Wednesday, April 13, 2016

The Blue Ocean Strategy, Nintendo

I learned about Blue Ocean Strategy from this article. The best way to drive profitable growth is to stop competing in overcrowded industries as companies can succeed not by battling competitors, but rather by creating “blue oceans” of uncontested market space. The features of blue ocean strategy is to create and capture new demand. In addition, this strategy claims that it is possible to pursue both differentiation and low cost. It is important to align the whole system of a company’s activities in pursuit of differentiation and low cost.

In the video game industry, Nintendo utilized the blue ocean strategy very successfully. The video gaming market is a multi-billion dollar business. Video consoles, which is a big chunk of that market, are currently dominated by three big companies: Sony with its PlayStation, Microsoft with its Xbox and Nintendo. Nintendo was a distant third actor before they created Nintendo Wii.

Wii does not intend to be a best-of-breed video game console. Nintendo is trying to bring non-core gamers back to gaming with the Wii. Nintendo focuses on the consumer’s feeling rather than its product. Nintendo looked to the gaming industry´s non-customers for insight: older non-gamers, parents who wanted their children to play active games, the elderly, and very young children. Once Nintendo understood why these non-customer groups shunned video games, they reconstructed elements across market boundaries to create a console based on simplicity, functionality, and interactivity, with games that dramatically raised utility for these non-customers.

The Wii is cheap, has no Hard Disk, no DVD, no Dolby 5.1, weak connectivity, comparatively low processor speed, but the Wii has its innovative motion control stick. The stick integrates the movements of a player directly into the video game. With this feature Nintendo opens up the console world to a completely new public of untapped non-gamers.

All of the above describes the characteristics of a blue ocean strategy in terms of a strong value innovation for many new customers and Cost reduction by eliminating features. However, Nintendo has a serious problem now. Smart phones and tablets became the big competitors for Nintendo Wii. Nowadays, game users can download games freely on the smartphone or tablet. People play games with smart phone or tablet much more than before. The problem is the blue ocean which Nintendo found soon changed the red ocean.  In order to solve this problem, Nintendo redefined the core concept of their company. The CEO of Nintendo was Satoru Iwata said “As the business environment around us has shifted with the times, we have decided to redefine entertainment as something that improves people’s quality of life (“QOL”) in enjoyable ways and expand our business areas. What Nintendo will try to achieve in the next 10 years is a platform business that improves people’s QOL in enjoyable ways.”

In summary, it is important to understand that companies must concentrate not only on customers but also on non-customers, equally vital for future growth. This allows companies to unlock a new mass of customers that did not exist before.

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