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Are console shortages by design?

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It seems like ever since Cabbage Patch Kid or maybe longer, to have the hottest toy or gadget for the holiday season, it has to be virtually impossible to get.   I suspect companies have long figured out how to exploit this.

 

1. if something is hard to get,  it makes more people want it.

2. All the news stories of people camped outside the stores, parents beating each other up over the last one in inventory, and people buying them for $80,000 on eBay generates a lot of free press and buzz for the item.  And these days we have social media to boost these stories.

 

New consoles always seem to be in short supply for the first holiday, and often even the second.   You mean to tell me they can't supply enough by year 2 on the market?

 

I know people will blame COVID for current shortages, and I'm sure that's a factor, but PS4 was impossible to find at first too.   Nintendo Switches where hard to get even last Christmas, except for the Switch Lite, and it wasn't even new.

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In a razor-and-blades business model, it makes zero sense not to get the razors out to as many people as you possibly can as quickly as possible.

 

The latest consoles are supply-constrained for the same reasons the latest graphics cards and latest AMD CPU's are supply-constrained: astronomically high demand for TSMC's foundry services.

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Yeah, not only electronics. Every hobbyist consumer item is both in higher demand than usual and lower supply than usual, thanks to the pandemic.

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Yes, it is deliberate. There are a bunch of reasons, many of which are out of the makers' hands, but for sure they limit production during the most expensive time for them, then loosen up production when it becomes more economically feasible to do so. Right now it is possible both consoles are selling at a razor-thin profit margin if not at an actual loss vs. cost of production and shipment to market, and no new console wants to be easy to buy in the first couple of weeks, even if a company during the pandemic could have, say, 20 million consoles ready to go and shipped to retailers by launch. 

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3 hours ago, jamm said:

In a razor-and-blades business model, it makes zero sense not to get the razors out to as many people as you possibly can as quickly as possible.

sure, but you restock after the holidays,  in the meantime you've created a lot more demand for the console due to the "hot item" perception you've created.

 

Look at how the Wii and Switch sold like crazy, but the Wii U bombed by comparison.  Why?  Did people lose interest in playing Nintendo games between 2013 and 2017?  More likely, Nintendo failed to create sufficient buzz and make the the Wii U a "must-have" item.  They had the hardware stock but couldn't sell it.

 

19 minutes ago, Mockduck said:

Yes, it is deliberate. There are a bunch of reasons, many of which are out of the makers' hands, but for sure they limit production during the most expensive time for them, then loosen up production when it becomes more economically feasible to do so. Right now it is possible both consoles are selling at a razor-thin profit margin if not at an actual loss vs. cost of production and shipment to market, and no new console wants to be easy to buy in the first couple of weeks, even if a company during the pandemic could have, say, 20 million consoles ready to go and shipped to retailers by launch. 

Supposedly the sales of PS5/XB series X/S are higher than PS4/XB1 during the same timeframe.  If there was COVID-related production problems, those sales figures should be lower.

 

The hardware cost argument makes a lot of sense too.  Given what's in these consoles, they must be losing money on the sales.

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8 minutes ago, zzip said:

sure, but you restock after the holidays,  in the meantime you've created a lot more demand for the console due to the "hot item" perception you've created.

 

Look at how the Wii and Switch sold like crazy, but the Wii U bombed by comparison.  Why?  Did people lose interest in playing Nintendo games between 2013 and 2017?  More likely, Nintendo failed to create sufficient buzz and make the the Wii U a "must-have" item.  They had the hardware stock but couldn't sell it.

 

Supposedly the sales of PS5/XB series X/S are higher than PS4/XB1 during the same timeframe.  If there was COVID-related production problems, those sales figures should be lower.

 

The hardware cost argument makes a lot of sense too.  Given what's in these consoles, they must be losing money on the sales.

You may be right about it, but I bet Sony would have liked to have more consoles available for both preorder and launch. My suspicion is the big names (Sony, Nintendo, Toshiba, Samsung, TCL) were able to get the majority of the actual production work time this summer from the electronics production facilities, since their spend would have been the greatest, but even then production has clearly been limited this year compared to a year without COVID. 

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5 hours ago, Mockduck said:

You may be right about it, but I bet Sony would have liked to have more consoles available for both preorder and launch. My suspicion is the big names (Sony, Nintendo, Toshiba, Samsung, TCL) were able to get the majority of the actual production work time this summer from the electronics production facilities, since their spend would have been the greatest, but even then production has clearly been limited this year compared to a year without COVID. 

