The secret to Nintendo's success

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INTRODUCTION

When you look at any category there are some brands that just do things differently. They show complete disregard for the way things are done in their category. They rewrite the rules. They find new audiences. They find new ways to grow. And want to know a brand that does this better than most? Nintendo. Now for all those non-gamer readers don’t click away just yet. Let me reassure you irrespective of your category or stage of growth, this breakdown is a masterclass in how to exponentially grow a brand. Don’t believe me? Let me show the strategy behind Nintendo’s phenomenal success…

#1 NICHE TO MASS

One question we often get at Defiant from founders, scale-ups & challenger brands is when should we nail our positioning & marketing strategy? Whilst no two brands are the same I think a pretty good rule of thumb is to do it when two things are in place; you have a great product market fit & strong returning customer base within a niche. Once this is nailed then you can go big on going after mass market & customer acquisition…and the best way to do this is a kick-ass brand & marketing strategy. Nintendo is a brilliant example of this in practice.

When Nintendo launched its first video game console in 1983 they were entering a very different category from today. Whilst video games are a huge market today (worth $344.0BN with a CAGR of 8.74$) the industry was on the verge of collapse in the West, in the early 1980s. Years of overhyped but ultimately terrible games had driven most consumers & retailers away. In fact so bad was the situation that many retailers refused to ever stock a video game console again. So when Nintendo ventured into home video games for the first time, it was entering not only a niche market but one in decline. So how did they do it? How did they manage to not only dominate but actually revive a failing market? Let me show you.

So how did Nintendo do it? First, Nintendo addressed the biggest problem in its category…quality control. Whilst other brands were happy to pump out any old game, irrespective of quality, Nintendo had strict controls on what could be published on their console. You see Nintendo had a tight grip on game cartridge manufacturing, and only games that met their high-quality standards would be granted the right to publish on their console. They called this the Nintendo ‘seal of quality’. Second, they managed to ‘trick’ retailers into stocking their consoles by positioning it as an entertainment system, rather than yet another console. Ever wondered why the original Nintendo Entertainment System (NES) looks like a VHS player? It’s not accidental.

The above strategy enabled Nintendo to find the perfect product-market fit & wrack up a strong returning customer base. Their seal of quality helped to address the category’s biggest problem (low-quality games) and gave consumers what they really wanted. Their high-quality games were also now readily available at most major retailers, allowing consumers to easily repurchase more products. Now Nintendo had its house in order, with a strong product market fit & repurchase cycle, the brand began to turn its attention to acquisition and defined a sharper positioning for its brand.

When it came to their positioning, Nintendo did what all great brands do. They first looked at both the competition & market opportunity ahead. Here they realised two things. First, the majority of their competitors were in a war to win on computing power and performance. Second, whilst video games (at the time) were mainly played by teenage boys there was potential to appeal to a far broader market. This second point is particularly important because we know going after the broadest market possible is the most effective way to grow.

In light of the above Nintendo defined its brand positioning as ’we exist to put smiles on the faces of everyone that touches a Nintendo’. This positioning is smart for a couple of reasons. It differentiates the company from other gaming brands that tend to focus on ‘gamers’. It in fact speaks to a much broader audience (i.e. mums, dads, anyone) by focusing on fun rather than gaming power & performance. And it is this postoning that teed up Nintendo to, over the coming decades, play by very different rules.

Any brand can learn a few things from Nintndo’s approach. First, it shows that often you don’t need to invent a new category or market. Often it is far more effective to find a broken category and resolve the big problems customers face…and if you do so you can get a fantastic market fit & repeat purchase. Second, once you have this in place, then you should go after acquisition fuelled by disruptive brand positioning.

#2 PLAY BY YOUR OWN RULES

One of the biggest mistakes I see companies (and strategists) often make is they default to ads or communications when it comes to bringing their brand positioning to life. In truth, a brand positioning should really operate at a business level, not just at a communications level. It should inform everything the company does; the product it develops, the audience it targets and yes its communications. Nintendo understood this and its positioning went on to guide everything it does.

