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Page | 1 [Dec 2010] Finalterm Exam MBA 57602 – Marketing Management Cosimo Gualano Word count: 4330 Based on : Marketing Plan "Nintendo's disruptive strategy: Implications for the video game industry"

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Page 1: 02 marketing plan    nintendo disruptive strategy - cosimo gualano

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[Dec 2010]

Finalterm Exam MBA 57602 – Marketing Management

Cosimo Gualano Word count: 4330

Based on :

Marketing Plan "Nintendo's disruptive strategy:

Implications for the video game industry"

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Table of Contents 1. Executive Summary .............................................................................................. 4

2. Situation Analysis and Strategy ........................................................................... 5

a. Market analysis .................................................................................................. 5

b. Market Strategy ................................................................................................. 6

c. Persona’s Profile ................................................................................................. 6

I. Target Customer - Persona 1: Chiara, Primary-school, Student .............. 6

II. Target Customer - Persona 2: Nino, Gran-father, Retired ........................ 7

III. Target Customer - Persona 3: Stephan – IT Consultant ............................ 7

d. Valuable Profile.................................................................................................. 8

e. Product and Persona Positioning Map (Exhibit 4, 4a).................................. 8

I. Persona 1: Chiara Primary-school, Student (Exhibit 4b) ........................... 8

II. Persona 2: Nino, Gran-father, Retired (Exhibit 4c) ..................................... 8

III. Persona 3: Stephan – IT Consultant (Exhibit 4d) ......................................... 8

f. New product's unique selling proposition...................................................... 9

3. Marketing Mix ........................................................................................................ 9

a. Product ............................................................................................................... 9

b. Price ..................................................................................................................... 9

g. Place ................................................................................................................. 10

h. Promotion ......................................................................................................... 10

I. Mission ............................................................................................................ 11

II. Means ............................................................................................................. 11

III. Message ......................................................................................................... 11

IV. Moment ......................................................................................................... 11

V. Media ............................................................................................................. 11

VI. Measurement ................................................................................................ 11

4. Finance ................................................................................................................. 12

a. Estimated earning and Contribution – 2011 to 2013.................................. 12

b. Finance Risks..................................................................................................... 13

5. References ........................................................................................................... 14

6. Bibliography ......................................................................................................... 15

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Table of Exhibits

Exhibit 1 – History of Modern Game Consoles ...................................................... 16

Exhibit 2 – Number of Units sold: Wii, PS3, Xbox 360 .............................................. 17

Exhibit 3 – Wii2L SWOT Analysis ................................................................................. 18

Exhibit 4 – Product Positioning Map & New Products Positioning ...................... 19

Exhibit 4a – Persona Positioning Map ..................................................................... 20

Exhibit 4b – Positioning Map – Persona 1: Direct and Indirect Competitors..... 21

Exhibit 4c – Positioning Map – Persona 2: Direct and Indirect Competitors ..... 22

Exhibit 4d – Positioning Map – Persona 3: Direct and Indirect Competitors .... 23

Exhibit 5 – Graph of estimated players per age segment .................................. 24

Exhibit 6 – Estimated Nintendo Units and Sales Revenues 2011-2013 ................ 25

Exhibit 7 – Nintendo Wii2L and Wii estimated INCOME STATEMENT 2011-13 ... 26

Exhibit 8 – Estimated unit sold per segments (unit x 1,000) .................................. 27

DECLARATION OF ORIGINALITY OF WORK - I affirm that the attached work is entirely my own,

except where the words or ideas of other writers are specifically acknowledged according to

accepted citation conventions. This assignment has not been submitted for any other course at

Robert Kennedy College or any other institution. I have revised, edited and proof-read this paper.

CERTIFICATION OF AUTHORSHIP - I certify that I am the author of this paper and that any

assistance I received in its preparation is fully acknowledged and fully disclosed in this assignment

/paper /examination. I have also cited any sources (footnotes or endnotes) from which I used data,

ideas, theories, or words, whether quoted directly or paraphrased. I further acknowledge that this

written work has been prepared by me specifically for this course.

