A few things. Don't include an optical drive. Make it a digital console only. Being notably weaker, it'll requires much less power and cooling and beefy vrm's so that's cost savings.
Is the Series S a trojan horse for Gamepass? if so, it needs to be cheap to the point it's a no brainer.
If it's $299 and the main console is $449, then it's really in no mans land in terms of desirability. Your early enthusiasts are the hardcore gamers who want the best, will pay a premium and want it right away. That means the XSS has no appeal to them.
So your audience with the XSS is casuals who want the price to be low enough to consider it a "sure why not" purchase vs something they have to think about. Then get them in the habit of paying a monthly sub and you got something. Without that, you got a product without an audience.
I'm a good sample. My kids or me don't need the latest and greatest. I have a PC that does the job but I wouldn't mind replacing the X1X with a cheap alternative. At $199, it'd be an insta buy. At $299, I'll sit it out for a bit. $249 is a maybe.