Co-Opetition - Adam M. Brandenburger [57]
Somewhat paradoxically, the shortage may have helped create even more consumer demand. There were at least three different effects going on. First, shortages made the game cartridges even more desirable in the eyes of consumers, actually boosting demand. Trendy restaurants play the same game. For example, the long lines outside K-Paul’s in New Orleans made it even more fashionable, further increasing the lines.7 Why not just raise the price and eliminate the queue? Because eliminating the queue might reduce the product’s cachet, and demand could crash.
Second, shortages made headlines; filling demand would not have. “Tonight’s top story: Nintendo sold game cartridges to all those who wanted them. Details at eleven.” We don’t think so. The shortages generated tremendous free publicity for Nintendo, a company known to be rather stingy on advertising (spending only 2 percent of sales).
Third, shortages helped retailers move slower-selling Nintendo games, because parents would buy a lower-selling title if the one their kid wanted was sold out. Of course, this was only a temporary solution, what we call the Band-Aid effect. The substitute might tide the kid over from Christmas to New Year’s, but kids tend to remember these sorts of things. So parents would have to return for the sold-out title once fresh supplies came in. Nintendo made two sales instead of one.
It was truly a case of “less is more.”
To further stimulate interest in the games, Nintendo created a monthly magazine that rated games, gave playing tips, and previewed upcoming games. There were no ads. Nintendo kept the magazine as cheap as possible—it was priced simply to break even. By 1990 Nintendo Power, with an estimated 6 million readers, had the highest circulation of all U.S. children’s magazines. The magazine was an ideal complement to Nintendo’s games.
The result: By the end of the decade, Nintendo had rebuilt home video games to a $5-billion worldwide business. It had achieved an incredible 90-plus percent share of the Japanese and U.S. 8-bit video game markets. A Nintendo could be found in one out of every three Japanese and American households. Nearly three-quarters of U.S. households with teenage boys had video game systems. Nintendo’s products accounted for over 20 percent of the entire U.S. toy industry, with cumulative sales of the Super Mario Bros, game series, alone, topping 40 million copies. Mario was more popular than Mickey Mouse among U.S. children.8 More popular than Mickey Mouse? Yes.
Could a challenger hope to breach Nintendo’s virtuous circle? Not once the circle had got rolling. Forget about alternatives—TV, books, sports. From a kid’s perspective, there were no good alternatives to a video game. The only real threat came from alternative video game systems. Here, software was key, as always. With a huge library of Nintendo titles to choose from, why would anyone buy another machine? Perhaps a challenger could take successful Nintendo games over to its platform and then offer its own library. But the exclusivity clause killed that option. No game could be taken to another platform for a two-year period, by which time the game was passé. A challenger would have had to start from scratch. While large profits and shortages normally invite entry, the virtuous circle made competing in Nintendo’s game hopeless. The only hope was to leapfrog Nintendo with a new technology; that’s what Sega ultimately did, as we’ll see in the Scope chapter.
Power Play Because Nintendo had a monopoly in 8-bit video game machines, its added value equaled the entire home video game pie. There was no threat from competitors.