I have never been a huge video gamer but, having run into the Nintendo Wii a few times in the past couple of months, I can see why it is beloved.
But here’s the question: why is the Wii, which was famously scarce before Christmas this year, still so hard to buy?
Paul Kimmelman, a technical architect who has guest-blogged here before, poses this question and walks through some of the various wrinkles:
You guys may be interested in the Nintendo Wii and its serious availability issues. They released this in Nov 2006, and have not been able to supply properly to this day. The national availability runs around 2-5%, with most stores out of them most of the time, and no legit online retailer carrying them at all. This has had two effects: the average price paid has been around 150% to 180% of retail price, with none of that going to retailers or the manufacturer. Only scalpers are profiting. It is interesting to me for 5 reasons:
1. Nintendo clearly made a colossal blunder in setting up their manufacturing. Even if they assumed it would not do very well, their inability to ramp up production in 4 months is pretty unusual in this industry. Note that there are no known parts shortages.
2. Retailers are benefiting in extra store traffic, as people come to check to see if they have it available. So, even if they lose potential sales of this device, they probably make up much more in sales to people who are in the store looking for one. Perhaps the retailers are paying Nintendo not to ship them to the US?
3. Game vendors (including Nintendo) are hurt by this, since their TAM/CAM is held artificially lower. Since shelf life of a game is very much based on release date, this hurts the game developers.
4. It is unclear how much this has pushed sales of XBox360, PS3, PS2, and even older Gamecube devices. Since Wii has a quite different controller design, people are attracted to it. Normally, this would have benefited their competitors a lot according to economic theory.
5. Nintendo has not addressed this issue publicly at all. No apologies, no status reports, nothing to say what they are doing about it. Surprising for a company in this situation. It is unclear if they feel this shortage is a PR advantage or problem.
From 1 to 25 of 79 Comments
Weird. I think I can find Wiis in any video game store in my place (I’m in KL, Malaysia).
And, oh… I want one too. Wii Sports is a good way to lose weight. :D
— Chewxywas there not an early recall on this item and that set them back ?
— RandyfromCanadawas there not an early recall on this item and that set them back ?
— RandyfromCanadaIn the UK, over the last month they have started to become available through some online retailers, but always packaged with games (typically three, and without letting the buyer choose which ones), with a typical bundle price of about £300 compared with £179 for the console on its own.
— spiceyOne issue seems to be that Nintendo’s distributors are supplying a wide range of retailers: the ones with dedicated gamer customers (like EB Games or Gamestop) or mass market traffic (Walmart & Best Buy) sell out quickly, but other stores can stock them, at least for a little while. I stumbled across mine in January from FYE, a mall music/movies store that I would never had shopped at otherwise - they happened to have 2 available on the day I walked by & saw them in the window. Other stories I’ve heard are similar of people finding them in less likely stores. And yes - it is worth the demand…
(And no, there was no recall, just a replacement wrist strap to request.)
— jajasoonRandyfromCanada - There was a recall on the controller straps, but not on the console itself.
—
Point 1 - A blunder in production, I’m not sure about that. There were more Wiis sold in its first four months (in the US) than any other console (1,860,000 - the original XBox comes in next at 1,690,000). It seems they are selling faster than anyone predicted.
see: http://kotaku.com/gaming/nintendo/charticle-the-first-four-months-249629.php
As for point 5 - http://www.mcvuk.com/news/26486/No-end-in-sight-for-Wii-shortages
That was written a week ago. VP of marketing and corporate affairs at Nintendo addresses the shortages and says they are producing Wiis as fast as they can.
— RodeoClownAs to the assertion that N”intendo has not addressed this issue publicly at all,” there were some limited comments from Perrin Kaplan, Nintendo’s VP of marketing and corporate affairs:
“There is a lot going on behind the scenes in terms of working on what we are producing and the numbers continue to rise but the product is so very popular that we may see a supply / demand situation last for some time.”
http://www.gametheoryshow.com/index.php?post_id=202197
— jejorda2Problem? What problem? If there were plenty of Wiis to go around, there wouldn’t be all the talk about how there aren’t enough Wiis to go around.
How do you make something ridiculously popular? First, you make a great product (better than your competition is always a plus). Second, you sell it FAR less than your competition is selling their new product. Third, you make your product a pain in the butt to find.
Now that there are enough Wiis “in the wild” for people to know what it’s all about and/or to have experienced what it’s all about, the demand has sky-rocketed. And the more people can’t have something they want, the more they want it.
I remember the new Tickle Me Elmos (TMX) being VERY popular leading up to this past Christmas. People were paying $100-120 for a product that retailed for $40.
Suddenly, Wal-Mart just happened to find some locked up in a warehouse and the market was flooded; there were plenty of Elmos to go around.
Within days, the very same Elmos that were selling for $100-120 on eBay were starting to sell BELOW cost.
On top of that, the demand plummeted. Everybody could get what they want and people stopped talking about how much they wanted it. And when people stop talking about how much they want something, it’s as good as dead in today’s market.
