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Price Cut to Give Xbox Sales an Early Christmas Goose

Posted by Milan at 8.27.2009
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Who will win gaming console price war of 2009? Consumers. Two weeks after Sony (SNE) lowered the price of the PlayStation 3 to $299 from $399, Microsoft (MSFT) did the same to the Xbox 360 Elite, slashing $100 off the price of the console. In addition, it cut the price of its now discontinued Xbox 360 Pro console by $50 to $249.99, while supplies last. Both price cuts will into effect tomorrow.

“This is really an effort to pass the cost reduction we are able to achieve through engineering and manufacturing onto consumers,” said David Dennis, Microsoft Xbox 360 product manager. “Reducing the number of (models) really just simplifies our manufacturing and makes it easier for our retail partners to manage their inventory and makes the purchase decision easier for consumers. It’s really a win-win-win all around.”

Like Sony, Microsoft believes the move will lure a new segment of price-conscious consumers into the market and goose sales heading into the crucial holiday shopping season, though it may not prove as effective as the company hopes. To really drive sales, says Jesse Divnich, director of analyst services at Electronic Entertainment Design and Research, Microsoft needs to drop its prices even further.

“Some would argue that Microsoft’s new pricing scheme represents more of a pseudo price drop than an actual price drop since consumers looking to purchase a core Xbox 360 system will still have to pay $299, as they had prior to the new hardware line-up,” Divnich explained in a recent research note to clients. “The price drop on the Xbox 360 Elite means that Microsoft’s core hardware SKU now boasts a bigger hard-drive and HDMI support than its Xbox 360 Pro predecessor.” Moreover, while the 360 and PlayStation 3 might share the same $299 price point, they don't share the same specs. "… Technologically the Xbox 360 is not at the same level as [the PS3],” Divnich said. “This puts the Xbox 360 into a tough position where it is outmatched in terms of hardware capabilities at $299 and the Nintendo Wii remains alluring to casual and price sensitive consumers at $249. Over the next year Microsoft will most likely reposition the Xbox 360 Elite model closer to the $249 price point to both pressure Sony and attract potential Nintendo Wii consumers. From a strategic standpoint this would then allow Microsoft to introduce the new Natal model in 2010/2011 at the $299 price point and still have an option for consumers cheaper than the (PS3).”




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