Article : One POV on PS3's pricing and Sony's strategy.

[Shifty Geezer]

Here's a considered GI.biz article looking at Sony's strategy, considering the possibility that they're carefully managing PS3 sales and interest alongside continued PS2 profitability.

http://www.gamesindustry.biz/content_page.php?aid=23708

 

[Deusp]

So the reasons for PS3's high price are:
1) Protects sales of PS2
2) They will cut it soon?

 

[TheChefO]

Well, in that case, the only thing for it to do would be to introduce PS3 in such a manner as to make users' future upgrade path to this new, aspirational system clear, but without actually positioning it at a level where they're likely to abandon PS2 en masse - flooding the market with second hand PS2 consoles and software and essentially wiping out the long tail business.

This is, obviously, an extremely dangerous game to play, and for Sony's sake I rather hope they've got some aces up their sleeves for when the going gets rough. One such ace might be pricing, because it strikes me that the PS3's high price might actually be rather more transient than Sony would currently have us believe.

Good find Shifty! :smile:

 

[rounin]

Here's a considered GI.biz article looking at Sony's strategy, considering the possibility that they're carefully managing PS3 sales and interest alongside continued PS2 profitability.

http://www.gamesindustry.biz/content_page.php?aid=23708

Thats a reasonable possibility and is actually in line with what I think they're doing as well. Has there been an estimation on how much they make per PS2 sold? I think in the end, it is an issue of doing a good balancing act on the PS2 side of things and I wouldn't be surprised if they're actually turning out some really good gross profits from doing this as compared to MS.

 

[scooby_dooby]

Thats a reasonable possibility and is actually in line with what I think they're doing as well. Has there been an estimation on how much they make per PS2 sold? I think in the end, it is an issue of doing a good balancing act on the PS2 side of things and I wouldn't be surprised if they're actually turning out some really good gross profits from doing this as compared to MS.

And completely hamstringing their ability to repeat this same cycle next generation. Not a great strategy if it is true imo.

 

[rounin]

And completely hamstringing their ability to repeat this same cycle next generation. Not a great strategy if it is true imo.

I'm uncertain if the IMO you attached extends towards the first sentence of your post.

 

[TheChefO]

Here's one theory; what happens then is that the PS3 gets a series of price cuts, in a relatively short space of time, which bring the console down to mass-market prices without losing much face for Sony. By this stage, the PS2's long tail will have declined to the point where it will mostly be kids' games and classic titles being sold, and it will be safe to market PS3 as a mainstream prospect without seriously impacting on a healthy market.

I disagree with this theory though. A series of price cuts in a short time will cause people to ride the fence waiting for the price to stabilize. Nobody wants to buy a console only to find out they could have saved hundred(s) a month or two later.

I think a yearly $100 price cut should be tried before they go shooting for the stockmarket route.

 

[infinity4]

sales are driven by game releases not price cuts i believe.

 

[TheChefO]

And completely hamstringing their ability to repeat this same cycle next generation. Not a great strategy if it is true imo.

Exactly.

As the article quotes ... a dangerous game indeed if it is true. If I were an early buyer I'd feel quite used actually. But financial statements don't lie and they are for sure losing money (a lot) per ps3. BR costs will go down and 65nm will help as well but dropping the price too much too quickly screams desperation to me.

 

[TheChefO]

sales are driven by game releases not price cuts i believe.

historical sales data says otherwise.

 

[dobwal]

He is over analysizing the situation.

The PS3 does not follow the same economic model as Mercedes Benz. Stringer is referring to features not price.

Mercedes Benz doesn't sell you a car at or below cost and then profits off fees acquired through you buying fuel. Mercedes makes money on just about every car sold and sells at a price that restricts demand. Mercedes offer high prices on their car but they make much larger profits per car then manufacturers that sell cheaper automobiles.

You don't artifically sacrifice sales of your future marquee product just to leverage your current marquee product. Why would Sony give an advantages to the Wii and 360 just to keep up brisk sales of the PS2? Does anyone believe that Sony's thats short sighted? Why jeopardize the next 7 to 8 years to maximize sales for the next two years for a product thats EOL?

My take:

Sony made a strategic decision to leverage the "playstation" brand to establish format dominance for BluRay. It did so with the understanding that the PS3 might suffers in terms of sales. However, BluRay needs only a fraction of the sales that a market leading consoles usually generates to foster a defacto standard format. Selling cheaper BluRay players could have had the same effect but attaching the players with the "playstation" brand created more demand and an extra profit generator in games that could help make up for hardware cost. BluRay means more to Sony than the PS3 as BluRay offers more profit potential than the PS3.

