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.'"

Re:Curious

[Fozzyuw]

I just don't understand how they could not have for seen this shortage.

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

Re:Curious

[pushing-robot]

Yes, but tons of people also thought that the Wii was a fad and demand would drop off in the middle of 2007. Factories are damn expensive, and Nintendo didn't want to sink billions into a manufacturing blitz only to have production lines sit idle when the "novelty wore off". They've still dramatically increased production, but they've done so at a more cautious rate.

The Wii is in uncharted waters: More than a year after its release, it's still selling twice as fast as any console in history. It's silly to think that this is all - somehow - part of Nintendo's sinister master plan.

Production Ramp Up

[rlp]

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.

Re:Curious

[blighter]

What about if they saw the demand a year ago and made plans to bump production by 80%? But what if that additional production came nowhere near meeting demand? Because that's what happened: http://www.wired.com/gaming/hardware/news/2007/11/wii_shortage [wired.com] When they started a year ago they had 1M per month capacity, now they're cranking out 1.8M per month and still running way behind demand.

Re:Curious

[eison]

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.

Production is based on forcasts using on hand data

[trdrstv]

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.

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.

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.

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.

Re:Let's use the music argument...

[Sancho]

Right, but I can say the same thing as Nintendo.

Because I don't have 1000 Wiis, I'm losing money by not being able to sell them on eBay.

Does that help explain the flawed premise? It's money I never had. I have lost nothing, I'm just not achieving equilibrium on the supply/demand curve.

Nintendo's loss is solely in opportunity. It is not money which they once had, and now do not.

It's region lock's fault

[rabiddeity]

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.