I completely agree that they would have the capital to push for production priority, even if sheer numbers wasn't going to guarantee it anyway. What COVID has shown is that we've relied heavily on an open supply chain. However, its very easy for one link in the chain to break and things change dramatically. I think also the point of development was a big thing too. Say Covid happened a year or two before / generation was still in its mid-cycle, all the companies would have delayed, possibly took advantage to improve hardware and cheapen costs. However, everything was planned to release in 2020, it was built up right from the start of the last generation - we expect new tech and they develop for the next generation as soon as a new one is out. It was too late for significant delays orders would have been signed off, hardware locked in place. I think there will be lessons learnt from this experience though - I'd be highly suprised if companies were not more cautious going forward. We might even start seeing the trend towards download only increasing too, both from a consumer point of view and that of developers.

Edited by Mikebloke

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Well some of this explains the ~500 patron line wrapped around the Kroger foodstore and through the strip-mall into a GameStop. Saw this at 3am coming home from dinner. Can GS even stock that many consoles in their shitbox stores?

 

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Consoles never were a real issue though, until ps2. Don't remember exactly, but some production problem, like earthquakes or something. That year you could sell one for thousands, even a couple weeks later. Ever since then EVERY console has had usually major limitations the first year, and some (like wii) were limited a year+ later.

 

I might give a pass the first year, might, but anything longer is strictly artificial. And why not? It works, again like wii, it was hard to come by for years, as a result, a lot of people continued to claim it was the next best thing to god, not because it was particularly good, but because "I have one and you dont" 

 

Outside of nintendo, I don't buy much day one anymore, let others be the beta testers. Nintendo does seem to at least complete and troubleshoot their stuff before releasing it. That said, the Wii was order of magnitude the worst system I've owned, not because it wasn't capable, but because artificial rareness hid the fact that motion controlls often didn't work and/or wernt wanted.

 

There's not much reason for companies to limit their stuff from a money standpoint, it's not like they scalp their own stuff on eBay or whatever, but the limits do provide artificial demand that might not be there otherwise.

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On 11/28/2020 at 10:12 PM, Video said:

Consoles never were a real issue though, until ps2. Don't remember exactly, but some production problem, like earthquakes or something. That year you could sell one for thousands, even a couple weeks later. Ever since then EVERY console has had usually major limitations the first year, and some (like wii) were limited a year+ later.

 

I might give a pass the first year, might, but anything longer is strictly artificial. And why not? It works, again like wii, it was hard to come by for years, as a result, a lot of people continued to claim it was the next best thing to god, not because it was particularly good, but because "I have one and you dont" 

That's what I'm saying.  At some point it seems like they figured out that launch shortages work in their favor, and they purposely fall short of demand.

 

On 11/28/2020 at 10:12 PM, Video said:

There's not much reason for companies to limit their stuff from a money standpoint, it's not like they scalp their own stuff on eBay or whatever, but the limits do provide artificial demand that might not be there otherwise.

If they did scalp their own consoles, would we even know?   The internet was up in arms last week because some scalping group managed to get 3500 PS5's.  How do you even get that many consoles?  The size of the operation must be huge, or they have some kind of inside track.   (tin foil hat on)  if console manufacturers were scalping their own product to offset losses, they would do it through a front group that seemed unaffiliated would be my guess.  (tin foil hat off)

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I don't believe the shortages are artificial, as in caused by manufacturers. It just seems like a huge, risky gamble. Imagine the fallout if they got caught, the reputation damage would be massive. Also, there is zero proof that it is actually beneficial to sales. If anything, I'd have though that getting out as many machines as possible and building a bigger, "winning" user base is a better argument in the psychological side of marketing. The other thing is that in a crazy, must-have-it-now Xmas market it's very likely that if your product is not there, the buyer will go for something which is actually available at the moment - ie competitive console/PC or perhaps even something entirely else.

 

Way I see it, it's just a mix up of many different factors - complex supply chains, stockpiling/distribution problems, huge demand, Covid, SCALPERS!!11!, etc. It's the same with any other hot electronics items atm: I had to give up on getting Ryzen 3300X, the wait was just ridiculous. The 5600X I ordered will rrive "probably in 2021". Same with GPUs, and so on.

