Wii wait

2007-12-10

Several times I’ve recently heard people talk about the high street-price of the Nintendo Wii, and that this might be induced by an artificial scarcity.

Surely this is crazy? Nintendo have no reason to artificially restrict the supply of Wii. Remember, the factory gate price doesn’t change; Nintendo get exactly the same amount of money for each Wii sold, whether the retailer sells it at USD 300 or USD 600. So it’s clearly in Nintendo’s interest to sell as many Wii as possible. This is not a luxury Rolls-Royce, they do not make only 1000 and then sell each one for USD 10,000.

I can see that over the course of a year Nintendo might want to restrict supply at some times so they can supply demand at others; I’m sure that over the summer Nintendo have been restricting supplies of Wii so that they create a stockpile for the holiday season. But that season is upon us, surely Nintendo are pumping these little puppies out as fast as they can manage?

There are reasons why it’s bad for Nintendo to be unable to supply demand for Wii (whether deliberately or unintentionally): pushing up the street price means that you’ll have less money to spend on software, so less money overall going to Nintendo; less chance of getting that coveted “most popular toy this Christmas” spot.

So… why is it so hard to get hold of a Wii? There’s nothing inside the box that seems particular difficult to manufacturer (no high-density optical drives, nor high-volume solid state memory, nor touch-sensitive colour display); the Wii’s been out for a while now so yields ought to be good and the manufacturing process overall should be well understood and easily replicated. Why aren’t they just booting up factories all over Asia making Wii? It could be that they simply don’t have the purchasing power to buy the factory time. Maybe that funny fruit music toy company is buying it all up.

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7 Responses to “Wii wait”

  1. Clive Says:

    It only takes a shortage of one part to screw up a manufacturing process.

    In our case we very nearly ran into trouble with our display. Stocks of the display itself were fine, it’s just that power is supplied to the backlight by a membrane connector which mates with a unique single-source connector and stocks of that were short.

    We ended up hand soldering bodge wires on the prototypes while prodding the supply chain with a very sharp stick in time for mass production, but it illustrates how small a thing could turn out to be the bottleneck in Wii production.

  2. drj11 Says:

    I’m sure there must be some good war stories along the same lines floating around Nintendo right now.

  3. Nick Barnes Says:

    I’m not sure that Nintendo have been restricting supply through the year, to prime the Christmas pump. When was the last time that a product was must-have Christmas gift two years running? They may not have set their sights high enough.

    I also find the whole thing a bit mysterious, and would have thought factories throughout China would be very happy to churn out another 5 or 10 million Wiis at fairly short notice. It’s possible that I’m not accustomed to thinking of production on this scale: millions per year is one thing but there aren’t many high-tech products of this sort of complexity which are turned out at rates of millions-per-month. Some models of TV, possibly? Some models of mobile phone? iPods, of course.

    Is it possible that it’s not an easy thing to tool up for? Is it possible that Nintendo’s trying to maintain too much control over the production process?

  4. Gareth Rees Says:

    The other point to note about whether it’s in Nintendo’s interest to restrict supply is that although they make money from each console sold, they make most of their profit from sales of games. And for that, they need the largest possible installed base of customers. It’s conventional wisdom in the industry that it is well worth foregoing profit on the sale of consoles in return for a larger installed base.

    I think you may be underestimating the lead time in bringing new manufacturing capacity online. I’ve seen 4 months quoted as being typical for bringing a factory up to speed, and you have to add 1 month for shipping. So if executives at Nintendo take a look at the 1Q2007 figures and make the decision to expand capacity in 2Q2007, it’s only just possible to get goods into European shops by Christmas. If they wait until mid-year to see if the demand remains high then it’s probably too late.

    I suspect what we’re seeing is some conservatism in Nintendo decision-making. They prefer to take the risk of undersupply and bad publicity than the risk of oversupply and loss.

  5. Nick Barnes Says:

    I see speculation linked from slashdot that Nintendo might be leaving $1.5bn on the table this Christmas, by not having enough Wiis in the stores.


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