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Forums - Gaming Discussion - Theory on why Sony couldn't drop price on the PS4 last holiday

ICStats on 29 January 2015
SWORDF1SH said:
Zkuq said:
Makes sense, but then again, so does wanting to make a bigger profit. Sony is currently in a very strong position and they can profit from it directly, so they must be wanting to do so.


True but you have to also balance it out.

They know how many games the average consumer buys, they the percentage of consumer that sign up to PS Plus. They know what he average consumer spend on movies from their store and PS Now. Basically they know how much profit they can gain after they sell a PS4.

They then have to weigh up if dropping the price to make less profit per unit will bring in enough profit with the increased install base to make it worth it.

eg.

PS4 sells 1M at $400 for the year (small number to keep it simple). Sony make $50 profit per console, average consumer spends x amount to profit Sony $50 a year= So they will make $100M for that year.

PS4 sell 2M at $350 but make no profit per unit. Average consumer spends x amount to profit Sony $50 a year= $100

That extra install base will also continue to profit Sony $50 a year per unit sold. That 1M extra gained from price cut will give Sony $250M profit over 5 years for the sake of losing $50M on price cut.

Yes, your example shows that it CAN be a good idea to cut the price, if the numbers add up.

However your example is a bit contrived, in particular a console that's already selling so well would not get 100% bump from a $50 price cut.

Anyway, Sony will know how much they can expect to make per user.  What they won't be able to tell is what % bump in sales they would get.  Really Sony should do a price cut at a time when the platform has a really strong library - where it's more desirable but out of reach for some budgets.



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DialgaMarine on 29 January 2015
sales2099 said:

Or.........they as a corporation need all the money they can get.

But more likely, Sony knew they could do nothing last holiday and still win. Dem Europeans and Japanese ;)

Conspiracy theories are fun, but the simple alternative always seems to excape us.

 You sound like you're trying awefully hard to pretend the PS4 is somehow doing that much worse than XBone in NA. You're not salty about Xbox losing a lot of it's brand power in it's strongest region, are you? ;)

 





0331 Happiness is a belt-fed weapon

Baryonyx on 29 January 2015

It was Sony last gen to come out the gate and having problems.
It's Microsoft this time. I only hope that the overall experience on both can give some realistic perspective on things.
These are corporations, and we wouldn't have had so many games to play if they wasn't making money ( Duh i know that we know )

We as consumers aren't always happy, and it is completely natural. 

I actually liked this theory, it made sense. Microsoft already had a lot in store-stock, while the Sony have been having a hard time shipping these consoles around due for the product are more or less selling out everywhere. A price-drop during the holiday would have left Sony stock-less and a lot of people would have been pissed and complained: Where is that Ps4? i want it. Microsoft could finally free some space in US and UK and finally get some new orders on shipments.

It seems like for once, it was healthy on both sides. and i hope for more to come. It's kinda boring as an gamer to see fellow gamers being trolled online or can't get an Ps4 or an XB1 to game on due for price, or being out of stock. Even though the Ps4 side of me enjoys it cause i had a very hard time being neutral last gen, there is probably some parts in us who wants people to enjoy their console, wants the consoles to be available for everyone. Healthy. 

I don't think the sales on these consoles have been this low for a long time as it now, probably cause it's january. but i hope it picks up! everyone buys some cool games, and just enjoy for once. I know my wallet gonna experience some heavy off-loading this year



 

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SWORDF1SH on 29 January 2015
ICStats said:
SWORDF1SH said:


True but you have to also balance it out.

They know how many games the average consumer buys, they the percentage of consumer that sign up to PS Plus. They know what he average consumer spend on movies from their store and PS Now. Basically they know how much profit they can gain after they sell a PS4.

They then have to weigh up if dropping the price to make less profit per unit will bring in enough profit with the increased install base to make it worth it.

eg.

PS4 sells 1M at $400 for the year (small number to keep it simple). Sony make $50 profit per console, average consumer spends x amount to profit Sony $50 a year= So they will make $100M for that year.

