Should the next-gen consoles aim for mass market pricing?
In a lot of ways, talking about this right now feels a bit premature. After all, we scarcely know anything about the PS5 and the Xbox Scarlett, right? I mean, we know both consoles use new AMD Ryzen based CPUs, Vega based GPUs, we know both are backward compatible, and have SSDs to facilitate faster loading. We know they both have UHD drives, and we know the PS5 supports hardware-accelerated ray tracing.
That’s not a lot to go by. We don’t have any idea of the exact specs, hardware, or functionality for either of the two consoles. It’s hard to guess exactly what they will cost, and worse still, it’s hard to determine what they should be worth. So really, this discussion isn’t about what the consoles should cost based on what they are – given that we do not, in fact, know what they are at all – rather, it is a discussion that talks about historical pricing trends to figure out what the ideal pricing for the new consoles would be.
Mass market pricing is paramount for these machines, if they seek quick adoption by the audiences. There will be a healthy helping of people willing to spend the premium to get the next generation machines – just look at the launch day sales for PS3 or Xbox One, or how any console commands a premium of five to six times its asking price on eBay and similar auction sites during the launch rush. But sustained early sales require a good price. After the early adopter rush has died down, you’ll be left with a bunch of people who aren’t willing to pick up the console at its asking price, if said asking price is high.
And what exactly is a high asking price? As of right now, based on historical trends, it appears that it is $399. Higher than that, you still move units, but the pace is slower, and eventually drops off. The best example, again, is Xbox One, which managed to move 3 million units in the first month and a half following its launch. Sales, of course, started to taper off after that, leading to Microsoft having to engage in aggressive price cut measures that continue to this day, to keep the console moving.
So – $399 is the upper limit, right? That’s what these consoles should be priced at. There, case closed. Well… no, not exactly. See, Xbox One had a lower priced competitor in the PS4, which retailed at $399. So anyone buying the Xbox One was aware that a cheaper alternative was available right then and there – which surely siphoned away some, if not many, sales away from the console. If the PS5 and Xbox Scarlett were both to be $499, what would happen?
This is where we enter murkier territory, and have to cede ground to some hopefully educated guesswork and grounded speculation. There are two possibilities here: either the $499 price point is normalized by both new consoles retailing for that, causing sales to remain steady even after the launch rush has died off (since people just come to terms with the fact that that is the entry price for a next generation console); or sales for both consoles start to taper off after the initial rush window, necessitating a price drop.
The console market does not give us any precedence to judge this situation by. Through history, competing consoles launching at the same time have never been the same price. One has always been more expensive than the other, which throws a wrench in our intent to extrapolate. What we must, therefore, do, is look at another market to judge what might happen with these hypothetical high-priced consoles.
Which brings me to the iPhone XS and the Pixel 3. Smartphones have historically been expensive, especially the flagship models. But the iPhone XS and Pixel 3 pushed pricing beyond the $1000 mark. Both did this at roughly the same time, and both pushed for similar price brackets. Both phones also enjoyed reasonable early sales, based on fans and early adopters buying into the shiniest new toy. However, sales of both phones slowed down, with Apple and Google both publicly admitting the higher price was keeping people away. While, of course, cheaper smartphones existed as alternatives, those looking for flagship phones were limited to a handful of devices, all pushing their pricing to the $1000 range, or beyond.
In spite of this equivalence in price, sales did fall across the board. Maybe people decided to buy cheaper, non-flagship phones (in the case of Google, that is exactly what happened, with the Pixel 3A outselling its more expensive counterpart). Maybe they decided their current phones were good enough, and they could afford to wait before upgrading to the new ones. Maybe it was a bunch of factors in tandem. But the long and short of it is, high prices eventually pushed buyers away.
This has been observed to be the case in other market segments too, and it suggests that there is a limit to price elasticity for luxury goods, which is what consoles are. In turn, then, it does imply that the PS5 and Xbox Scarlett could theoretically see slower sales after launch if they remain at a $499 price point – a lot of the more casual purchasers may decide to either wait on price drops, or that their current consoles are good enough for the time being. This would either necessitate a price drop shortly after launch, or a launch at a lower price to begin with.
Again, this is all a shot in the dark: we don’t know what the new consoles are at all. It’s entirely possible that they justify the $499 price point convincingly, so that people are more than willing to spend the money. It’s possible that Sony and Microsoft can’t price them below $499 even if they want, owing to them using the latest and greatest tech. It’s possible that they take the hit, and price them at $399, rendering this discussion moot. It is also possible that both companies have forecast lower sales for their upcoming consoles to begin with, and plan to compensate for that with longer life cycles for the consoles, continued sales of cheaper current generation consoles, higher digital sales, higher software attach ratios, a higher push for subscription services, and more.
We just don’t know. But, based on what history shows us, based on what a look at other markets shows us, based on what we do know, scant though it may be, I think Microsoft and Sony would both do well to not price their consoles beyond $399 – even if that means they have to take an initial hit on hardware sales in the process.
Note: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, GamingBolt as an organization.