So the new Nintendo switch was just released but you wouldn’t know it to look at the stores. If you want to buy one right now you can find yourself paying double or more on eBay or other sites. Why does Nintendo do this? I realize there is some supposed advantage to making the console hard to get in order to generate buzz but wouldn’t it be better just to have enough for people to buy so that you get more money?
It’s not just Nintendo, it seems to be in certain sectors that companies like making fewer of whatever than the demand to make it look like there is a heavy and unexpected demand for that item. So why do they do it? Is creating artificial demand really that valuable for the company?
Well, Atari made “enough” copies of the E.T. video game back in 1982 and it didn’t turn out too well for them.
Sometimes it’s better to have a conservative forecast of what you’ll need because you can always make more later. But if there’s an oversupply, there’s not much you can do other than try to dump them somehow.
It costs money to gear up to produce X units per week. The nature of any electronic device is the demand is big (you hope) when the device is first released, then declines more or less exponentially over time. Having enough production capacity to immediately service the first few weeks’ demands means you’ll have (and be paying for) overcapacity for the entire rest of the product’s lifecycle.
If the tech was slow-changing AND you could accurately predict total demand before selling the first unit, it’d be cheapest to make a bunch of them in advance at a low sustainable rate and after release burn through that supply over, say, 1/2 the device’s sales life.
Both those preconditions are untrue for vid games. Tech stuff goes obsolete so fast you don’t even want much of a parts pipeline. Ideally each unit changes from raw silicon, plastic & metal into an already-sold product all on the same afternoon. A close facsimile of this approach was what powered Dell from one guy’s garage to the behemoth it became.
Besides, nothing triggers excess impulse sales like a shortage which triggers the hoarding behavior built deep into the human psyche for protection against famine.
Early-adopter fanboys + social media + hoarding behavior + paid media hype = PROFIT$$$.
Another option to ramping up production is to just produce a lot of units over time and let them sit in a warehouse until you have enough to satisfy initial demand.
This is not a good idea.
Product sitting in warehouses is a money sink. Make it, sell it. That’s the way to go. Also, bad stuff can happen to product in warehouses. Keep the stuff stored away to a minimum.
And what if the demand isn’t what they predicted? Even if they do eventually sell the excess units, then the production lines have to shut down for a while and then restarted. This costs money and can cause problems.
The solution: If you want it, wait. That’s it. Wait. You don’t have to have it today. Learn to chill out.
If you play it right, scarcity translates into free advertising (everyone is talking about how it might be possible to get one), justification of high prices (people are prepared to spend more to get one), and future demand (people who can’t get one still want one, and will snap up the next production run)
I think my econ classes were upstairs aways, like on the 5th floor. Tiny little rooms in that tall thin tower. The TA was Iranian; a nice guy with a challenging accent. This was in what everybody thought was heyday of the Shah. But which turned out to be the imminent end of his line.
The same thing happened with the PlayStation 2 launch in 2000. Units were unavailable for months. People were offering them online for well in excess of $1000.
Even if it is fake scarcity. Like Cheesecake Factory, where the owner in a interview admitted making customers wait in a line far longer than need be to achieve the illusion of scarcity and demand.
I have been reminded recently about the chronic inadequate supply for Raspberry Pi Zeros. Hailed as the $5 computer. Currently selling on Amazon for $24.
Luckily there’s a local store selling them for $5 in limited quantities. (The price goes up to $10 for ~5-10, etc.) Even luckier, I snagged a couple when they were on sale for $1. The store views them as a loss leader since Pi builders also buy other add-ons from them.
It went on sale November 2015 and has been in chronic short supply since. Now this situation is baffling.