2006・45
Family Computer in the Early Stages- How did Nintendo construct the relationships in the market? Kei Kuriki

Family Computer in the Early Stages- How did Nintendo construct the relationships in the market? -1. Introduction
Undercutting the price can be an effective tool to increase sales, but necessitates asmaller per-piece profit margin, requiring higher sales volume to achieve similar grossprofits. There is a real risk that reducing per-piece profits ultimately lead to reduced
revenue and profits. This is a basic dilemma for managers, in planning their marketing or
sales strategies.
Looking around industry, however, we can easily find successful examples of priceundercutting. Some companies boldly emphasize their lower prices. For example, Funai
Electric Co., Ltd. in Japan has focused on selling low-price household appliances, but thecompany has been able to profit successfully. Its sales in 2001 were $1.326 billion andrecurring profits were $138 million1.
We see the same regarding McDonald’s Japan. It sold a hamburger at $0.53 on
weekdays in 2000 and 2001. This “Week Day Smile” program boosted its sales in 2000. In
2001, although its sales decreased a little, it sold $2.965 billion and gained $155 million asrecurring profits2.
These companies are praiseworthy and excellent examples. But we should still ask:
How do they successfully implement these price undercutting strategies and produce
acceptable profit levels? It is critical for marketers to examine this issue.
Nintendo Co. took the same strategy as Funai and McDonalds Japan. When thecompany launched into the home videogame business in Japan, it sold its videogame
console at an amazingly low price in 1983. This low price enhanced the sales of its consoles.
However, the execution of this strategy must not have been easy. Nintendo aimed not
only to reduce the price but also to build a highly profitable business. It was clear that if thelow price came from cutting its margins Nintendo couldn’t enjoy high profits.
Nintendo solved this problem by preparing a careful design for the relationships with its
suppliers and distributors. Generally, companies can reduce costs by revising therelationships with their trading partners. One critical point is that relationships come from1

Funai Electric Co., Ltd. Home Page.
The foreign exchange rate was ¥122 / $U.S in 2001. Federal Reserve Statistics Release Home Page.
2 McDonald’s Holdings Japan Home Page & McDonald’s Japan Home Page.

1dialogues. If a company intends to build good relationships with partners, the company
should offer them incentives to undercut their merchandise, as well as request them toundercut their merchandise.
How did Nintendo build the relationships with its suppliers and distributors, andenhance its profits? There are several books and articles which describe what Nintendo did.
They point the impact of the low price of the console, Nintendo’s regulation for the softwarehouses to develop the software for Family Computer, and so on. Unfortunately, it was notthat simple. These partial descriptions of actions are missing to answer this question; How
could Nintendo successfully implement such actions?
In order to implement those actions, Nintendo needed to draft an elaborate grand designfor coordination; the resources of the company and the relationships with its trading
partners needed to be carefully coordinated. In this case study, we will point out thereciprocal mechanism realized through the Nintendo’s careful design for relationships with
its trading partners.
2. Nintendo stood at the summit of the Japanese electronics makers
In the early 1990s, Nintendo was in the spotlight as one of the most profitablecompanies in Japan. In 1992, Nintendo’s sales were $4.5 billion and its recurring profits
were $1.3 billion.
In this year Nintendo’s recurring profits exceeded the other major Japanese electronics
makers’, such as Matsushita, Hitachi, NEC, and Sony, despite the fact that Nintendo was asmaller company. At that time, it had fewer than a thousand employees, but Nintendo stoodat the summit of Japanese electronics makers3.
Nintendo primarily earned the profits from its home videogame business. Nintendo
named its home videogame “Family Computer”. It was a kind of computer game. But it
was different from a typical computer game played on a personal computer. And it wasdifferent from the videogames marketed to businesses, and used in amusement arcades.
Home videogames are characterized first and foremost by their ease for home use.
Nintendo’s console was not as expensive as a personal computer, and people could play thegame by connecting the console to their television. And they could play new games one
after another, by changing the cartridges. 434Baba (1993), pp.109-110, Kikawa (1993), Yamauchi (1993),
Kikawa (1993), Kohashi (1998)

