Geoffrey42 said:
Arbre, having just read through your two rather lengthy bits, let me offer a couple thoughts.
First of all, I agree with you that their ceasing to advertise is likely not at all out of the warmth of their hearts, and the desire to do the right thing, but instead is just a smart move. Why pay to advertise for something, when you're already selling as much as you want to, without trying? Someone in PR did pick up on the possible advantages of playing the advertising stoppage as a good-faith gesture, but there's no reason for the rest of us to take that at face value. The economics speak more clearly.
Agreed. They don't need the ads anymore. The demand is working on its own. The thing is, Nintendo are very lucky, in a sense, that they're the only ones doing a Wii. Let's imagine that Microsoft had announced a low price console with a bundled controller and plenty of 'wares'. (I cite Microsoft because I remember them working on several motion sensing technologies for future products, some of which didn't even require any appartus to hold.)
Second, I question your inference that Nintendo is making more money from the consoles being sold for $500-$600 dollars? My understanding of that market is that Nintendo sells the units at a set price, and the retail channel is bumping the price up for their benefit, not Nintendo's. Forced bundles, of course, give Nintendo higher sales, but I don't see how a $600 stand-alone console provides Nintendo with a greater cut. Perhaps this is my own unfamiliarity with the retail channel. I'd be willing to defer to someone more knowledgeable, but I had to throw my impression out there either way.
No, Nintendo wouldn't gain anything in such high prices. They sell the system at a given price for everybody (well, region specific still). If anything, their recent bitching about the bundles actually indicates that they don't like the higher prices [http://www.escapistmagazine.com/forums/read/7.52403].
My point about the higher prices in my last post was that if Nintendo had to lower the prices as much as their competitors did, Nintendo would face huge problems. A lot of their revenue comes from the console, and though selling more consoles is particularily better in that case, and preferable, the success is even more dependant on the console' sales only, which mean they must go steady.
They're not allowed a mistake. And a mistake, I think, they did.
*Hour long break to do some work and muck around with VG Chartz data*
I wanted to give Nintendo the benefit of the doubt, and run through some of the numbers you threw out there, to see if potentially units were just tied up in countries where they weren't selling as well, or if there were some other viable explanation. I made a chart for myself with the weekly sales data for the US, Japan, and All Other (based off VG Chartz), then used the rough production estimates to figure how many units were made in excess of what was sold. For that basis, I guesstimated that Nintendo had 1.2 million units in the pipe at launch, that they were producing 300k a week (1.2m per month) from launch through the end of April, 375k a week (1.5m per month) from the beginning of May through the end of October, and 450k a week (1.8m per month) from the beginning of November to present. The end result of that chart indicates that Nintendo nearly sold out of all Wiis worldwide in early January 2007, but has since been far out-pacing demand, nearing 5m Wiis sitting in the pipeline at some stage or another as of mid-November.
[http://img141.imageshack.us/my.php?image=wiisaleshw4.png]
I've also noticed that. With the
lower sales for certain periods we can spot on the charts, these would have helped rejuvenate the supplies. Yet, it did not happen. >_>
This leads to me to 1 of 3 possible conclusions:
1. The production estimates are accurate, and Nintendo is not manipulating supply. They are just really bad at estimating where units should be targeted, and have millions of units sitting unsold in the Ukraine (and other out of the way places).
2. The production estimates are inaccurate, and Nintendo has either been lying about their production capacity out of shame, or they've been minting Wii2's by the truckload.
3. The production and sales figures are accurate, but Nintendo is manipulating supply to gain all of the benefits of being in demand, many of which were already laid out by you (Arbre).
Me, myself, and Occam are all putting our money on #3.
*Disclaimer: I came across a Wii during an unrelated business transaction in a GameStop December 2006, and paid MSRP for it, with no forced bundle. I, personally, have not been adversely affected by these matters. My interest is mostly academic; I have no axe to grind.*
Neither do I. I'm purely on the consumer side here. I just happen to be periodically pissed off by certain companies. It's been Sony for quite some time. A bit of Microsoft (a lot regarding the PC market, much less regarding the console, especially with the Falcon and that other variant out).