Edited by youxia

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37 minutes ago, youxia said:

Also, there is zero proof that it is actually beneficial to sales. If anything, I'd have though that getting out as many machines as possible and building a bigger, "winning" user base is a better argument in the psychological side of marketing.

I've seen enough people want something simply because it's hot and everyone is talking about it to know it's a real psychological thing.  Hell I even feel prey to it myself with the Switch even though I should know better.  It was out of stock most of the year, so when I found one in stock, I had to have it!  I bought it on the spot.  I almost never make impulse purchases anymore.

 

And how would the average consumer know which console has the bigger, winning user base?  Most don't follow sales numbers, most can't be arsed to look it up.  But they can perceive which one is in stock and which one is hard to find.   The hard to find one must be the one to own..

43 minutes ago, youxia said:

Way I see it, it's just a mix up of many different factors - complex supply chains, stockpiling/distribution problems, huge demand, Covid, SCALPERS!!11!, etc. It's the same with any other hot electronics items atm: I had to give up on getting Ryzen 3300X, the wait was just ridiculous. The 5600X I ordered will rrive "probably in 2021". Same with GPUs, and so on.

Those are factors.   But this game has gone on so long with consoles and other devices that you can't say it's COVID.    Scalpers are a symptom not a cause.  There'd be no scalpers if you met demand.   Marketing loves to use psychological tricks to get a one-up over the competition.   Why wouldn't they use the trick of artificial shortages?

 

49 minutes ago, youxia said:

The other thing is that in a crazy, must-have-it-now Xmas market it's very likely that if your product is not there, the buyer will go for something which is actually available at the moment

The PS4 was very hard to get the Christmas of 2013.   I know because I tried.   It went on to become one of the best-selling consoles in history.    Unlike say a "tickle me Elmo", consoles will sell well over several Christmas seasons.  If you didn't meet your sales potential in the first Christmas due to shortages, you can make it up in Christmas 2, Christmas 3, etc when you actually have new games to help push the hardware.

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26 minutes ago, zzip said:

I've seen enough people want something simply because it's hot and everyone is talking about it to know it's a real psychological thing.  Hell I even feel prey to it myself with the Switch even though I should know better. 

This, and your other arguments are conjecture. Switch is a hot property not because of shortages, but because it's a great console (which, in turn, causes shortages, combined with other factors). Would you buy a rubbish, or even mediocre product only because there was some mad rush to get it? I doubt it very much.

 

30 minutes ago, zzip said:

But this game has gone on so long with consoles and other devices that you can't say it's COVID

I did not say "it's Covid". I've mentioned several things which build up a bigger picture, and Covid is one of them. Ditto scalpers, who are obviously are not the primary cause (there isn't one), but do add to the existing shortages.

 

34 minutes ago, zzip said:

Marketing loves to use psychological tricks to get a one-up over the competition.   Why wouldn't they use the trick of artificial shortages?

Because they would be buried if they pulled a big one like this. Pricing your console at 499 instead of 500 is a marketing trick. Causing artificial shortages is a huge con and would cause huge outrage, especially in the market which is populated by tech-savvy

 

51 minutes ago, zzip said:

And how would the average consumer know which console has the bigger, winning user base?  Most don't follow sales numbers, most can't be arsed to look it up.

You should get "down with the kids" a bit more. Try uber-popular sites like n4g.com for example, where every little thing is instantly dissected and used to either bash or brag. Platform wars are very much alive, same as it always was. And sales numbers are not a little thing, they're the thing.

 

54 minutes ago, zzip said:

If you didn't meet your sales potential in the first Christmas due to shortages, you can make it up in Christmas 2, Christmas 3, etc when you actually have new games to help push the hardware.

That does not mean that quarter-profit oriented corporations wouldn't love to sell more right now.

 

Anyway, if you want to believe that this is a deliberate then of course it's fine by me. I just prefer explanations which are perhaps bit more complex than singular conspiracy narratives, but seem to have a bit more grounding in reality.

That's not to say that this industry are a bunch of well meaning, consumer-oriented, good guys -  far from it. They are all ruthless and will pursue profits at all costs. But a high risk/little gain strategy like this seems very unlikely. They prefer long cons such as planned obsolence and erosion of right to repair.