PS4 sell 2M at $350 but make no profit per unit. Average consumer spends x amount to profit Sony $50 a year= $100

That extra install base will also continue to profit Sony $50 a year per unit sold. That 1M extra gained from price cut will give Sony $250M profit over 5 years for the sake of losing $50M on price cut.

Yes, your example shows that it CAN be a good idea to cut the price, if the numbers add up.

However your example is a bit contrived, in particular a console that's already selling so well would not get 100% bump from a $50 price cut.

It's a loose example. I don't even know what the average consumer spends and how much profit they make. The $50 a year per person could be way to low. If the PS Plus subs numbers are to be believed then I can see it being a lot higher. If the software ratio is also to be believe on VGC the we are looking at 5 games sold to 1 console. What do they make off of software, 10%, 15% 20%? Then you have sales of DLC and movie rentals and sales. You will sell more of this the more consoles you sell and more people you have spending money year on year. The sooner you increase your install the sooner you have people spending money. Not quick enough to get them and you loose the valuable consumers to your rivals.

The numbers were did in the way I did it to make it simple and not to complicated.



tak13 on 29 January 2015
spemanig said:

Why are people still over analyzing this? The PS4 didn't get a price drop because it doesn't NEED one. That's it.


Exactly!



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SWORDF1SH on 29 January 2015
tak13 said:
spemanig said:

Why are people still over analyzing this? The PS4 didn't get a price drop because it doesn't NEED one. That's it.


Exactly!


They lost over half of their 1M lead in the US over 2 months. Not saying they should of had a permanent price cut but should of done something to not let the X1 take back so much ground in the holiday. Again I think they would of if they had the units.



Danman27 on 29 January 2015

More likely scenario. PS4 still has more momentum than the xbox one, even when it's $70 more. They didn't have to lower the price, so they didn't.



maverick40 on 29 January 2015

They didn't need to. Simple as that.



ICStats on 29 January 2015
SWORDF1SH said:
ICStats said:
SWORDF1SH said:


True but you have to also balance it out.

They know how many games the average consumer buys, they the percentage of consumer that sign up to PS Plus. They know what he average consumer spend on movies from their store and PS Now. Basically they know how much profit they can gain after they sell a PS4.

They then have to weigh up if dropping the price to make less profit per unit will bring in enough profit with the increased install base to make it worth it.

eg.

PS4 sells 1M at $400 for the year (small number to keep it simple). Sony make $50 profit per console, average consumer spends x amount to profit Sony $50 a year= So they will make $100M for that year.

PS4 sell 2M at $350 but make no profit per unit. Average consumer spends x amount to profit Sony $50 a year= $100

That extra install base will also continue to profit Sony $50 a year per unit sold. That 1M extra gained from price cut will give Sony $250M profit over 5 years for the sake of losing $50M on price cut.

Yes, your example shows that it CAN be a good idea to cut the price, if the numbers add up.

However your example is a bit contrived, in particular a console that's already selling so well would not get 100% bump from a $50 price cut.

It's a loose example. I don't even know what the average consumer spends and how much profit they make. The $50 a year per person could be way to low. If the PS Plus subs numbers are to be believed then I can see it being a lot higher. If the software ratio is also to be believe on VGC the we are looking at 5 games sold to 1 console. What do they make off of software, 10%, 15% 20%? Then you have sales of DLC and movie rentals and sales. You will sell more of this the more consoles you sell and more people you have spending money year on year. The sooner you increase your install the sooner you have people spending money. Not quick enough to get them and you loose the valuable consumers to your rivals.

The numbers were did in the way I did it to make it simple and not to complicated.

PS Plus is not going to be all profit, and not everyone subscribes.  Average console attach rates are 10:1 for lifetime, so on average people buy ~2 games a year.  Peripherals are where they can make high margins.



My 8th gen collection

cutzman25 on 29 January 2015

MS lost around 50 million dollars on the price drop, not to mention looking desperate and pissing early adopters off. I really don't think Sony could afford that nor i don't think they needed it because they still outsold X1 world wide and still have a strong hold in the US



PSN & XBOX GT : cutzman25