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javi741 on 27 January 2023
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Soundwave said:


There's a simple way to illustrate why companies don't really like to cut their hardware price any more.

Lets say cutting the Switch price by $50 would increase one year sales from 16 million to a much larger 20 million. And these are just hypothetical numbers, likely a price cut would not cause even this level of boost, but for the sake of this example lets say it does.

You may say "Wow! What a huge sales boost! Nintendo should totally do it!".

When you break this down though, lets also assume the profit margin on the Switch OLED is $90/unit for Nintendo at $350.

16 million systems (at $350 MSRP) x $90 profit per unit = $1,440,000,000 profit for Nintendo

20 million systems (at $299 MSRP) x $40 profit per unit (you're losing $50/unit here) = $800,000,000

The 16 million at $350 earns Nintendo almost *double* the amount of net profit. Basically put it this way ... to sell an extra 4 million units of hardware, you're losing yourself hundreds of millions of dollars effectively. Even if the Switch sold an unreal 30 million units as a price boost, 16 million sold at $350 still earns Nintendo more money than 30 million sold at $299 would. Think about how crazy that is. 

You can understand now why companies don't tend to want to cut their hardware price if they don't absolutely have to. It can happen, but I don't think any of the three console manufacturers use it as a central tool for moving hardware any more. 

It's not just about hardware profit. Any profits made by selling hardware is very small and in many cases in the past most console manufacturers were willing to lose money on hardware. Software sales is what matters the most to these console brands so companies are more than willing to lose more money on hardware with a price cut in order to get their hardware to more consumers who'd be willing to purchase plenty of software for it, which overall would still turn more of a profit than selling less units/software by not cutting the price for more profit on hardware.

Price cuts are becoming less common nowadays however cause there's less competition amongst the big 3. Back in the 6th Generation when Nintendo,Sony & Microsoft directly competed against each other price cuts were super common since any price advantage any one of those companies had could've significantly shifted the tide when it came to marketshare and sales since they were all very similar competing for the same market. Sony's goal was to attempt to force Microsoft and Nintendo out the console business by making sure pretty much the entire market went only to Playstation for games which is why Sony kept dropping the price of the PS2 despite the already high sales it had. Microsoft and Nintendo were just trying to stay relevant and dropped the price of their consoles as soon as PS2 would receive a price cut. Nowadays that's alot less common since all 3 companies are not really as competitive anymore and are satisfied with their own market they created. Sony realized that they weren't gonna force Microsoft & Nintendo out the console business so they have less of an incentive to use price cuts and Sony is pretty much the only 3rd party system now that still cares about hardware sales and they're dominant in that department so they aren't as competitive as they were before. Microsoft doesn't care about hardware sales as much anymore to use price cuts, and Nintendo created their own market with their blue ocean strategy where people go to them for a unique experience that makes them stand out and doesn't directly compete with PS/Xbox anymore so price cuts aren't used as much by Nintendo.

Also, all the companies realized what's a good price point for consumers and profitable price point for them based on their experiences with their prior consoles where Sony & Microsoft realized that its unnecessary to make a system super powerful and expensive to produce and sell their consoles at a major loss when most consumers don't care about specs and aren't willing to spend a ton of money just for high specs. So as a result in the two more recent generations Microsoft/Sony scaled back on offering high end hardware in order to price their consoles at a cheaper cost at launch and make the hardware more profitable, and since the launch prices of those consoles are much cheaper & profitable nowadays their isn't a ton of room for multiple price cuts to occur that would significantly increase sales.