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1. Executive Summary

We have learnt from Apple and Nintendo’s Wii is that design-driven innovations do not

come from the market, simply they create new markets. In Nov. 2006 Nintendo introduced

to the market the Wii motion sensor technology carving a new lucrative gaming market

segment. Nintendo has introduced a disruptive technology as an innovator that used

disruptive strategy1 to overturned customer’s understanding of what a video game means.

The market did not ask for these new meanings, but once they experienced them, it was

love at first sight.

The interactive entertainment software market is characterized by short product life cycles

and frequent introductions of new products. While Nintendo has not introduced any new

product in the last year, SONY and Microsoft with their recent products have clearly moved

into the motion sensor technology market owned by Nintendo Wii. They have also

expanded customer’s experience adding broadband for game-sharing-downloading and

streaming of movies.

In order to regain market competitiveness and acquire new market segments Nintendo will

start selling and marketing a new product form January 2011. The new product called Wii2L

is based on sustaining strategy2. It is a product that can learn from the player’s movements

and cleverly ―adjust‖ itself to the user’s movement ability. In this scenario two or more

players with difference in age or physical abilities can play almost at the same level of

difficulty3 while enjoying a completely new set of re-designed games. With this new

product Nintendo will aiming at expand gaming consoles to new and existing market

segments: users from 2 to 5 years old, busy father in their late 40s and people between 55

and 70. These new market segments will add an estimated number of 9.8 million new users

during 2011-13 (Exhibit 8).

The new product Wii2L will be sold in addition to the existing Wii classic and it is estimated

that sales will reach 46 millions consoles per year by 2013. The contribution margins will

average 28% for the first three years with a steady market growth of 14%. Sales & marketing

expenses will decrease from 18% to 10% (Exhibit 7).

The persona 2, Nino, a ―white collar‖ into the retiring process is estimated to be the most

valuable and growing segment with 4% YoY.

Promotion of the new Wii2L will be achieved using push-pull strategies through very

selective marketing channels. Targeted groups has been identified and digital interactive

digital signage, among many other classic marketing channels, will deliver attractive clips

in a large variety of statics (waiting marketing - (Derval, 2009) and dynamic (intelligent

naivety - (Morgan, 2009) environments. Through digital signage and targeted promotions

/campaigns, it will be possible to measure the marketing ROI.

1 Clayton M. Christensen, professor at the Harvard Business School - Bower, J.L. and Christensen, C. (1 January

1995) ―Disruptive Technologies: Catching the Wave‖ 2 Sustaining’ strategy: is based on improved performances of an established product, the Wii version 1 3 Handicap principle in Golf

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2. Situation Analysis and Strategy

a. Market analysis

From 1967, when German engineer Baer designed the first video game console4, the

market has today evolved towards few major players (Exhibit 1). The four major products of

the video game industry are games and software, consoles, accessories and online

subscriptions.

Microsoft has recently introduced the Xbox 360’s Kinect5. They have completely removed

the need of a remote control allowing hands and legs movements and voice control to

select and play games. Despite this controlling technology is very unique the controlling

process seems too complex while the user interface needs to be improved6. Xbox has

entered the same Wii segment but with a much higher video quality. Additional $150 are

required for the new sensor plus the Xbox $299 (down from $3497) may dissuade one too

many customers. It is estimated that Microsoft has made a loss of about US$125 per

console8 when the Xbox 360 was introduced to the market.

Sony has introduced the PS (Playstation) in the middle of the 90s targeting mostly male

aged between 20 and 30. Later in 2000 Sony lunched the PS2 that become a clear market

winner9 with an installed based of 140 million units10. Sony winning strategy has been to offer

sophisticated and violent on-line games11to their growing community. However due to

nearly 40% of in-house production SONY has lost about $300 of a $500 PS3 console12.

The PS Move13 is the latest innovative product from SONY into the motion sensor technology

market. This product has much more accuracy of movement of their rivals Wii and Xbox

Kinect. The extra kit of camera and remotes will add $100 bringing the total price up to

US$399. The success of the new product is going to be largely dependent upon the games

that support it.

Nintendo console Wii, has become the undisputed market leader from January 200714

(Exhibit 2). The Wii manufacturing cost has been reduced from initial $160 to $8815 with retail

around $250 in U.S. With better margin, Nintendo has the ability to drop the price or even

introduce a low cost version to increase market penetration. Nintendo has introduced in

2009 the ―Motion-Plus‖ sensor, retailed at $20.