But Nintendo really take the crown for the moment.
To comment on point 3, it's either supply or production, but it's obvious for me that they capped it for the USA.
I read some other numbers, somewhere in comments on a blog, that Nintendo was shipping 100,000 units a week to major retailers, while Microsoft was giving 120,000. That was several months ago, and such shipment figures are hard to come by.
There was something fishy, because with such low figures, we could not have the sales numbers we get. So it only represented a fraction of the market. It likely didn't include the other smaller retailers, and somehow, these numbers are still too low, safe if the total sales from smaller or/and independant retailers actually exceed to the total sales of heavy retailers.
Besides, I don't know if these numbers included online offers, and I think they did not.
That said, VGchartz has some new shipment system.
Now, there's been, again, lots of talk during december about the shortages.
Some analysts even estimate heavy losses [http://play.tm/story/15136], up to 1 billion, if they keep messing up like they do.
This if more for those who disagree:
Now, I just have to love how I read that Nintendo didn't anticipate North American demand.
Please.
They had the numbers right under their nose since christmas 2006, showing how NA demand has always been high, if not
the highest during prolongated periods.
At the same time, they managed to
pile consoles on shelves in Japan, and still did by the end of november 2007 (which makes me chuckle when I remember Harrison's comments about how they were making the best decisions to ship the console where it's needed).
I think Nintendo has been too greedy, as they tried to entertain and push the boundaries of their strategy for the specific North American market too hard, and it bit them hard.
Earlier on, I talked about a balance. It's both an art in economics and cold logic. When results are observed, later, with some distance, they all look like they could have been predicted to some extent.
My point, and I know it's not popular here, is that even with their initial production rates (said to be twice less than 1.8 million per month around the console's launch),
Nintendo would have had enough ressources to meet NA demand if they had really wanted to.
You want another reason why Nintendo would lower production rates? Then I urge you to read this article [http://online.wsj.com/public/article/SB119697501146616201-n1dQKvjjLIUfVNimLzsdZb3OSLI_20080106.html?mod=tff_main_tff_top]. Preciless bits of genuine truth in it. (There's also Russ Pitts' own article [http://www.escapistmagazine.com/articles/view/editorials/op-ed/2650-The-Wii-Shortage-and-other-Disasters-of-Toy-Economics], published last month. Seems like we're looking out at another type of disaster.)
I'd cite this example, from the article:
"If you flood the market, it will come back to haunt you," says Christopher Tang, a professor of supply-chain management at the UCLA Anderson School of Management. Nintendo may be missing opportunities by allowing other people to profit from the shortage by charging premiums, but Mr. Tang says that isn't entirely a bad thing because it creates hype. "Psychologically, it's better if the customer is begging for the product," he says.
An excess supply also angers retailers, who must work harder and offer discounts to get rid of the product. The manufacturer's financial results also suffer because they are forced to lower prices or take back the products retailers can't sell.
Japanese toy maker Bandai Co. is a cautionary tale. In the late 1990s, it had a huge success with its Tamagotchi virtual pets, but unanticipated demand led to shortages in stores around the world. Then, when the company focused too much on meeting demand in Japan, consumers overseas were frustrated. By the time Bandai was able to step up production and make more Tamagotchis available overseas, knock-offs flooded the markets and few people wanted the real thing. Bandai ended up cutting its pretax profit forecast by 95% in 1998.
Nintendo are conservative, and they favour cash flow (lowest investments, highest return through high sales rates).
For a company that works on these principles, having too much products would have a dramatic effect, notably regarding plans and shareholding.
