Find out how Nintendo came to dominate the video game market through creative positioning, investments in content, and calculated risks.
From hanafuda card company to the most recognizable name in video games, Nintendo’s 130+ years as one of the world’s most joyful brands is no accident... (Continue).
If any company knows how to reinvent itself, it’s Nintendo. While we now know Nintendo as synonymous with video games, the company’s brand story could have taken a different turn if they hadn’t listened to their customers and adapted to market conditions.
Keep reading to find out how Nintendo came to dominate the video game market through creative positioning, investments in content, and calculated risks.
1889: Founded in Kyoto, Japan, as a Hanafuda card company
1962: Goes public
1963: Shortens its name from Nintendo Playing Card Co. to Nintendo
1963–1968: Experiments with its business model as a taxi company, a food company, and a love hotel chain
1968: Releases its first toy, the Ultra Hand
1970: Launches its first electronic toy, the Beam Gun
1977: Releases its first video game console in Japan, the Color TV-Game 6
1980: Releases the Game & Watch, its first handheld game console
1981: Launches Donkey Kong for arcades
1983: Launches the first Mario Bros. arcade game
1985: Releases the Nintendo Entertainment System gaming console to the American market with Super Mario Bros.
1989: Launches the Game Boy
1989–1993: Height of console wars with SEGA
1995: Launches the Virtual Boy, the first console with stereoscopic 3D graphics
1996: Releases the Nintendo 64 to compete with Sony PlayStation
2001: Releases the GameCube, which fails against competitors
2004: Releases the Nintendo DS, the highest-selling handheld game console of all time
2006: Releases the Nintendo Wii
2017: Releases the Nintendo Switch
2020: Sees pandemic success with Animal Crossing
To appreciate Nintendo’s origins is to understand the early European exploration of Asia for commerce.
In 1543, Portuguese explorers landed in Japan and kicked off many years of trade, slavery, and conflict. While Japanese-Portuguese relations during this era are marked by many of the darker facets of European colonization, we’re going to focus on a benign byproduct that led to Nintendo’s existence: Portuguese playing cards.
Japanese
Hanafuda
playing cards. Photo credit:
Playing cards were introduced to Japan by Portuguese missionary Saint Francisco Xavier, who brought over the Spanish card game Hombre. By the time Japan closed its ports to European traders in 1603—and abolished European card games by law—people were already hooked.
A couple of centuries later, after many Japanese playing cards, Fusajiro Yamauchi began manufacturing Hanafuda cards for his company, Nintendo Koppai, in 1889. For much of the 20th century, Nintendo dominated the playing card market in Japan the same way they would dominate the video game industry decades later.
Fun fact: In the mid-1900s, Nintendo’s biggest customer was the yakuza, a Japanese crime syndicate known for operating illegal casinos.
In 1940, however, Yamauchi died and left the company to his great-grandson, Hiroshi Yamauchi, who led the company through several pivots over the next 50 years.
After a trip to the United States, Hiroshi Yamauchi began to think about the long-term success of Nintendo beyond playing cards—and he took the company public. With the influx of cash, Yamauchi began experimenting and taking risks with new business ventures wildly outside of Nintendo’s scope.
For five years, Nintendo embarked on a topsy-turvy journey as a:
Nintendo Ultra Hand, 1966. Photo credit:
Key takeaway: Nintendo’s success in games was preceded by a long period of experimentation. Imagine what it must have felt like to work for Nintendo in the 1960s—the failure of each new venture was likely a source of frustration for many at the company.
But because Nintendo was willing to take risks–for example, trusting assembly-line worker Gunpei Yokoi to develop the Ultra Hand–they could capture market share in a new industry.
In the early 1980s, everyone was excited about video games.
At the time, Atari dominated the market. Video game developers everywhere were scrambling to make games for the Atari VCS. Meanwhile, arcade games were flourishing in Japan and the United States—which inspired Nintendo to make their first major play in arcade games.
Donkey Kong, released in 1981, was such a success that it pulled Nintendo out of financial hardship and triggered the expansion of offices in North America. By June 1982, Nintendo had sold 60,000 Donkey Kong machines in the U.S., earning $180 million in revenue.
Donkey Kong for arcades, 1981. Photo credit:
But the success wouldn’t last long. In 1982, arcade games were pulling in $27 billion in revenue, and consoles clocked at $14 billion. Video game manufacturers flooded the market in a mad scramble to claim their slice of the pie.
Soon after, the market experienced a bust. Too many competitors were making low-quality games, and people began to move away from arcades and consoles to personal computers.
Between 1982–1985, revenue from arcade games dropped by 66%, and console games dropped by 93%. In 1983, Atari lost $536 million and dumped many of their game cartridges into a landfill in New Mexico.
By the time 1985 rolled around, the market was in shambles. No one was interested in buying electronics for video games—but they were interested in buying toys, a market Nintendo had cornered in Japan.
Nintendo observed market conditions in the U.S. and determined that no one wanted to buy video game electronics. After years of mediocre games, who could blame them?
