Microsoft may already feel they've had a de facto price drop by releasing the Xbox 360 Elite. Consumers may not realize that the Xbox 360 Premium used to be the high end model and -- upon seeing the $480 Elite model -- settle for the Premium as the cheaper alternative. That is, the Elite provides the cover needed to make the Premium look cheaper than it really is.
A PlayStation 3 or Wii price drop in the near term would align nicely with the pricing of the Xbox and GameCube in 2002. However, should Sony opt to reduce the price of the PlayStation 3, it will be likely be in the 16-20% range, not the 25-33% range that Microsoft and Nintendo chose for their last generation consoles.
Whereas Sony and Microsoft might be considering price drops to increase mass-market uptake of their respective consoles, Nintendo has no such motivation. The Wii has already proven its appeal and appears to be constrained more by supply than by price. The data from the last generation suggests that Nintendo will not, in fact should not, drop the price of the Wii for some time.
Who Bought What and When
Some might argue, based on the history of console prices, that consumers have a mental barrier right around $300 beyond which they are far less likely to consider buying a new system. For example, the 3D0, SNK Neo-Geo, and Sega Saturn -- which all sold poorly in North America -- retailed for $700, $650, and $400 respectively. On the other hand Sony's original PlayStation retailed for $300 at launch and all Nintendo consoles up to the Wii were first sold for $200.
However, the available NPD data from the last generation actually suggests that most consumers purchased their new consoles at or well below $200. That is, to the extent that a console's mass-market appeal is tied to price, the magic price is far below the $300 mark, closer to $200.
To see this, we first look at the sales of the PlayStation 2 and ask: how many people bought that console at each of its five prices? The chart below answers that question:
As you can see, only 24% of all PlayStation 2 systems in North America sold at $300. The remaining 76% sold for $200 or less with $150 being the most popular price by a small margin. Certainly time plays a factor there -- the $150 system price was in place for longer than any other -- but Sony would likely not have kept that price if it weren't selling systems as a rate they found acceptable.
A mere 13% of all Xboxes were sold at the highest price, $300, while over 42% went for $150. A closer look at the data shows that the drop from $300 to $200 did spur sales, but the drop to $180 hardly changed the number of systems bought per month. By comparison, the drop to $150 pushed Xbox sales above 200,000 systems per month and kept them there until May 2005, the month that the Xbox 360 was announced.
Finally, here is the graph for the GameCube's pricing:
The GameCube is a bit of an odd man out, since it started at $200 and only went down from there. It also sold the fewest systems, which demonstrates that being below $200 isn't the sole determining factor to average consumers. While most GameCubes were sold at the $100 level, it is important to note that the rate at which the system sold each month was not significantly improved in the long term by that price drop. The GameCube stayed at that price for over 3.5 years, which essentially explains why 60% of those systems were sold at that price.
Finally, we can look at the graph of the average price of each system in the last generation:
The average PlayStation 2 consumer paid a hair under $200 for his console. The Xbox, at about $188 on average, fares a bit better than the GameCube with its average price of $127. Should we be surprised that the Xbox 360 and PlayStation 3 have failed to live up to sales expectations, given that their prime products -- the Xbox 360 Premium and 60Gb PlayStation 3 -- retail for two to three times the average of that consumers have been paying?
And is it any surprise that the Wii, priced at just $50 over the magic $200 barrier, is selling so well? There is ample room to argue that price isn't everything -- Nintendo's own GameCube proved that point amply -- but if a system can approach the price which moved the majority of systems in the past seven years and can offer a compelling experience at the same time, then that can post record sales month after month. The history of PlayStation 2 sales and recent trends in Wii sales seem to support that argument.
...Or Not
Certainly we can use history as a guide, but there are limits to its use for prognostication. The price drops this generation may happen in ways entirely different from what has been suggested above.
Maybe the $300 console this generation will be what the $200 console was last generation. Maybe Microsoft will forge ahead with its current price structure until after Halo 3 has come and gone. Maybe Sony will bless the PlayStation 3 with a 33% price drop sometime this year. And maybe Nintendo will give the Wii a small price drop by removing Wii Sports from the package.
Those could happen, but don't bet on it.
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