Value of a Price Cut
It's been eight month since the Xbox 360 cut their price from $399 to $349 in the US so now we have some NPD data to compare and see how much that price cut mattered. Since the price cut was taken in the middle of August '07 I will not use that month's numbers in the comparison. I will compare data gathered from sales in September of '06 through April of '07 with data from September of '07 through April of '08.
In the eight month period at the $399 price point the Xbox 360 sold 3,013,000 consoles in the US. In the eight month period at the $349 price point the Xbox 360 sold 3,859,000 consoles in the US. The $50 price cut increased the sales of the Xbox 360 by 28% when comparing the sales for the two periods. Now one might argue Halo 3, Mass Effect and Call of Duty 4 all came out after the price cut which helped boost the sales of the Xbox 360. One has to remember Oblivion, GRAW, Crackdown and Gears of War launched in the period taken before the price cut and they surely helped sell consoles.
When you take a closer look at the data and compare the sales totals in four month increments you will see a much more significant trend in the sales. The 2008 numbers were 38% higher than the 2007 numbers when looking just at September through December while the January through April sales were only 4.5% higher in 2008 vs 2007. This could mean that simply the people that were waiting for the price cut bought the console shortly after the price cut. In fact after comparing the sales increase/decrease on a monthly basis over time the effect of the price cut decreases and the sales settle back down to a modest increase.
These numbers go on to show that over time the price cut has diminishing returns. It doesn't seem to be much of a benefit to only cut your price once a year. It would be much better to cut your price twice a year to help make your console more affordable for more demographics. A Spring and a Fall price cut would allow your to move more consoles but this would also require that you can plan for manufacturing cost cutting twice a year. That is probably the biggest hindrance to multiple price cuts in a year.
In the eight month period at the $399 price point the Xbox 360 sold 3,013,000 consoles in the US. In the eight month period at the $349 price point the Xbox 360 sold 3,859,000 consoles in the US. The $50 price cut increased the sales of the Xbox 360 by 28% when comparing the sales for the two periods. Now one might argue Halo 3, Mass Effect and Call of Duty 4 all came out after the price cut which helped boost the sales of the Xbox 360. One has to remember Oblivion, GRAW, Crackdown and Gears of War launched in the period taken before the price cut and they surely helped sell consoles.
When you take a closer look at the data and compare the sales totals in four month increments you will see a much more significant trend in the sales. The 2008 numbers were 38% higher than the 2007 numbers when looking just at September through December while the January through April sales were only 4.5% higher in 2008 vs 2007. This could mean that simply the people that were waiting for the price cut bought the console shortly after the price cut. In fact after comparing the sales increase/decrease on a monthly basis over time the effect of the price cut decreases and the sales settle back down to a modest increase.
These numbers go on to show that over time the price cut has diminishing returns. It doesn't seem to be much of a benefit to only cut your price once a year. It would be much better to cut your price twice a year to help make your console more affordable for more demographics. A Spring and a Fall price cut would allow your to move more consoles but this would also require that you can plan for manufacturing cost cutting twice a year. That is probably the biggest hindrance to multiple price cuts in a year.
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