First, it saw them always prioritise gameplay over performance. If you look at the history of Nintendo’s consoles, from the Gameboy to the more recent Switch, they have never really tried to win on building the most high-performance machine. If anything their hardware is relatively outdated when compared to the likes of the PlayStation & XBOX. However, it was a smart strategy. Why? because whilst others tried to win on performance, they doubled down on what was most important, creating games that were fun to play. This not only created a fanatically loyal fanbase (who came back for every new release) but also allowed them to keep their cost base lower on hardware development. By lowering their cost base & protecting their margins, they could then reinvest more back into developing more fun-focused games. Creating a virtuous circle.

Second, this focus on fun allowed them to appeal to a far broader audience. As we can see from the insane sales figures of their Gameboy, Switch & Wii they successfully went beyond hardcore gamers to appeal to a far bigger causal gaming audience. The Gameboy, for example, launched with Tetris an incredibly addictive casual game that was played by people of all ages around the world. The Wii, with its pick-up-and-play Wii motes, saw even grandparents get into the gaming act with games such as Wii Sports. And most recently the Switch appeals to both casual gamers and hardcore gamers with its gaming-on-the-go approach.

What’s genius about Nintendo’s positioning and marketing strategy is that they don’t try to follow the category. Instead, they play by their own rules. While others compete on performance, they win on fun. Whereas others focus on hardcore gamers, they appeal to a far broader causal gaming audience.

Any brand can learn from Nintndo’s approach here. It shows that the best brand positioning should aim to do two things. First, help the brand to stand for something different in a category. Second, a great brand positioning should guide all the company does…rather than just communications.

COMMUNITY SHOUT-OUT

This week’s shout-out goes to the wonderful Chris Hutchings. It was great to catch up and talk all things Newsletter growth and strategy on his podcast. If you want to check out the episode click the link here.

Thanks again to all the readers who share this newsletter around. I’m currently sat here on a Sunday writing this week’s edition and those shoutouts keep me motivated. If you shout me out this week please just DM me on Linkedin or Twitter with a link to it and I will put you in next week’s community shout-out slot. Thanks 🙏.

#3 FRANCHISES AND NEW FANDOMS

To finish this week’s newsletter I want to briefly touch upon how Nintendo doubles down on its strategy and uses it to unlock new avenues of growth.

When I mention Nintendo to some of our clients I point to the fact that they are in many ways the ‘Pixar of gaming’. Why? Well, their focus on fun has seen them create some of the most loved (and valuable) gaming characters in the industry. Franchises such as Mario, Zelda & Pokemon have amassed huge followings (or fandoms) that will buy anything that is put out in that world. However, what Nintendo has done better than most is stretch these franchises to grow revenue and further appeal.

In truth, Nintendo has been extending its franchises for a long time. At the height of NES fever in the 1980s you could buy Nintendo cereal, watch Nintendo cartoons and even watch a Nintendo-based feature film. More recently we have seen Nintendo refine this model and build even higher quality franchise extensions. Over the last couple fo years, we have seen them launch theme parks and release higher quality films, in partnership with Illuminaiton.

This extension of franchises is clever for a few reasons. First, it speaks directly to their positioning of fun and appealing to a broader audience. Second, however, it gives the brand the potential to reach an even broader audience by extending into new touchpoints (movies, theme parks) and in turn growing its customer base even further.

While not every brand is in the entertainment category, there are still lessons to be learned here. First, once you have a killer product look at ways to extend its reach and offering. This could be via product extensions or brand partnerships. Second, even if you are not in the entertainment space, you might want to consider what characters you could develop to build brand equity. Don’t believe me? Well, you only have to look at Compare The Market’s Meerkats or Duolino’s DUO to see that even low-interest categories can create successful characters.

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CONCLUSION

To all my non-gamer readers, thank you for reading this far. I hope you found it useful. To recap there are three key learnings to consider from the week’s newsletter. First, once you have a solid product-market-fit and repeat purchase then you should take the time to nail your positioning. Second, remember this positioning should operate at a business level not just a communications level. It should guide ALL you do. Third, consider how you might extend your products via partnerships or extensions. And potentially explore creating new characters.

Many thanks,
Will Poskett,
Founder of Grow Club & Defiant