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Wii Shortages Costing Nintendo 'A Billion' In Sales
A New York Times article from this past Friday highlights the 'problem' that Nintendo is facing: more people want to give them money than they can handle. Analysts quoted in the story discussing Nintendo's unique Wii shortage problem indicate that the company could be selling twice the 1.8 million consoles a month it ships. All told, these same individuals believe the company could be leaving as much as $1 billion on the table this holiday season. "'We don't feel like we've made any mistakes,' said George Harrison, senior vice president for marketing at Nintendo of America. He said there was a shortage because the company must plan its production schedule five months ahead, and projecting future demand is difficult. He added that there had been a worldwide shortage of disk drives that had hurt Nintendo as well as makers of many other devices. 'It's a good problem to have,' Mr. Harrison said of the demand, but he acknowledged that there could be a downside. 'We do worry about not satisfying consumers and that they will drift to a competitor's system.'"
They saw the shortage and they knew it was going to happen. The people running Nintendo's financial and business planning know what they're doing and probably have spreadsheets of predicted outcomes.
The problem is reaching the best profit margin. (Reminding of an old computer game in High School business class) Nintendo could build spend money on 100 new factories and pump out 100 million Wii's in one month to satisfy demand. But what happens when the month is over? Nintendo is left with 100 factories with 1000's of works sitting around picking their noses. Effectively, they'd start hemorrhaging money in keeping said factories with the only recourse to sell the factories.
Otherwise, they're now pumping out millions of of systems a month that no one is buying, because demand was just satisfied in one orgasmic explosion. All those systems are being pushed into storage, which costs money. Now, we look at something like the PS3 and all the design/model changes it had. If a design/model change happened to the Wii, it'd have to firesale it's entire stock to make way for the new stuff.
It's a balancing act and Nintendo has the benefit of pop-culture status with the Wii. The "OMG, there's a Wii on the Shelf" shock (thanks to customer experience and news media hype) practically guarantees an impulse purchase, if for no other reason to tell their friends they finally found a Wii (even if they just got a 360/PS3 as a gift).
Also, Nintendo increased output (that started 5 months ago) to *help* meet holiday demand but as there is with super popular things, there can only be a reasonable amount of product produced. Demand can come in spikes (holidays), but production simply cannot be spiked like that. It takes time to make a product, but takes an instant to create demand. And unlike the 360 or PS3, the Wii hasn't had time to stock up units for the holiday rush as it's been more-or-less sold out since it launched.
Cheers,
Fozzy
"The past was erased, the erasure was forgotten, the lie became truth." ~1984 George Orwell
They've ramped production from 500 thousand / month at release to 1.8 million / month now. That's a pretty sizable production increase. More importantly, I'm not hearing news about DOA units, so they've (so far) avoided compromises in quality while more than tripling production. So, yeah, they completely messed up on demand forecasting. As far as the production ramp-up, I think they've done well.
[Insert pithy quote here]
They doubled capacity. And still can't meet demand.
I suspect that nobody believed that doubled capacity would continue to sell out during the year; they figured that they would build up a stock to carry them into Christmas season, like every other console ever.
is competition good, or is duplication of effort bad?