Why do companies like Apple, PlayStation, and Xbox, launch new hardware before they’ve manufactured enough to meet initial demand?
In: Economics
Because it would take a much longer time to build more units for launch that could delay it beyond announced launch date/important holiday selling season; because it’s more costly to build more units, especially before they have exact demand–better to keep making more to meet demand than overshoot and have unsold units; logistics are easier distributing units over time vs. single huge launch; because the hype over shortages, reselling, lines of people clamoring to buy one, etc. create publicity to fuel interest
Imagine hearing that the PS5 is complete, and there are millions of them in warehouses around the world ready to go . . . but you can’t buy one for another 3 months because they don’t have enough to fully meet demand yet. People would be **pissed**.
But if Sony ramped up production high enough to meet initial demand quicker, they’d end up with factories that would stop being used once the initial peak demand was met, thus wasting hundreds of millions of dollars.
Plus, they benefit from having limited quantities, as it help drive hype.
Demand for units per month lowers over time, but you can’t really make a production line like that. Production lines will produce a set amount of units per month, regardless of demand.
Their production line needs to be more in line with how much they’ll need per month later in the lifecycle. You never want to be dismantling a production line because of low demand, since it was very costly to set it up in the first place. That means at launch time, the only way you can have higher volume is to stockpile before launch.
Stockpiling has two implications. First, you pretty much start production as soon as you can, so stockpiling really just means delaying launch. This means you could potentially miss things like the holiday shopping season, or you could give your competition time to steal momentum from you. For example, if the PS5 launched 3 months before the XBox Series X, they may end up getting exclusive titles that lead to more sales that lead to more exclusives, and so on.
The second implication of stockpiling is storage. Warehouse space gets expensive. If Sony had similar sales with the PS5 as the PS4, that means they will sell 2 million units in 2 weeks. Let’s say you can fit ~30 PS5s on a pallet. That means you still have >60,000 pallets of PS5’s in storage around the world waiting for launch. That’s a lot to find warehouse space for, and a lot of warehouse space to pay for. That cost would get exponential the longer they wait to launch.
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Its beneficial to be the first to market with new technology, even if you can’t sipply enough to meet demand. That creates a shortfall, which increases demand even more.
These companies are competing directly with each other, and are in a constant race to release a new innovation before the other one does. Since they generally have access to the same technology, it’s all about who packages it into their product and gets it to market first.
Many great answers here, but it really boils down to spikes and valleys in demand. Initial demand is the highest you’ll see: no one has one, and everyone wants one. As the population of buyers is satisfied, the demand curve starts to drop; less and less people need one over time, as they get them and the population needing one continues to drop, and so on.
Then you look at production rate. This isn’t arbitrary; it is carefully crafted on research and analysis and market trends and who knows what else in terms of data points, and a decision on “how many should we produce in a <time frame>?” is made. That determines the size of their logistical operation (factory, transit, storage, etc.) and ultimately how fast the supply chain can fulfill the demand.
Eventually – 1 month? 2 or 3? No one knows – the two lines meet; supply replenishment speed lines up with demand purchases, and you no longer have stock shortages.
Unless there is a component shortage that would impact this supply design, you can be confident more are on the way, and everyone who wants one will get one.
Bottom line: don’t buy from scalpers, it is artificial scarcity and FOMO they are selling!
Mass production takes time. Once product is tested and ready you wanna release the first batch as soon as possible while the hype is still there and to beat any other competitors.
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