Price Reduction Analysis

[HappySqurriel]

I thought that with the discussions about price reductions for the PS3 that an analysis needed to be done on how a price reduction would impact each of the companies. First, I will explain the terminology:

Initial Price is the price of the system if it doesn’t see a price reduction

New Price is the price after the price reduction

Cost is the manufacturing cost of the system

Sales Rate is the ratio [Sales after price reduction] / [Sales without price reduction]

Loss per system is the reduction in profit (or the outright loss) for each additional sale that is generated from reducing the price of the system.

 

 

PS3 $50 price reduction:

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
400	350	500	1.25	$350.00
400	350	450	1.25	$300.00
400	350	400	1.25	$250.00
400	350	350	1.25	$200.00
400	350	300	1.25	$150.00
400	350	250	1.25	$100.00

 

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
400	350	500	1.5	$250.00
400	350	450	1.5	$200.00
400	350	400	1.5	$150.00
400	350	350	1.5	$100.00
400	350	300	1.5	$50.00
400	350	250	1.5	$0.00

 

PS3 $100 price reduction:

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
400	300	500	1.25	$600.00
400	300	450	1.25	$550.00
400	300	400	1.25	$500.00
400	300	350	1.25	$450.00
400	300	300	1.25	$400.00
400	300	250	1.25	$350.00

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
400	300	500	1.5	$400.00
400	300	450	1.5	$350.00
400	300	400	1.5	$300.00
400	300	350	1.5	$250.00
400	300	300	1.5	$200.00
400	300	250	1.5	$150.00

 

 

XBox 360 $50 price reduction:

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
300	250	350	1.25	$300.00
300	250	300	1.25	$250.00
300	250	250	1.25	$200.00
300	250	200	1.25	$150.00
300	250	150	1.25	$100.00

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
300	250	350	1.5	$200.00
300	250	300	1.5	$150.00
300	250	250	1.5	$100.00
300	250	200	1.5	$50.00
300	250	150	1.5	$0.00

 

XBox 360 $100 price reduction:

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
300	200	350	1.25	$550.00
300	200	300	1.25	$500.00
300	200	250	1.25	$450.00
300	200	200	1.25	$400.00
300	200	150	1.25	$350.00
Initial Price	New Price	Cost	Sales Rate	Loss per system
300	200	350	1.5	$350.00
300	200	300	1.5	$300.00
300	200	250	1.5	$250.00
300	200	200	1.5	$200.00
300	200	150	1.5	$150.00

 

Wii $50 Price reduction

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
250	200	300	1.25	$300.00
250	200	250	1.25	$250.00
250	200	200	1.25	$200.00
250	200	150	1.25	$150.00
250	200	100	1.25	$100.00
Initial Price	New Price	Cost	Sales Rate	Loss per system
250	200	300	1.5	$200.00
250	200	250	1.5	$150.00
250	200	200	1.5	$100.00
250	200	150	1.5	$50.00
250	200	100	1.5	$0.00

 

Wii $100 Price Reduction

 

Initial Price	New Price	Cost	Sales Rate	Loss per system
250	150	300	1.25	$550.00
250	150	250	1.25	$500.00
250	150	200	1.25	$450.00
250	150	150	1.25	$400.00
250	150	100	1.25	$350.00
Initial Price	New Price	Cost	Sales Rate	Loss per system
250	150	300	1.5	$350.00
250	150	250	1.5	$300.00
250	150	200	1.5	$250.00
250	150	150	1.5	$200.00
250	150	100	1.5	$150.00