 

[Todd33]

I disagree with this theory though. A series of price cuts in a short time will cause people to ride the fence waiting for the price to stabilize. Nobody wants to buy a console only to find out they could have saved hundred(s) a month or two later.

I think a yearly $100 price cut should be tried before they go shooting for the stockmarket route.

What makes you think $100/year isn't a "a series of price cuts, in a relatively short space of time"? You assume he meant $100/quater or something and yes that would piss people off, sort of like a black HDMI 360.

 

[TheChefO]

What makes you think $100/year isn't a "a series of price cuts, in a relatively short space of time"? You assume he meant $100/quater or something and yes that would piss people off, sort of like a black HDMI 360.

Todd - multiple years is not a "short amount of time" but you're right, this guy may have a warped sense of reality and actually meant years when he said that...

If so, I agree with him.

If not: ehh ... I could see at most a $150 price drop this year which I think would do wonders for ps3, but I don't know if they can afford it. ... then again, I don't know if they can afford not to do it ...

Anything more than that this soon after launch would surely piss "a lot" of people off!

 

[22psi]

This pricing strategy would totally work if it werent for:

1) The Wii selling like hotcakes and 360 selling solidly. People who can't wait for the PS3's price to drop will take the plunge elsewhere.
2) Losing exclusives to the 360 and multiplatform games on the PS3/360 are perceivably too similar to warrant a $200 price difference in h/w. These people who would normally wait to upgrade to the PS3 once the price comes down sees the same games on the 360 at a lower price will jump ship.
3) Competition has the ability to drop h/w prices when Sony doesn't. Say the 360 drops $80-100 6 months from now, can Sony really afford to do that? 6 months after Euro launch?

 

[Nesh]

So the reasons for PS3's high price are:
1) Protects sales of PS2
2) They will cut it soon?

Actually I see two sides in this.

Trying to differentiate the console, increased cost.

So in order to continue like that (making losses with the PS3) they need atleast something that will bring them enough income to reduce the impact of cost, and that certain something should continue to sell. In this case PS2 happens to be that something which also happens to be the console that will be replaced someday by PS3 itself, the product they are trying to promote. It could be like a double edge sword to the,

So Sony is trying to balance the profits from the PS2, the losses from the PS3, and by doing so they have to be carefull to see how many PS3 s they can sell and how many they should sell so they wouldnt affect sure income that financially helps them.

A price cut might increase sales, but perhaps not enough to reduce costs and make up for the possible sacrifices on PS2 sales.

Thats just a hypothesis but perhaps this is the case.

 

[Nesh]

historical sales data says otherwise.

Which dont tell the full story if you cant see how these products were in detail. They also lacked offerings, features and dedication from their company on the product

Both price and game affect sales, but it is mostly the games. If it was just the price, GC which was easier to develop for,more powerful than PS2 and cheaper by a huge difference should have surpassed in sales both XBOX and PS2 (or atleast XBOX), but it lacked the games. It got the third position.

 

[Sis]

The simplest answer is that the PS3 is priced the way it is because that's the best Sony can do.

A secondary response is: they didn't seem to need this strategy when it came to the PS2, so why would they need it with the PS3?

 

[tongue_of_colicab]

I agree its the games that drive sales, but it has to go along with a decent price for the hardware. Even if sony had 10 AAA games out atm sales would probably still not be great because 600 euro's isnt something your casual gamer, the one that makes the biggest impact, will likely pay for a console. Even if it has a good amount of great games.

 

[TheChefO]

Which dont tell the full story if you cant see how these products were in detail. They also lacked offerings, features and dedication from their company on the product

Both price and game affect sales, but it is mostly the games. If it was just the price, GC which was easier to develop for,more powerful than PS2 and cheaper by a huge difference should have surpassed in sales both XBOX and PS2 (or atleast XBOX), but it lacked the games. It got the third position.

agreed games do make a difference also ... but the original quote was price cuts. Not price in general. Look at the impact a price cut has made historically on systems sales prior and post.

 

[NERO]

The article is nicely written and logical but IMO it just covers up brand failure is a thoughtful attempt to cover Sony asses. The PS3 is the continuation of a brand that has been dominant for nearly a decade now. The pricing when taking inflation into account wasn't exhorbitant and its only offense was having the high end sku double the 300USD magic number in the US. The PS3 brand name will be truly tested the upcoming holiday season when it has to go against the likes of Mario and Master Chief (especially the Halo3/60 packages). Dobwal concisely explains Sony's Blu Ray strategy which has been implictly mentioned in Sony press releases over the past few years. But console strategy? I'm not sure if there is anything but relying on the brand to carry over to the PS3. As for the PS2, there are no AAA games on its horizon after GoW2. Can anyone explain how long they think this console will last past the next year?