Hi Malstrom.
If the Wii pricecut turns out to be true, it’s likely not because of giving in for the competition or 3rd parties or giving up with disruption or blue ocean strategy, but because of a classical situation of overproduction due to decreased demand. The decreased demand was caused by the lack of appealing software, but that’s another issue.
According to VGChartz, about 9,5 million Wiis have been sold in the first eight months of this year, while the manufacturing rate is 2,4 million Wiis a month and would account roughly 19 million Wiis manufactured. Some of the Wiis are used as replacement units and spare parts and then there’s the amount of units that went to fill the retail channel after the christmas sellouts.
It’s likely that, out of the 9,5 million difference between the estimated number of sold and manufactured, Nintendo still has at least 8 million Wiis in its inventory.
The production rate is likely not going to be lowered in the near future, because manufacturing contracts tend to be in the form of “X number of units for Y amount of time”.
In order for Nintendo to get rid of the Wiis in their inventory, they would need to, not only maintain the average 2,4 million Wiis sold a month, but also boost the sales so, that the inventory could be sold along with the regular supply. Which would take a lot of time and a huge hole in operating budget.
Considering the temporary effect of a pricecut and that it would be just prior to the busiest shopping season of the year (when the sales are up anyway), it would really look like Nintendo intending to get rid of its inventory.
Of course, a pricecut can also be cutting only the price that a product is sold to retail, when more retailers would be intrested in selling the product and/or the retailers would be the ones to make their special offers on the product.
Nintendo definitely has too much Wii on its hands with how high the production is. I wonder if they have shut down or slowed their production of Wii systems. I would have. (I actually don’t think we will see the Wii type phenomenon of years of being sold out until twenty years from now.)
One friend of mine told me he heard of the Wii price cut and says he intends to buy one (he already has a Wii!). Originally, the Wii was in the living room and the entire family played. Then, around latter 2007 or in 2008, the Wii moved upstairs to the kid’s room. This new Wii will be for himself and his wife (i.e. the ‘adult’ Wii system haha).
So we might see a “multi-Wii household” phenomenon as the Wii goes down in price. Personally, once the Wii price gets low enough, I intend to have one connected to every television in my household. No matter what room I am in, I get to play 2d Mario. One Wii I want to turn into a dedicated Gamecube machine (just playing Ikaruga and all). Tons of uses for that little Wii.
Originally, the Wii was intending to be priced at $99 (this was before other features got added to the Wii) which would have been very interesting. Nintendo was intending to sell the Wii at bookstores and other ‘oddball’ places. Maybe they still can.
It is said that Nintendo gives a low estimate for their forecast. But they have been really missing it lately which shows how much gas has gone out of the Wii balloon (thanks ‘user generated content’).
But there is a reason why Nintendo needs to fight disinterest instead of lowering their price. Remember how in early 2008, with the house market crisis, that there was much concern? Video game analysts purred how the ‘video game industry’ was making records despite the ‘housing market downturn’ and ‘rise of gas prices’. While things looked bad then, in latter 2008 the macro-economic environment got MUCH worse.
In latter 2009, the macro-environment is MUCH worse than it was a year ago. More unemployment. More downturn for the dollar.
By this trend, today will seem like a ‘good’ macro-economic climate compared to 2010 and seem like a ‘golden age’ compared to 2011 and 2012. We are not in your garden variety ‘recession’ people. This is depression type stuff. We are clearly sinking in that direction.
In three years, the PS3 has gone down 50% in price. This is a product that is free falling. Reports are coming in that the PS3 bump in sales is not going to be sustained (which no one should be surprised but, sadly, many people are).
The “Game Industry” confused sector performance for industry performance. They thought their increasing sales was due to the industry rather than population growth, growing disposable income, and so on. Now as sector performance is declining, the “industry” is in big trouble.
A ‘price cut’ is something that cannot be undone. You can’t raise the price again. But the big picture of the Wii was not to expand gaming, but to save gaming in a vast consumer interest decline and population decline (which is why Wii focuses on expanding gaming as an antidote to that). This is why the Wii was made and what it was designed to do. If Nintendo can’t get it to work, then consoles may not be around too much longer. (No hyperbole. Consoles aren’t too relevant in Japan anymore.)
Remember, I expect the economic downturn to continue fiercely past 2012. Putting out a new game console will be suicide practically. And the PS3 and Xbox 360 are really *stuck*. They are rapidly running out of their “Price Cut” cards in order to boost sales.
The next investor conference will be interesting with Iwata. I expect investors to really ram it to him. “Mr. Iwata, with the lowering of the price of the Wii, does this signal that your move to ‘User Generated Content’ for the company was not successful?” (Obviously!)
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