The “Wii” Mystery

No, not a “wee” mystery, this post is asking the (possibly naïve) question: Why is the Nintendo “Wii” system still almost impossible to obtain five weeks after Christmas? For those of you who have been living in a cave somewhere for the past six months, the “Wii” system is the latest video game console available from Nintendo. It makes use of a number of new types of controller to give the player the sensation of actually being “in” the game – such as a hand-held controller with a set of accelerometers that allow the player to actually “swing” at a baseball or “roll” a bowling ball. As with all Nintendo video games, it supports a huge range of software and tie-in products, and like most groundbreaking new home video game systems, it was the hottest possible Christmas gift for several key demographic groups (including children 3-12, teenagers, and males 18-36) during the last holiday season. You can visit the company’s Official “Wii” Site if you want to.

Now, as much as we don’t like it, the strategy of Artificial Scarcity is hardly a new concept. In fact, most people have had at least one run-in with a new product that was released to the public in limited numbers to avoid market saturation – and keep the price up. This is a fairly simple of using the laws of supply and demand to keep demand high and support the price point you have set for the product. Nintendo has used this strategy for most of its recent product releases, as has Sony with the “Playstation” lines and a number of other electronics companies with their newest releases. And so far it has certainly worked with the “Wii”, which still sells out the moment it hits the stores. In fact, a sales associate at Best Buy told me today that the “Wii” units are often sold out “even before they open” on the days new shipments arrive.

I don’t think he meant it literally, although there have been documented cases of retail workers purchasing scarce consumer products before the store opens (using their employee discounts) and then selling the products privately (or on eBay) later that day. A very alert store manager can prevent this, but more often the local management team is in on the scam (and is raking off a share of the profits) or just doesn’t care. The practice isn’t actually illegal, and in any case, given the way most of the retail industry (and the “Big Box” retailers in particular) treat their employees, it’s completely unrealistic to expect those workers to put the company’s interests ahead of making a few extra dollars on the side – or, in this case, on eBay. But even leaving issues like employee relations and private/cash sales over the Internet aside, why maintain the artificial shortage this far after the holidays are over?

By the end of January, all of the kids who were hoping for a Wii for Christmas either have one, or are resigned to not getting one. Kids with January birthdays may still be expecting one, but for the most part, the huge pressure to obtain the ultimate gift (and keep up with relatives, neighbors or other rivals who have also done so) is over for most consumers. Even more to the point, if none of Nintendo’s competitors has managed to bring a product to market that can take away (or recover) market share from the Wii by now, they probably won’t until next fall (the run up for the next Holiday season). Nintendo could increase the supply of Wii units available to the public, dramatically increasing both their profits from selling the basic hardware and their potential market for new software and new product releases without diluting the demand significantly – provided they maintain a very strong grip on their distribution channels, the way Apple did with the iPod and iPhone releases.

Of course, it’s just barely possible that Nintendo is actually having problems meeting production demand, given that the Wii was a runaway hit all over the world, not just in the U.S., Japan, and a few of the wealthier European countries. In which case, they really need to fire whoever they’ve got doing sales forecasts …

The Dark Side of the Farce

In my last post, I mentioned the touring exhibit known as “Star Trek: The Tour” which I went to see this past Monday in Long Beach. It’s an interesting business concept in its own right (as a means of generating money using a set of fixed assets), and as I mentioned in the last post, it represents an interesting test-bed for a Star Trek-based theme park, if anyone out there is considering launching one. I should also note that I firmly believe that if there wasn’t anyone considering such a project before, there probably is now – and by the time this enterprise completes its multi-city run across the U.S. there may be several groups of entrepreneurs considering such a venture.

Of course, there are still several unanswered questions in play here. One is why “Star Trek: The Tour” is being put on by CBS, rather than by Paramount (the nominal owners of the Franchise). Did Paramount pass on the idea as too risky, or did they outsource it to CBS in order to generate interest in the upcoming eleventh Star Trek movie without the bother of setting up and running the project themselves? Will enough people be willing to pay the price of admission to make the project a financial success? Will enough additional people be willing to pay the price of admission to convince someone to launch a Star Trek theme park? If so, where would you put the theme park? If you build where the land is cheap (e.g. some underdeveloped part of America) how do you get people to go there? If you build somewhere people already want to go (Orlando, Florida, or Anaheim, California, or even Las Vegas, Nevada) how will you afford to purchase that much land?

