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    Nintendo - Costs

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    Dorota
    Nintendo's business model differs from competitors like Microsoft and Sony. While competitors typically sell consoles at a loss initially, recouping costs through software and online services later, Nintendo focuses on low production costs through less powerful technology. This allowed the Wii console to be produced much cheaper than competitors. Nintendo also pursued a penetration pricing strategy rather than price skimming, pricing the Wii $100-200 lower than competitors led to high demand and profits even with low costs that exceeded the bill of materials by 3 times, an unusual profit on hardware in the video game industry.

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    Nintendo - Costs

    Uploaded by

    Dorota
    55 views1 page
    Nintendo's business model differs from competitors like Microsoft and Sony. While competitors typically sell consoles at a loss initially, recouping costs through software and online services later, Nintendo focuses on low production costs through less powerful technology. This allowed the Wii console to be produced much cheaper than competitors. Nintendo also pursued a penetration pricing strategy rather than price skimming, pricing the Wii $100-200 lower than competitors led to high demand and profits even with low costs that exceeded the bill of materials by 3 times, an unusual profit on hardware in the video game industry.

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    Nintendo - costs

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    Nintendo's business model differs from competitors like Microsoft and Sony. While competitors typically sell consoles at a loss initially, recouping costs through software and online services later, Nintendo focuses on low production costs through less powerful technology. This allowed the Wii console to be produced much cheaper than competitors. Nintendo also pursued a penetration pricing strategy rather than price skimming, pricing the Wii $100-200 lower than competitors led to high demand and profits even with low costs that exceeded the bill of materials by 3 times, an unusual profit on hardware in the video game industry.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    55 views1 page

    Nintendo - Costs

    Uploaded by

    Dorota
    Nintendo's business model differs from competitors like Microsoft and Sony. While competitors typically sell consoles at a loss initially, recouping costs through software and online services later, Nintendo focuses on low production costs through less powerful technology. This allowed the Wii console to be produced much cheaper than competitors. Nintendo also pursued a penetration pricing strategy rather than price skimming, pricing the Wii $100-200 lower than competitors led to high demand and profits even with low costs that exceeded the bill of materials by 3 times, an unusual profit on hardware in the video game industry.

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    Nintendo as an example business model

    Costs

    The production cost in the video gaming industry is a major barrier for smaller players and it broadly
    varies depending on a production volume. The economies of scale apply more directly to the leaders
    on the market, i.e. Microsoft, Sony and Nintendo.

    Nevertheless, even Microsoft and Sony have historically sold their consoles with a loss. Both the Xbox
    and PlayStation cost more to build than they sold for at launch. Over time, as components get
    cheaper, technology gets better, and economies of scale increase, the cost to manufacture usually
    drops until the company can turn a profit on each console sold.

    But the Nintendo cost and pricing model is different. Let’s take Nintendo Wii cost-based pricing
    strategy as an example. When the product was launched, they set up a price that had nothing to do
    with a demand for the product. It was significantly lower comparing to competitive products, but still
    enabling Nintendo to generate profits. By keeping their product inferior in the technology field, Wii
    could be produced much cheaper than Microsoft or Sony products and additionally widened the
    gaming market by attracting non-gamers.

    Wii did not take place in price skimming at a release. Instead it took more a penetration approach.
    Wii was introduced around the same time as Play Station 3 and Xbox were, but with a prices
    difference of $100-200. As stated before, Nintendo decided they would not stand a chance in a
    technology battle, so they focused on low production cost, user friendly technology and low prices to
    attract the customers. Because of a high demand for the product and low production costs, they did
    not face any problems breaking even.

    To illustrate the importance of economy scales in Nintendo’s case, let’s take a look at the dynamics
    of Nintendo Wii production cost since its release.

    According to estimates, it cost Nintendo about $160 to make its Wii game console back in late 2006.
    In April 2009 Nintendo has reportedly managed to trim its already low manufacturing costs of Wii
    video game console by 45%, which basically means that it cost the company ca. $88 to build Wii
    system that it retails for $249 in the U.S. and for €249 ($330) in Europe. The actual price of the
    console exceeded the bill-of-materials cost by up to more than three times, implying that the
    company made profits on its hardware, which is unusual in the game console business.

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