Wii Shortage: Shrewd Marketing or Flawed Supply?

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The smashing success of the Nintendo Wii videogame console has surprised everybody -- from hard-core gamers to industry analysts to the many senior citizens now playing videogames on a Wii to stay fit and bond with their grandkids.

Nintendo, which to this day can't -- or won't, depending on who you ask -- keep enough Wiis on the shelves of U.S. retailers, seems most surprised. "Clearly they failed to anticipate the demand that they got," says Michael Pachter, a research analyst at Wedbush Morgan who's an expert on the videogame industry.

Nearly two years after the Wii's lauch, U.S. consumers still can't walk into a retailer such as Best Buy or Wal-Mart and pick one up off the shelf. Online retailers haven't done much better, though secondary market sites like eBay have Wii consoles in stock -- for a price jacked up from the $249.99 retail cost of the console. (Other sites, like Newegg.com, require customers to buy Wii "bundles," which can total nearly $500.)

SOURCE: Wikipedia

Japan-based Nintendo has been mum on why there's been such a mind-blowing shortage of Wiis in the United States. And industry watchers, bloggers and frustrated shoppers have been left to wonder: Is there a shortage of components in the manufacturing process? Is there an underlying supply chain issue? Is it related to the weak U.S. dollar? (To read about Apple's recent mistakes, see "Apple's Networking and Supply Chain Mistakes Take a Bite Out of Its Shine.")

Or is Nintendo purposefully withholding Wiis from U.S. customers -- a shrewd marketing tactic to artificially create intense demand?

"Conspiracy theorists are saying that since Nintendo has already met their end of March goals (with 6 million units shipped), and are building up supply, continuing the demand, and ensuring awesome second quarter sales," speculates a May 2008 Geeksugar blog. "Unfortunately, with American retailers now running at 2.5 percent availability, some are expecting the Wii shortage to continue through 2009."

Failures in Pricing and Demand Planning

Videogame console manufacturers -- Nintendo, Sony and Microsoft top the list -- have a penchant for relying on historical trends to set their prices, which have usually hovered near $300, Pachter notes. But that changed during the last cycle of new product introductions, when Microsoft launched the Xbox 360 in 2005 and Sony unveiled its PlayStation3 in 2006. (To read about Sony's massive problems with the PS3 rollout, read "All I Wanted for Xmas Was a PS3!")

The hard-core Xbox started at $400 and the technically-amazing PS3 at $600, "and that didn't work very well," Pachter says. "I think that Nintendo, figuring that their technology was kind of last generation, were just not just thinking about going higher than $300. They certainly could have charged $400 until they exhausted that demand, then cut the prices to $300 and exhausted that demand, and they always would have been able to supply them."

"So," Pachter adds, "the pricing was wrong."

The second problem: Nintendo was unable to anticipate the Wii's demand, which has features like its Wii Remote wireless controller that have made it popular with kids and adults alike. Again, Pachter contends, Nintendo executives used historical console sales, such as Sony's PS2 sales, as their guide: Nintendo said it was going to sell 14 million consoles in the first year, he points out, then the company increased that to 16 million and ultimately wound up selling 19 million.

"It never occurred to them that the demand for the Wii would outstrip demand for the PS2," Pachter says. "It didn't even sound possible. It didn't sound possible to anybody."

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