4 Time (2005) ―Video Game Console Timeline—Video Game History—Xbox 360‖ 5 Kinect for Xbox 360 review Nov 2010 by Ross Miller on Engadget 6 Google TV review by Nilay Patel Oct 29th 2010 7 Price skimming strategy: involves charging a relatively high price at first and lowering it over time. The

objective is to ―skim‖ off consumers who are willing to pay more. 8 Mann, J. (20 November 2006) ―Microsoft Makes Tiny Profit on Xbox 360 Hardware‖, TechSpot News 9 Havovi Joshi and Samuel Tsang: Nintendo’s disruptive strategy: implications for the video game industry – 2009

ACRC University of Hong Kong 10 Why Zeebo Game Console Makes Sense 11 Stahl, L. (8 January 2006) ―Sir Howard Stringer: Sony’s Savior‖, CBS News 60 Minutes 12 Edge Online (16 November 2006) ―iSuppli: 60GB PS3 Costs US$840 to Produce 13 PlayStation Move review Sep 1st 2010 by Ross Miller on Engadget 14 Source: Adapted from PVC Forum (17 July 2008) ―Games Sales Chart—Monthly Console Hardware Sales in

America‖, forum.pcvsconsole.com 15 Nintendo Manages to Trim Manufacturing Costs by 45% since launch

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b. Market Strategy

A SWOT analysis (Exhibit 3) has been used to define product and market strategy for the

market introduction of the Wii2L.

The interactive entertainment software market is characterized by short product life cycles

and frequent introductions of new products16.

SONY and Microsoft not only have introduced new products that can use the motion

sensor technology but they are gaining market share offering the use of broadband for

game-sharing-downloading and streaming of movies.

The new NintendoWii2-Learning is a product that is positioned above Sony and Microsoft

(Exhibit 4). It can learn from the player’s movements and cleverly ―adjust‖ to the user body

movement’s ability. In this scenario two or more players with difference in age or physical

ability can play almost at the same level of difficulty. With this new product Nintendo shall

market gaming consoles to new and existing segments:

kids from 2 to 5

people from 55 to 70

busy professionals and father of small kids, between 45 and 54

The choice is also justified by Nielsen Worldwide Game Play Metrics17 showing very low

penetration rate in the above segments:

c. Persona’s Profile

I. Target Customer - Persona 1: Chiara, Primary-school, Student

Demographics: Girl, aged 4-8, generation Z (1994-2004)- Student - First child of a medium

level socio-economic family - Own a Nintendo DS and got recently a mobile phone with

pre-paid card.

Attitudes: Train with her mother twice a week (horse riding and swimming) – She’s very

busy with her class-mates to attend birthdays and social gathering. She’s very influenced

by media and advertising - Family and friends are very important.

Activities: Gather to play with friends. She plays PC games to dress-up her favorite dolls.

Media Usage: Children Magazine Reader – in the early stage of using Internet for social

media (Facebook) - Likes Cartoons and Fiction TV shows.

Game usage: She has spent enough time with her virtual dog on Nintendo DS.

Reason to buy: Children have different interests from grown-ups; they are affected by

the colors, sounds and undefined forms. They do not care about the ultimate goal to win

16 Nintendo Co.LTD – SWOT analysis by DATAMONITOR – May 1, 2010 17 www.nielsen.com - The 2010 Leisure Market Research Handbook pp.357

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or to go up one level but enjoy playing. A game like painting with friends can be a good

example. Move the wand and the colors on the screen, as they would do in real life,

and they are having fun. The ability of the console to learn from typical sudden

movements from kids is a good reason for parents to buy it.

Sixty-three percent (63%) of parents believe games are a positive part of their children’s

lives18.

II. Target Customer - Persona 2: Nino, Gran-father, Retired

Demographics: Male, aged 60-70, silent generation19 (1925-45) - Middle class with

grandchildren that sometime he takes care of - Socially engaged with one or more local

activities.

Attitudes: In medium good health condition, like to go for long walks – shopping to the

same places keeping friendly relationship with the owners - Has a good availability of

money and likes to buy games for the grandchildren.

Activities: Visiting friends and family members – take the grandchildren to holiday’s

places – likes park and places for kids.

