Why do companies like Apple, PlayStation, and Xbox, launch new hardware before they’ve manufactured enough to meet initial demand?
In: Economics
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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