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The first great success in the home videogame industry was “Atari 2600” launched by a
U.S. company, Atari, in 1977. Six years after the release of Atari 2600, Nintendo launched
Family Computer to the market. So when Nintendo released Family Computer, the samekind of videogame consoles had already been sold in Japan by several companies: Atari,
Bandai, Tommy, and so on.5
In spite of entering the market late, Nintendo rapidly overwhelmed the other companies.
It sold 440,000 consoles in the first half year. At the end of that year, Nintendo’s market
share spiked to 90%.6
3. Success in the 8-bit and 16bit machine
Nintendo was established in Kyoto in 1889. Originally the company was a manufacturerof two styles of playing cards (One Japanese, the other western). In 1960s it started to deal
in electrical toys. “Beam Gun” (1965), “Color TV Game 15” (1977) and “Game & Watch”(1980) were the Nintendo’s best sellers in those days. In 1981 Nintendo released the newvideogame software for amusement arcades. This software, “Donkey Kong”, was a huge
success.7
Family Computer was released in 1983. After initial success in Japan, Nintendo
launched it in foreign markets in 1986. In the beginning, the console of Family Computer
was 8-bit. In 1990, Nintendo released a new 16-bit console, which was named “Super
Family Computer”. This new machine brought more sales and more recurring profits toNintendo. Family Computer’s competitive advantage had been high during the 8-bit and16bit machine era. 8
Figure 1 shows sales and recurring profits of Nintendo from 1982 to 1995. 1982 was thefirst year of the release of Family Computer, and 1995 was the first year of the release of
the next generation console “NINTENDO64”, which was 32/64-bit machine. Seeing the
Figure 1, it is clear that the business came to maturity in 1990s, though Nintendo achieved
remarkable growth of sales and profits in 1980s. We will consider how Nintendo grewin1980s below.

Baba (1993), pp.84-90, Kikawa (1993), Sheff (1993), p.29, Kohashi (1998)
Baba (1993), p.90, Kikawa (1993)
7 Baba (1993), pp.67-84, Kikawa (1993), Sheff (1993), pp.13-29, Kohashi (1998)
8 Kohashi (1998)
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Figure 1

Sales and recurring profits of Nintendo from 1982 to 1995

5000
4500
4000
3500
3000
2500
2000
1500

Sales（million dollars）
Recurring Profits（million dollars)

1995

1994

1993

1992

1991

1990

*1989

1987

1986

1985

1984

1983

1982

1000
500
0

* Fiscal term was changed**Applied the same foreign exchange rate to every year’s data ¥125/ $U.S. (1992)
Source: Kohashi (1998)

4. Family Computer came from behind
When Nintendo released Family Computer, there were already several companies
marketing home videogame consoles in Japan. Nintendo entered the market late, But
quickly forced a number of competitors out of business.
Before Nintendo entered the industry, there were virtually no standards for home
videogame console manufacturing, and cutting-edge technology was not required to
produce the units. Nintendo outsourced the production of their consoles and procured
components economically. At the time, a relatively small amount of capital was required toenter the home videogame industry. Furthermore, Nintendo had already established close
relationships with the toy retailers and wholesalers, thus permitting straightforward
marketing and distribution channels. The entrance barrier to the home videogame industry
was not very high for Nintendo.9
The main problem for Nintendo was competition from nearly ten other companies that
had already marketed home videogame consoles. If Nintendo were not able to differentiate
its console from the competitors', it would be unable to enhance its sales without losing
profits. Its sales expansion would intensify the price competition.
9

Baba (1993), pp.87-88, Kikawa (1993), Sheff (1993), p.32, Kohashi (1998), Fujikawa (1999)4