So, given all this, I wonder why Kimmelman thinks there’s been a blunder of any kind. I can walk into any of my local electronics shops (Best Buy, Circuit City, etc.) and find at LEAST three PS3s on the shelf.
Comparatively, it took me six trips to various stores to put together the pieces needed to have two extra controller sets for my Wii. Kimmelman may think that’s a problem, but would be overlooking the fact that I love my Wii so much that I was more than willing to make those six trips. I don’t hear about anybody doing similar things for a PS3 or XBox 360.
Meeting demand is NOT always a good thing.
— ftelegdyCan someone inflate the acroynms TAM and CAM for me? I can’t seem to find what they mean on the interweb.
— LukosanI think this is a great strategy for Nintendo. If they were to have the means to scale up production and meet consumer demand, eventually demand for new Wii’s would drop as customers get them. Wii’s main competitor, the Sony PS3, is getting slaughtered in terms of sales. A Sony exec (was it CEO?) made some statement about how hard it is to find a PS3 on the shelf of any store, then faced backlash from the gaming community about how it’s easily available because Sony dropped the ball on certain features.
By keeping supply low, Nintendo is achieving three likely objectives:
1) Minimal shelf time for existing shipments
2) Positive media attention
3) A coveted product
The “lucky” ones who have a Wii by whatever means (wait list, eBay, store shelf, etc.) have a product that their friends can use, like, and want to buy. This also allows people who are “waiting for a price drop” to save up some money and splurge at full retail because they’ve wanted it for so long.
— bjoergesAs an example of the high demand, I run a video game website and it took me until late last month to acquire a Wii from Nintendo’s PR firm so that I could begin covering the system and it’s games.
I think after having been knocked from the mountain top when the N64 went up against Sony’s Playstation and again with the Gamecube vs PS2/Xbox that Nintendo was hoping to do well, but drastically underestimated the success this machine would have.
Obviously we can talk about how lack of supply hurts the developers as well as the sales, but a key component to keep in mind with Nintendo is that they actually turn a profit for selling the console itself. This is a far cry different from Sony and Microsoft who essentially “subsidize” the cost of the hardware to increase their strength in the market with a higher installed user base.
— SBGamesConeAh, the console wars . . . First, let us be clear, the Nintendo Wii is not, striclty speaking, a next gen console. It does very little to push the envelope in terms of it’s hardware. This will hurt it it in the longer run. What the Wii does have going for it, despite their early bad press about broken TVs and such, is a hugely fun and wildly addictive ‘fun factor’. I am, at heart, a hard core gamer, even if I do not have the time to dedicate to video games that I once did (it is a shame what parenthood does) and I still crave a PS3. However, odds are, we will be getting a Wii . . why? Because it is more fun, and more social. Of course, Sony’s problems with supply, pricing and some poor PR have only fueled the Wii’s popularity.
— CkuchyI’m not an economist, but I’ve often heard the argument given by #8 and #10, and I wonder whether it’s any good. They claim that if Nintendo made more units, demand would fall, and that would be bad for Nintendo’s bottom line. But:
By “demand would fall”, do we mean that the equilibrium price would shift to a different point along the same demand curve, or do we mean that the relevant demand curve would itself shift?
If the former, then it’s not clear that such a “fall” would mean a decrease in overall profit. (A monopoly maximizes profit at the point where marginal cost equals marginal revenue, not by artificially restricting supply to some different point, right?) If the latter, then it’s not clear why restricting supply would result in a shift to a new demand curve. (Is there any evidence that this happens, “in the wild”?)
Anyway, like I said, I’m not an economist, so I’m curious as to whether this “it’s sometimes profitable for a monopolist artificially to restrict supply” argument is any good. It seems specious.
— majikthiseIf you truly want one, let me know and I’ll keep an eye out. I bought 6 before Christmas to resell. I haven’t looked in a while because I kept one for myself, but they’re not that hard to find.
— kentavosI think the Wii is selling so well not just because of the “hard to get” cachet, but because it has opened up a much larger market for video games. This larger market can support a much larger number of game systems than those intended for the hard-core gamers.
This new market is also not that used to spending big money for games, but the $250 price is not too punishing. Compare at $500 or so for a decent PS3 or XBox 360 setup (not to mention the headaches of figuring out which configuration you want).
Wii has some other things about it that are unique and attractive for non-gamers. The Mii system of creating avatars is very 2007 - when you play certain games, your avatar is the one on screen. For young children especially it is just a delight to see “themselves” on the screen. My daughter shrieks “There you are daddy!” when it is my turn. It’s a different experience than pre-2007 gaming.
In other words, I think the answer is pretty simple - there is a global market for the Wii that is several times larger than that for hard-core gaming systems, and the price point hits that market pretty squarely.
As for catching up to demand, I agree that it is a bit ridiculous to be hunting for these things 7 months after release. I think they simply *must* have this figured out by Christmas 2007 though, right?
— ddelrussTAM/CAM are “Total Available Market” and “Captured Available Market”. The latter is interesting in this case because shortages often lower your CAM severely from your TAM.