Now, excuse me the clichay, but the Japanese as a whole are very fond of technologies. They're more "hardcore by default". If there is a place where generating false shortages could be counter productive, and dramatically advantage competitors, it would be in Japan. People over there are far more aware of the latest electronic gadgets than they are in the US. So you can't play on the people's "ignorance" of the existence of high tech stuff. They won't wait. They'll grab something else (by the time I typed that paragraph, I did not have found the article I linked to, above, including the Bandai examples).
American and Japanese markets are different, and a form of buzz in a given region won't work as well in another. Or won't be necessary.
America is a bit more like Europe, but just a bit more tech savy. On the roots, it's similar cultures, and similar ways to react to new technologies. Graphics show that to a certain extent, as you can see, when comparing European Wii sales to North American sales, how they're roughly similar, and how NA sales appear to be european sales multiplied by something between 1.5 and 2.
It takes a lot of efforts to drag these fickle people into video gaming. You need the super carrot.
Right now, I think Nintendo made a very bad move. The USA was their most attractive market. They got their highest sales there, but the consumers were also different, much less informed or caring about tech stuff than Japanese people. Which meant keeping the buzz going was much more necessary.
They were preparing the North American PR terrain with repeated claims of unbreakable production roofs, and fears of shortages, months in advance of the holiday season.
Nintendo have said, when they announced their 1.8 million units prod rate, that it was doubled from the rates they had when they launched the console, one year ago.
Which means a rate of 225,000 units per week, back then. They also said that production was upped three times since launch, up to the 1.8 million mark. It's not like the charts show sales doubling anytime.
Let's look at the graphs [http://vgchartz.com/hwcomps.php?cons1=Wii®1=All&cons2=Wii®2=America&cons3=Wii®3=Japan&start=39033&end=39432]. With 225,000 per week, they exceed indicatted sales by the 5th of february, so they would have already been piling consoles *somewhere*, even more if in February, they'd still have been selling the last leftovers they had from their prepared stocks for launch and christmas 06.
Back in may 2007, Lazard Capital Markets' Colin Sebastian estimated the production rate at nearly 1.5 million systems a month.
Logically, a fair estimate likely based on what the industries could output, regarding the technology and price of components, and the assembly lines' abilities to wrap everything.
An estimate likely established as much independantly from Nintendo's public figures as possible.
The components of the console are old. They're easier to mass produce. They're less expensive. There's not even a capacity to read DVD for crissake!
I'd say that for analysts, it shouldn't actually be that hard to know how the industry of a country can come with, when you have all the numbers at hand. It's like assembling a puzzle.
So the only way to look at Nintendo's surprisingly premises of shortages would require the assertion that Nintendo voluntarily capped production rates for the USA, which makes a lot of sense, considering the market AND Nintendo's business style favouring cash flow.
Otherwise, we'd have to suggest that the production/shipment rates were even lower than what we can deduce, and that the Wiis they were selling over the first two quarters of 2007, would have actually been leftovers from the massive remnants of the launch and christmas of 2006.
Which is complete nonsense, and outright impossible. It would mean Nintendo, with their low production figures, had to build up stocks for a long time during 2006, preparing the terrain with insane amounts of consoles wrapped in plastic and gathering dust, for launch date, christmas 06 and the next year. It's just so absurd.
It would mean that unlike any other corporation, Nintendo would have planned massives sales, took insane risks with large stocks, would have
known they would sell that much (crystal ball anyone?), while at the same time, they were trying a new strategy, reaching for a new market, launching a new type of system, which was a gamble with much less predictability than with other traditional VG systems... and in the end, said they were surprised by the sales.
Surprised? I can understand that. It's fairly logical.
Unable to increase production rates or supply enough units? Now that's bollocks.
Conservative, and afraid as they weren't even sure themselves if the Wii was a fad or not, Nintendo has indeed missed an opportunity,
but not for some reason they couldn't control, as Reginald tries to make us believe.
They were just
too conservative. If anything, this could become another example from the opposite side. Flood vs starvation.
EDIT: Interesting article [http://business.timesonline.co.uk/tol/business/markets/united_states/article3065672.ece], from Times Online.