We should point out here that Family Computer had two advantages. First, regarding
its performance, Family Computer’s console surpassed the competitors. Family Computer's
graphics quality was on a par with amusement arcade videogames. Family Computer could
display fifty-two colors, compared with eight or sixteen from competitors' videogame
consoles.10
Second, Family Computer’s cost was significantly lower than the competitors’. Theirconsoles retailed for $86 to 216. Nintendo released Family Computer’s console at $64. The
price of its software was $21, so the total outlay for the package was only $85, making an
attractive and affordable product for the mass market.11
Nintendo's rock-bottom price was stunningly low for their competitors. One of themallegedly made a trial calculation for a console equivalent to Family Computer’s inperformance, and calculated that they could not sell such a product for less than $129.12
5. Reorganizing the relationships
By releasing a high-performance console at a low price, Nintendo acquired a large
demand quickly. This is why Nintendo’s Family Computer succeeded at its inception. But
the question remains: why was it that only Nintendo was able to sell such ahigh-performance console at a price half (or less) than the average price of its competitors?
Nintendo was able to profit from high performance low - price consoles because thecompany built up an elaborate mechanism composed of several factors. The outline of themechanism follows.
5-1. Cost reduction by a bulk order
Family Computer’s high performance was achieved by means of a new integrated circuit(IC), ideally suited for image processing. Nintendo succeeded in developing this IC itself.
But this innovation, significant though it was, still was not enough to build up thecompatibility between the performance and the price. Nintendo did not own an IC factory,so Nintendo had to entrust the production of the IC to another company. Nintendo selected
Rico for its supplier of the IC, and requested Rico to cut the price of the IC. Rico assented
because Nintendo allegedly guaranteed it a bulk order, three million IC chips, within the