Media Usage: He’s interested in local politics - listen to radio news – he has recently

started using the PC and he’s reading news on internet – He’s not comfortable with on-

line shopping.

Game Usage: Likes to play bocce with friends twice a week, and cards during week-

ends.

Reason to buy: elderly people like to play as much as young children do. In 2009, 25% of

Americans over the age of 55 played video games, an increase from 9% in 199920. They

have good memory for songs and music. The music game gives the elderly person great

memories in the songs they enjoyed as young people. It helps them to select the songs

on an interactive TV game. They like also to play bingo with large cards in groups and a

virtual bocce game as well. Most of all they would like to interact with their

grandchildren while playing the same games.

Among adults 55+ who play video games, nearly a third plays games everyday, a

significantly larger percentage than all younger players, of whom about 20% play

everyday21. The targeted age group of 55+ can also benefit of specific games aiming at

patient re-education.

III. Target Customer - Persona 3: Stephan – IT Consultant

Demographics: Male, aged 38-46, generation X (1964 -77)– high education, two children

4 and 7 years old. Her wife has a busy schedule and often travels abroad.

Attitudes: In good health – play tennis and swims with his children – Busy with good food

and socializing with friends and colleagues – Has a family to take care and spend lot of

time with kids activities (their school and free time activities) – Goes to holiday with his

family

Activities: Watches live sports when home alone, TV news and films with family – few

times a month is out with colleagues and friends.

Media Usage: Read newspaper on the PC – Follow different technical magazines – Read

and participate in blogs and forums – Likes ―smart‖ advertisements – Heavy user of

Internet for business and research.

18 Data from Entertainment Software Association - www.theesa.com – 66.1 Market assessments 19 Silent generation, born around Great depression and WWII 20 Data from Entertainment Software Association - www.theesa.com – 66.1 Market assessments 21 Adults and Video Games, December 2008 by the Pew Internet & American Life Project

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Game Usage: He has experienced sometime PS3 and Xbox with the consoles of their

kids’ friends. He’s very impressed by the high video resolution of these consoles.

Reason to buy: There is also a quite large amount of busy professionals and father of

small kids, between 45 and 55, that are normally training their favourite ―real‖ sports.

They can benefit of targeted games that can be played with their family members and

increase the time they spend together.

The Wii2-learning can be a good alternative to keep busy his children when he is home

with them. Both ages can play together and he can join as well. The selection of games

is very important because he needs to be stimulated by similar activities he is playing in

real life. For example he can be engaged to play tennis with his oldest child at the same

level.

d. Valuable Profile

The most valuable and growing segment is represented by Persona 2, Nino, a ―white collar‖

into the retiring process. He’s expected to embrace and enjoy the Wii2L and grow the

market of an estimated 4%. The Persona 3, Stephan, father and IT Consultant, has financial

ability and many good products to choose from. He will grow the segmented market by

only estimated 2%. Persona 1, Chiara, a primary school student, will expect to grow her

segment by 3% (Exhibit 5)

e. Product and Persona Positioning Map (Exhibit 4,4a)

I. Persona 1: Chiara Primary-school, Student (Exhibit 4b)

Direct competitor: Xbox 360’s Kinect ($37022)

Indirect competitor: Nintendo DS ($149), PC games, SONY PSP ($199)

II. Persona 2: Nino, Gran-father, Retired (Exhibit 4c)

Direct competitor: PC based social games.

Indirect competitor: iPAD ($499), Amazon Kindle ($299), Sony Reader ($299),

III. Persona 3: Stephan – IT Consultant (Exhibit 4d)

Direct competitor: Microsoft Xbox 360’s Kinect and Sony PS3 Move ($39923) are

pushing their multi-purposes consoles directly to the living rooms for gaming and

HDTV portal. The addition of downloadable TV contents to the Xbox Live has, for

instance, increased downloads by 400%24. Competition is also in the game titles

availability and playability. Even the most successful titles remain popular only for

limited period of time, often less than nine months. Xbox 360 owners buy far more

games than the owners of other consoles at a rate of 5.4 games per 360 owners.

That rate falls to 2.3 for the PS3 and 2.8 for the Wii25.

