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Monday, November 27, 2006
It's a Conspiracy....

...or is it?

The other day I was at Bed, Bath & Beyond to pick up a couple of things, one of which was a Christmas present for B. After DH and I wandered around for a bit and couldn't stand the stink of the place anymore (all the scented candles, all the potpourri) we headed for the checkout. We had two items that were priced differently, and I had a coupon. This is important.

The girl at the checkout took quite some time to do the paperwork she needed to do to give us the items at the differently marked prices and to conclude the transaction. When it was over, after I signed my credit card slip, the girl handed me back my coupon and admitted that she had forgotten to scan it in and that I could bring it back another time.

I looked at her and said "No. Fix it." Which she promptly did, without argument even though there were people in line waiting behind us. When we were finished DH and I left the store and I pondered aloud...

I could be one of two types of people. On the one hand I could view it as a complete and absolute accident. After all, she had to pull out her log for items at different prices and deal with it. And she volunteered to do it - I didn't even make an issue about it. On the other hand, I could be one of those people that thinks she did this on purpose. Y'all know those people exist - the ones who think that she did this just to convince me to come back and spend more money at the store during the Christmas season. And they're just so very proud that they stood up for themselves when they made the poor clerk or manager re-ring the sale, or back out the amount of the coupon.

The conspiracy theorists.

They're the same folks that look at pieces of technology and think that these things are either created do suck all of us into some sort of mindless allegiance to a brand - like iPod, or Xbox. Earlier this year I listened to the conspiracies start dancing around Sony and the PS3. In early 2006, we (at work) were actively watching the advent of HD DVD vs Blu-Ray DVD, and how soon could we get our hands on a player to start watching comparisons between the two. In my department we knew our best chance to get a Blu-Ray player was to get our hands on a PS3. Then we heard our first bit of bad news - Blu-Ray players might be harder to get our hands on than we thought - there was a shortage of the blue diodes needed to read the discs. The first thing that popped into my mind was that Sony was now screwed, unless the situation could be resolved quickly. Knowing that we had industry information from inside sources we sat and waited. Two weeks later it was in the EE Times.

Of course, Sony had nothing to do with this - they don't control production of the diodes, nor could they resolve the issue. And so they delayed the launch of the PS3 until the Christmas buying season so that they wouldn't kill the DVD player lines. Cue the balancing act. How does a company that's in financial trouble manage to rescue themselves from a production issue that's out of their control without completely redesigning the product (which they couldn't do if they wanted to)? They don't.

Fast forward to about a month ago - Sony releases the PS3 numbers and they're significantly less than expected. There are still diode shortage issues and they had to balance two production lines for two products that could make their Christmas bottom line. And it looks like they won't make it for either one, since they had to short both lines and make this PS3 launch stick. Sony isn't going to have a very merry Christmas season unless a miracle happens.

Now, why am I talking about Sony? Easy - there are two kinds of people out there, just like in the BB&B experience I had. You've got the folks that think Sony's gotten a terrible run of bad luck, which has been documented in the press for months, and you've got the folks that think that Sony did this on purpose just to sell out all those units, get all that press, and not have to sell the units at a discount. That line of thinking is preposterous. (Sorry if you're a friend, but the thinking *is* faulty.)

Why would a company like Sony submit themselves to such a black eye as something like this. It's bad enough that the player isn't able to play all the older PS and PS2 games (there are some significant glitches and while many will be fixed, many others may never be). Christmas is huge for Sony and for game consoles. The XBox 360 has been selling very well, and more "event" games have been released (like 'Gears of War' which has been waited on for a year). Nintendo pulled off the Wii launch without a hitch, but still having their own limited quantity issues due to production issues of their own that occurred internally.

If you think it's a conspiracy, why would Sony do this to themselves? They're in the business of making money, right? So wouldn't it make perfect sense to have as many units out there as there is demand for them instead of shorting the market? After all, they don't make money when someone resells the unit on eBay and they're already producing the units at a small loss to begin with. The money comes in with the game and controller sales. Putting out less units than can satisfy demand isn't going to help Sony financially - especially when people won't buy games or controllers without the unit already in hand. After all, I want a Wii, but I'm not going to buy the accessories until I have the Wii in hand.

And it's going to be awhile before I get a Wii - I'm waiting for product to be back on shelves, for demand to die down, and for any bugs (I've not heard of any) to be worked out. And a sale. It will happen eventually, I just have to be patient. Some gamers aren't - that's why there were long lines for the PS3 and the Wii on the day of the launch. It's a badge of honor to sit in a line like that and be the first one - kind of like the old days when you camped out in line for concert tickets. Now you just sit on the computer and wait for those things - but you couldn't do that with the PS3 unless you were trolling eBay for a cheap Buy-It-Now price to pop up.

There's no way that Sony put out a limited supply of PS3s to see what press and demand they could get from it. Because if they *did*, then they would have surprised us already with a "Guess What? We will be able to push out another X units before Christmas YAY!" press release. All they could say was that an additional 1 million units should hit the US before the end of the year - but there's no further confirmation on that, even though the laser diode issue has been supposedly resolved. They've got to play catch-up now, and producing 1 million units isn't going to happen overnight. And they're not going to ship partial shipments to meet the market before the run is complete because split shipments cost more money than you think.

Pure economics says that products with a fixed price in the market are going to sell if the demand is there. If supply is fixed then price will fluctuate as demand increases or decreases. But when both price and supply is fixed, then a company is at the mercy of the consumer and if they're willing to pay the price that's out there for an item that will only be there for a short amount of time - like a limited edition kit or chart. The price is fixed (for the most part) and the supply is fixed. But what happens to the demand? In some cases it goes up far and fast - because it's limited and it will not be produced again. The company/designer will not make any more money on that run because they've already decided that it will end after the last one is sold. That's not the case with the PS3, but it may be a long wait before consumers get their hands on a unit if they weren't lucky enough to get one by waiting in line or overpaying on eBay. Sony put out a limited supply, and it was up to the stores to set the price, on sale or not on sale, but Sony would only get the margin that they had for that limited amount of units. That just hurts Sony in the long run. So you conspiracy theorists out there can say that Sony did this on purpose all you like, because I know better...

...the laws of economics and profits say so.