Kikawa (1993)
Baba (1993), pp.87-90, Kikawa (1993)
12 Baba (1993), p.88
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first two years.13
5-2. Few model changes
At the same time, Nintendo seems have intended to retain the console model design inthe long term. Nintendo tried to sell the same model of console as long as possible. Thus
could Nintendo order a large amount of a single IC from Rico, as we mentioned above. In
the end, Nintendo sold the 8-bit model for seven years.
The strategy of few model changes also meant that Nintendo did not consider that
cutting-edge technology was necessary for the home videogame console market; Nintendo
could design the product using the conventional technologies thus reducing the cost of
console. 14
5-3. Donkey Kong
We next consider how Nintendo could count on high-volume sales of its consoles in spiteof retaining console design for years. Generally many companies change their productmodels frequently, in order to encourage people to purchase their products and generatesales volume. But there is another way companies can encourage people: by improving theappeal of its software. If software could support the hardware sales, companies benefits
greatly by not having to change product models in the short term.
As mentioned above, Nintendo already owned "killer" software, “Donkey Kong”.
Converting this very popular software from amusement arcades to the home videogame,
Nintendo could prepare a strong eye-catcher to people. The software could be expected to
produce bulk sales of videogame consoles.15
5-4. Definite and specialized functions
Furthermore, in order to achieve high performance at a low price, Nintendo restricted
its console's functions. Nintendo designed a console with superior image processing
capability, but restricted all other console functions.16
A home videogame console is like a small computer. So videogame makers are able toutilize the console in various ways. Bringing various functions into the console, a company
Baba (1993), p.87, Kikawa (1993), Sheff (1993), p.32
Kohashi (1998)
15 Baba (1993), pp.80-84, Kikawa (1993), Sheff (1993), pp.46-49,Fujikawa (1999)
16 Sheff (1993), p.33,Kohashi (1998)
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could increase its appeal. But once the company adopted this model, the console tended to
be a high-priced product or lose its quality in its central functions.
Nintendo, on the other hand, restricted the functions of consoles. Nintendo must havecalculated that the home videogame's appeal would be generated not only by hardware but
also, perhaps predominantly, by software. Hence Nintendo could abandon certain functionsof the console without threatening its success in the market.
5-5. Relationships to the distributors
We should also comment on Nintendo’s relationships to its distributors. Nintendo
reduced its distribution costs too, further supporting the low price strategy.
Nintendo had been distributing toy merchandise a long time. They had built up
long-term close relationships with dozens of toy wholesalers. In 1982, sixty wholesalers had
formed an association called “Shoshin Kai”. Through these wholesalers, Nintendo sold its
products at 20,000 toy retailers’ shops nationwide.17
Nintendo used this association to sell at a narrow margin. But the narrow margin was
not only a threat but also an opportunity for distributors. Nintendo asked the distributors
for their cooperation, telling them that once the console became popular, they would be able
to earn a great deal from the software market that would naturally follow.18
Distributors seem to have trusted Nintendo's prediction, since Nintendo had alreadyachieved a good track record in long-term relationships. It is clear, however, that without
the console/software unified strategy, distributors would not have accepted the Nintendo’s
narrow-margin business proposal.19
17 Kikawa (1993), Kohashi (1998), Fujikawa (1999)
18 Baba (1993), pp.87-88, Sheff (1993), pp.34-35
19 When Nintendo started the business of Family Computer, it was impossible for Nintendo to cover large
parts of its value chains by itself. Indeed some companies are integrating a large portion of value chains.
For example some Japanese major electronics companies, such as Matsushita or Sharp, produce manyelectronic components by themselves. These integrations form their advantages. Generally speaking,vertical integrations bring a company some advantages as below.
① Synchronizing productions with distributions, sales, and procurements, the company can equate
the rates of operations, reduce the inventories, decline the opportunity losses and cut thetransportation costs.
② If the company became to supply components or services to the other companies in the same
industry, it could be superior them in the cost.
③ Expanding the domain of technologies to upstream and downstream directions, the company could
enhance the ability to develop original products and services.
However, companies need a lot of fund to facilitate the integrations. If Nintendo launched the76. Coordination between the hardware and the software
As outlined above, Nintendo succeeded in exploiting the possibilities arising from
hardware / software.
Hiroshi Yamauchi, president of Nintendo at that time, commented that the key to thehome videogame business was the hardware / software coordination. Recalling those days,
he pointed out that the core of his business was “how to create the new entertainment
market, and how to make close alliances with the leading companies able to provide
high-performance / low-price merchandise”.
Recently, many companies have come to emphasize the importance of software as wellas hardware. However, for Mr. Yamauchi, “coordination” meant not only emphasizing both,
but also fundamentally changing the relationships between hardware producers andsoftware producers by designing the reciprocal spiral process.20
7. Sustainability of the business system
Nintendo introduced a new invented mechanism of marketing to the home videogame
industry. It redefined this business by focusing not only on hardware but software. Thisnew business definition was immediately successful; but (as discussed below) its real worth
was later proven.
Family Computer achieved great demand immediately upon release. Its success was dueto the console's excellent graphics performance and low price, in turn enabled by the good
coordination between the hardware and the software.
In most cases, however, this kind of approach seems to be short-lived, thus threatening
the long-term profit goals. For example, after 9/11, many retailers became concerned about
production of electronics, the development of software and the operation of distribution, by itself, a large
amount of money should be needed.
In addition, Nintendo’s scale and scope of business had not been as wide as the major electronics
companies. If Nintendo pushed forward the vertical integrations, Nintendo should acquire more markets(demands) to secure the rate of operation of these productions and distributions. Nintendo might be forced
to launch further new businesses.
Nintendo could not adopt the same strategy which was suitable for the major electronics companies.
These companies had acquired huge resources and realized the highly integrated organizations. Although
the degree of integrations had been low, Nintendo could build up good relationships with its suppliers anddistributors, and formed unique advantages.
This Nintendo’s choice was relevant to its resources. An optimal strategy depends on whether theorganization is highly integrated or not.
20 Yamauchi (1993)8