Only time will tell. But while we’re waiting, there is one aspect of “Star Trek: The Tour” that is so completely lame that it bears comment. I refer to the much-touted (it’s actually part of their marketing pitch online!) retail and food section of the operation. There isn’t much of one, folks; the average Borders has more Star Trek merchandise available on any given day. I noted a few books, a few action figures, some very expensive autographed artwork, and a few DVD copies of some of the series. There were almost no toys (apart from the Tribbles), no ship models, no costumes or props, no tie-in products worth the mention. There were actually more teddy bears (in vaguely Trek-like costumes) than any other type of merchandise, and most of what was there looked like knock-offs generated by people who have heard about Star Trek, but have never actually seen it.

What makes this even more puzzling is the huge amount of Star Trek-related merchandise available to the general public. A cursory check on Amazon shows over 23,000 book listings, nearly 800 toys, 120 software products, 190 music selections, 1,100 VHS tapes, 259 DVD selections, 130 video games, plus alarm clocks, decanters, Christmas tree ornaments, even food items. None of this was available for sale. And while there was a food service operation (called “Ten Forward” after a location on the Enterprise-D ™), you could only reach it by leaving the exhibit – with no re-entry allowed. Not a serious flaw in the middle of nowhere, I suppose, but in Long Beach, with dozens of resort-grade restaurants available in a three-mile radius, a major mistake.

One is left wondering how anybody attempting to make money off a pop-culture phenomenon like Star Trek could possibly fail to take advantage of the (quite literally) tens of thousands of merchandising possibilities. Other than prints of pictures taken of guests on the various sets (the ships’ bridges and so on) these people aren’t even trying to sell anything except tickets. It does make you wonder if the whole thing was set up by people unfamiliar with Trek culture (anyone who has ever seen the Dealer’s Room at a Star Trek Convention would have known better) who just don’t know any better, or if the people behind this venture just want to milk it for ticket money and can’t be bothered to explore any of the other possibilities. Or, I suppose, if the whole thing is an elaborate market test for a much larger project being developed somewhere else…

At least, I hope so. Because if this was the best they could do for a merchandising effort, I would not bet on “Star Trek: The Tour” lasting to the end of its run. Or even until it reaches a venue near you…

Star Trek on Tour

We had Monday off from work, and decided to go down to Long Beach and check out the touring exhibit called “Star Trek: The Tour.” If you’re not familiar with this enterprise you can check out the web page about it if you’d like. Basically, it’s a very large collection of props, costumes and other memorabilia related to the five television series and ten movies that collectively make up the “Star Trek” franchise, along with a number of interactive and multi-media displays. Throw in a couple of flight simulator rides (depicting rides on the “shuttlecraft” spacecraft) and some very good set designs (including the bridge sets from both the Original series and the Next Generation series, several other “locations” aboard the fictional ships, and so on) and you’ve got the general idea.

It’s somewhere between the displays and exhibits you would find at a large Star Trek convention and the attractions you might find at a theme park – part WorldCon and part Universal Studios, if you will. As a member of the movie-going public, and specifically one who had just shelled out $30 a ticket to see this extravaganza, I was left with somewhat mixed feelings. On the one hand, they did an excellent job with the material; I’ve been through a large number of museum-grade exhibits that were not as well designed or executed. The chance to sit on the bridge of the Enterprise ™ and the Enterprise-D ™ is a kick, and the mock-up of a corridor aboard the later ship was very well done; you could almost believe you were there. They also had a short “interactive” video clip (representing a few minutes aboard a ship in the Star Trek universe) that was worth waiting in line to experience.

On the downside, the Tour facility does very little beyond feeding the nostalgia of the hardcore Trek fans. Gene Roddenberry’s vision included a whole galaxy of worlds, races, and cultures, not to mention a whole fleet of ships of different types, space stations, cities, artifacts, and so on; this exhibit provides an up-close look at a lot of the props and costumes, but it doesn’t really include any information you could not have picked up watching the movies and television episodes. And I don’t mean pouring over them frame-by-frame on your DVD player; I’m a fairly casual fan (a “Trekkist” in fan-speak, as opposed to the dedicated “Trekkers” and the fanatical “Trekkies”) and there was nothing in the collection I couldn’t have identified (and probably explained the significance of) if called upon to do so.

