Wii unavailability costing Nintendo a billion in sales
Those who don't learn from the past are doomed to repeat it. Or in this case, the consumers are doomed to repeat it. The New York Times reports that when it comes to getting a Wii in 2007, its looking remarkably similar to 2006. Analysts say Nintendo is leaving $1 billion in sales "on the table" by not having enough consoles to satiate demand this holiday.Nintendo of America's George "One foot out the door" Harrison tells the NYT that the company hasn't made any mistakes, though it does worry about consumers purchasing another system. Lazard Capital Market's Colin Sebastian is quoted in the piece as saying 86,000 Wiis have hit eBay since Dec. 4, with the average end price for the system being $320, a 28% increase over retail. If you're still looking for a Wii this holiday, just keep calling stores every day -- obtaining one at this point is not for the weak.
Reader Comments (Page 1 of 2)
gonk @ Dec 14th 2007 12:02PM
yet by now they've waited so long to open another factory that it's probably too late for that to be up and running in time to pay itself off
Gun Barrier @ Dec 14th 2007 12:11PM
theres always christmas in july.
vidGuy @ Dec 14th 2007 12:15PM
Bingo. Those sales are already missed, and new factories would require a lot of investment. Then again, if Nintendo can sustain a million+ unit/month sales demand, putting it on pace for 60m in 5 years, new factories may be an option.
If they left $1b in sales out there, that's 4m consoles, or roughly USD$60m in profit for Nintendo. That's substantial money, but the smart decision is based on what's coming up. After this season, demand will probably fall below their capacity and Nintendo will be able to stockpile over the summer for next holiday.
gonk @ Dec 14th 2007 12:21PM
this reminds me of a video i saw yesterday:
http://youtube.com/watch?v=i7gIpuIVE3k&feature=related
Zootittles @ Dec 14th 2007 1:42PM
Holy crapcakes! Garbage Day in high def!
+1 for you sir.
arrrgh @ Dec 14th 2007 2:43PM
hi def on youtube?
rv @ Dec 14th 2007 2:45PM
Seriously, how hard can it be to make wiis? Duct tape doesn't cost much and isn't hard to find.
gonk @ Dec 14th 2007 4:56PM
zootittles, have you seen the entire movie? it's so funny. i got silent night deadly ngiht 1 and 2 for xmas a couple years ago from my friend
Lone Starr @ Dec 14th 2007 12:05PM
But of course this is a conspiracy. This is merely a ploy by Nintendo to keep the Wii popular because they know that if they produce enough, no one will want it anymore. Don't be fooled!!!11one
On a serious note, Stringer's comment made me LOL.
xFenixKnightx @ Dec 14th 2007 12:06PM
Nice pic Sliwinski, I lol'ed
Fernando Rocker @ Dec 14th 2007 12:07PM
I don't know why Nintendo haters say that the shortages are intentional to create fake demand.
Nobody likes to lose money. Well, just Sony.
Gun Barrier @ Dec 14th 2007 12:10PM
lol Sony could lose all the money thay want this christmas. Especially since nongamers are buying the ps3 for the media capabilities.
Obie @ Dec 14th 2007 12:33PM
+1 hahaha
Slaziman (B-B-BRUSHED WITH FAAAAME) @ Dec 14th 2007 1:41PM
If everybody had a Wii it wouldn't have that "exclusive" status and demand would be lower, I'll bet my grandma on it.
arrrgh @ Dec 14th 2007 2:45PM
don't worry gun barrier im sure sony will manage to disappoint everyone and fuck their recent semi-success up all over again
Gun Barrier @ Dec 14th 2007 12:08PM
a good way to get a wii is by going to the console section in Costco as often as possible.
Ive seen wii bundles in costco a couple of times.
Rich @ Dec 14th 2007 12:12PM
Don't know if this has been shared before, but this comic made me chuckle:
http://farm3.static.flickr.com/2166/2111158636_da042709e4_o.gif
J @ Dec 14th 2007 12:13PM
This a pretty careless assumption because scarcity of a product always drives up sales, and it's impossible to say what the ratio is between sales added by the scarcity effect and sales lost due to unavailability.
It's probably not a negative number in this case, but +$1 billion? Yeah right.
rdj75 @ Dec 14th 2007 12:16PM
This is nothing but a calculated business plan by Nintendo. Economics states that if demand is more than supply then the price will remain higher. Nintendo has the ability to make more units but if they do so and create a situation where supply is more than demand then that would eventually effect the price. With Wii's suddenly sitting on store shelves it creates a situation where nintendo may have to do a price drop to move units sacrificing profit on each unit. So even though they may sell more, they would make less per unit. So why even work twice as much for half the return on each unit?
