| Scisca said: 1. Basing on the previous consoles obviously. You are right that PS4/Xbone aren't as close substitutes for a Wii U as they are for each other, as they have a much higher perceived value. Wii U can become the secondary console at best, but the price has to reflect the value the product has and that particular role it plays. In this case - it has to be much lower. $50 isn't much, really. As you said, the equilibrium price changes over time. In this case it goes down. Let me remind you that $299 is the launch price of the Wii U! The market showed that this price was too high back then, so it is highly unlikely that in the 3rd year $249 is the equilibrium price. $229 is closer to it, looks much better on the shelf - when people compare it to Xbone it's not just a simple $100 cheaper, it's more than $100 cheaper! (most people probably won't calculate, just note that it's over $100 cheaper) And as you said in previous post, most people don't analyze whether it's a full game less or not. It's about the impression. This $20 difference can go a long way when compared to the competition. Moreover, N should do its utmost to get Wii U to the "gift range". So that it's just at the right price to be a gift for a kid (especially not for your own kid). Personally, I think this price would put Wii U somewhere in this area. It would be a bold move, unlike a $50 drop, but at the same time wouldn't be as much of a hit as $100 would. Personally I think that $199 is the sweetspot now, but $229 could be "close enough" and is worth exploring, especially considering the 3DS experience. I mean, Nintendo remained passive for so long, they could finally make one semi-brave move. 2. It is. If you believe in your product, you are willing to invest in it and to compete. If you no longer believe in it, you cut the investments and try to ride it out getting as much low-risk profit as possible. Sony believed in PS3, MS believes in Xbone, Sony doesn't believe in Vita and so far N does look as if it didn't believe in Wii U. We have only two patterns in this industry. In fact, I get this impression the whole time that you're just trying to look smart quoting a basic economy book, ignoring what the Wii U reality is and refusing to apply the knowledge to its current situation. I'm trying to give some answers and possible solutions for Wii U, while you only raise obvious questions and state general facts. Give a proper analysis, apply the theory, share your thoughts and results, don't just try to look smart, cause theory left in a void is worthless
Oh, and by the way, just a general thought. If you launch a piece of electronics for $299 and in the 3rd year aren't capable of cutting the price price by $70 (let alone $100) without incurring serious loses, then I'm very sorry, but you are incompetent and should leave making hardware to someone else. I have no idea how Nintendo managed to mess up this bad. It's rather sad |
1. The bolded is incorrect. The deluxe Wii U launched at $349.99. The basic Wii U which launched at $299 was discontinued, and the deluxe Wii U had a price-drop. They are two different products which subsitute each-other. The underlined, whether the price is too high or too low depends on Nintendo, not the market. They decide whether profit is being maximized in the short term and long term through analyses, and come to the conclusion whether or not their current level of sales is the best they can do profit-wise (in both the short and long term.) Again, profitability is more important for Nintendo than marketshare. @ Underlined, again this is conjecture based off anecdotal evidence. Nintendo's analyses probably use A LOT more than that. Nintendo must also consider other factors, like how would a low-priced Wii U affect sales of N3DS? How much will they lose on by having a revenue - $70/ console on a platform that is already selling at a loss per console? If sales pick up, how much will the total cost be, because they have a loss on this console? Will this cost exceed any potential future benefits from game sales? So on and so on. My argument has been that it is better for Nintendo to repeatedly drop the price as they can decrease manufacturing costs. $249 -> $199 does this much better than $229 -> $199, because the Wii U at $299 is already having a small loss per console. If Nintendo had excess supply that they needed to get rid of it would make much more sense to drop the price quickly. And in my eyes, that shows they are abandoning the Wii U much more than slowly reducing the price (which shows that they are invested in selling more consoles over a long period of time rather than many over a short period of time.) It's way too late for NIntendo to emulate the 3DS experience. And the costs the 3DS induced were very different from those a $70 price-cut would for the Wii U.
Let's analyze this a bit though. Let's say Nintendo is making a loss of $10 per console on average, right now, at $299. If they dropped the price by $50, and let's say they improved their manufacturing and retail issues to become more efficient, reducing the cost by, say, $20 - all of which would take up a lot of effort of Nintendo's business staff - then they'd lose $40, on average, per console. Let's say this improved life-time sales of the console by %5. So if the Wii U is expected to sell $19 million with its current price it will sell .95 million more. And let's say the Wii U's attach rate is 1/3rd. That is about .95/3 = 300k more sales for each of their games. They also make something around $40-50 per game sale. Let's assume five of nintendo's games have this boost.
The expected marginal profit would then be: -$40*950k + 330*5*$45 = $37.93 million.
Alright, so now let's assume the same cost reduction methods, but this time the price drops to $229 and Nintendo sells 20% more consoles life-time. That would mean a negative profit per console of $60 instead of $40, and increased console sales of $3.8 million life-time. Let's again assume the same attach-rate. That will increase high attach-rate game sales by 1.2 million each.
Marginal profit: -$60 * 3.8 million + 1.2 million *5*$45 = $42 million.
That is not a huge difference in profit. What happens if game sales did not improve a lot? Then Nintendo is screwed and will have negative profits. The marginal risk >> the marginal profit. Therefore it is a poor business decision on Nintendo's part. I can't think of any likely scenario in which the marginal profit is worth the marginal risk.
Now there are a few things that Nintendo might consider which can change this cost-benefit-risk analysis. They could say a larger userbase => greater brand identity => higher sales. But they'd also need to make their console a subsitute for the others in such a scenario. Otherwise people will still be more interested in what interests them. Then they could also remodel the Wii U in such a drastic way that they can reduce costs a lot. Possibly they can make a new tablet controller that is cheaper with low R&D. Unfortunately, Nintendo likely has binding contracts with a plethora of hardware manufacturers, and they are limited in what they can do here, thus increasing R&D costs and negating any extra revenue.
2. Nintendo has already illustrated that they view themselves as targetting a different market than MS/Sony, and therefore don't consider MS/Sony to be competition. So we must consider said market to be a less than competitive one. Especially when we consider the different demographics of gamers. Like you admitted, XBO/PS4 aren't very good subsitutes for Wii U, and vice-versa. Nintendo shows its belief in sustaining Wii U by supporting it with more games. Something Sony had/has not done with the Vita. It is rational for Nintendo (or anyone else) to not believe Wii U will ever become a hit or even comparable in marketshare with the other consoles. That is alright. They can plan for the future while still living in the present. That doesn't mean they can't still make considerable amounts of profit off their low-selling console though. They did it with Gamecube, and then made the Wii. They also happened to be the most profitable video-game console manufacturing company of the sixth generation with their, at the time, lowest selling console. I'm using my knowledge of basic microeconomics to provide insight in why NIntendo might not choose and haven't chosen the path of a quick, large, price-drop.
As for which games are relevant. While a lot of Nintendo games have strong legs, and their games also sell at high retail prices way longer in the generation, due to these legs, I don't believe we will be seeing the largest benefits of a higher userbase in launch titles. They have already long since lost their momentum, and have a lot of competition. Mario Kart and SSB will likely gain considerable amounts of sales, because of their active userbases, but it is new and competitive games which will benefit the most, and these games are Legend of Zelda, Xenoblade X, Revelations # FE, Star Fox etc. Games which likely won't gain considerable sales numbers from a marginally larger userbase. If it is true that these early releases will have strong enough sales in later years, then it means Nintendo needs no rush to drop the price to $199. They can do it as late as they want.
