The Wii was a huge success wor

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

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

Profit

Even with at a lower price point, Nintendo directly profitedfrom each sale of a Wii console. In 2006 and 2007, for each unitsold in the U.S. Nintendo made $49. They claimed to do this byoptimizing production costs. In contrast, Microsoft (Xbox) and Sony(PlayStation 3) rely on software sales to produce a long-termprofit and generally lose money on the sale of the consoles.Nintendo’s optimization strategy worked. Even after robust years in2007 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 whenNintendo decided to drop the price for the Wii console to $199.99.This was the first price drop and proved to be effective atgenerating additional demand. In December of 2009, over threemillion Wii consoles were sold in the U.S., which set a record formonthly sales in the U.S. Further, the record setting sales in themonth of December pushed the Wii to become Nintendo’s best-sellinghome video console, selling over 67 million units at that point. Todate, the Wii remains Nintendo’s best-selling console, having soldover 100 million units worldwide.

  1. Was the severe shortage for over two years an old marketingploy called intentional scarcity, in which a company purposelykeeps its hot product in short supply to build buzz? Or was itsimply bad planning on Nintendo’s part? Explain your answer andinclude some outside research to support your conclusion. (20points)
  1. Can you suggest a reason why Nintendo dropped the price of theWii Console in late 2009? How would you expect this to affectdemand and revenues? (15 points)
  1. Elasticity of supply and demand can change over time. In 2009,would you describe demand for the Wii as elastic or inelastic? Whatabout supply? Provide an explanation for your answers. (15points)
  1. Draw the demand and supply curves for the Nintendo Wii in 2009as you have described in number 6. (10 points)

Answer:

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 itsprice higher with respond to the demand of the consumers who areeager to buy.
  • Households tend to buy substitutes due to the scarcity of theproduct.
  • For Nintendo, it resulted to a decline in sales

15 points question Ans-2

To attract again more consumers to increase their sales. Basedon the shortage for over 2 years they might have occurred a bigloss in revenues. Dropping the price made it back again on itsworldwide top-grossing product that caused for a higherearnings.

15 points question Ans-3

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

supply and demand

10 points question Ans-4

RECOMENDATIONS

Thecompany should have been more efficient in their production sincethey already know that they have great competitors which couldsteal their potential customers, to maintain and even achievehigher sales and revenues.


 
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