Upon reflection, the whole experience made me realize just how much untapped potential this concept really has. There is very little doubt that you could produce an entire theme park around the Star Trek franchise, much like the Harry Potter theme park under construction at the Universal complex in Orlando. The potential for rides, walk-through attractions, shows, video screenings, concerts, and interactive activities is huge, and if you include the period piece features and alternate realities offered by the Holodeck ™ in the later series, there’s really no limit to what you could do. Of course, you’d have to find an audience willing to shell out the requisite dollars for the experience. I’m not saying that this is the point of the current Tour project; I’m just saying that if somebody somewhere ISN’T watching Star Trek: The Tour carefully, with an eye to developing a permanent theme operation somewhere, I’m going to be very, VERY disappointed…

The Disney Institute

Last summer my family and I took a trip to Disneyland, and I wrote about it in this space in a post I called “We’re Not Worthy!” As I noted at the time, going to Disneyland when you’re a management scientist is a lot like going to visit a cutting-edge NASA facility if you’re a physicist: you spend most of your time wandering around staring at things and muttering “These guys are GOOD!” under your breath. And, in fairness, they are; the heart of any Disney park is essentially one huge tie-in product to dozens of motion pictures and cartoons, some of them decades old, with some of the best marketing (best in terms of dollars made per dollar spent) and merchandising the world has ever seen. Until your business can convince your customers to pay you 500% markups on food, shell out 800% markups on souvenirs, and wait for up to 3 hours to go on a five-minute ride, don’t even think of embarrassing yourself by comparing your business to a Disney theme park.

But as impressive as all of that is, there’s a new Disney venture that leaves all of those achievements in the dust. It’s a consulting/professional and corporate training operation called The Disney Institute. The basic concept is simple: since Disney management techniques are obviously so superior, every other business should want to study how they do things and apply these Disney techniques to their own operations. For a very reasonable price, Disney will sent a team of their own management scientists to your company to teach you how they do things, and to consult with you about how to apply these Disney principles to your own operational issues. An article in this morning’s Los Angeles Times details just such a training program going on at the Miami International Airport, which could definitely use some help with customer satisfaction issues (it consistently rates as the least favorite U.S. airport)

“So, what is so impressive about all of this?” I hear some of you asking. Granted that Disney has some really good management techniques, isn’t it simply logical that they would form their own consulting division and offer to teach them to you – for a price? Well, I suppose that on the face of it this is a very simple idea – which fails to explain why there is no comparable operation being run by any other successful corporation. IBM will not offer to teach you how to duplicate their tech support, Nordstrom will not come to your headquarters and teach you about customer service, and Apple is not about to share their thoughts about product design or marketing with you. Although any of these companies probably could develop a consulting/training division if they really wanted to. Certainly, they all have the necessary reputation for excellence in their respective fields.

Which brings me to the whole point about the Disney Institute. The Disney people have, in effect, applied their reputation for management and marketing excellence to a new service – in other words, they have expanded their existing brand to cover an entirely new line of services. All of the information they are offering to share with you has been divulged to the general public numerous times over the years; in documentaries, in Harvard Business School case studies, in management textbooks, even in existing Disney products. Any half-baked MBA student could explain the bulk of the Disney management techniques to you, and any reasonably good management consultant could explain to you how to apply these ideas to your business. But because the Disney brand name is so strong, people are willing to pay a premium to have genuine Disney personnel come and fulfill these same functions. Once again, the ingenious part isn’t what they’re doing, any more than a cheap plastic trinket with a Disney character printed on it is a great value; the ingenious part is that they’ve successfully marketed it to their customers at that preposterously high markup…

Say it will me, everyone: “We’re not worthy! We’re not worthy!”

