Last week's surprisingly drastic price drop
for Nintendo's 3DS will hurt the company in the short term, but the marketshare it will create will benefit the company in the long term, president Satoru Iwata told investors following the price cut.
According to Iwata, reigniting excitement for a product once momentum has been lost is too great of a challenge for the company to take on. Rather than wait for the holiday season to announce a price drop, as many had anticipated, the company decided to take a hit now in order to maximize its seasonal sales.
"We feel that those who have experienced the system appreciate its attraction, but this appreciation has not necessarily been expanding at the speed which we had expected," Iwata said, saying that in order to maximize the effect of its key holiday titles (namely Super Mario 3DLand
and Mario Kart 7
), it has to put more 3DS units into players' hands now.
"Without creating such a circumstance, we would not be able to realize explosive sales in the year-end sales season," he explained.
Another reason, he said, was to get more third-party games in development and, by extension, force retailers to dedicate more shelf space to the 3DS.
"Software publishers are currently reviewing which development teams will work on which projects, and the results of which shall be launched next year and beyond," he explained. "Removing their concerns on the sales of Nintendo 3DS hardware will be very critical for us to be able to enrich the applicable software in the years to come."
Feedback from both retailers and software publishers has so far been "rather positive," he said.
The drastic markdown is going to have a dramatic effect on the company's bottom line: Nintendo is currently projecting an 82 percent reduction
from its original guidance.
"Even though we understand this, for us to elevate Nintendo 3DS to be the platform that can sustain our business, we have concluded that we need to take the best possible measure we can take now, even at the cost of short-term profitability," said Iwata.
He asked investors to try to focus on the long-term effects rather than the immediate losses, specifically asking everyone to see how things play out over the next four months, where a strong holiday will be a beacon for better things to come. At the same time, he apologized for putting investors in this tricky situation.
"I feel greatly accountable for having to make the markdown shortly after the launch, for having damaged our consumers' trust, for having made a significant impact upon the financial forecasts, for the annual dividend now being expected to be significantly less than originally expected and for now forecasting that there will be no interim dividend," he said.
In order to "show our sincere attitude and to fulfill our responsibility," the company's directors have reduced their compensation for the year
, with Iwata explaining that "we understand that the management responsibility this time is heavier than usual."
Iwata himself is taking a 50 percent reduction in the fixed portion of his income (there is also a variable portion based on performance), with representative directors taking a 30 percent cut and the remaining directors agreeing to a 20 percent reduction.
"We really must recover our financial performance and take Nintendo back into the position in the marketplace where it is well appreciated," he concluded.