If they sell the hot item then they make only the margins for that one item. If they "sell out" of the hot item, then parents either buy an alternative (you can't just get your kid nothing for Christmas), or they buy the accessories for the hot item with a promise to get the hot item once it becomes available again. Then after Christmas, they actually get the hot item, because the kid still wants it (and their one friend who has it is really cool).
It spreads demand out over time and over their product line. Similar strategy as how airlines advertise cheap fares to get you to fly on them, but then offer upgrades, early-bird check-in, more leg-room, additional checked bags, alcohol on the plane, etc. to make money once they have your business.
There's no way they can be sure the customer will buy another item from their own product line instead. Surely they're more likely to buy a competitor's product?
They don't have to, as long as more buyers do than choose to not buy the "hot" item after Christmas. In general it's a good thing to increase the size of your industry, as long as you capture some (not all) of that increase.
Also, I wouldn't bet on them being more likely to buy a competitor's product. Brand recognition counts for a lot, particularly with toys & other discretionary purchases. Some will, of course, but most people once "primed" will buy something close to what they initially had in mind.
This was a strategy practiced long before the invention of e-commerce. It works perfectly for brick-and-mortar shops because physical distance to the toy shop (in winter!) guarantees more return customers.
It's not my book. I'm just citing sources because I was very incredulous when I heard this is common practice.
It only works if you have THE hottest toy of the season - something like a product from Star Wars for instance - you create intense demand for the product but limit availability. Simultaneously you provide alternative, inferior substitute product(s) in the same franchise that's less desirable.
The parent HAS to get their child something for Christmas. The child is primed to want the desirable product. The parent drives over town looking for it. Exhausted settles on the substitute product with the promise the child will get the 'real' product after Christmas. The parent spends $50 on the substitute product before Christmas and $70 on the desirable product after Christmas. This nets the toy company $120 so they come out ahead rather than just making $70 had they stocked a large inventory of the desirable product.
Again. It reads like a conspiracy theory. I was surprised to find out it wasn't.
I'm not sure what makes this a conspiracy. It's a producer deciding managing supply of their product to maximize total revenue—not colluding and not doing anything sinister. It's capitalism 101.
In the toy store case, it's whatever the parents settle for.
Since, as you are implicitly observing, Nintendo itself doesn't have one available, I would agree with your implicit argument that this effect probably doesn't apply here.
But it's still at least an interesting thing to learn about. It really recontextualized some things from my childhood, and forced me to reconsider the fact that sometimes, yeah, it really is a straight-up conspiracy. I mean, yes, there's a danger in reaching for that explanation too quickly, but on the other hand, you can't dismiss it out-of-hand either.
Still, in the absence of an obvious "part two" for Nintendo, I would expect that Nintendo has simply had a hard time calibrating demand for this product. I don't blame them, because it seems like I've certainly seen things that the Internet seems to go gaga over, but nobody actually buys them in any quantity. There's a huge amount of variance I'd expect from their analysis; this could sell anywhere from half as well as the original Nintendo to "a couple thousand units".
I would expect it to sell really well to people who grew up with that nintendo and for whom $70 (game plus extra controller) is now an impulse purchase for the next time you have friends over.