But Nintendo had seen success in Japan with the Famicom game console, and they were chomping at the bit to recreate the same win in the United States. Facing a tough electronics market, they decided to do what they used to do best: market themselves as a toy company.
Here are some key positioning decisions Nintendo made for the promotion of the NES in 1985:
1. The NES was a toy, not an electronic. The first NES consoles came with a toy robot named R.O.B., supposed to “help” you play games. And do you remember how satisfying it was to play Duck Hunt with that toy gun?
Check out the first ad for the NES in 1985, complete with a rare R.O.B. appearance:
2. NES promotion would be targeted to younger kids. Teens had become disillusioned with the poor quality of Atari games during the darker days of the video game bust. Nintendo decided to target a fresh audience who were ready for a new experience.
3. Games for the NES would be immersive. While early games for the NES like Duck Hunt lacked narrative, Nintendo would soon see massive success with Super Mario Bros., Zelda, and Final Fantasy––games are driven by characters that enticed players to immerse themselves within a story arc. In Japan, Donkey Kong’s version of Mario was called “Jump Man,” but his name was changed for the American market to personify the character.
Watch the end of Super Mario Bros. here
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By 1987, Nintendo had taken 65% of the video game hardware market. Atari’s market share had fallen to 24%, compared to 80% just a few years prior.
In 1989, after a few years of uncontested success, Nintendo came up against a new incumbent in video games: SEGA.
Fun fact: The name “SEGA” is a shortened version of “Service Games”—a reflection of the early company’s mandate to serve U.S. military facilities with coin-operated games.
At first, SEGA attacked the NES by positioning the Genesis as technologically superior. Early SEGA ads touted the Genesis’ 16-bit arcade graphics, proudly claiming that “Genesis does what Nintendon’t.”
Whereas Nintendo positioned the NES as a fun toy for kids, emphasizing loveable cartoon characters, SEGA’s advertising for the Genesis was extreme, in-your-face, and powerful.
For two years, market domination would remain just outside of SEGA’s reach, even as the company continued its direct attack on Nintendo’s subpar tech specs. What SEGA failed to realize, however, was that the average consumer didn’t care about marginal improvements in console technology if the games were fun and engaging.
Nintendo had spent the 1980s perfecting the development of their video game library. The company had seen several smash hits with Super Mario Bros. (1985), The Legend of Zelda (1987), and Final Fantasy (1987). In November 1990, Nintendo released the Super NES with Super Mario Bros. 3, which became the third-best-selling NES game of all time.
Nintendo understood its audience and what mattered to them: the quality of the games. While Nintendo’s obsessive focus on their content library may seem obvious to us now, imagine what it must have felt to see SEGA gaining market share through superior technology. The temptation to pivot must have felt urgent, and it’s easy to imagine leadership conversations at Nintendo teeming with doubt about their market research.
Nintendo ultimately trusted their audience knowledge to help them weather the SEGA storm, and they remained hyper-focused on developing the best games with the best stories.
By 1991, SEGA realized the error of its ways and copied Nintendo’s strategy with the development of its iconic character, Sonic the Hedgehog. And for a while, it worked. The SEGA Genesis outsold the SNES 2 to 1 during the holiday season in 1991. By 1992, SEGA owned 65% of the home console market—a position held by Nintendo five years prior.
Sonic the Hedgehog, 1991
But in the end, Nintendo’s release of the Game Boy in 1989 mitigated most of the damage done in the loss of market share to SEGA. Nintendo’s influence eventually won as they continued to develop more immersive games exclusive to the SNES—a model that persists in today’s video game market.
Key takeaways:
What goes up must come down—and between 1995–2004, Nintendo’s decade-long success took a nosedive into the ground.
But first, some perspective: without risk, there’s no reward. Nintendo’s failures during the late nineties and early aughts reflect the company’s ability to take risks and try new things. By 1995, Nintendo had been in market share heaven for the better part of a decade, meaning they’d earned the right to try new things and risk falling on their face.
Here’s a quick rundown of Nintendo’s most notable missteps and why they failed to capitalize on new products during their darkest days.
The product: Virtual Boy, 1995
The Virtual Boy. Photo credit:
Nintendo’s goal: To give consumers an even more immersive gaming experience with early VR technology
Marketing tactics:
Why Nintendo failed: VR technology was still in its infancy in 1995, and people began to complain of headaches and nausea when they played for more than a few minutes. The Virtual Boy is a textbook case of being too early to market.
The product: GameCube, 2001
Nintendo GameCube, 2001
Nintendo’s goal: To compete with the Sony PlayStation 2 and the Microsoft Xbox
Marketing tactics:
Why Nintendo failed:
The product: Wii U, 2012
The Wii U console and GamePad, 2012
Nintendo’s goal: To re-attract its core gamer audience after the success of the Wii with casual gamers
Marketing tactics:
Why Nintendo failed:
What was once Nintendo’s primary marketing strength became its biggest failure for the Wii U: positioning. Nintendo’s emphasis on the Wii U’s controller confused its audience of loyal Wii gamers—was the controller an add-on to the Wii, or was it a new console in and of itself? The lack of clarity about what the product was, in addition to attempts to appeal to everyone, ultimately led to the failure of the console.
