Wednesday, 6 August 2014

The economics of Timtams and Wii Sports

 Last Saturday, Arnott's released a new variety of Timtam. Peanut Butter flavour. The things taste like any American-style peanut butter with chocolate product. That is to say, I find them too dry and sugary, rather than the peanut-heavy varieties of peanut butter I prefer. They also signed an exclusivity deal on the product with Coles. Neither party were interested in setting up elaborate promotion stalls, taste samples or gigantic advertising campaigns. They just put the things in the chocolate biscuit section along with all their friends. By Monday, this is what every single Coles in the state has looked like.

Photo credits to my boy Colin "Miraclemilk" Clyne.

This is the classic supply choke strategy. Introduce a new product with massive pedigree (for any foreigners who happen to read this, Timtams are very much a national icon to Australians and the definitive chocolate biscuit/cookie. These things are to us what Oreos are to Americans) to small fanfare and release barely any of it. Get everyone talking about what they tasted like, or wonder as to the taste since they've been completely unable to get their hands on it. Create a sense of worth and mystery to a new product, so when you open the floodgates, the product flies out of your warehouse and is replaced with more money that you expected if you'd done a costly marketing campaign.

Arranging this as an exclusivity deal makes things even sweeter. From Arnott's end they've got an even narrower supply to let the word of mouth spread. From Coles' end, they have a Timtam that can only be bought from them. They can draw in people who would normally be shopping at fellow Supermarket giant Woolworths, or those who still support the smaller local chopping chains. This sort of tactic is probably going to be ever more popular in the next few years as Australia's two supermarket empires do everything they can to try crushing Aldi's expansions throughout the states.

You know who else loves to use this sort of tactic? Video game console manufacturers. Nintendo employed this to immense success with the Wii and so everybody has wanted a piece of the pie. The PS3 was undersupplied at launch. So was the Vita, the PS4 and the Xbox One. The Vita is a good demonstration of how the tactic can backfire. If you undersupply but then fail to sell through the meagre stock, your product gains a reputation as a failure. Still, everybody wants to talk up launch sales and get the install base going on a new device, so they all try to use this trick. But there's two reasons it worked for the Wii and these Peanut Butter Timtams. Let's take a gander what what they are.

1. Brand name recognition/Killer app
If Coles had organised to sell something like Griffins' Peanut Butter Afghans or Paradise Cottage Style Peanut Cookies then this strategy wouldn't work. This isn't just a peanut butter and chocolate biscuit. It's a new Timtam. Like I said before, Timtams are a national icon. There's official names for doing things like biting off the ends and drinking milk through the things. If you're making a chocolate biscuit, you try to give it a name similar to Timtam like Dick Smith's Temptin's to catch idiots. When you're going for a supply choke at launch, it needs to be something that people are familiar with and have enough love for that they'd have bought the thing anyway.

On top of Nintendo's prestige as a company who makes fun videogames (particularly since the Wii launched off of the back of their stellar videogames throughout the Gamecube's life), they were bundling the console with Wii Sports. This was a videogame that you could get anyone and everyone to grab a white stick, wave around a bunch and be amazed as a creepy fake-person whacked tennis balls and played golf. The word of how simple and fun it was spread faster than anyone could've imagined a year before. Remember, Nintendo in 2006 was selling stuff like Yuu Saito's Odama.

This is one of the problems of their competitors' launches. The 360's big name launch titles were Kameo: The Elements of Power and Perfect Dark Zero. Rareware fans were still bitter about the buyout. Modern shooter fans had no interest in Perfect Dark. They wanted a new Halo, and they were just going to keep playing Halo 2 on their existing console until 3 launched. The PS3's biggest launch title was Resistance: Fall of Man. Shooters are popular, but one without any pedigree like that was just to pass the time. The PS4 launched with, erm, Resogun and some ports of existing games, along with a contender for worst game of 2013. All of these consoles certainly picked up once they got games (360 got Halo 3 and Idolmaster in Japan, PS3 gained a steady line of solid RPGs, From Software titles and other oddities, Xbox One got Titanfall). They got the sales down the line, but not the bottled lightning that a supply choke is gunning for.

2. Nintendo didn't supply choke the Wii itself
In that fateful Holiday 2007 period, I recall people were mostly able to acquire Wiis. At the very least, their friends had Wiis. Every Wii came with Wii Sports. So where was the supply choke? It's simple. You could play Baseball, Bowling and Golf with a single Wii remote. Those took a bit of effort to learn though compared to Tennis. Tennis needed four remotes to get the full family experience. Boxing needed the nunchuk to (barely) function. So Nintendo only slight choked the supply of Wii Sports in order to get the game out there. But if you wanted that full experience, you needed more Wii remotes. 

This is the beauty of the Wii's launch: Nintendo choked the supply of the additional Wii remotes. People would ask their friends to bring controllers around to show the grandparents or what have you that Tennis game on the TV. People would get excited about this new future for videogames, and they'd be even more excited about being able to do it in their own home. But they had to wait. They had to wait for months to get their Wii remotes.

Then Nintendo had an even better idea: bundle the Wii remotes with another game. They tied a vital component of their experience into additional software purchases. Then they supply choked that game as well. Now not only were people excited about controllers, they were excited about this mediocre bundle of minigames because it meant they could get the full experience and more games. And the best game in that pack required the nunchuk to boot. And it was two player. So not only did you want four remotes, you wanted at least two nunchuks. Maybe even four of those as well, because who knows what exciting things are coming down the line?

If you want to build hype at the launch of a device, you can't just choke the supply. You have to find other ways to push the demand along so the lack of supply will serve as a catalyst for your demand instead of an obstacle.

I'd also like to say that in retrospect the Wii was a bit sugary and dry as well. At least it blessed us with Castlevania Judgment.

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