consumption decline. One of the largest “general supermarket” chains in Japan, Ito-Yokado,
released new suits at competitive prices, $67, in October 2001 (In Japan most of the major
supermarket chains merchandise clothes as well as foods. This type of mixed store is called“general supermarket” in Japan). Ordinarily, these kinds of suits sold at $250 at that time.
Ito-Yokado actualized the plan by ordering a single huge volume from the foreign factory. It
was a successful venture, and sold 110,000 suits in five days.
In this case, Ito-Yokado reached the ideal of high performance (quality) and low price byredefining the premised assumption, order volume. At this point, Ito-Yokado’s case looks
like Nintendo’s. But Ito-Yokado soon encountered difficulties. Four weeks later, Ito-Yokado
tried the same strategy again, but customers did not rush to buy them as before.21
Many companies meet with similar difficulties of mass-production or mass-order at thisstage. McDonald’s Japan, as we mentioned above, profited by the low price strategy.
However, the effect of low price didn’t last for a long time. Its sales declined from $2.965
billion in 2001 to $2.629 billion in 2002 and $2.458 billion in 2003. And its recurring profits
declined from $155 million in 2001 to $17 million in 2002 and $16 million in 2003.22
The effect of high performance - low price tends to be short-lived. This is a criticallimitation of the marketing program based on mass-production or mass- order.
8. Supply of entertainment software
It is, however, possible for companies to overcome this limitation of the mass-production/ mass- order approach. If the company could identify new products for mass-production or
mass-order, the limitation would disappear. Thus many companies attempt to shorten thecycle of product model changes. But as mentioned above, shortening the duration of eachmodel adversely impacts the advantages of the mass-production / mass- order approach.
Nintendo didn’t intend to shorten the shelf life of its hardware; rather, Nintendo solved
the problem by introducing new software in rapid succession.
As mentioned above, Nintendo already had expertise developing high-quality
entertainment videogame software, “Donkey Kong” being the most salient case in point.
After releasing Family Computer, Nintendo developed much more entertainment software,

Katsumi (2002),p.144
McDonald’s Holdings Japan Home Page & McDonald’s Japan Home Page.
The 2001 foreign exchange rate, ¥122 / U.S. $, has been applied to all figures for the sake of uniform
comparison. Federal Reserve Statistics Release Home Page
21
22

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for example “Super Mario Brothers”. 23
Generally the risks were high in the videogame software market. It was very difficult topredict the sales of new software before release. Of course, if once companies succeeded,
they could sell millions of copies of software, but such cases were very rare. 24
Nintendo’s position was very favorable in this situation, however. Its popular arcade
software was easy to convert to Family Computer use. Nintendo took advantage ofpreexisting name recognition from the arcade market and capitalized enormously on it
when the market moved to the home.
9. Regulations to the software houses
Although at the beginning Nintendo alone provided all software for the Family
Computer, after Family Computer took off successfully, Nintendo began to accept outsidedevelopers for the development of additional software. But Nintendo was cautious.
Nintendo did not allow every software houses to develop software for Family Computer.
Only companies which followed guidelines set down by Nintendo were permitted to develop
new software.
Nintendo imposed the regulations below upon software developers25. Strictly speaking,the regulations were different depending on the exact timing of the software; the following
set of guidelines may be considered typical.
Limitation on the number of titles released per year: The number of software titles thesoftware house was allowed to release was limited to no more than three to five per year.
Compulsory production assignments to Nintendo: Software houses should assign
videogame cartridge productions to Nintendo and pay an assignment fee. The fee was$28 per cartridge. The production cost of cartridges was $16, and Nintendo took the restof the fee as its share. Furthermore, software houses were required to buy out all
cartridges produced by Nintendo.
Fixed lowest volume of production: In assigning the production, software houses wererequired to order the lowest volume possible. At the beginning the lowest volume ofBaba (1993), pp.102-103, Kikawa (1993)
Kikawa (1993), Kohashi (1998), Yamauchi (1993)
25 Baba (1993), pp.93-102, Kikawa (1993), Sheff (1993), p.214-215, ,Kohashi (1998), Fujikawa (1999)
23
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production was 10,000 cartridges. Later, the lowest volume was reduced to 5,000.
Compulsory quality checks by Nintendo: Nintendo required quality checks two times
over the course of software development: first at the planning stage, second after
completion. Nintendo also checked the suitability of the software for home use,
especially by young children, and tested the operational ability of the software on the
console.26

