For all intents and purposes, Nintendo considers Labo one single product line. It doesn't really matter if one kit didn't do so hot, so long as it adds to the sales of the product as a whole. It's not a normal video game where each kit needs to sell well on its own. 

Labo inherently has more limited appeal than a typical video game. It isn't even like Nintendo's other non-game products like Brain Age. It's a building toy for kids. Unless you're Lego, that genre is inherently niche. So the fact that 1 million units I total in its first year was actually impressive. Sure, the Robot kit arguably didn't do so hot, but the VR Kit did okay, as well as the Vehicle Kit during the holiday season.

Also it wasn't heavily marketed in reality. You had a reveal trailer dumped onto YouTube, a few commercials, and a marketing stunt of Jimmy Fallon. That's about it. It wasn't in a direct, it wasn't at E3, and Nintendo left it out of their core Switch marketing.

Switch lite + this will make millions

Problem is that it seems l a bunch of the games use the joycons, which makes it less enticing for lite owners.  With this and Ring Fit, it seems like the games that would most benefit from a Switch with a lower entry point are the games that the lite won't really work for. 

The Regular Switch still has enough demand for people to buy it in order to play games like this. After all, 2 of the best selling games on the Switch, Super Mario Party and 1-2 Switch, are ones that don't support handheld mode at all. Designing games that require the Joy-Con, or at least are best played with them, as well as more traditional games, is a way for Nintendo to make games for separate systems like they used to, without actually having to design for separate platforms.

Not really. The Switch lite is for those who just want a mobile only Switch experience, or just need another Switch in the family, not necessarily hardcore gamers. The Regular Switch is for everyone else. Nintendo specifically markets the lite as a complimentary product to the flagship Switch, rather than a replacement. So Nintendo can still design games primarily for the regular system if they still want to, since demand for that system is still strong with both casual and core gamers.

I don't think price is that big an obsatcle to the so-called "non-gamer" crowd to be honest, considering Wii Fit cost me something like $120 AUD back in the day and how freely people buy overpriced phones and tablets.

I understand where you're both coming from, I just honestly don't think Lite is really a more "casual" device than the base Switch, it's niche is more Japan, parents wanting a more durable and affordable system for their kids, and 3DS owners who haven't upgraded yet cos they saw the base model as too expensive and not portable enough.

If anything, it's the base system that's more casual-friendly as its more of a trendy multipurpose device as opposed the Lite which more resembles a traditional dedicated gaming handheld. I don't think the price difference is any real obstacle to a consumer in this age of phones and tablets costing far more.

I worked gaming retail for a while.  A hundred dollars in a gaming system makes a huge difference.  The points you made are understandable, but price overrides them.  Someone on the fence for the Switch who has fond memories of brain age and wii fit would be far more likely to make an impulse purchase at the 199 price point.

You can play Ring Fit Adventure on the Lite. You just need additional Joycons. I don't remember buying additional Wiimotes being an impairment to a lot of multiplayer blue ocean games on Wii.

I never said you couldn't.  I said they were more likely to at a 199 price point.  The joycons bring it to a 280 dollar pricepoint.  At which point it's kind of senseless to buy the lite anyway. 

By the way, which wii games required purchasing two additional Wii-motes to play with one player?