Indirect competitor: iPAD ($499), Android phone (HTC EVO 4G - $399) – PC based

games - The iPod Touch ($229)

22 Xbox 360’s Kinect – Amazon selling price 23 Sony PS3 Move - Amazon selling price 24 Billboard; 4/7/2009, Vol. 119 Issue 14, p20 - e5 Global Media, LLC 25 Billboard; 4/7/2009, Vol. 119 Issue 14, p26 - e5 Global Media, LLC

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f. New product's unique selling proposition

One of the big barriers for gaming adoption has been represented by the increasing

complexity of the games and the long learning process. The increasingly complicated

controllers with the combinations of joysticks and buttons have been a big deterrent for

potential new segments. With the adoption of motion sensor technology, all games now

require a full and complete movement; controller takes in 1:1 motion mapping.

The new Nintendo ―Wii2-Learning‖ has the ability to learn movements from the player and

adjust the game interaction level to match the ability of each player. The new product

shall also support new games that are suitable for the new targeted segments:

- Younger player: games related to moving objects and parts. Ability to use 3D space to

build something (Lego or Meccano concept). Paint & drawings. Ability to dress and

color dolls, pets. The remote will simulate the brush / pencil.

Parents today feel it the importance of stimulating the learning and creativity of their

children as early as possible to offer them good learning challenges in life.

- Older players: games that can exercise part of the body without compromising their

physical ability. It could be ―bocce‖ (very typical game for older, or a newly revised

version with an egg-shaped ball) for man. Ladies can enjoy Pilatus with Wii Fit Balance

Board Multi Functional Aerobic Step System26. Games shall also aim at integrating

health and entertainment including yoga, push-ups and other exercises with doctors

and therapists recommending for various purposes. Song interacting games with

―oldies‖ national titles (sort of interactive Karaoke)

- Busy 40’s: games that are giving them the ability to play their favorites sports with their

family members and eventually share their expertise (Golf, tennis). Games that are

useful for entertaining small kids. (Disney channels games).

3. Marketing Mix

a. Product

The new product is developed in a way that it supports many different segments in almost

all age. This product belongs to a consumer market where customers will invest very limited

shopping effort. The new set of learning features will be a key driver and it will greatly

differentiate itself from its main competitors. Nintendo has already established a good

branding structure and a well established image positioning. Nintendo manufactures today

the Wii, the DS, the Super Nintendo and the Cube.

b. Price

Nintendo price structure for the Wii console has attracted ―non gamers‖ and proven to be

in line with market expectation. During the sales-growth the price has not been reduced

even during product maturity. The new product Wii2L will be priced above the Wii console

(because of increased cost of production) and below direct competitor’s prices from Sony

Move and Xbox Kinect. It should also be possible to purchase games and accessories that

belong to the new targeted segment at existing market price (today they are $10 cheaper

26 Wii Fit Balance Board Multi Functional Aerobic Step System

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compared to Xbox and Play station’s games). Bundled products (Wii2L+balance board+2

remotes+2 targeted games) should be promoted at discounted price.

g. Place

Nintendo is manufacturing the Wii2L using parts from different suppliers. The most critical are

IBM (processor) and ATI (video cards). Distribution and forecasting plan will be distributed

among the major suppliers.

In December 2007 Nintendo has reached a monthly global production of 4 million units,

shipping around 1.5 million per month from January 2008 (Exhibit 2). More than 12 million Wii

units have been sold so far. The new unit Wii2L has global potentiality for 1 million units sold

at introduction time (January 2011). Nintendo can sell online as well as using the existing

distribution centres around the world. Nintendo shall also continue in using nationwide retail

chain like Wal-Mart, Gamestop and Amazon. This is mainly because they are able to

handle distribution more effectively than outside wholesalers27.

h. Promotion

The Wii2L shall include a free game (like today the Wii sport). Wii2L can benefit of the same

word-of-mouth strategy (Kotler, 2006) that has proved successful in promoting the Wii and

the DS. The use of selected profiled people belonging to our targeted customer audience

can generate the similar effect generated by the ―suburban housewives‖. They were used

in previous campaigns to spread the word among their friends that the Wii was a gaming

console the whole family could enjoy together28. For the Wii2L we can expand the concept

of ―exergaming‖, which is the combination of on-screen action with physical exercise29 and

use 60+ to promote this message.