Two opposite minds coexist in human beings. On one hand we are eagerly looking for the chance toevolve ourselves. On the other hand we love to be idle.
One advantage of the market mechanism is that it enhances people’s spontaneous eagerness for theevolution and suppresses their idleness. These are the effects of competition in the market.
However, the market doesn’t guarantee a wholesome effects of competition at all times.If a company
doesn’t have to disclose all disadvantage of its products or services, the company can outwit the trading
partners and exploit them in the market, seizing an opportunities (opportunism).
For example, as the products or the services being complex, it becomes difficult to explain all attributesof them to the trading partners. They learn the quality of those products and services, after they procured
and used them. However, the company has already collected the charges at this time. The home videogame
software is this type of product. A cruising taxi is the same type of service too.
In order to deter this opportunistic behavior, some monitoring function must be built in the market.
Brand is one of the valid monitoring tools in the market. A people who bought a product of poor quality, will
never buy not only the same product but also the same brand products. To avert such a matter, companies
try to keep the quality of their products and services. Especially if the companies strive to sell a large
number of products or services attaching same brands to them, this deterrent effect on opportunism works
better.
However, this mechanism can deter the opportunism only in a specific condition. In order to work thismechanism well, there must be some alternatives to the brand, and people must have some experiences on
the brand, when they try to procure it.
For example, when you hail a cruising taxi at the street, there is no choice. Another example is theformer home videogame software market. There were too many small software houses, and then people
should procure unaccustomed brands one after another. In such conditions, we can’t expect much onbrands to work as deterrent to opportunistic behavior.
Regarding the deterrent effects on opportunism, also, the role of distributors is important. Usuallydistributors have better ability to monitor the quality of merchandize than end users. If this function
works well, the opportunistic behaviors in the market will decline. But in new generating markets, as theformer home videogame software market, this function sometimes doesn’t work well, because distributors
also have not acquired enough knowledge yet.
These conditions sometimes shrink the markets. Now, what can a company do, in launching into such amarket? One of the solutions was the regulations which Nintendo imposed on the software houses.
Limitation for the number of releasing titles per year, compulsory production entrustments to Nintendo,
fixed lowest volume of production, and compulsory quality checks by Nintendo must have worked asdeterrents for the software houses to commit the opportunistic behavior.
Certainly these were prescriptions in a particular occasion. If the conditions were different, theprescriptions must have been rewritten. We should check not only “What Nintendo did”, but also “WhyNintendo did so”.
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10. Why did Nintendo impose such a strict rules?
As seen above, Nintendo imposed strict guidelines on software houses trying to develop
new software for Family Computer. But Family Computer consoles were soon so widely
available that it was possible for software houses to project sales of over 1 million units. In
addition, companies could develop videogame software with a relatively small staff. So
many companies began to develop software for Family Computer, with the dream of making
a fortune at one stroke. Some software houses, such as Hudson and Namco, grew theirbusiness through high volume sales of software for Family Computer.
But software houses had no guarantee of success. Their risk level was high; on thecontrary, Nintendo’s was low, because Nintendo could get the production assignment fees
regardless of the software sales. Nintendo was criticized for being “exclusive” or “getting
easy pickings”.
Yet in spite of the criticism, Nintendo did not abolish the strict policy. The reason seems
to be that Nintendo learned a lesson from “Atari Shock”.
As mentioned above, Atari 2600 was the home videogame console precedent to Family
Computer. Atari 2600 was successful in the U.S. six years before Family Computer wasmarketed. But when Nintendo began to introduce Family Computer, the market built by
Atari began to collapse.
Atari did not impose strict rules on the software houses; as the consoles spread, many
software houses started to develop new products for Atari 2600, without criticalquality-control oversight. A number of software developers produced inferior software, andas a result the market was flooded with poor quality software, thus losing customer trust.
Nintendo seems to have retained customer satisfaction as a high priority, and therefore
excluded software houses prone to inferior software production. By learning from the badexperience of Atari, Nintendo could avoid the risk of losing their market.27
11. Reciprocal circulation between hardware and software
The relationships Nintendo built with its suppliers and distributors resulted in great
success. Several million-seller software titles, such as “Dragon Quest” and “Final Fantasy”,
were born against the background of the widely distributed consoles. At the same time, thepublic’s fascination with the software increased the consoles sales even more.