Another Tax Cut

I don’t know if you’ve been following the national news regarding the latest in tax cuts, but if not, there’s a new one and you can read about it here until CNN takes the story down. Now, I know this blog is supposed to be about business and not politics, but this particular bit of political nonsense is based on a faulty business premise, and that brings it into my area of expertise. I can’t really comment on whether or not this is an astute political move, or on whether or not it constitutes good governance on the part of the President and his advisors; I only know that our current President’s own father once referred to this type of tax cut as “voodoo economics” – and he was right…

The basic idea behind any tax cut – especially a “tax rebate” like the one being proposed this week – is that the people who receive the money will spend it on new houses, major appliances, new cars, and other major purchases, which will benefit large companies that produce consumer products. These companies will then pay their suppliers and hire more workers to handle the increased demand, and the suppliers will also need to purchase more materials and hire more people, thus creating even more jobs. In economics, this basic concept is called the Multiplier Effect, and the general idea is that by injecting money into the economy through the increased purchase of goods and services, the money gets spent many times over (as opposed to just giving the money to one person or organization, who may just keep it).

This is the basic idea behind the Supply-Side Economics so beloved of the Reagan Administration in the 1980s. Massive tax cuts were given to the very wealthy, who were expected to take the money and invest in new factories, purchase masses of consumer goods, and generally stimulate the economy. These economic benefits would therefore “trickle down” to the people who owned the factories, supplied the factories, and worked in the factories, thus indirectly benefiting everyone who worked for a living in the United States.

It’s a pleasant enough idea, but ultimately nonsense. If you suddenly discover that your tax bill for this year has dropped by $800 it’s always possible that you’ll apply that amount to a new stove or a new refrigerator – assuming that you can find one for that amount, or that you have the extra to cover the cost of something you’d actually want. It’s more likely, however, that you’ll just have to pull 800 fewer dollars from your savings to cover the cost of the tax hit. Or borrow 800 fewer dollars to keep your household afloat. But since almost none of these “tax rebate” dollars will be given to people making between $25,000 and $40,000 per year (which is to say, almost 40% of the country!), it’s unlikely that this tax break will mean very much to anyone who gets it.

The fact is, it really doesn’t do anyone earning $40,000 per year much good if people richer than them get to spend less on their taxes, and it does no one any good if the people in the top 1% in incomes get to buy large estates in the country – except for those 1% of the people, who can almost always be relied upon to donate money to the political campaigns of the party that enabled them to buy their large estates in the country. Which is really the point I’m driving at here. I realize that the richest people in the country also account for the majority of the income taxes paid, and I understand that any potential tax break will have to be made proportionally, which means those same richest people will be the ones who will benefit the most from the tax cuts. But anyone who has spent even a few minutes learning how economics actually works will already know that the idea that this sort of tax cut program will actually stimulate the economy is nonsense. Or, in the words of Harvard economist James Tobin, “The idea that tax cuts would actually increase revenues turned out to deserve the ridicule..."

Holiday Creep

We’ve all heard of feature creep – a form of runaway expectations in which additional features keep being added to a relatively straightforward project until no one could possibly complete it, let alone bring it in during the original time frame and for the original budget. Today I want to talk about Holiday Creep, or the way that distant holidays keep growing less and less distant as the years go by. There was a time, long ago, when the Christmas shopping season did not begin until after Thanksgiving, and people had a chance to recover from the Holidays before the onslaught of Valentine’s Day, St. Patrick’s Day, President’s Day and Easter began. Today, you’d be lucky to have enough time to pack away one set of holiday decorations before the next big day.

For example, when I was working in retail in the 1990s, Valentine’s Day would officially begin about two weeks after Christmas – just long enough for the store to milk any remaining sales out of the After Christmas Clearance sale. Then we’d pack any remaining Christmas merchandise into the attic (including some of the candy – there are popular sweets with a three-year shelf life!) and bring down the Valentine’s decorations. By about this time of year we’d have the Seasonal aisle loaded up with cards, candy, and a wide array of red and pink heart-shaped knick-knacks of every possible description. Shortly thereafter, the sort of people who get their Christmas shopping done by September would come in to get their Valentine’s needs covered, having already finished with their income tax returns.

