Is $500 too much?

[KHlover]

Chark said:

KHlover said:

Chark said:
I don't think $500 is too much. Giving inflation and the general components in these machines $500 sounds right. It isn't as expensive as people might like to complain about. The economy is improving and even during the bad times there were plenty of people dropping $500-$600 on iPads and iPhones every year to record numbers.

You can't compare an iPad/phone with a dedicated gaming device. Entirely different products which are valued entirely different by the mass market.

Short form:

Smartphone/Tablet-PC -> Important
Gaming console -> Not nearly as important

(Keep in mind this is the perception of the mass market, not my own oppinion)

Of course you will spend more money on an important device, so iPads get away with costs of 500€+ while consoles absolutely don't.

Well to me and I'm sure a decent amount of consumers the game console is more important of the two options. Pricing the console high is a good business practice, to an extent.

To start, the cost of making the console is probably also high, pricing the device to low will cost the company a lot of money. I know the razor's edge method has its merits, but even at $500 a console could be employing that method, just look at the PS3's manufacturing cost of $800-$840. It shouldn't be that bad this time, but you get what I mean.

Next, there is a dedicated consumer base that will purchase the device at launch. Not for any price, but even a high price. Price the console low and you miss out on that revenue stream and attract more consumers at a greater loss per console.

Third, the high ground will allow the company to react to consumer demand. Not only do they avoid the money bleeding but they gain the advantage of more timed price cuts throughout the systems life. If the console is priced low and yet consumer demand wanes then it will be difficult to lower the price without breaking the bank or it will take a long time for the costs to go down to justify it. Just look at the Vita, great price but it stopped selling and consumer opinion thought it was expensive but Sony couldn't justify an early price cut. If they priced it at $300 to start they could have easily made a $50 price cut before the holidays that would have garnered them attention.

Lastly, there is competition. When the Vita announced its $250 price it was received extremely well. It wasn't until after Nintendo made their price cut down to $170 from $250 that it was perceived expensive. Both the PS4 and the Xbox 3 are in a similar situation as the Vita, not exactly but similar. If they price it too low they might get a reactionary price cut from Nintendo since the Wii U isn't selling so hot. The Wii U is most likely the cheapest console to produce and can out price their competitors. Given the success the 3DS had doing the same, all they need is a push and the right time to do it. Now I don't think either new console will be the $300-$350 price of the Wii U. But if they did edge that price, expect a Wii U price drop and consumer attention to shift away from what they now perceive as the expensive consoles.

B1: Total smartphone sales in 2011 were 491 Million units (Source Source of the source), so no the majority definately prefers smartphones and tablets (At least 119 Mil sales in 2012).

B2: Remember the PS3 launch? Yeah...

The rest of your post sounds about right, but making the consoles more expensive to have a room for price cuts won't be working so well. From what we know (at least about the PS4) the costs to build it still exceed $500, the high ground would be  ridiculously high. Initial sales would be devastating. Also, since the compatition is already priced ridiculously low in comparison  (A new 8GB WiiU costs me 200€ in Germany) a price cut from "ridiculously high" to "still pretty high" won't have quite that much of an impact.

-> No choice but to subsidize the Next-Gen consoles, the mass market won't allow Sony (and Microsoft) to play it safe.