When Nintendo launched into the home videogame business in 1983, it sold its videogame console at an amazingly low price. 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 the low price came from cutting its margins Nintendo couldn’t enjoy high profits. How did Nintendo solve this problem?
In this case study, we will analyze the positive spiral which Nintendo had successfully constructed. Nintendo had enabled this positive spiral by designing the relationship with its outsiders, such as software houses, component suppliers and distributors. This designing process can be divided into two phases. Nintendo not only built a framework which enabled the low-price high-profit business, but also kept adding new elements which enhanced the profitability of this framework, in the continually changing process of its business.