Shortage of a fad item fuels frenzy
Posted on Friday, December 9, 2005
Christmas gift shoppers scoured malls last year for Apple Computer Inc. ’s iPod mini, and many had a hard time finding the colorful music player. This year the iPod hunt is going on again, only this time it’s for the iPod nano and video iPod. Once again many shoppers are coming up empty-handed.
Like the annual showing of It’s a Wonderful Life on TV, shortages of hot-selling gadgets and toys have become a commercial rite of the Christmas season. Last year video-game junkies scrambled to find Nintendo Co. ’s DS portable game player. This year they are chasing Microsoft Corp. ’s Xbox 360 game console, which began vanishing from store shelves immediately after the product’s release on the Tuesday before Thanksgiving.
While shoppers find it frustrating, scarcity — especially in the first days of a product’s release — can amplify its success by generating buzz, marketing experts say.
“For the Xbox it would have been terrible to have that thing in stock. It would have been a marketing disaster,” says Peter Sealey, an adjunct professor at the Haas School of Business at the University of California, Berkeley, and a former Coca-Cola Co. marketing executive. Consumers expect to have to fight for hot products, he argues. “Shortages create a whole mystique of desirability.”
Manufacturers of popular toys and electronics have long been accused of whipping up shopping frenzies by deliberately rationing product supplies. But Apple and Microsoft insist they have done nothing of the kind with the iPod and the Xbox 360.
“We’re shipping every [iPod ] we make, but it’s still not meeting demand,” Apple spokesman Katie Cotton says.
“No one has designed it to be this way,” Molly O’Donnell of Microsoft says of Xbox 360 shortages.
Some consumers remain skeptical.
Karen Connolly of Scituate, Mass., tried to place an advance order for the new Xbox more than two weeks ago on Circuit City Stores Inc. ’s Web site. But her order arrived too late to get the game player in time for Christmas
“Santa can’t always get things, either,” she says she had to tell her 9-year-old son.
“From a marketing standpoint, it’s brilliant,” she says. “But from a parent’s standpoint, it’s annoying.”
Apple, for its part, appears to have some control over where consumers can find iPods this year. Over the Thanksgiving weekend, Piper Jaffray Co. analyst Gene Munster checked on availability of iPods at 11 Circuit City, Best Buy Co. and CompUSA Inc. stores and at 10 Appleowned retail outlets. Eight of the Apple stores had all iPod models in stock, Munster said in a report published earlier this week. In sharp contrast, all 11 of the other retailers ran out of at least one color or configuration.
Apple earns more profit by selling iPods directly to consumers because it doesn’t have to share profits with a retail middleman. And the iPod draws people into Apple stores, where they can browse other Apple goodies, Munster says.
Apple’s Cotton declined to comment on how Apple allocates inventory with retailers.
Sales of the iPod at U. S. retailers declined from the second to the third week of November, according to NPD Group Inc., which tracks sales. Stephen Baker, an NPD analyst, says the surprising decline very likely results from spotty supplies, not weak demand.
In many cases some of the early demand is fueled by speculative buyers, who go to whatever lengths they must to buy hot items on their release date in hopes of reselling them on eBay Inc. ’s auction site at a big markup.
At an investor conference last week, Meg Whitman, eBay’s chief executive, told an audience that users of the site have sold about 40, 000 Xbox 360 s — or about 10 percent of the 400, 000 consoles that estimates say Microsoft has shipped to U. S. retailers. The consoles are selling on eBay for hundreds of dollars more than the $ 299 to $ 399 that the system sells for in two basic configurations.
Shortages make some consumers only more determined to get their hands on some products, in particular the iPod, perhaps the closest thing to a fashion icon in the electronics industry. Because Apple has been introducing fresh models several times a year and phasing out old ones, scarcity now commonly occurs.
“What Apple does is create scarcity by upgrading [the iPod ],” says Seth Godin, an entrepreneur and author of several best-selling marketing books. “That’s a timehonored tradition.”
As for Connolly, the frustrated Xbox 360 shopper, her brother pedaled his bike at 3 a. m. to a local Circuit City two days before Thanksgiving and got one of the Microsoft consoles.
She says her brother called her after nabbing the machine and said, “This is Santa. I got it.”
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