1. Develop an argument either in favor of or against a deliberate shortage strategy, such as Nintendo has experienced in the past. What are the advantages and disadvantages of maintaining shortages?

2. With increased sales of competing devices, can Nintendo maintain a bottleneck strategy? What might be required for them to maintain such a strategy?

Our story begins the week before Christmas in 2010, just about anywhere in the United States. A friend has tipped you off that a local toy retailer may be getting in a shipment of Nintendo Wii (Nintendo of America, Redmond, WA) consoles on a Friday night and that they will go on sale when the store opens Saturday morning. By 10 pm, you arrive at the store where you join a line of other customers for a long, overnight wait. You hope to be one of the dozen or so customers lucky enough to snag the game console in time to fulfill your children’s holiday wishes. By morning, a member of the sales staff of the retailer distributes two dozen vouchers to the crowd. Your overnight vigil paid off as you will be one of the lucky few able to purchase a Wii in time for Christmas.

One of the most popular game console systems since its introduction, Nintendo’s Wii was also one of the most difficult to find. This story of a lack of supply continued to repeat itself year after year, leading some to suspect that Wii shortages were simply created by Nintendo to maintain the public’s fascination with the company’s entertainment system. After all, they reasoned, was it likely that Nintendo’s supply chain problems could continue to follow the same patterns since Wii’s introduction in 2007?

Unfortunately, these problems have continued to plague Nintendo since the release of its newest Wii U gaming system. When it launched in 2013, the Wii U attracted so much consumer attention that within weeks, Nintendo once again cautioned that it would not be able to fill all orders for the upcoming holiday season. GameStop Corporation (Grapevine, TX), one of the largest U.S. game retailers, had already begun compiling a waiting list after pre-orders filled up. In no time at all, more than 250,000 names were on the list! Ironically, to generate initial enthusiasm for the product, Nintendo made the decision to sell the consoles at a marked-down price, meaning that for every console the company sold, it took a loss. This combination of a product in short supply and resulting losses means that Nintendo’s supply chain has once again made it difficult for the company to realize the benefits from technological advances in gaming.

What has prompted the continued bottleneck, or delay, of Wii consoles? Some industry analysts believe that Nintendo bet that the shortages wouldn’t cause customers to look for competing gaming consoles to buy instead. Although Nintendo has denied that this is its strategy and pointed instead to supply chain problems leading to delays, industry analysts suspect that a regular pattern of holiday shortages indicates otherwise. Whether intentional or not, there is no question that for several years this operating pattern paid off: Customer demand for Wii consoles remained strong and, in fact, grew at a strong pace, even in the face of continued shortages.

The entertainment system industry is highly competitive, with rival systems from Sony [Play Station 4 (PS 4)] and Microsoft (Xbox One) pushing to capture some of Nintendo’s market share. Not only has its system been highly popular with the public, but Nintendo has been consistently profitable in comparison with Sony and Microsoft, which have been losing money on every unit sold.

Can Nintendo’s deliberate (or accidental) bottleneck strategy continue in the future? Industry analysts suspect that it cannot. As Bruce Richardson, chief research officer at AMR Research, Inc. (Boston, MA) noted, “In consumer electronics, you’ve got to pay close attention to the product lifecycle. . . . And if this stuff is all coordinated inside Nintendo, it doesn’t appear that way in the U.S. market.” This point was born out in recent industry sales numbers, as Wii U unit sales tumbled relative to its main competitor, Sony’s PS 4. Several industry analysts traced declining sales to the chronic and continued supply chain problems in Nintendo’s manufacturing and delivery systems.

Ultimately, it may simply be changes in the gaming market that prompt Nintendo to alter its supply chain and retailing strategy. The lack of availability of the Wii U could not have come at a worse time for Nintendo, which has seen its sales volume steadily declining since 2011 and in 2014 surrendered its industry leadership to Sony. The Wii U was Nintendo’s strongest effort to reclaim the top spot in the gaming industry, but with a shaky and uncertain supply chain, it is anybody’s guess how the latest round in this ongoing competition is likely to turn out. When Nintendo dominated console and game sales, it had the added luxury of slowing the speed of its supply chain if it wanted to. Now, however, the ability to profit from deliberate shortages is rapidly looking like a thing of the past.