Nintendo can benefit of two well known strategies:

- Push strategy:

advertising for kids using Disney channels and similar programs; using in-store display

and interactive digital signage30 in stores that not necessary sells games (i.e. book

store for kids) and waiting places for kids

advertising for over 60, using dedicated channels for this segment; using in-store

display and digital signage in store that not necessary sells games (i.e fishing

equipments) and waiting places for 60+

magazines, internet, social network, trade promotion (specialized)

samples sent to targeted geographical groups31 and kind-gardens

- Pull strategy:

keeping low level inventory so customers are queuing or returning back

27 Distribution: Channels and Logistics 28 The Economist (7 April 2007) ―Building Buzz: Marketing‖ 383(8525), pp. 64. 29 Colbert. C. (2007) ―Nintendo Co. Ltd‖, Hoover's Company Information; The Economist (8 March 2007) ―Let’s

Get Physical‖. 30 Is the use of large Screens (37‖ to 50‖), typically located/installed on walls, connected to internet and able to

show video clips or presentations of the targeted products. The interactivity is created by touch screen

display that helps customers navigating menu of choice. 31 People that are well known in the community they live. They can be good ambassadors for the product.

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I. Mission

Create people awareness in the targeted categories. Appeal to the public for healthy (60+

segment) and creative learning process (3 to 7 years old segment). This new product needs

to be shown often to the targeted segments, challenging the way messages have been

delivered till now. The use of digital interactive signage located in places where our

targeted audience can likely be for shopping their favourite or be in waiting situations

(Derval, 2009). Using intelligent naivety (Morgan, 2009) to explore ―what is the key

consumer insight?‖ and challenging their attitudes towards the new product. This will also

work for the busy professionals group.

II. Means

Clever use of technology for selective advertisements where health related issues for any

age group are important into the community. Organising demo points / interactive displays

in the vicinity gathering points. Use flyers /digital signage to be disseminated / mounted in

hospitals and doctors waiting rooms, trade shows, kids’ places.. Distribution of free consoles

in kind-gardens to stimulate learning and creativity. Complementary flyers offered by travel

agency in conjunction to 60+ holidays plans. Agreements with major cruise operators

(Royal Caribbean, Carnival, Costa, Holland & American line, MSC) to install one or more

Wii2L on the ship fitness centres.

III. Message

Nintendo shall position the Wii2L as a ―console that brings all the family together‖ regardless

of age, gender and location. The message shall encourage communication among

―family & friends‖ members as each of them found something personally relevant and

motivating to turn on the console every day in order to enjoy that moment.

IV. Moment

Awareness created by placing flyers/ leaflets / displays in medical facilities and

doctors/specialists waiting rooms. Distribution of dedicated flyers/ leaflets / displays to gym

and sport facilities. Early morning spots on Disney channels. Medical and sports

documentary highlighting the importance of healthy socializing while doing sports. During

the cruising time onboard of selected ships.

V. Media

Interactive digital signage is a very powerful technology because advertisements can be

customised according to location, time of the day and day of the week. The decreasing

price of medium size displays and the large availability of 3G or Internet connection have

increased large deployments of this new media.

The ROI justify the installation cost, normally carried out by the advertisement agency. The

agency normally agrees to install their displays in waiting places where the shop owners get

free news coverage in exchange of advertisements being displayed for an agreed

numbers of hours.

VI. Measurement

Digital Signage has a revolutionary way of tracking interested observers. Through image

processing technologies32 (a camera placed on top of the display and facing the

audience) it is possible to measure the effectiveness of specific messages and campaigns

32 Image Processing Techniques for Measuring Advertising Effectiveness of Digital Signage

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and provide indication on how a certain number of persons may come into contact with

an advertisement.

In some important location where digital signage is deployed, the message can be

enforced using special coding for the promotion (linked with special price or discount or

premium). A web site can be used to capture the viewer’s data when the campaign is

over and measure the success in response to the promotion.

In addition attention shall be dedicated in looking at WEB page referrer report to track

visitors’ locations and to find out from which web site they have reached the Wii2L web

page. Monitoring news group for the targeted personas will provide important information

on possible customer’s perception of the new product. Additional information can be

collected in checking offline publications, tracking what’s being said.

