Four things Sony can do to turn the tide for the PS3 in 2009

[Psygnosis NL]

HappySqurriel said:

Psygnosis NL said:

HappySqurriel said:

There are only three factors that determine whether a price cut makes sense for a console:

1. How much profit is being generated by the console before the price reduction
2. How large the price reduction is
3. How large of a boost is sales is expected from the price reduction

 

Now, if a console is breaking even before the price reduction you require a 25% boost in sales to justify a $50 price reduction, or a 50% boost in sales to justify a $100 price reduction, if you're willing to accept a $200 loss for each console sale that you gained.

 

Doesn't make much sense to me. The real point is: how many games/blu-ray discs/controllers and other hardware will each console move and how much profit will the console maker make on these things. If the average console sold to the public on a specific price point (as you can imagine hardcore gamers will probably buy the console on a higher price point and will probably buy more games/blu-ray discs/controllers and other hardware) brings in more profit for software/hardware than lost profits due to the lower price point, then the price cut is justified. Offcourse, this is simplified because in real life other benefits can be gained from selling more consoles (think for example of lower costs of parts for the console because of the better negiotiating position of the console maker).

 

 

Selling more consoles does have benefits, but these benefits have to be greater than the initial losses in order to make a price cut beneficial from a business standpoint ...

(Now, I realized I made a mistake on my quick calculation in my first post)

Suppose for a minute that Sony is breaking even on the PS3 currently, would sell 8 Million consoles in 2009 at a price of $400, and would sell $12 Million consoles in 2009 at $300 ... Now, for each gained sale there is a $200 loss from the consoles that would have been sold without the price reduction and a $100 loss from the sale of the system for a grand total of $300.

Once again Suppose that Sony makes $2.50 for each Blu-Ray movie sold, $10 for each third party game sold, and $30 for each first party game sold ... This works out to each new PS3 owner having to buy 5 first party games, 10 third party games, and 20 Blu-Ray movies for Sony to break even on the sale of the system.

Yes you're right now (I forgot indeed that Sony otherwise also would have sold some systems). However, you assumed that these people will probably just buy the same amount of games etc regardless the price, you could argue with that though, because if a sysem costs $300 instead of $400 people will have more money to buy games etc so they may use that $100 to buy extra software. Putting this small side note aside, it becomes clear from you (good) quick calculation that a price point is probably not very beneficial to Sony at this point because I don't think that each new PS3 owner buys that amount of games and blu-rays.