• by Aaron Baar , April 2, 2009

Long the dominant player in handheld games, Nintendo has seen its competition increase dramatically recently, particularly with the introduction of the iPhone and mobile gaming applications. Next week's launch of its third-generation handheld, the DSi, is a way for the company to increase its household penetration, particularly through a "pass-down" effect.

"Everybody's not going to buy one for every kid. But they'll buy one for the older kids, who will pass the old DS down," Michael Pachter, a research analyst with Wedbush Morgan, tells Marketing Daily. "One-DS households are probably going to become two-DS households."

One of the key features being touted for the system, which launches on Sunday in the U.S., is its ability for gamers to customize and play with content for the system. The DSi includes two cameras that allow people to snap and modify photos, and software to manipulate recorded sounds. Promotional videos posted online show people manipulating pictures to make images look as if they are in a fun-house mirror or by changing the expression.

"The concept of entertainment is clearly expanding to enable self-expression and creation in ways never before possible," said Cammie Dunaway, Nintendo of America's executive vice president of sales and marketing, in a statement. "Nintendo DSi is loaded with software to help people do exactly that. It's not just about the cameras or audio playback, but what people can do with these features that makes Nintendo DSi such an enjoyable game system."

To goose sales, Nintendo is also launching the DSi Shop, an online storefront where users can redeem points to download games and applications. As an incentive for purchase, people who buy a DSi and connect it to the shop by Oct. 5 will receive 1,000 "DSi Points" redeemable for the games.

Nintendo representatives were unwilling to discuss marketing for the system prior to launch--however, "they are going to market it like crazy," Pachter says.

It's likely that much of the marketing for the system will take place in-store, where the new DSi's will be prominently displayed, Pachter says. More traditional marketing may take place for the DSi-specific games, while allowing people to find the systems available in the stores. (He cited a commercial featuring singer Beyonce playing a new game -- Rhythm Heaven -- as an example of this strategy. The spot ends with a voiceover stating that the game is available on DSi.)

"They don't need to market it as heavily [at the beginning] when they're supply-constrained," Pachter says. "But at Christmas, if they think they can sell three million units during that time, they'll do more advertising."