The Total ROI calculator shall includes

Campaign Details: Total impressions, Response rate, conversion rate

Responses: total responders, total buyers, revenue generated

Costs: cost per response, cost per sales, total campaign profit

4. Finance

a. Estimated earning and Contribution – 2011 to 2013

The Nintendo 2006-08 income statements33 includes all the product and services sold by

Nintendo during the period 2006-08. This information can be used to have an orientation of

typical gross margin % and Sales & Marketing expenses % used by Nintendo.

The Nintendo sales information of consoles for the six

months ending 30 Sep 2007 generated US$ 1,741millions34

over 7.9 million Wii units sold35. Average revenues of $218

33 Adapted from BusinessWeek (4 August 2008) ―Financial Results for Nintendo Co. Ltd‖ 34 Nintendo Co. Ltd (25 October 2007) ―Consolidated Financial Statements For The Six Months Ending 30

September 2007

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For the simplicity of this exercise the average sales revenues per console of $218 has not

been increased to match the new targeted higher price of the Wii2L. Based on this

assumption the expected number of combined consoles (Wii+Wi2L) using historical

projected data for the period 2011-13 will provide and increase of 13% on average from

year 2 and accounting for 46 millions combined Nintendo consoles by 2013 (Exhibit 6,7 8).

The expected 2011-13 new product’s marketing & sales expenses and contribution margin

are calculated on the assumption of historical data reported on the above Nintendo 2006-

08 income statements. The detailed Marketing & Sales expenses are explained in Exhibit 7.

The new product Wii2L will be introduced in January 2011 in addition to the existing Wii

classic. The contribution margins will average 28% for the first three years while Sales &

marketing expenses will be decreasing from 18% to 10% during the same period.

b. Finance Risks

Nintendo can experience a shift in consumer preferences where new and more attractive

products can suddenly be introduced in the selected targeted market.

The recent world finance crisis with related world recession has reduced consumer’s

expenditures and it has diminished the electronic games demand. This trend has not

significantly changed and is has created a significant drop in revenues36.

The gaming globalisation is playing against regional cultural and legal implementation.

For instance many American violent games have not passed the approval of the EU

commission to be sold in Europe. National produced game can leverage local tradition

and be more sales effective.

The entry of Sony and Microsoft in the motion sensing space will clear create a new risk of

increased price and segment competition.

35 VGChartz (July 2008) ―World Hardware Sales—Weekly Comparison‖ 36 Industry Analysis: Video Game /Interactive Entertainment MGT 4120: Perspectives on Global Business Brent

