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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.'"
When people try to justify downloading music, they say it's okay because they wouldn't have bought the album in the first place, which means that no money was lost in the process.
Wouldn't the same kind of logic hold here? How can Nintendo lose money on nonexistent consoles if they're already at full production?
Goo goo g'joob.
I just don't understand how they could not have for seen this shortage. I mean last year the same thing happened and they said then they would be ready for this year. Yet here we are. I have friends, family and co-workers asking me where they can get thier hands on a Wii. It really makes me wonder about the rumors of intentional shorting. From a business point it would make no sense to short your sales. From a marketing point however it's been brilliant. Wii is all the rage and is likely so popular BECAUSE it's hard to get. Nothing lights a fire under middle American purchasing power like that hard to get must have Christmas gift.
The question I have is, ok it's $1 billion this holiday season but what about the after affects of the holiday? How many people who are dying to get the Wii (but can't) will still go and buy it in Jan., Feb., Mar.? My guess? A lot. Considering they've been doing it since Nov. 2006.
It reminds of the pirated music idea. A person who pirates music(or movies) isn't necessarly going to be buying said music(or movies). Thus, one cannot say that pirating is a 1:1 effect on sales. Likewise, you cannot say that people who cannot buy a Wii as a gift for the holidays will not buy one after the holidays. Theoretically, if the Big N satisfied demand in December, they would then loose all those Q1 2008 sales. So, what's the point? The real question is, if those who want a Wii, but bought a 360/PS3, will still buy a Wii in the future?
Cheers,
Fozzy
"The past was erased, the erasure was forgotten, the lie became truth." ~1984 George Orwell
Following computer virus loss estimates, and the *AA estimates, I think we can define a new branch of mathematics, defined as the branch of mathematics devoted to making up numbers.
If he explores all forms and substances Straight homeward to their symbol-essences; He shall not die.
If a $Billion is being left on the table, where are people spending it on? 360? PS3? Or how about this new fangled , environmentally friendly device called:
GO OUTSIDE AND PLAY!
Includes such games as Real World TENNIS (indoor and outdoor versions available)
Real World BOWLING (available at a bowling alley near you).
Both games come with a bonus titled called, GETTING FRESH AIR.
*please do not frame me if the Wii is you only source of activity b/c of age/disability/religion/sex/creed/political stance.
I think those all fall under one or more branches of Bistromathematics.
Wouldn't the same kind of logic hold here? How can Nintendo lose money on nonexistent consoles if they're already at full production? No, because no one is downloading magical Wiis and they WOULD give Nintendo that money if they could.
You can't take the sky from me...
These are all good points, but I think the extra time that people spend waiting for the wii will be spend evaluating the other options, looking at the games, deciding if it is worth it and if the cross platform games perform the same or better on other consoles. While it is true that the wii has titles and gameplay the other consoles do not, cross platform game support for the wii is downright awful. Plus while it comes with wireless internet support out of the box, practically no game uses it for multiplayer play.
When it comes down to it, for me the choice was pretty clear. Since I don't like Metroid that much and I've already completed Twilight Princess on wii, I could have a $300 mario machine with shitty 3rd party games or pay the same amount and get a PS2 with a pile of accessories and games. Is it fair to compare the mature PS2 library to the wii's? Not entirely, but the Gamecube's at end of life wasn't anything like the PS2's is now either. I don't have high hopes for seeing a wide variety of good games on the wii, aside from Nintendo published games
Even those who arrange and design shrubberies are under considerable economic stress at this period in history.
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]
Step 1: Read Peter Senge's Fifth discipline
... they may even place orders at each store... when person X gets a wii, they cancel all other orders. So "10" orders really was 1 order.
Step 2: Understand that the Wii is a perfect example of the Beer distribution game
Step 3: Realize that demand is at least ONE ORDER of magnitude smaller than reported.
Case in point: Person X goes to store 1 and asks for a wii, then proceeds to search through store(s) 1-10
If Nintendo attempts to fill the "Billion" in orders, they will greatly overshoot and end up with a flooded market that can't get rid of the damn things. Slow and steady wins this race, a few million in sales lost over the entire potential beats the crap out of overshooting with 100 million dollars worth of hardware sitting on shelves, or ending up in landfills
meh
I have the solution to solving the holiday product crunch: spread the holidays out over the calendar. In the USA, divide the country up into 12 regions of about the same population and economics. Then assign each region a different month to have the gift giving holidays. Most people don't celebrate Christmas religiously, anymore, so this shouldn't be much of a problem.
The above does still leave a big crunch at stores and malls within a region. So maybe it's better to divide things up on a micro-scale instead of a macro-scale. So, how about celebrating the gift giving holiday based on (zipcode % 12), where you celebrate gift giving based on your zip code modulo 12 to choose the month.
This still means a big crunch for families and neighbors in the same zip code. So I have a better idea. Let's use the date of birth to determine when to celebrate the gift giving holiday, based on who the gift is for. And instead of having it all on one day of the month, let's spread it out further and use the actual date in the date of birth for everyone's own personalized gift giving holiday.
Ooops. I didn't take into account February 29. Never mind.
now we need to go OSS in diesel cars
Yes, this can be a serious problem. If there is any level of shortage of a product (as many of the latest products coming into the holidays are), EBay will have the effect of making the shortage worse. And it's not the manufacturers that profit from it in this case (apparently); it's whoever has the connections to get those bulk deliveries redirected to them (possibly even stolen).
now we need to go OSS in diesel cars
The issue is the Wii is selling better than any console in history. The Wii is selling faster than the PS2, the DS, or anything else that came before it. So Nintendo forcasted based on "Aggressive sales" and started with production of 1 million for launch, and 1 million a month, which they felt was a fair target (even optimistic, considering that's the rate of initial PS2 sales). Now demand is much higher than anyone (even Nintendo) anticipated, and even now at 1.8 million units per month it still isn't enough.