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20 minutes ago, youxia said:

This, and your other arguments are conjecture. Switch is a hot property not because of shortages, but because it's a great console

Except the Switch is not that great of a console.  It feels cheaply made.  It has notorious problems with the joy-cons.  Bluetooth range is pathetic.  If I sit more than 5ft from it, the joycons start to disconnect at random.  It is the weakest of the bunch from a technical perspective.   It seems to be the Nintendo IPs that make it special.  But the Wii U had Mario Cart, Super Smash Bros, Animal Crossing, Zelda, and Mario Maker too, and it bombed!   Seems that marketing made all the difference here.   They botched the Wii U marketing, but went viral with the Switch marketing.

 

37 minutes ago, youxia said:

Because they would be buried if they pulled a big one like this. Pricing your console at 499 instead of 500 is a marketing trick. Causing artificial shortages is a huge con and would cause huge outrage, especially in the market which is populated by tech-savvy

How would anyone know?  They could blame it on "we underestimated demand, darn it all.", or blame some manufacturing issues or supply issues that nobody outside the plants can verify

 

41 minutes ago, youxia said:

You should get "down with the kids" a bit more. Try uber-popular sites like n4g.com for example, where every little thing is instantly dissected and used to either bash or brag. Platform wars are very much alive, same as it always was. And sales numbers are not a little thing, they're the thing

I do read n4g actually.   But my point is the average gamer doesn't.   They buy what's popular or buy what their friends have.  They don't obsess over sales numbers the way the people on those sites do. 

 

47 minutes ago, youxia said:

Anyway, if you want to believe that this is a deliberate then of course it's fine by me. I just prefer explanations which are perhaps bit more complex than singular conspiracy narratives, but seem to have a bit more grounding in reality.

I've seen how marketing works in the companies I've worked at.  They care about generating buzz, mindshare, influence.  

 

For instance, we like to believe that the Top 40 songs are determined by what people like.  In the 1950s if someone went around saying that's not true, record labels pay to get their songs played on the radio to make them artificially popular,  They might get called a conspiracy theorist.   But it turns out the Payola scandal was a real thing.     Look at what Volkswagen did to fudge emissions numbers.   Or Enron and other historic corporate scandals, etc.   Don't assume there's a point that's too low for marketing to stoop to to gain an edge.   Creating artificial shortages is small potatoes compared to crap that really happened, and not illegal as far as I know.

 

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They all take a bath on the hardware, so I think the console makers prefer to keep the runs smaller initially.  Then once they've done revisions for reliability and lower costs, they crank it up.

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No chance they aren't manufacturing as many consoles as possible. Demand is just higher than supply, as is always the case on release. Just because demand is higher for a few months at launch, they can't just "make more". There isn't a magical console fairy that waves a wand and creates them from nothing. And if the manufacturers create the capability to put out enough to keep up with initial launch demand, the other 99% of the console life, that manufacturing capability is wasted.

 

As gaming becomes more ubiquitous, the demand increases on release consoles. And this year is the perfect storm, where demand is higher than normal, and supply is lower than normal, so it's pretty tough to find one.

 

These are big companies. All they care about is the bottom line. The bottom line cares a whole lot more about actual sales than potential hype.

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8 minutes ago, Agamon said:

These are big companies. All they care about is the bottom line. The bottom line cares a whole lot more about actual sales than potential hype.

These days they actually make more on sales of gaming services and cuts of games sales than they do on hardware.   They are likely losing money on every PS5 and Xbox sold this year.  The product is really the ecosystem that you are buying into more than the console itself.  

 

So that means the amount of new consoles they sold this year is less important than the fact that demand for them remains strong.   They need to keep demand high so people keep renewing their service subscriptions year after year.   That's why hype is so important to this industry.   If they lost sales due to shortages this year, they know they will earn those sales as soon as they produce more product and ensure next years numbers will look good too.

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I think they LIKE when things are sold out and the hype train gets rolling.....but realistically companies want to produce and sell as much as they can.  A larger install base helps way more than any shortages or hype might.

 

There has been a console/hardware shortage since this pandemic began, it's crazy i've never seen anything like it.  The shelves (by me anyway) are always just.....empty.

 

Long gone are the days when the previous gen would still be supported and sold at discounted rates for years into the next product lifecycle.  I used to pick up the previous gens i never got around to playing for $99 once the next console was out (Genesis, etc) Can't do that anymore! 

 

So long story short, I'm 99% sure it's supply chain related and not scarcity by design. 

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4 hours ago, zzip said:

So that means the amount of new consoles they sold this year is less important than the fact that demand for them remains strong.   They need to keep demand high so people keep renewing their service subscriptions year after year.   That's why hype is so important to this industry.   If they lost sales due to shortages this year, they know they will earn those sales as soon as they produce more product and ensure next years numbers will look good too.

