In The Stocks Article

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Published as part of our sister-site GamesIndustry.biz' widely-read weekly newsletter, the GamesIndustry.biz Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer a day after it goes out to GI.biz newsletter subscribers.

Nintendo has a big problem. Admittedly, it's the kind of big problem that most of its rivals would sell their own grandparents to have, but it's a big problem nevertheless - far too many people want to buy its products.

To an outside observer, that may sound funny, but anyone who's been involved in the retail business knows what a crucial mismanagement that simple statement represents. To have too few people wanting to buy your products is a major problem, of course - and the ideal situation, much as it may frustrate consumers, is to have slightly too many people wanting to buy, thus creating a small but very media-friendly vacuum between supply and demand.

What Nintendo has done, however, far exceeds that. Its console hardware has just emerged from an incredibly long period of massive supply constraints, with key accessories such as the Wiimote still tough to find on the shelves. Several of its top games have repeatedly and consistently gone out of stock at major retailers for weeks and weeks after launch.

The icing on the cake is Wii Fit, a game and accessory whose demand exceeds supply by such an astonishing level that its resale value on eBay and Amazon's Marketplace is running at almost double its retail value - and key retailers are having trouble keeping stock on their shelves for more than a couple of minutes.

Nobody is denying the media allure of a sell-out first week, of queues outside stores and even of the occasional disappointed consumer to interview. In fact, even price-gouging on eBay has its place in the successful marketing of a hit - every headline and column inch you get, after all, can convert into new people interested in the product.

However, when a sell-out first week turns into a situation where the supply channel is so dry that it starts to form sand dunes at the bottom, you have a problem. Consumers hate it, and vent their frustrations on retailers - who hate it even more, because every angry consumer who storms out the door is lost revenue, and may never come back. Most of all, Nintendo should hate it, because Wii Fit long ago reached the tipping point where shortages stop being good PR, and start seriously hurting your sales.

This happens for a few straightforward reasons. Firstly, retailers start pulling back promotional materials for the product - something that has blatantly, clearly happened to Wii Fit in the past fortnight. There's no margin for a retailer in devoting major promotional space to a product they only sell for a few minutes a week. It simply frustrates their customers, and wastes valuable space - and a printed A4 sheet saying "Wii Fit out of stock - enquire for a reservation" will do the job just as well.

Secondly, consumers are fickle - and the sort of lifestyle consumers into whose den Nintendo has boldly marched are especially fickle. Wii Fit, as a product, has legs - it's not a "fad", as some would like to dismiss it. However, it could also have enjoyed a massive, faddish upswing in early sales, as it became the trendy product of the moment. Its mismanaged supply levels mean that with every passing day, it loses another chunk of that faddish market - and Nintendo loses sales that will never come back to its coffers.

Finally, perhaps most importantly, Wii Fit's long tail will undoubtedly still exist - but it's being trampled on quite badly by these early problems. A product like this depends on word of mouth as its most powerful marketing tool, and if people can't get their hands on it, they can't recommend it to their friends and relatives. That sounds straightforward, but it's absolutely vital. The product buzz you can build by being out of stock regularly is noisy, but delivers a reduced long-term return, less than the low-level buzz generated by simply having a great product in the hands of consumers who go on to become your evangelists.

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