In any case, with the rediculous success of both the DS and the Wii, Nintendo knows exactly what they are doing thus them hitting the cruise control botton while consumers fight like hell to get their hands on the wii for the holidays.
Crono (NDF - Knight of the Old School) @ Dec 14th 2007 1:24PM
Thats about the dumbest thing I've heard today. Except the political game article at least.
When wii's are going on e-bay in the free market for 400 dollars, Nintendo would have to increase the stock on the shelf by a factor of 2 or 3 to have the problem of "sitting on the shelves collecting dust". I don't think selling 2 or 3 times what they are now will seriously impact their profits if the per unit cost is reduced. As a matter of fact, Nintendo would probably LOVE to be able to crank out 5 and a half million consoles a month, sell them for 200 dollars, and then have them nearly sell out.
What kinda bizzario world are you living in.
Lone Starr @ Dec 14th 2007 1:37PM
You're missing the flip side of what should happen rdj75. Because Nintendo isn't producing enough, holding the price constant, there will be a shortage. In terms of lost revenue, this is no different than producing too much except for the possibility of the increased demand that comes with the perceived "hot item" status.
It's plausible that this is why Wii production can't keep up with demand until you consider (assuming the analysts are right) the massive amounts of money they are giving up. It could be the case that if the Wii wasn't a hot item, Nintendo wouldn't be losing this money to begin with, but that remains to be demonstrated.
rdj75 @ Dec 14th 2007 2:00PM
@Crono and Lone Starr, my point is when it comes to unit production you never want to make as much as what the consumer is demanding, google the law of diminishing returns and you would understand. Like I said this is all standard economics.
rdj75 @ Dec 14th 2007 2:27PM
@Crono
Maybe I should have worded my initial post differently but economics is still economics. In the position that nintendo is in at the moment, if demand called for 5 million units a month, I can guarantee that nintendo still would not manufacture that much to meet the demand. Its all simple economics, and as far as your bizarrio comment, I do have a masters degree in business, and have lectured on similar situations before, so I do know what I am talking about. And remember, the Law of Diminishing Returns, every business follows that at some point, especially with hot products.
Lone Starr @ Dec 14th 2007 4:08PM
Believe me, I am quite familiar with the law of diminishing marginal returns and to put it bluntly, you are misapplying it to the situation. In fact, the law of diminishing marginal returns actually goes against what you are arguing.
You always want to maximize so that supply equals demand for mathematical reasons (which I'm sure you're familiar with).
vidGuy @ Dec 14th 2007 4:44PM
@rdj75, one of the least economically-sound posts I've ever seen...
vidGuy @ Dec 14th 2007 4:59PM
First, supply and demand affect price as you have layed out, but only in a perfectly competitive market or a similarly structured industry in which price is affected by supply and demand. If that were true in this market, stores would be selling the Wii for $499 or Nintendo would have bumped up the MSRP. Nintendo sets the price of the Wii and the system is therefore not subject to price fluctuations as you have suggested.
Secondly, you are forgetting the price elasticity of demand. I'd expect the Wii's elasticity to be fairly high based on calculations of similar products. Therefore, selling more units at a smaller profit/unit GIVES NINTENDO MORE PROFIT overall. Why wouldn't they want that?
Lastly, your use of diminishing returns is so far off base here it's laughable. I'd start to really question your "master degree in business" if I heard you say something like that.
rdj75 @ Dec 14th 2007 8:37PM
Well first of all to Vid Guy, elasticity is based on how a price change would influence the demand for a product, so therefore you cant say its highly elastic since there has never been a price change, to add to that if nintendo increased the price of the wii then they will probably sell less because consumers are highly elastic(buy less) to price increases in most cases where as consumers are relatively inelastic when it comes to price decreases. Come one dude.