27

Baba (1993), pp.91-92, Kikawa (1993), Kohashi (1998), Fujikawa (1999)

12Figure 2

Design of reciprocal circulations between hardware and software

1983～

1984～

Competence toMarket amusing

Release new software indevelop software

softwaresuccession

in the company
Increase the sales ofsoftwareLesson from“Atari Shock”

Few model changes of
consolesDefinite andsoftware houses

specialized
functions

Regulations to

Cost reduction by massorder

Low margin for distributors

Softwaredevelopments bysoftware houses

Market high performance – low price consoles

Increase the sales of
consolesProfit to Nintendo

Attractive software enhanced the consoles sales, and the large numbers of consoles
which had been sold encouraged the developments of attractive software. Nintendo enabled
this positive feedback loop by designing the relationships with its outsiders, such assoftware houses, component suppliers and distributors (Figure 2). This positive spiral13

continued until approximately 1992, and Nintendo expanded its revenue.
We can note two critical points of success of Family Computer in its early stages. First,
the chains of interaction were important to make the positive spiral and they came from thecoordination of the relationships with software houses, component suppliers, anddistributors. Each relationship was a critical factor in the success of Family Computer, andthe design for the coordination of the relationships was crucial. Selecting its partners,
preparing incentives to them, and designing regulation for them, Nintendo had built up
relationships and constructed the positive spiral.
Second, Nintendo had constructed the spiral, step by step. Nintendo not only built aframework which enabled the low-price high-profit business, but also kept adding newelements which enhance the potential for increasing the profitability of this framework, inthe continually changing process of its business.
At the first phase of its marketing, Nintendo built up relationships with suppliers anddistributors of videogame consoles, in order to market its high-performance low priceconsoles and increase the sales of them. At this phase, soft ware was one of the criticalfactors of success, and Nintendo supply the soft ware by itself. It seems difficult to havecorroborated with soft ware houses under the control of Nintendo at this phase.
Fortunately Nintendo had very popular soft ware of amusement arcades and could convert
it to the home videogame.
After succeeding at this first phase, Nintendo changed its policy on supplying soft wareby itself. Once its consoles had been disseminated widely, it seems easier to have let outside
soft ware houses to develop new attractive videogames under the strict regulations. And
sequential input of new attractive soft ware was crucial in increasing the sales of Family
Computer.
We can mention that companies should keep building their strategies in their changing
situations. Companies build their strategy based on their environments. But theimplementation of the strategy often changes the environments, as the Nintendo’s case.
Companies should catch these changes rapidly, and rebuild its strategy. Through thissequential process, Nintendo constructed the reciprocal circulation of marketing.
However, every mechanism has some disadvantages. This reciprocal circulation which
supported the growth of Family Computer was not sustainable beyond 1992. Over time thestrict rules which Nintendo imposed on the software houses became burdens too heavy tobear, especially for small companies. Discontent spread among the software houses. And

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Nintendo did not take the risk of software overstock seriously enough. So overproductionsof software, drops in prices and tie-in sales frequently occurred. 28
Over the course of time, technological innovations changed the conditions of the home
videogame industry. In the middle of 1990s, it became easier to use CD-ROM technology
and information networking systems. CD-ROM was superior in the production cost to thecartridge, and yielded higher margins to the software houses. Enhanced information
networking systems enabled factory production to be directly linked with store sales. Thesechanges triggered the reorganization of the home videogame business. 29
But it was not Nintendo which led this new generation of the home videogame industry.
Sony’s “Play Station” won the new market of 32/64- bit machines. Nintendo had to fight foranother market once again, and succeeded in the portable gaming market.

［2006.9.8

785］

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Your Dollars, and Enslaved Your Children, Random House Inc.
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Baba (1993), pp.95-109, Sheff (1993), p.70, Fujikawa (1999)
Fujikawa (1999)

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McDonald’s Holdings Japan Home Page, http://www.mcd-holdings.co.jp/index.html, 2006.
March
McDonald’s Japan Home Page, http://www.mcdonalds.co.jp/, 2006. March

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