Parks Associates Blog

Wednesday, July 02, 2008

Will Xbox 360 Price Reduction Spur Sales in the Near Term?

Several publications have published stories speculating a $50 price cut for Xbox 360 in the U.S.(price cut already happened in New Zealand and Austrlia). Will such price cuts lead to a near-term sales boost? Our consumer data suggest there will be some impact.

Microsoft definitely needs to stimulate consumer interest in its console. GTA IV didn't help much and there isn't a killer game, no pun intended, on the horizon. Our consumer data from Electronic Gaming in the Digital Home II, a new study of 2,000 U.S. Internet gamers also show that consumers interested in buying a console are more interested in the Wii and PS3 than an Xbox 360. Among console intenders, 38% ranked Wii as their No. 1 choice, followed by PS3 at 31% and Xbox 360 only got 19% of the votes.

Price reduction may change the equation and help increase consumer interest to a certain degree. A gap analysis between consumer perceived value (or average price willing to pay) for the different consoles and their current market prices reveals interesting findings. Wii's market price matches very well with consumers' psychological threshold. The average price consumers are willing to pay for an Xbox 360, although similar to the price point of an Xbox 360 Arcade, is still lower than the new price point of the 20GB model. However, shaving off $50 definitely narrows the gap significantly.

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