Thursday, March 31, 2005

demand, marketing, and the Sony PSP

Techdirt: Sony PSP: Good Inventory Planning, Poor Marketing Strategy?

This blogpost from Techdirt raises an interesting question. It's about the Sony PSP, a new handheld gaming device, which I understand to be essentially a high-tech Gameboy (I'm not a big video game person, so I apologize for the lack of ready details). It makes the observation that every new technological device in this area is expected to sell out quickly. It references a Reuters article which observes that the PSP is not selling out, that while "specialty gaming retailers" are selling them like hotcakes, retailers like Target got large initial shipments which did not sell out quickly.

What does this mean? Possibilities:

1) Sony wanted a sell-out product, but the device is not as cool as it could be. This could mean that people are disappointed with it, so the usual extra-large crowds are not forming as word of the device spreads. Or it could mean that the device is expected to be so cool that it creates a new market of sorts, drawing many people to purchase it who could not have been predictable customers, just because it's that cool.

Counter: Or it could be that Sony factored in a certain extra amount to cover the extra market, and people really are purchasing it who couldn't have been expected to as individuals, but in aggregate can be taken into account.

Counter-Counter: This is a rather obvious strategy, so if this were really a desirable strategy, one would think that it would be more common in device releases, and sell outs would not be as frequent.

2) Sony wanted a sellout, and the PSP is a cool product, but Sony made a poor estimate of interest at large retailers. I bet early adopters, people who must get the device right away, go primarily to specialty stores to purchase PSPs in the first week of release. I think most Target/Walmart sales of PSPs occur at holidays and as gifts, or as impulse buys, rather than as deliberate pre-planned purchases, which probably make up the lion's share of the historically immense first-week sales of a technology like this.

3) Sony did not want a sellout, and did a better job estimating demand than previous retailers. This is a possibility, of course. But I think that the fact that there are extra units at Walmart/Target but not enough at specialty stores belies this, in the sense that ideally they would all run out at the same time, and that if you want extra anywhere it should be at the specialty stores because these are the places where customers will more likely make special trips to get the device, and thus should not be disappointed in their searches.

The determining factors in these options are two-fold: is this a cool device, and will the lack of a sell-out help or harm the sale of the device? The former I leave to others to answer, but let's think about the latter:

1) Help: Consumers will not be frustrated in their attempts to purchase it. My roommate went to a store several times to try to purchase an iPod, and eventually just ordered one off the web. Consider a less dedicated customer, who says, "I'm going to go out and buy a PSP." The customer goes to the store, the PSP isn't sold out, and just says "Oh, well" and forgets about it, or even says "Hey, maybe I'll get that Gameboy instead."

Counter: Again, I expect most first-week purchasers are dedicated customers, so I think the increased ability of less-dedicated customers to make impulse purchases is not a likely factor in initial sales.

2) Hurt: The sale of devices past the first week depends largely on positive reviews and on media coverage. Positive reviews are probably mostly independent of availability, but to the extent there is any impact, I would expect lack of availability would make the reviewer feel extra-special for having the privilege (nay, honor) of getting to hold and use the device, and thus more inclined to give a good review. Media coverage is another question, one I am not confident of my ability to answer. I expect that because failure to sell out a device is not news (or, at least, not ongoing news) it's less likely to lead to extensive media coverage than ongoing shortages and stories from frustrated customers would. This is especially true when every town's local news station puts a news reporter on TV using the device, to share the honor of experiencing the device with the local population who aren't so privileged.

Really, the situation boils down to common wisdom: people always want what they can't get.

On a side note: Yesterday's new South Park episode involved Kenny controlling the armies of Heaven in the war against Hell using a PSP. He got the job by playing the PSP's 'Heaven and Hell' video game and beating level 60 - a plot well known to me as that of 'The Last Starfighter', which for a very very long time was my favorite movie. Of course, in true South Park fashion they mixed a Schiavo-like scenario into the storyline. But South Park is nothing if not willing to make political statements.


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