Question

The Wii was a huge success worldwide right from the get-go. In the U.S., demand for the Wii outpaced supply from November 2006 through June 2007. A similar story played out in many other countries and regions as well. The U.K. suffered

shortages until March of 2007 and in Australia the Wii became the fastest-selling game console in Australian history. In anticipation of the holiday season, Nintendo increased production between October and December 2008. Its worldwide production increased from 1.6 million per month in 2007 to 2.4 million per month. However, demand for the Wii continued to remain high and it was not until March of 2009 that the Wii was available for walk-in purchases at retail stores in the U.S. At this point, 48 million Wii consoles had been sold.

Profit

Even with at a lower price point, Nintendo directly profited from each sale of a Wii console. In 2006 and 2007, for each unit sold in the U.S. Nintendo made $49. They claimed to do this by optimizing production costs. In contrast, Microsoft (Xbox) and Sony (PlayStation 3) rely on software sales to produce a long-term profit and generally lose money on the sale of the consoles. Nintendo’s optimization strategy worked. Even after robust years in 2007 and 2008, both operating profits and sales increased in 2009, and 2009 earnings beat 2008 earnings.

Price Drop

In 2009, sales of the Wii console declined until September when Nintendo decided to drop the price for the Wii console to $199.99. This was the first price drop and proved to be effective at generating additional demand. In December of 2009, over three million Wii consoles were sold in the U.S., which set a record for monthly sales in the U.S. Further, the record setting sales in the month of December pushed the Wii to become Nintendo’s best-selling home video console, selling over 67 million units at that point. To date, the Wii remains Nintendo’s best-selling console, having sold over 100 million units worldwide.

1. Was the severe shortage for over two years an old marketing ploy called intentional scarcity, in which a company purposely keeps its hot product in short supply to build buzz? Or was it simply bad planning on Nintendo's part? Explain your answer and include some outside research to support your conclusion. (20 points)

2. Can you suggest a reason why Nintendo dropped the price of the Wii Console in late 2009? How would you expect this to affect demand and revenues? (15 points)

3. Elasticity of supply and demand can change over time. In 2009, would you describe demand for the Wii as elastic or inelastic? What about supply? Provide an explanation for your answers. (15 points)

4. Draw the demand and supply curves for the Nintendo Wii in 2009 as you have described in number 6. (10 points)

Answer 1

20 points question Ans-1

• The severe shortage is simply a bad planning on Nintendo.
• They would not initiate a price drop by 2009 instead make its price higher with respond to the demand of the consumers who are eager to buy.
• Households tend to buy substitutes due to the scarcity of the product.
• For Nintendo, it resulted to a decline in sales

15 points question Ans-2

To attract again more consumers to increase their sales. Based on the shortage for over 2 years they might have occurred a big loss in revenues. Dropping the price made it back again on its worldwide top-grossing product that caused for a higher earnings.

15 points question Ans-3

The demand for the Wii Console is relatively elastic. The is greatly affected by the change in price and there are a lot of substitutes to the product (Microsoft and Sony). According to the given case, it was stated that when they dropped their price, it has ended the decline in sales.

supply and demand

10 points question Ans-4

RECOMENDATIONS

The company should have been more efficient in their production since they already know that they have great competitors which could steal their potential customers, to maintain and even achieve higher sales and revenues.