PS3 Price Cut Controversy

The Playstation brand has been a strong one in the gaming industry for almost 15 years now. Many people view the PS3 as a failure because of the fact that Sony has gone from a dominant position in the industry to a distant third behind Nintendo and Microsoft. This sudden drop, according to industry followers, is caused mainly by the fact that the PS3 is over 100$ more expensive than the competition. Now all of this might be true but in my opinion, Sony is exactly where they wanted to be at this point in time with the PS3 and here's why.

When the PS3 released, everyone was stunned by the pricing announcement at E3 06. The PS3 was going to retail at 600$ while Microsoft and the Xbox 360 was going out for 400$ and the Wii was going to retail at 280$. Clearly that showed me that Sony's strategy was far different from Microsoft and Nintendo. Sony was positioning the PS3 as a deluxe entertainment unit. HD gaming with HDMI, BluRay and WiFi were the major features that really differentiated the PS3 from the competition. Also Sony knew that by being this expensive, the PS3 wouldn't be flying off the shelves. They wanted to give the consumer a feeling of pride by owning a PS3. As an example, BMW's strategy is not to sell a maximum of cars because BMW is perceived as a prestigious brand. Owners want to feel special by driving a BMW. Same thing applies to the PS3, Sony wanted to position the product as a prestigious entertainment unit. The main reason behind this strategy is obviously the high cost of the system. Even at 600$, Sony was losing money on every PS3 sold. If they were going on a direct war with Microsoft and Nintendo, they would have had to absorb higher losses and thus rendering the financial risks unbearable. Let's not forget the 10 year cycle, Sony is putting a lot of faith in this element of their strategy. So there are still many things we don't know about Sony's strategy. 

So far sales for all three platforms have been going very well. We can safely say that they are all enjoying a very successful run this generation. The main reason for that again is how all three were able to clearly position themselves in the market. In the previous generation Nintendo wanted to go head on against Sony and Microsoft and figured that they simply couldn't compete even at a price that was much lower than the competition. What they did this time around was to completely change their target audience and cater to more casual gamers and non gamers. That definitely worked for them and the Wii is now a money printing system! Microsoft's strategy is perceived as very similar to Sony but in reality it's very different. Microsoft clearly wanted to take Sony's position of leader in the industry and they wanted to take every way possible to achieve it. They decided to go with a customization approach. The 360 has an entry price point that is very attractive. Their objective with that is to obviously get a maximum of owners in the shortest time span possible. Where they would make their money is in the features owners can add to their consoles. If they wanted an HD-DVD player, WiFi, online gaming, hard drive (for those that got the 199$ version), etc. they could add it on as they wished for an extra cost. Sony's approach was to offer the ultimate experience right out of the box. The entry price is less attractive than the 360 but you don't have to get anything else, it's all there.

That's why this generation is so successful versus the last one where every console manufacturer had a similar strategy and offered nothing much different. People decided to go for the one that had the largest and more critically acclaimed library of games, the PS2.

So does the PS3 need a price drop? Eventually they will have to, but as long as they will meet their targets at that price point, there is no reason to make a move. Someone that bought a PS3 one year ago is happy to see that the console he bought for 400$ is still the same price today. He won't have the feeling he got screwed.