Posted by John on August 25, 2011

Split Screen: Xbox 360 price has to drop

Promoted for years as the cheaper alternative to the PS3, the Xbox 360 needs a price drop to stay competitive.

Promoted for years as the cheaper alternative to the PS3, the Xbox 360 needs a price drop to stay competitive.

It is certainly no accident that the PlayStation 3’s price cuts, which went into effect last Monday, put the PS3’s pricing toe-to-toe with the Xbox 360’s. It is a deliberate marketing strategy by Sony to erode the advantage the Xbox has traditionally held over the PS3. With the Xbox losing the price advantage it has held since launch, its sales will definitely suffer as a result.

Sony’s boutique console

Australian gamers were shocked when the March 2007 launch pricing for the PlayStation 3 was announced. $999.95 seemed exorbitant, especially in comparison to the year old $649.95 Xbox 360 and the wildly popular Nintendo Wii, which broke first-week sales records four months earlier at a price of $399.95.

The thousand dollar console. At launch, the PS3 was too expensive for many.

The thousand dollar console. At launch, the PS3 was too expensive for many.

The price was especially hard for local fans to swallow considering that the same unit was selling for $599.95 in North America. Australia was also offered only the more expensive hardware option, with the cheaper unit available to American customers for US$100 less not getting released locally. The term “Wii60″ was coined, making fun of the fact that you could buy both a Wii and an Xbox 360 for less than the cost of a PlayStation 3.

From that first announcement, Sony Computer Entertainment Australia was working hard to position the PS3 as the better value product. It had Blu-ray out of the box, they said, compared to the Xbox’s DVD or its expensive HD-DVD add-on. The PS3 had HDMI output for high definition televisions, while the Xbox didn’t get HDMI until two years after launch. SCE Australia’s Managing Director Michael Ephraim defended the PS3’s pricing right here on Screen Play, citing its power and versatility.

Despite Ephraim’s best efforts, the PS3 trailed the Xbox in sales, though both of them were far behind the phenomenal success of the Wii. The lesson Australia seemed to have adopted from the marketing was that the 360 was an affordable workhorse and the PS3 was a highly-priced boutique item. Through five years of hardware revisions and price drops, Microsoft’s machine remained around $200 cheaper than Sony’s, and its features gradually improved as well. By the end of 2007 all new Xbox consoles had HDMI output, and the slim models that arrived in mid-2010 also had built-in wireless networking. While it remained less exclusive in consumers’ eyes, the Xbox 360 was a financially sensible choice.

The ubiquitous PS2 generated great brand-recognition for Sony.

The ubiquitous PS2 generated great brand-recognition for Sony.


Now the persistent price differential that has worked for so long in Microsoft’s advantage has begun to work against them. The PS3 price cuts put both of the available models on the same price point as the two Xbox 360 units, which means that the console that has long been thought of as the premium product is the same price as its traditionally cheaper rival.

Try to imagine for a moment that you are not a well-read consumer of quality video game journalism, but simply a regular shopper who has walked into JB Hi-Fi, thinking about upgrading to a new game machine. Like a huge number of Australian households, your television has a dusty old PS2 sitting beside it, and you want a similar machine, not a motion-controlled Wii. You see there are two alternatives for a new console, both priced the same.

First of all, you will see that familiar PlayStation brand. Straight away you will see that the PS3 has a Blu-ray drive, and that it is cheaper than many of the stand-alone players in the home entertainment section. Some of the Blu-ray movies on a nearby shelf even have a “compatible with PlayStation 3″ sticker on the case. Even if you’re not a computer expert, the numbers are easy enough to understand: 4GB of storage in the cheaper Xbox versus 160GB in the same priced PS3. Looking toward the shelves of games, you would notice that most of the prominently displayed exclusives belong to the PS3.

The real clincher for many people, though, will be almost five years of being told that the PS3 is the expensive, premium console. Why was it so expensive? Well, it had that Blu-ray drive in it, so it was a high-definition movie player as well as a game console. Don’t forgot that, to many shoppers, a higher price denotes higher quality, and maybe even someone who doesn’t know much about game consoles would have heard about the Xbox’s notorious “red ring of death”.

I cannot see why any consumer without a specific reason for buying an Xbox 360 would choose it over the PS3. Unless they have friends on Xbox Live, or just one friend who wants to play some co-operative Halo or Gears of War, the PS3 is simply a better value purchase, backed up by a more recognised brand and a reputation for being a more expensive, and perhaps higher quality, product.

Planning for the next generation

Despite the promise of a ten year life cycle for this generation of hardware (already tipped on its head by the announcement of the WiiU) we are entering the end-game for our current consoles. This is the period when Sony and Microsoft want to shore up their fanbase, snag the more casual users by tempting them with impulse-purchase friendly prices, and set themselves up in a strong position for the next generation.

If the Xbox 360’s price does not immediately drop a substantial amount below the PS3’s, it will not only be the 360’s sales that suffer, but potentially the sales of the next Xbox as well. The greater the PS3’s market share now, the greater the number of people who will see a hypothetical PlayStation 4 as their next logical upgrade.

Microsoft management is currently laughing off suggestions that a price drop is imminent, such this Chris Lewis interview with VG24/7. But I am certain that this is nothing more than marketing bravado. The Xbox has to stay cheaper than the PS3, because that is how it has always been positioned. Despite Microsoft’s claims to the contrary, an Xbox 360 price cut is coming, and it’s coming very soon.

If I’m wrong, and Microsoft leaves their console competing toe-to-toe with a more featured-packed competitor which has both a stronger brand identity and a cachet of exclusivity, then someone deserves to be fired.

Microsoft Australia has not provided comment. I’ll update you if that changes.


 twitterIf you want more DexX, you can listen to the GameTaco podcast or follow him on Twitter: @jamesjdominguez

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