A few weeks later, a normal clientele (mostly female) would come in, gearing up for the holiday with high hopes. By early February, the customer demographic would be shading into a mixture of men (well-organized ones) and women (procrastinators), and by the week before Valentine’s Day, most of the people in the seasonal aisle would be male. During the week leading up to the big day it’s almost unheard of to find a female shopping in the Valentine’s Day section, and the men are beginning to look very pleased with themselves. One can clearly imagine that in prior years they forgot the day, or waited until the last second, and are now feeling very good because they’ve obtained their gifts with two days to go. By the 14th the customers would be frantic, knowing that if they came home empty handed they’d never hear the end of it, and by dinnertime that night the men bolting in through the door would literally buy anything even vaguely heart-shaped.

And then, after a day or two to clear out leftover Valentine’s candy (some of that will last until next year, too, but it’s better to clear it out and start fresh) my crew and I would be pulling green decorations and party favors for St. Patrick’s Day out of the attic, and moving on to Easter a few weeks after that.

Now, I don’t intend to blame the current economic issues facing this country on holiday buying. Certainly, retail stores need holiday-based sales in order to stay in business, and our economy needs both those retail channels and the jobs they create in order to stay afloat. But I do have to question if this cycle has gotten out of control. In a world where people are defaulting on their sub-prime mortgages and abandoning cars with remaining payments that exceed twice the value of the vehicle, is it really a good idea to be trying to sell people Easter candy while they are still hung over from New Year’s Eve? If we have become a nation of debtors, should we really be encouraging people to start blowing money they don’t have on Christmas presents before Halloween? I don’t have the answers; I only hope that someone out there does. Because at this rate, it’s only a matter of time before next year’s Holiday shopping season begins before this year’s Holidays are over…

A Hypothetical Question in Ethics

For this week’s ethics post, I would like to invite everyone out there to join me in a hypothetical question:

Imagine that you are the owner of a highly visible business. A report is published in the newspapers, and immediately picked up by every media channel in the world, in which a witness with extremely marginal credibility implicates one of your most productive employees as the long-term user of an illegal substance. Further, let us imagine that the witness offers no proof, no hard evidence of any kind, and there is no way for anyone to corroborate his accusation of your employee, who in turn categorically denies all of the charges. There is no way this evidence would ever be presented in a court of law; no prosecutor in the world would touch such a case for fear of being laughed out of court. But because both your business and the employee being impugned have relatively high profiles, the media scrutiny of both you and your employee is intense, and uninformed people all over the world are convinced of his guilt and your complicity.

Including at least some of your customers.

What are you going to do? Before you answer that question, you may want to review your reaction to the Mitchell Report, released one month ago today. Because, as near as I can tell, almost every one of the Major League Baseball franchise owners is dealing with that exact question right now – or will be soon…

Now, as a long-term baseball fan, I must tell you that I have no love for the owners. Even the most balanced accounts of the sport during the mid 20th Century make it painfully clear that the owners brought the Player’s Union and all of the attendant problems of the players as represented workers down on themselves, through dirty dealings that would make a Teamster blush. And I have no great sympathy for most of the players; it is difficult to feel sorry for a bunch of grown men who are being paid tens of millions of dollars to do something that half of the people in America would gladly do for just a living wage – if we were capable of doing so in the first place. Both groups should have realized decades ago that if they didn’t work out some means of policing the industry themselves that the public would demand action be taken, and that the government would eventually attempt to do so.

For the players themselves, the best course of action seems clear: they don’t have to prove their innocence, the government has to prove their guilt, so the best thing for them to do is get clean, stay clean, and say as little as possible. Documenting every medical treatment they’ve ever had would be sensible, and I’m sure they’re already working on doing just that. None of the “evidence” presented so far is any real threat to anyone, and if a real case does pop up somewhere, they all have the money to hire top legal representation and defend themselves. But what if you were one of the owners; how would you approach this storm? For the purposes of this question, we will assume that you do not have certain evidence of your employee’s guilt or innocence (in which case your legal obligations would be clear). Do you have an obligation to support your employee and maintain his innocence? Even though he probably can’t do as much for you without risking public and/or legal exposure? Or do you just remain aloof, refuse to discuss the matter, and let the pieces fall where they will?

It’s worth thinking about…