Monday, August 24, 2009

Console Post Of The Week: The Effect Of Price Cuts

I think it's an interesting exercise to go back to 2002 and look for clues in the history of the PS2 when we're trying to project the impact of the recent PS3 price cut.

A few basics first. I have NPD data back to November 2001. The PS2 price cut, from $299 to $199, was announced on May 14, 2002.

Here are sales numbers for 2002:

I'm guessing that April's low numbers may have been supply-related, given the steady numbers of the other months (although April 2002 seems to have been a uniquely terrible month for the Xbox as well, so I'm not sure).

What's interesting to note is that June sales, after the price cut, roughly doubled March sales, before the price cut. March and June are both five-week reporting periods for NPD purposes, and in terms of natural demand, they're a decent match.

Conveniently, September is also a decent match, because variations in demand for the March-September period seem to rely largely on pricing and new software. It's also a five-week reporting period.

Obviously, this is a very blunt knife that I'm trying to work with, but if the PS3 price cut has a similar effect as the PS2 cut (which was the same in dollars, but a 33% cut as opposed to 25%), and September PS3 sales double June's, then we're looking at 330,000 units.

The PS2 was working off a much larger sales base, so that may throw off the comparison--it's probably easier to double or triple your sales when your monthly numbers are substantially lower. Plus, there's a question of how many people will now pick up the PS3 as a cheap (in price, not quality) Blu-ray player. We can at least use this as a starting point, though.

There are other reference points we could use, but the comparisons aren't quite as clean. It's unfair to use Microsoft's cut in August 2007--it was only $50.00 (on the Pro, and only $20 on the Arcade), and it also heavily capitalized on the Halo 3 release in September. For instructional purposes only, though, here are those numbers:
June 2007: 198,000
July: 170,000
August: 277,000
September: 528,000

That's quite a pop--over 2.5x in sales, comparing September to June. Again, though, Halo had a huge effect on that spike, so while the numbers are interesting, it's unfair to expect anything similar from the PS3.

The next six months will be a good measure of the legs of the PS3 at this point in its lifecycle, both in terms of absolute sales and the decay rate of the demand peak following the price cut. At $299, the imaginary value proposition that Sony has been bleating about for almost three years can fairly be said to actually exist now, and it will be interesting to see how consumers react.

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