The strategy behind Nintendo’s success: more marketing, less profit margin Merca2.0
06:25
Nintendo is going through one of the strongest periods in its recent history, with accelerated growth in revenue and profits. Behind these results, the Japanese brand is betting on a strategy based on investing more in marketing and expansion, even if it means a reduction in profit margins in the short term.
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The launch of Nintendo Switch 2 was the trigger for this strategy, combining aggressive advertising, higher operating expenses, and a long-term vision centered on its ecosystem.
Why is Nintendo investing more in marketing?
One of the most relevant data points from the company’s financial results is the increase in selling, general, and administrative expenses (SG&A), which grew 29.6% to reach 412 billion yen.
Within this category, the increase in advertising stands out, driven directly by the launch of the new console. The company explained that this growth is due to higher advertising expenses associated with the launch of Nintendo Switch 2.
This investment reflects a strategy aimed at accelerating hardware adoption and positioning its main franchises in global markets.
How does this strategy impact Nintendo’s margins?
Despite revenue growth, profitability has come under pressure:
- Operating margin: 15.8% (vs. 25.9% the previous year)
- Gross margin: 37.4% (a decline of 21.7 percentage points)
Nintendo attributes this decline to a change in revenue mix. The company stated that gross margin decreased “mainly due to the significant increase in the proportion of hardware sales following the launch of Nintendo Switch 2.”
Hardware, especially in its early stage, has lower margins than software, which explains the impact on profitability.
Nintendo Switch 2, the heart of the strategy
Switch 2 is the core of the current strategy. During the first nine months of the fiscal year, the brand reported 17.37 million consoles sold and 37.93 million software units. These figures represent 63,164 consoles per day, or 2,632 consoles per hour.
This growth has driven a 99.3% increase in net sales, reaching 1.9 trillion yen.
Nintendo confirmed that “net sales increased 99.3% year over year to 1,905.8 billion yen,” highlighting the direct impact of the new hardware on its results.
Why is Nintendo accepting lower margins?
The decision to sacrifice margins responds to a strategic logic:
- Expand the installed base of consoles
- Increase software consumption
- Strengthen its digital ecosystem
Nintendo has historically prioritized ecosystem growth over immediate profitability per hardware unit.
The goal is to turn Switch 2 into a dominant platform throughout its lifecycle, monetizing later through games, additional content, and services.
How is this strategy complemented by the digital business?
The digital segment remains relevant:
- Digital sales: 282 billion yen (+14.7%)
- Share: 50.4% of total software
Growth is driven by increased downloads of full games and additional content, which helps improve long-term profitability.
However, the weight of hardware in this initial stage has slightly reduced the share of the digital business within the total.
What role does global marketing play in growth?
Nintendo has established itself as a global company, with 77.2% of its sales coming from outside Japan. This requires a more intensive international marketing strategy, tailored to different regions and audiences.
Advertising spending not only drives console sales, but also strengthens the visibility of its franchises, such as Mario, Pokémon, and Donkey Kong, which continue to lead its catalog.
What does this strategy reveal about Nintendo’s future?
Nintendo is betting on a clear model where increased investment in marketing and hardware growth leads to lower short-term profitability but greater long-term monetization.
This approach aligns with its goal of building a robust ecosystem that combines video games, digital content, and intellectual property.
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