It’s a tale as old as time: Failure leads to learning leads to success.
Nintendo’s Wii U positioning bungle taught the company what it needed to be successful with its latest console, the Nintendo Switch.
Nintendo of America President Reggie Fils-Aimé said, "What we’ve been able to do with Nintendo Switch is a number of very important things. First, we’ve been incredibly clear with the positioning of the product. Why should you purchase this device? Well, it’s because you can play this great content anywhere, anytime with anyone. Tell me what the Wii U proposition was in 10 words or less. We weren’t as incredibly clear."
What’s also clear is that clarity works: The year after the Nintendo Switch was released, Nintendo’s revenue jumped by 116%.
If Nintendo learned anything from the Wii U, it’s this: Be clear about the features and benefits of your product.
It seems almost quaint that a company as old as Nintendo would need to re-learn such a basic principle. Still, it’s also a reminder that no one is exempt from marketing fundamentals: product, price, placement, and promotion.
Check out this set of ads for the Nintendo Switch—Nintendo really wants you to know how the product works and where:
The Nintendo Switch communication strategy emphasizes:
1. The value prop: Nintendo Switch ads make great use of context switching, with users demonstrating the portability and interactivity of the console in a wide variety of settings.
2. The ease of use: Ads show, through much repetition, users handling the system in every which way, from the slide-and-click of the console into the dock and the versatility of the hand controllers.
3. The product’s context: While you may be inclined to think that simplicity and clarity risks producing a boring ad, Nintendo doubles down on setting to show how users can keep playing immersive games in many environments (in front of a TV, outside in nature, on a plane, at a party, etc.).
4. The product’s brand within the company brand: For extra clarity that the Nintendo Switch is a unique product, Nintendo developed a dynamic logo for the console—one that slides and clicks into place.
Nintendo Switch full console with “slide-and-click” portable emphasis.
Animal Crossing is a game fit for a global pandemic: It’s engaging without being stressful, cooperative at a distance, and the perfect amount of escapism for a world on fire.
But Animal Crossing was first released in 2001, with six sequels that would become successes in their own right. Without 20 years of positioning work before the pandemic, Animal Crossing may have been a mere blip on our radar as hermits under house arrest.
Here’s how Animal Crossing was positioned for success in 2020:
1. Targeted to the casual gamer: Animal Crossing isn’t competitive; it’s cooperative. You don’t have to be a hardcore gamer to advance in Animal Crossing. Anyone can pick up the game and enjoy playing with friends—which means more new gamers for Nintendo.
2. Built for endless gameplay and community: Most conventional video games have about 50 hours of gameplay; they’re built like a novel you read once and maybe read again later once you’ve forgotten most of it. Like ConcernedApe’s infamous Stardew Valley, Animal Crossing is made for nearly endless gameplay–which distinguishes a community of “completionists” from casual players for a little bit of exclusivity.
3. Promoted with a side of nostalgia: Animal Crossing: New Horizons was promoted with a hearty helping of nostalgia for true fans of the game, which created network effects of true fans bringing casual gamers into the fold.
Fast forward to 2019, when Animal Crossing: New Horizons was first announced and then delayed so that Nintendo could “ensure the game was the best it could be.” Luckily for Nintendo, the delay coincided with the early pandemic—and as a result, Animal Crossing became Nintendo’s third-best-selling game in the United States.
Most people agree that Nintendo would make a lot more money if you could play Nintendo games on other consoles.
Until now, Nintendo has been wildly protective of its intellectual property, focused on its game library, and unsympathetic to third-party developers who may want to develop Nintendo games. But this is a part of Nintendo’s ecosystem that’s ripe for change, as games like Fortnite have shown that people don’t want to be locked into one console to play a great game.
Nintendo has also let mobile gaming pass them by—but if they were to focus on mobile games and subscriptions, they could leverage their gigantic library for near-instant success.
Nintendo, however, is hyper-aware that throwing their hat in the ring of mobile gaming may be a recipe for brand dilution, which is what happened to SEGA when they abandoned their own Dreamcast console for third-party game development. Nintendo is likely trying to decide, right now, whether or not this long-term risk to their brand is worth the reward.
One thing is clear: Nintendo will need to figure out how to compete with cloud gaming giants like Google Stadia, Microsoft xCloud, Facebook, and Nvidia GeForce NOW.
While Nintendo has slowly begun to dip its toes into the cloud water with their Switch streaming service, at the moment, Nintendo seems to be stuck between a rock and a hard place: enter the cloud gaming market and risk dilution in a vast ocean of cloud/mobile game developers or rely on the quality of their games to see them through a new era.
For a company that has seen decades of success due to its uncanny ability to avoid direct competition with incumbents, Nintendo will need to decide whether or not it finally wants to face the big bosses and get in the ring with new players.
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