Oh and another thing Vid Guy, you mentioned perfect competitive industry, which means many firms within the same industry, this is more of an oligopoly which are few firms(large firms) such as MS, Sony and Nintendo. Again if this was a perfect competitive industry then you would want to maximize profits by matching supply with demand like someone else did say, so my bad on that one Lone Starr. Maybe I should have made myself a little more clair by stating that this is obviously more of an oligopoly, where the tradiditional way of thinking(your standard demand curve) can be obscured because of theories like the kinked demand curve. This is where an oligopolistic firm wants marginal cost equal to equal marginal revenue(mc=mr). This strategy is about maximizing profitability based on a certain price times a certain quantity of output and not just making as much as you can to make everyone happy.
rdj75 @ Dec 14th 2007 9:12PM
sorry for any mis-spellings.
vidGuy @ Dec 14th 2007 9:36PM
"therefore you cant say its highly elastic since there has never been a price change"
I cannot give an elastic figure, as in the actual number. But, as I said, based on elasticity studies of similar products, and knowing that this is a luxury good, we can propose that the product is elastic. In the case of your analysis, then, my point was that LOWERING the price would give Nintendo MORE PROFIT, something you seemed to deny in your first post. We don't NEED to know the number, simple that it is elastic (with a price elasticity of demand above 1).
Yes, raising the price will cause fewer sales (law of demand) -- but considering how much demand outstrips supply that wouldn't be a problem for a while. Plus, if you read my post I wasn't suggesting that Nintendo do that. That's a horrible PR move. It was an example of why your analysis is wrong.
"You mentioned perfect competitive industry, which means many firms within the same industry"
Yeah, I mentioned it but in the formulation of a negative point - I wasn't suggesting that the gaming industry is PC in any sense.
"this is where an oligopolistic firm wants marginal cost equal to equal marginal revenue(mc=mr). This strategy is about maximizing profitability based on a certain price times a certain quantity of output and not just making as much as you can to make everyone happy."
Yes they want that spot, but where MR=MC the company is making $0 on each unit sold. It's not a maximization of profit per unit, as you originally suggested, but a maximization of TOTAL PROFIT, which was the point I was highlighting. Also, a hint: even perfectly competitive firms produce at the point where MR=MC.
Anywho, say what you will, it's all just coming out as giberish anyway.
rdj75 @ Dec 15th 2007 8:51AM
If cost per unit stay around the same and they lower the price, how are they making more profit? They are currently selling everything they make so how is lowering the price making more profit. That makes no sense at all, and you are still saying that its elastic, you can't say that. If nintendo drops the price right now would that change the demand? No because there are still boat loads of people that want one. Regardless if the price is 250 or 200, the demand would still remain high not affecting buying habits so its inelastic with respect to a decrease in price. You obviously don't have a grasp on economics at all.
vidGuy @ Dec 15th 2007 1:06PM
"If cost per unit stay around the same and they lower the price, how are they making more profit?"
That's what elasticity is all about. If a product is elastic, dropping the price by, say, 10% would cause an increase in sales of MORE THAN 10%... resulting in more total profit. I'm not saying this is applicable to Nintendo's situation right now, but it would be once demand falls below supply. And you tried to propose that the opposite was true (lower price = lower total profit).
"If nintendo drops the price right now would that change the demand? No"
Um, yeah? They'd just have a supply that was that much shorter of meeting demand. So, if there's a 200k/month demand shortage, a price drop may cause that to go to 500k/month. Made up numbers, yes, but you get the point now right? That's the law of demand for you. Suggesting that demand would not change with a price drop is doing one of two things: (1) denying the law of demand or (2) suggesting that Nintendo faces a completely inelastic demand curve. If the latter were the case, Nintendo could charge $1 million per console and not affect units demanded... or that they could drop the price to $0.01 and not affect units demanded (no increase in demand). I hope you aren't saying that ;)
"so its inelastic with respect to a decrease in price."
So you think that if Nintendo dropped the price to $199, (a 20% decrease) that there would be no, or very little (less than 20%) increase in demand? Elasticity isn't measuring sales, it measures units demanded. It doesn't matter that Nintendo doesn't have enough supply to meet that, at least as far as determining the elasticity.
"not affecting buying habits"
I think what you mean is not affecting UNITS SOLD, considering they are already selling out. Buying habits would probably change drastically - more people lining up to get one, more phone calls to stores, more buys on ebay, etc. So I think through all of this you are getting DEMAND and UNITS DEMANDED confused with UNITS SOLD. No, dropping the price wouldn't result in more units sold, but it would result in more people wanting the product (an increase in demand). And if there is a larger percentage increase in demand than the percentage decrease in price, the product is elastic.
You deny that I can propose elasticity; let's look at some elastic and inelastic products.
Inelastic: gas, bread, electricity
Elastic: sports cars, movie tickets, televisions
Which does the Wii fit into?
Dopple Boppler @ Dec 14th 2007 12:17PM
I still haven't seen a Wii in stores since I got one at launch last year. Heck, most of the stores near my house all have signs in the electronics section apologizing for shortages and all that.
