Friday, April 27, 2007

Are the Wii Shortages a Nintendo Ploy to Sell the DS?

There have been many articles about Nintendo's Wii shortages since the Wii launched during the last Christmas season. Now, Nintendo is reporting huge sales and profits for the past few months. This reminds me of a case study I read in the book, Readings in Managerial Psychology, while taking 15.301 at MIT:

So the toy manufacturers are faced with a dilemma: how to keep sales high during the peak [Christmas] season and, at the same time, retain a healthy demand for toys in the immediately following months...The problem is in motivating postholiday spent-out parents to reach down for the price of yet another plaything for their already toy-glutted children. What could the toy companies possibly do to produce that unlikely behavior?
The author found out by interviewing someone from the toy business:

I just happen to know how several of the big toy companies jack up their January and February sales. They start prior to Christmas with attractive TV ads for certain special toys. The kids, naturally, want what they see and extract Christmas promises for these items from their parents. Now here's where the genius of the companies' plan comes in: They undersupply the stores with the toys they've gotten the parents to promise. Most parents find those things sold out and are forced to substitute toys of equal value. The toy manufacturers, of course, make a point of supplying the stores with plenty of these substitutes. Then, after Christmas, the companies start running the ads again for the other, special toys. That juices up the kids to want those toys more than ever. They go running to their parents whining, 'You promised, you promised,' and the adults go trudging off to the store to live up dutifully to their words.
Two interesting things to note in the recent Wii articles:
  • Most of Nintendo's stunning profits in the recent quarter came from sales of its DS handheld (16.02 million units worldwide in the latest fiscal quarter)--not the Wii (5.84 million Wii machines worldwide in the last five months). Indeed, the DS has been the best-selling of all game systems
  • Along with its large profits, Nintendo is announcing that it is now starting to increase production of its Wii console