A Canadian media collective, Forget The Box, is reporting that they have spoken with sources closely involved in manufacturing Nintendo products, and they were told that the cost of goods for the Wii U will be about $180, with about $50 of that total being the tablet controller. As a result, Nintendo is planning to set the retail price of the Wii U at no less than $300.
The web site quotes their source as saying "Cutting production costs to maximize profits is Nintendo's main concern with the Wii U. They are cutting costs in the Wii U's hardware to build back confidence in investors. Nintendo wants investors to view Wii U as a less risky proposition. "
The report noted that the $180 cost was only for the Wii U console and the controller, and did not include other costs such as packaging, software, and other charges that might be figured into the final retail pricing, such as R&D and marketing costs, shipping, and holding costs. Of course, Nintendo also has to provide the product at some discount to retailers, so it's easy to see that if they want to make a profit on each unit a $300 retail price is not unreasonable given those unit costs.
The report's sources give more detail about the components. "Nintendo chose an economical GPU and CPU that could keep up with the performance of today's current consoles, but keep hardware costs down to maximize profits. Nintendo got a bargain price on the custom GPU and CPU that the Wii U uses. There is a bigger focus on downloadable content, applications, video content, digital distribution, and services to create a stream of revenue. Investors will be ecstatic with the news."
This report seems consistent with earlier reports that the Wii U's power level will be in the range of current consoles; greater graphics power would require higher component costs. When Nintendo was asked specifically about reports that the Wii U was not as powerful as the Xbox 360 or the PS3, this is what they said: "We do not focus on technology specs," said the Nintendo of American representative. "We understand that people like to dissect graphics and processing power, but the experience of playing will always be more important than raw numbers." This seems to be a pretty clear statement that Nintendo will not be marketing the Wii U on the basis of raw graphics and processing power.
Previously, industry analyst Michael Pachter, when asked about Wii U pricing, stated that "[The Wii U is] gonna launch at $249; because it has to. They're dead if they launch at $259, I think they're toast then." Pachter's point is that Microsoft would be able to price the Xbox 360 with Kinect at below a Wii U priced above $249, and that the Wii U would not be able to compete with the 360/Kinect combination at a lower pirce.
Nintendo president Satoru Iwata reportedly told Japanese newspaper Nikkei last year that the Wii U was likely to be more than $250 when it launches, which is consistent with the pricing in this new report.
Nintendo has some flexibility when it comes to pricing; they could choose to reduce their profit margins, or even sell the hardware at a loss, if they felt that in the long run it would return greater profits by gaining market share early on. However, that has not been their general practice. The 3DS was initially priced at $249, and it wasn't until several months of very slow sales that Nintendo cut the price to $169, which some analysts believe left them with little to no profit margin once all the costs were considered. That price cut revived the sales of the 3DS, to the point where it is now the best-selling console in Japan.
Will Nintendo decide to price the Wii U high initially to make a profit, and cut the price later if needed to boost sales? Or will they choose to forgo higher profits initially in order to build good momentum from the start? We'll hopefully find out in a couple of months at E3, when Nintendo will be revealing their launch plans for the Wii U.