ANALYSIS:
Using the Original Analysis Assumptions, the income from the price cut would be $213 million, while using the Alternative Analysis Assumptions result in a $601 million income.
In both scenarios, with the increase Games, Live and Accessories Revenue, the effect of price cut is positive as a whole. In both scenarios, the division is still profitable.
If 12 million consoles sold is not achieved, then the price cut may be a bad move, considering MSFT already sold 8.7 million consoles, which is up 2.1 million or 32% from the previous year.
12 million consoles represents a 38% increase from the previous year. If MSFT experiences the same growth, then there was no need to cut the prices. Since 38% is not that much from 32%, and by all accounts, the Xbox is selling more still compared to last year.
However, if they feel that a price cut will increase sales dramatically – 38% or more, then that may be the reason for the move. Also, if MSFT is assuming that all attach rates will be the same, then it definitely makes sense for them.
Alternatively if they feel that sales would not increase as much, then a possible reason for the strategy is to HURT your competitor. In this case, hurt Sony financially – to let them suffer more losses, while MSFT itself won’t be hurt as much as Sony.
