Case Study in the Making: Cautious Nintendo Results in Low Forecasts, Few Wiis

Here’s an article in today’s Wall Street Journal by Yukari Iwatani Kane and Nick Wingfield profiling Nintendo, and its extra-cautious corporate outlook.

While Nintendo’s problem [the Wii shortage] illustrates how tough it is for companies to try to predict demand for a product, even in the second year, it also is emblematic of the Japanese company’s native caution. In the past two years, for example, Nintendo has set earnings forecasts so conservative that they achieved them in just nine months.

Nintendo started out as a small family business more than a century ago making traditional Japanese playing cards, and has undergone difficult transitions in its business to survive. Since it started making videogame consoles, the company has seen its fortunes rise with its Nintendo Entertainment System in the 1980s, and then fall in the 1990s as it lost share to rivals Sony Corp. and Microsoft Corp.

Christopher Tang over at UCLA is given a nice quote, explaining that when faced with questions of flooding the market with a product, or predicting demand on the low side, it probably is better to go with the latter. But, consumer anger builds if the shortage continues too long. In the past, console shortages eased up after the holidays, but the Wii remains in tight supply now for the second year.

Japanese toy maker Bandai Co. is a cautionary tale. In the late 1990s, it had a huge success with its Tamagotchi virtual pets, but unanticipated demand led to shortages in stores around the world. Then, when the company focused too much on meeting demand in Japan, consumers overseas were frustrated. By the time Bandai was able to step up production and make more Tamagotchis available overseas, knock-offs flooded the markets and few people wanted the real thing. Bandai ended up cutting its pretax profit forecast by 95% in 1998.

Business schools will no doubt use Nintendo’s management decisions as case study fodder.

References:
Kane, Y.I., & Wingfield, N. (2007, December 7). Nintendo plays it a Wii bit cautious. The Wall Street Journal, p.B1. [Online.] Available: http://online.wsj.com/article/SB119697501146616201.html