You're right in saying it makes no business sence to short your sales. Demand isn't a constant, neither is hype. You want to satisfy demand before it wanes.
Even with outsourcing, complex products such as consumer electronics require many different parts from many different manufacturers. If any one part is in short supply, the whole product will be in short supply. And if you're sourcing parts that can be used for different end-products, then you also have to compete with other businesses for that resource.
So no, Nintendo doesn't have their own factories where they make wiis from start to finish, but they do have to contract out all the appropriate parts and hope that those manufacturers can meet the demand. If Nintendo wants to instantly increase production, it may very well mean paying a premium for scare parts, which would cause them to lose a guaranteed amount on the increased manufacturing. So they get screwed either way, in which case it's better to stick with all the contracts that were negotiated months ago based on what they thought was a reasonable demand.
Electronics don't just poof into existence. Whether company-owned or outsourced, factories must exist to make products and if those factories can't meet demand, the product won't meet demand.
New Wii units without a multi-controller/multi-game bundle are selling for a fifty to seventy-five dollar price premium over retail. Even if the 15 million units they've sold to date were sold for USD 50 more, Nintendo would only be making an additional 750,000,000 bucks, less than three-quarters of a billion. And that assumes that everyone willing to pay $250 for Wii is also willing to pay $300 for a Wii which I doubt. It seems to me that a large part of the Wii's popularity is its price.
But more importantly, the lack of a large premium on the Wii from resellers suggest that the present rate of production and price is very close to the market equilibrium. If demand were far outstripping supply, the premium from resellers on eBay would be far higher. If supply were far outstripping demand, we'd be seeing the boxes stack up on the shelves. But from first appearances, it would appear that Nintendo is very close to hitting the sweet spot with their present rate of production.
"'We don't feel like we've made any mistakes,' said George Harrison, senior vice president for marketing at Nintendo of America. He added mournfully, "I don't know how someone controlled you. They bought and sold you." And then Eric Clapton launched into a guitar solo.
Not sure, but how much of this 'shortage' was deliberate by a subset of consumers that bought Wiis simply for speculative reasons?
I can find tons (right now I see 9000+) of Wiis on ebay at joke prices. Presumeably almost all of these will go back to the store within a week or two of Christmas.
Not Nintendo's fault, really.
-Styopa
They can't raise their prices without increasing the perceived value, or there will be a huge backlash. What they COULD do, is what retailers are doing and forcing bundles. Make the Wii available in 2 packages. 1 solo $250 package (what's offered now) that will get 30% of production, and 70% of production will go to the new $399 "Wii Multiplayer Bundle"; which includes the system, WiiPlay, an Extra Nunchuck, 2 Classic controllers, and $40 in Wii Points cards.
That they could do.
But more importantly, the lack of a large premium on the Wii from resellers suggest that the present rate of production and price is very close to the market equilibrium. If demand were far outstripping supply, the premium from resellers on eBay would be far higher.
Not necessarily. This could instead indicate that the demand is elastic with respect to price. That would mean the demand for $250 Wiis is extremely high, while the demand for $400+ Wiis is very low. An item being in short supply relative to the demand does not automatically mean that the people who want the item would be willing to pay more for it. That usually only applies to what are more or less necessities, like gasoline or food staples.
This especially makes sense in the context of who the Wii's primary market is -- casual non-gamers. These are people who maybe saw a friend or relative's Wii, played it and had fun, and decided they want one despite not being into any previous game consoles. For them, $250 for a fun toy may seem like it's worth it. If the toy turns out to be hard to find, are they going to decide that they will instead pay $300, $400, or $500 for it? Or are they going to decide that they don't need it that bad, and can wait until more are available?
It's only the hard-core that are going to be willing to buy their chosen console no matter the price. But even then they're also the ones who'd be willing to call every store in town and show up before they open on shipment day. The latter is the category I fell into. Even I, long-time Nintendo fan boy, wasn't willing to pay scalper mark-ups on a Wii.
What this implies is that despite some theories to the contrary, the Wii's MSRP is in fact a major selling point.
The enemies of Democracy are
The Wii has been effectively sold out for over 12 months straight now.
I don't understand this. The guy next to me at work was all, "I want a wii, they don't have it
on target.com, its sold out blah blah blah". I called ghetto ass gamestop and they had a pile of them
for the regular old price. Of course, the next day he "decided not to get it just yet". Anyway,
Where is the shortage? The day before xmas? News flash, they are also
out of the good barbies, transformers, and anything else interesting until they restock....
Everyone that I know that wanted a Wii went to the store and bought one already.
music lover since 1969
They could have solved this entire issue by making consoles that aren't region locked. There are dozens of Wii consoles sitting at my local game shop here in Japan, and there's no big Christmas rush here. Since you're probably making the consoles in China or Malaysia and have to ship them anyway, and if there is a surplus in Japan, you'd say, why doesn't Nintendo just ship the extra units from Japan to the U.S.? Well they can't, because they've factory-locked the console to only play discs from Japan. Stupid, stupid, stupid.
The way to design a product you're selling internationally is to prompt the user for a language on first boot-up (I think the iPod does this), package in a regionalized manual or a universal manual with just pictures of how to set it up, and include a localized power cord. Of course, you have to design the console to operate in either PAL or NTSC. But a nice perk of this is that you don't piss off the few customers who want to play games released only in another region. Of course, that means you won't be able to charge twice as much for games sold in the UK and Australia anymore, but you'll more than make up for it in volume.
Nintendo really shot themselves in the foot with this. They got it right with the DS and fucked it up with the Wii. It was completely avoidable.