Now, I'm not quite a Nintendo fanboy. I guess I might call myself a Nintendo lobbyist, at most, and I love the Wii. But even I can't see why they're selling at the rate they are. I mean, I've let my parents and friend's parents play Wii Sports and Rayman and WarioWare, and they loved it, but only a couple of them actually wanted to get one for themselves. I'm almost inclined to think that the Wii's only selling this much because of a hive mentality among consumers because it's the "hot" item. Kind of like Tickle Me Elmo, except not depressing.
James @ Dec 14th 2007 12:19PM
Another bullet in the head of "Nintendo are holding back sales" crowd.
carl @ Dec 14th 2007 12:26PM
Lots of disappointed children not going to get their waggle on this christmas, including mine! and they are not allowed to touch my 360 or PS3!
Nintendo really should have got their act together to make sure the must have toy of the year was in the shops, very disappointing, by the time its back in stock the littluns will be after the next big fad!
embassy @ Dec 14th 2007 12:28PM
nintendo is too smart of a company to not have predicted, and adequately prepared for this...something else is going on...they know what they're doing. you don't stay one of the top gaming firms for over 20 yrs and not be prepare for stuff like this.
Obie @ Dec 14th 2007 12:39PM
I think Nintendo themselves was surprised as much as everyone else by the Wii's popularity.
Heck they outsold the entire GCN lifetime sales in just a year!
cc123 @ Dec 14th 2007 12:30PM
"If you're still looking for a Wii this holiday, just keep calling stores every day"
LOL @ GS/EB employees
=)
Zootittles @ Dec 14th 2007 1:44PM
Be sure to ask for Battletoads while you're at it.
Obie @ Dec 14th 2007 12:35PM
Glad I got mine at launch. I should've picked up two more and sold em on ebay, I could own a boat by now!
embassy @ Dec 14th 2007 12:44PM
i just find it hard to believe a company with as much experience, and history with high demand and the gaming market in general, is unprepared for something like this. This isnt the first time nintendo's had such high demand for a product...the DS doesnt seem to be having these issues..and the demand is just as high as the wii.
Vegeta (aka Ska Oreo) @ Dec 14th 2007 1:02PM
But remember. Nintendo was not expecting the Wii to be a run-away hit. You can't really blame them for being unprepared.
Virtuous @ Dec 14th 2007 1:12PM
There's little doubt Wii shortages have been intentional. I expect demand to exceed supply all of 2008. Nintendo had better. Wii shortages are 1 more reason why 3rd party developers should steer clear of the Wii. It's difficult enough competing with Nintendo's own games.
Crono (NDF - Knight of the Old School) @ Dec 14th 2007 1:27PM
There were people who said the exact same thing as you last year, only they said 2007 instead of 2008.
You're wrong, and a moron. The fastest selling console of all time is supply constrained because Nintendo doesn't want to sell it? Can you really, seriously have that position.
SoulBlade @ Dec 14th 2007 1:28PM
better to lose a billion dollars this way rather than having to deal with a nasty hardware problem...
Obie @ Dec 14th 2007 2:11PM
Amen, I have yet to own a Nintendo system that broke on me.
Virtuous @ Dec 14th 2007 1:28PM
Microsoft and Sony were criticized for not being able to meet demand for their consoles for several months. It sure looks like some people want to give Nintendo a free pass for the same transgression that Microsoft and Sony committed.
SoulBlade @ Dec 14th 2007 1:48PM
not many people (including Nintendo) expected the Wii to do as well as it has. How many units were/are being produced monthly for the 360 and ps3?
Boss Tempo @ Dec 14th 2007 1:49PM
Ask anyone who has a Wii how often they really play it and you'll see that this shortage actually works in their favor.
Mr Khan @ Dec 14th 2007 5:48PM
played mine everyday since i finished Phantom Hourglass
Zsavior @ Dec 14th 2007 1:56PM
I might get flamed for this, but anybody remember the N64 had these same shortages. When the system came out mom and pop stores were charging an Arm and a leg to get one, and places like toys R Us had horrible shortages so bundles were the only way but they were just as bad.
Does anybody remember that it gave way to PS1 complete domination over the console world. That shortage pissed alot of people off including myself. After Saturn pretty much was fading away, and nintendo made you wait, there was not nearly enough systems out there for you to get. Anybody and everybody who was tired of the waiting got a Playstation because it was cheaper and available.
I think the only thing that is not stopping Nintendo from taking a violent tumble is the fact they are the cheapest system. As much as a like the Wii I am getting worried about its future.