologically as, wireless remote controller, using of the IC chips and others. Nintendo had the technology but still did not know how to use it to their best to attract new customers and markets. R&D comes to play here; they research their technologies to find the most effective way of using them, which can help expanding business.

Quadrant 4: Product Development (Nintendo Wii with its amazing new features)

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Here there is technical market combination, highly specified in both means and ends (certainty), area of good planning, strong management and not much scope of diversification. Activities include new product development activities and speed of development is high due to competition in the market. For the case of Nintendo, it used the blue ocean strategy and state of the art technologies to develop new product as Wii with many new interesting features aiming at new target customers. The wireless remote controller was used to increase interactivity between users and Wii Games which has got interest of people from various industries, the IC chip was used to reduce console size and the power consumption and various kinds of new accessories are being developed to increase the product value and fun.

Nintendo has tried to reduce the uncertainty in the new product development (innovation) process as explained by the Pearson Uncertainty map. It helped managers at Nintendo to manage the uncertainty by developing new strategies and plans to tackle the uncertainty and have risk management plan in place.

Conclusion: Since Nintendos downfall after the launch of GameCube, Nintendo wanted to have a comeback, have the largest market share, be the dominator as it was before of its downfall. To do so officials at Nintendo worked very hard to form strategies, plans and concepts which could make them the market leader again. The hard work paid off, when Nintendo released Wii, which changed the scenario of the video game industry. They introduced a highly interactive console by with users could interact with Wii games as never before. It kept people healthy and got family together, no more were video games looked upon as anti social. Nintendo aimed their new console at customers who werent targeted before by Nintendo or its nearest rivals, they non gamers or casual gamers. If Nintendo keeps on innovating new products of the stature of Wii, it would be very difficult for any other organization to displace them from the top spot in the video game industry market.
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References: 1. Magazines Jon Liao, Nintendos Strategic Innovation: The Wii

2. Books

Paul Trott, 2005, Innovation Management and New Product Development, England: Pearson Education Limited Wesley, et al, 2010, Innovation and Marketing in the Video Game Industry, GBR: Ashgate Publishing Group.

3. Dissertations

Brignoli, N., 2008, Managing Innovation: A Case Study on Nintendo Wii, M.Sc International Business, Nottingham University Shifeng, M., 2008. Creating Discontinuous Innovation: The Case of Nintendo Wii, M. Eng, National University of Singapore Varjonen, V., 2006. Management of Early Phases in Innovation Process; A Case Study of Commercializing Technology in Small Enterprise, MS Eng, Helsinki University of Technology

4. Articles

Conrod, J. and Klima, S., 2007. Competitive Strategy in Game Consoles Duin, P., 2004. Mind the Gap: Linking (Telco) Forecasting to Innovation Management Gorman, P., 2008. Wii: Creating a Blue Ocean The Nintendo Way Moats, B., 2008. Nintendo Wii: Marketing Plan for Marketing Management

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Pearson, A., 2001. Managing Uncertainty in Innovation: Matching people and Projects

5. Internet

http://www.nintendo.com/wii/console/accessories [Accessed on 15 July, 2011] http://www.nintendo.com [Accessed on 15 July, 2011] http://www.nintendo.com/wii/console [Accessed on 15 July, 2011] http://www.buzzle.com/articles/history-of-nintendo.html [Accessed on 16 July, 2011] http://www.usatoday.com/tech/gaming/2006-08-14-nintendo-qa_x.htm [Accessed on 16 July, 2011] http://www.vectorstudy.com/management_theories/blue_ocean_strategy.htm [Accessed on 16 July, 2011] http://www.quickmba.com/strategy/matrix/ansoff/ [Accessed on 17 July, 2011] http://www.engadget.com/2008/02/06/nintendo-files-wii-accessory-patent-foreverything-includes-the/ [Accessed on 17 July, 2011]

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