Hayden, TJ Guy, Henal Patel, Brian Peters, Nikki (Payne) Keith – Dec 2009

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5. References

1. Clayton M. Christensen, professor at the Harvard Business School - Bower, J.L. and

Christensen, C. (1 January 1995) ―Disruptive Technologies: Catching the Wave‖

2. Sustaining’ strategy

3. Handicap

4. Time (2005) ―Video Game Console Timeline—Video Game History—Xbox 360‖

5. Kinect for Xbox 360 review Nov 2010 by Ross Miller on Engadget

6. Google TV review by Nilay Patel Oct 29th 2010

7. Price skimming strategy

8. Mann, J. (20 November 2006) ―Microsoft Makes Tiny Profit on Xbox 360 Hardware‖,

TechSpot News

9. Havovi Joshi and Samuel Tsang: Nintendo’s disruptive strategy: implications for the

video game industry – 2009 ACRC University of Hong Kong

10. Why Zeebo Game Console Makes Sense

11. Stahl, L. (8 January 2006) ―Sir Howard Stringer: Sony’s Savior‖, CBS News 60 Minutes

12. Edge Online (16 November 2006) ―iSuppli: 60GB PS3 Costs US$840 to Produce

13. PlayStation Move review Sep 1st 2010 by Ross Miller on Engadget

14. Source: Adapted from PVC Forum (17 July 2008) ―Games Sales Chart—Monthly

Console Hardware Sales in America‖, www.forum.pcvsconsole.com

15. Nintendo Manages to Trim Manufacturing Costs by 45% since launch

16. Nintendo Co.LTD – SWOT analysis by DATAMONITOR – May 1, 2010

17. www.nielsen.com - The 2010 Leisure Market Research Handbook pp.357

18. Adults and Video Games, December 2008 by the Pew Internet & American Life

Project

19. Data from Entertainment Software Association - www.theesa.com – 66.1 Market

assessments

20. Silent generation, born around Great depression and WWII

21. Data from Entertainment Software Association - www.theesa.com – 66.1 Market

assessments

22. Xbox 360’s Kinect – Amazon selling price

23. Sony PS3 Move - Amazon selling price

24. Billboard; 4/7/2009, Vol. 119 Issue 14, p20 - e5 Global Media, LLC

25. Billboard; 4/7/2009, Vol. 119 Issue 14, p26 - e5 Global Media, LLC

26. Wii Fit Balance Board Multi Functional Aerobic Step System

27. Distribution: Channels and Logistics

28. The Economist (7 April 2007) ―Building Buzz: Marketing‖ 383(8525), pp. 64.

29. Colbert. C. (2007) ―Nintendo Co. Ltd‖, Hoover's Company Information; The

Economist (8 March 2007) ―Let’s Get Physical‖

30. Digital Signage

31. Community ambassadors

32. Image Processing Techniques for Measuring Advertising Effectiveness of Digital

Signage

33. Adapted from BusinessWeek (4 August 2008) ―Financial Results for Nintendo Co. Ltd‖

34. Nintendo Co. Ltd (25 October 2007) ―Consolidated Financial Statements For The Six

Months Ending 30 September 2007

35. VGChartz (July 2008) ―World Hardware Sales—Weekly Comparison‖

36. Industry Analysis: Video Game /Interactive Entertainment MGT 4120: Perspectives on

Global Business Brent Hayden, TJ Guy, Henal Patel, Brian Peters, Nikki (Payne) Keith –

Dec 2009

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6. Bibliography

Derval, D. (2009). Is the right moment? Amsterdam: Derval Research.

Kotler, P. (2006). Marketing Management - 12th edition. New Jersey: Pearson Education.

Morgan, A. (2009). Eating the big fish. New Jersey: John Wiley & Sons Inc. .

DECLARATION OF ORIGINALITY OF WORK - I affirm that the attached work is entirely my own,

except where the words or ideas of other writers are specifically acknowledged according to

accepted citation conventions. This assignment has not been submitted for any other course at

Robert Kennedy College or any other institution. I have revised, edited and proof-read this paper.

CERTIFICATION OF AUTHORSHIP - I certify that I am the author of this paper and that any

assistance I received in its preparation is fully acknowledged and fully disclosed in this assignment

/paper /examination. I have also cited any sources (footnotes or endnotes) from which I used data,

ideas, theories, or words, whether quoted directly or paraphrased. I further acknowledge that this

written work has been prepared by me specifically for this course.

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Exhibit 1 – History of Modern Game Consoles

Source: Havovi Joshi and Samuel Tsang: Nintendo’s disruptive strategy: implications for the video game

industry – 2009 ACRC University of Hong Kong

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Exhibit 2 – Number of Units sold: Wii, PS3, Xbox 360

Source: Adapted from PVC Forum (17 July 2008) ―Games Sales Chart—Monthly Console Hardware Sales in

America‖, www.forum.pcvsconsole.com

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Exhibit 3 – Wii2L SWOT Analysis

Source: Adapted form Nintendo Co.LTD – SWOT analysis by DATAMONITOR – May 1, 2010

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Exhibit 4 – Product Positioning Map & New Products Positioning

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Exhibit 4a – Persona Positioning Map

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Exhibit 4b – Positioning Map – Persona 1: Direct and Indirect

Competitors

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Exhibit 4c – Positioning Map – Persona 2: Direct and Indirect

Competitors

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Exhibit 4d – Positioning Map – Persona 3: Direct and Indirect

Competitors

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Exhibit 5 – Graph of estimated players per age segment

Source: data estimated using www.nielsen.com - The 2010 Leisure Market Research Handbook

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Exhibit 6 – Estimated Nintendo Units and Sales Revenues 2011-2013

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Exhibit 7 – Nintendo Wii2L and Wii estimated INCOME STATEMENT 2011-

13

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Exhibit 8 – Estimated unit sold per segments (unit x 1,000)