ok, so we've got herd mentality and demographic targeting - both of which are good answers- but i'm going to add in another one.
How do developer's decide what kind of game they will make? Generally, it's two different ways. The first way is they say to themselves "What game do I want to make/play?" This question automatically limits how much their games can sell. This is how the artsy/niche games are made: the No More Heroes', Ico's and Okami's of the gaming world. Their appeal is limited because the developer only thought about a game he himself wanted to make. He didn't think about who would buy it.
The second way to approach game-making is the developer asks himself "who do I want to make this game for?" As previously explained by Bod, this quickly results in demographic targeting which also limits the appeal of their product.
How does Nintendo approach development? They use the element of surprise. They don't ask people what they want as that is subjective and limits the game's appeal. So instead, Nintendo chooses to innovate and surprise customers with new experiences. You can't ask gamers what type of games they want because they don't know.
If you asked gamers if they wanted to play a game where you play as an italian plumber who stomps on turtle shells all day they would obviously say "no." But if they got to play the game they would understand how fun it is. The market didn't want Super Mario Bros. until Miyamoto gave it to them, then the market couldn't live without it. The Market didn't want Wii Sports until Miyamoto gave it to them, then it couldn't live without it.
"Pier was a chef, a gifted and respected chef who made millions selling his dishes to the residents of New York City and Boston, he even had a famous jingle playing in those cities that everyone knew by heart. He also had a restaurant in Los Angeles, but not expecting LA to have such a massive population he only used his name on that restaurant and left it to his least capable and cheapest chefs. While his New York restaurant sold kobe beef for $100 and his Boston restaurant sold lobster for $50, his LA restaurant sold cheap hotdogs for $30. Initially these hot dogs sold fairly well because residents of los angeles were starving for good food and hoped that the famous name would denote a high quality, but most were disappointed with what they ate. Seeing the success of his cheap hot dogs in LA, Pier thought "why bother giving Los Angeles quality meats when I can oversell them on cheap hotdogs forever, and since I don't care about the product anyways, why bother advertising them? So Pier continued to only sell cheap hotdogs in LA and was surprised to see that they no longer sold. Pier's conclusion? Residents of Los Angeles don't like food."
"The so-called "hardcore" gamer is a marketing brainwashed, innovation shunting, self-righteous idiot who pays videogame makers far too much money than what is delivered."
