Sony made an annoucement recently that the price of PlayStation 3 will be slashed -100$, but some people speculate whether hundreds bucks is enough to raise interest. Has Sony made a mistake by creating a console with a high end philosophy? The source shows some interesting historical facts about console sales vs. price, and if the history repeats itself Sony may be in some trouble. A high end console, or a media center, is a rather new product concept and perhaps the Joe Average is just not ready for it? On the other hand Sony has been able to sustain very long product life cycles in the past with PlayStations, so perhaps they can repeat the trick and be a winner eventually? The key element might also be the high definition video - oddly the HD televisions are selling like pancakes, but the HD video players are not. People are watching low resolution content with the high definition TVs, but that must eventually change.

The magic formula for consoles — and this was actually developed at Dataquest back in the early ’90s — is that the closer you get to dropping below $200, the more you sell; the farther away from $200 you go, the less you sell. Every break point is over 2x, which suggests that at $300 you’ll sell about half, and at $400 a quarter, of potential every time, everything else being equal. This can be mitigated by heavy marketing, incentives, and the lack of a competing product under $200. After $500, it really doesn’t matter that much since you are selling to folks who aren’t very price-sensitive, so the differences between $500 and $600 aren’t that significant.

That means dropping the price $100, but still remaining in the nosebleed section of consoles, shouldn’t have much impact on volume. However, it will have a major impact on profits. Given that this platform really lacks any flagship games like Halo adds to the mess, because people aren’t chasing the games to buy the platform. In addition, the old value proposition that you got a cheap Blu-ray player just went away, because Blu-ray players have dropped below $400 (you can find them for $350 at Costco). Of course, HD-DVD players have now dropped below $300, so that war continues. (Since you should be able to get one Blu-ray and one HD-DVD player for a combined price of under $600 by year end, it kind of makes you wonder who is going to buy the $1,200 LG combination players, doesn’t it?

Source: Digital Trends