As to limited supply driving sales - yes to an extent. But, there is an inflection point where that works well. You can have some limitations on availability, so that you drive demand and buzz. But, having
— pkimelmaI don’t know, at this point I’m pretty sure that you can find one in any major metropolitan area no problem.
— mthmchrisI live in Mountain View, CA which you think would have a ready supply of Wiis. I’ve heard from my colleagues avid to purchase a Wii that they’re still difficult to find locally.
— ctlMaybe a WII-2 is on the way.
Certainly have been a large number of creative, alternative ideas about what to use a WII wand for.
Has Nintendo filed for any interesting new patents? They would do that before introduction.
I suppose if you were Sony or Microsoft you would be trying to circumvent whatever patents there are on the WII and bring out your own highly addictive console.
No rest for Nintendo.
— JRipOne idea that I haven’t seen mentioned yet is the fact that most of the profitability for a gaming system comes not from the console itself, but from the games and accessories sold to support it.
By limiting the supply of Wii consoles, Nintendo has subsequently limited the sale of games, extra controllers, battery chargers, steering wheels and other gizmos that go with the system. I’d be surprised if some of the Wii game developers and accessory suppliers weren’t getting a little irritated with Nintendo because their sales aren’t all they could be. A stroll into Wal-Mart reveals racks and racks of Wii games and add-ons not being purchased. I’d suppose that this is why the consoles you can occasionally find online from big box retailers (Circuit City and Wal-Mart I’ve seen for sure)are sold prepackaged with a few games, an extra controller and a memory card, selling at $400 or more. They only have a few systems to sell, so they’re more profitable to bundle with high profit margin accessories.
Sure, there’s an argument to be made that maybe Nintendo is creating some artificial hype by limiting production, but is that a good overall strategy? They’re hurting their suppliers (especially small video game stores that don’t carry much else), game developers, and accessory suppliers and helping the eBay scalpers, who find a Wii and make $50-$100 by turning it around online. In a store, that same premium could have been spent on accessories- not markup.
How long did the “Tickle Me Elmo” craze last? I remember that only as a holiday fad. Didn’t they have their supply in check by April?
— 1337 4 LCostco seems to be a pretty good place to find one. They are very hard to find, but once you do find one register it at http://MapWii.com and exchange your friend code. Online wii gaming is coming next month - I CAN’T WAIT!
— liwiiHmm, my posting was chopped off in the middle :-(
I was saying:
As to limited supply driving sales - yes to an extent. But, there is an inflection point where that works well. You can have some limitations on availability, so that you drive demand and buzz. But, having almost none available means almost none get sold. The trick is to use “allocations” (limit per store per week) so that people fear that one will not be available. Getting people to buy rather than wait is the goal.
In terms of manufacturing, they use contracted manufacturing. So, they should be able to ramp up easily. The problem is that they are so careful to maximize profit per console that they are hurting themselves. Supposedly they would not air-ship any just before Christmas because of the cost. Since Christmas is an all-or-nothing date, that was probably a bad move. Parents had to buy “something” instead, and it was likely a PS2 or XBox.
Also, one commenter pointed out that they have had great sales of Wiis in the 5 months vs. Xbox/PS. But, XBox360 has been in the market for over a year, PS2 is still selling strongly (splitting Sony’s sales), and PS3 was late and is very expensive and so selling more slowly. The issue is that game developers will build dedicated games only for consoles with enough active owners. Wii demands dedicated games given its controller and its older graphics. If there is not enough of a market, game developers will not come out with new titles (other than lousy ports of existing titles). The number of consoles needs to be quite high to drive this longer term game development. That in turn will drive continual sales of consoles, which is important as there is a fall-off ratio for consoles (a certain percentage move to the back closest).
— pkimelmaIf Nintendo wanted to create the impression that their product was very popular and in sell-out demand, when its absolute sales numbers were not in fact very high, then one thing they could do is carefully supply just under the market demand. That would create the publicity of 100% sell-through and the buzz of desperate customers driving all over town day after day to find their Wii. Rather like lining up people outside a nightclub even when it’s totally empty inside, I imagine.
— CrashYes, I skimmed an old journal article from Gary Becker a while ago. It seemed to show that the social influence on a product could result in a a multiple equilbrium situation, whereby there was an excess supply low price equilibrium and a excess demand high price equilibrium. With this in mind, it makes sense that Nintendo could carefully limit supply just below demand and have the same effect.
— chrisbryanI think it’s absolutely the wrong way to go about business - if this was done on purpose - in terms of video game hardware especially this long after the system’s release during the holiday shopping season.
In the short term, impulse buys that are temporarily hard to find tend to increase the feeling of a need for that item (at least this happens with me when it comes to whatever neat, new gadget comes out). Although, if it becomes this difficult to buy after such a long period of time, then I wonder how many customers Nintendo has lost to Microsoft and Sony. Even though the Wii is rather different than the PS3 and 360, it doesn’t seem like a smart decision to allow such a shortage supply in such a competitive market (other markets that come to mind: mobile phones and TVs).
— scandar