Price drops, consumers love them and I’m guessing that companies have a love/hate relationship with them. They drive up sales but what many fail to realize is how much a financial hit a price drop can come with. Microsoft and Sony are already losing money on hardware sales, so without knowing production costs they could stand to lose even more. On the flip side, the more hardware you sale the more accessories and software you sale which does does have a positive markup.
Earlier this week, the PS3 Slim released and with it a new price range for Sony’s console – $299.99. Not to be outdone, Microsoft announced a new pricing structure of their own. This of course now leaves us with Nintendo. They’ve denied for awhile now any plans for a price slashing, but with these new announcements I’m sure the financial team at the Big House of N is having a look see. As consumers we can always speculate as to if and when a price drop will occur. Let’s face it, what’s more fun than speculating?
The first and quite possibly biggest factor of whether or not an impending price drop looms is that Nintendo actually makes money on hardware. While Microsoft and Sony scramble to turn a profit through accessories and games, Nintendo actually profits from every hardware sell. Then couple in all of the Wii remotes, and MotionPlus(es), and we’re talking some serious money here. Also, I think it’s safe to assume that during the Wii’s life cycle the production costs have lowered. If Nintendo can afford it, why wouldn’t they drop prices for their console?
Im sure if we inquired Nintendo their response would be, ‘Why should we drop the Wii’s price?’ Looking at hardware sales from last week, you can see why Nintendo might not be interested in a price drop at this time. They sold 200,865 units, and it’s actually a -16% decline. However, they still nearly doubled the total sales of the Xbox 360 and more than doubled PS3’s figures. Another way to look at it is would you drive your horse harder and risk an injury if you were already so far ahead in the race?
So far in the discussion I’ve mentioned reasons Nintendo might not want to drop the price of their console. There are a couple of factors that could easily sway them in the other direction. I mentioned before that Nintendo’s hardware sales declined 16%, and percentage wise was the sharpest fall of the week. A couple of weeks ago, the console saw a drastic -25% decline while the other companies saw only a marginal decrease. Looking at the data and how it’s trending, Nintendo should have the foresight to see darkness might hang in the distance.
Finally, a key reason Nintendo could be looking into a price drop is how close the competition is getting to their price point. When all three consoles first released, the Nintendo Wii was heralded as the console everyone could afford. The Xbox 360 and PS3 tried to meet consumer demands with upgraded hardware, while Nintendo went for cheaper production and smaller price. Up until now that strategy has worked, but could be in danger with Microsoft and Sony’s new price. Microsoft’s Xbox 360 Pro package is now $249.99. Then Sony’s new Slim PS3, with an upgraded hard drive is now only $299.99. So, what factors of the Nintendo Wii do they have to entice customer’s now? They still have their brand name, and engaging games everyone can play but how long will that keep their domination going?
What are your thoughts on a price drop? Do you think we’ll see one before the holidays, or will it be a moot point because Nintendo Wiis are going to sale like crazy anyway?