Wii unavailability costing Nintendo a billion in sales

theres always christmas in july.

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.

this reminds me of a video i saw yesterday:

http://youtube.com/watch?v=i7gIpuIVE3k&feature=related

Holy crapcakes! Garbage Day in high def!
+1 for you sir.

hi def on youtube?

Seriously, how hard can it be to make wiis? Duct tape doesn't cost much and isn't hard to find.

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

lol Sony could lose all the money thay want this christmas. Especially since nongamers are buying the ps3 for the media capabilities.

+1 hahaha

If everybody had a Wii it wouldn't have that "exclusive" status and demand would be lower, I'll bet my grandma on it.

don't worry gun barrier im sure sony will manage to disappoint everyone and fuck their recent semi-success up all over again

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.

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.

@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.

@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.

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).

@rdj75, one of the least economically-sound posts I've ever seen...

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.

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.

sorry for any mis-spellings.

"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.

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.

"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?

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!

Be sure to ask for Battletoads while you're at it.

But remember. Nintendo was not expecting the Wii to be a run-away hit. You can't really blame them for being unprepared.

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.

Amen, I have yet to own a Nintendo system that broke on me.

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?

played mine everyday since i finished Phantom Hourglass