Keeping hype high comes from releasing good games that can be played, not by frustrating people that want a thing.

 

As I mentioned before, the lack of supply is hitting all forms of hobbies this year, not just gaming.

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34 minutes ago, Agamon said:

Keeping hype high comes from releasing good games that can be played, not by frustrating people that want a thing.

Both do the job.    There's not many games available at launch to create hype, and launch games are often weaker titles rushed out just to have something.

 

You don't typically see people people bringing their beds to gamestop for new game launches, but you are seeing that now:

https://www.thegamer.com/ps5-gamestop-beds-black-friday-thanksgiving/

 

Stories like that are basically free advertising, especially when they show up on regular news.  They do a better job at making something seem "must have" than any flashy advert could.

 

38 minutes ago, Agamon said:

As I mentioned before, the lack of supply is hitting all forms of hobbies this year, not just gaming.

and as I've mentioned before, this isn't the first year this has happened.

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17 hours ago, zzip said:

and as I've mentioned before, this isn't the first year this has happened.

Doesn't really counter what I said, but that is true, just saying it's worse than usual this year. Demand is always highest at release. Dragon Quest's release in Japan was probably the first time that happened.  More people want a thing than is available. It's not a difficult concept.

 

If I make boxes, and I think I'll be able to sell 10 boxes right when I release them and then 1 box a month after that, should I facilitate creating 10 boxes a month so everyone can have one at release?

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13 minutes ago, Agamon said:

just saying it's worse than usual this year.

Is it though?   Both Microsoft and Sony are reporting their biggest console launches ever this year.   How is that possible if the supply is uniquely constrained due to COVID?   PS5 supposedly outsold what the PS4 did at launch, and PS4 was sold out everywhere as well.

 

So assuming Sony and MS are being honest about their sales,  it implies they managed to produce more consoles than they did in 2013 despite the pandemic.   So if COVID is the excuse in 2020, what was the excuse in 2013?

31 minutes ago, Agamon said:

If I make boxes, and I think I'll be able to sell 10 boxes right when I release them and then 1 box a month after that, should I facilitate creating 10 boxes a month so everyone can have one at release?

Depends on the product.   If it's something popular like a console or iPhone that is popular,  and if I knew that if I supplied only 6 at launch, the resulting frenzy would increase the demand to 2 or 3 per month after that, I would sell more units over the year,  then that would probably be my strategy.   Having the "hot item" at Christmas is better advertising for your product than you could buy, so why wouldn't you take advantage of it if you could?

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If the companies can´t produce the consoles fast enough at launch, why don´t they set the price higher? They would sell just as many consoles (in the short run), and make more money.

 

I understand that setting a high price could scare off future buyers ("this is too expnsive, I will buy the other one"), but if they just inform consumers that the prices are just temporarily high due to limited production capabilities, then that problem should be solved.

 

The initial high price should make the product desirable too. If product A is more expensive than product B, consumers usually assume product A is better. And the anger at console-makers of consoles not being available in stores would be gone.

 

The only explanation I can think of why they don´t do this, is that they WANT the mad rush for "cheap" consoles in limited supply. It is simply great marketing.

 

Samsung sells about the same amount of smartphones as Apple, but you rarely see long lines of people camping out for Galaxy phones. Apple creates the lines by releasing them in limited supply in the beginning, and many people confuse these long lines with the products being good quality for money.

 

Samsung probably doesn´t do the same because their customers are smarter, and would probably react negatively to an artificially limited supply.

 

 

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5 hours ago, Agamon said:

If I make boxes, and I think I'll be able to sell 10 boxes right when I release them and then 1 box a month after that, should I facilitate creating 10 boxes a month so everyone can have one at release?

No, but you could stockpile boxes before releasing them. That way you can sell more than 1 box at launch, even if production is only 1 box per month. Of course, spending 10 months stockpiling doesn´t sound like a good idea. So I would say that the optimal would be to have an initial production of somewhere between 1 and 10, and then reduce production down to 1 per month when supply catches up to demand.

 

It will probably also be a good idea to have less than 10 available at lauch, to achieve the buzz of being sold out, while at the same time having good sales numbers, and saving some money on stockpiling/production capacity. Unless the boxes are for other companies or other people who don´t care about hype.

 

The optimal solution takes into account all these factors.

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