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Print 27 comment(s) - last by Crusader.. on Oct 18 at 11:28 AM

XBOX 360 has slimmer margins, but greater net profit than Wii

Exactly a week ago, we brought news of CompUSA's cost and markup on Nintendo Wii. Today, costs have been revealed for XBOX 360, which we know will remain unchanged throughout the holiday season.

Product MSRP in USD Cost in USD Margin in %
XBOX 360 Premium 399.99 384.21 3.9
XBOX 360 Core 299.99 292.09 2.6
Nintendo Wii 249.99 237.50 5.0

This article on Joystiq explains the whole concept of a pull strategy versus a push strategy. By giving retailers a greater margin on the Wii, there is a greater incentive to "push" the product to the consumer. With the slightly lower margin on the XBOX, Microsoft may have to rely on a "pull" strategy through marketing to drum up consumer demand so the products are "pulled" off the shelves.

Raw percentages, however, may not tell the entire story. XBOX 360 Premium would net the retailer a higher amount at $15.78 as compared to $12.49 for the Wii, which turns the tables a bit. Of course, it will likely be easier to push a $249.99 sale over a $399.99 one.

Although we do not not have XBOX 360 accessory and games markups yet, peripheral and software play a major role in retailer profits. Retailers may want to boost their bottom lines by forcing accessory and game bundles with every system sold, though that is something we have yet to see for latest rounds of PlayStation 3 and Wii preorders.



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Nintendo's interesting move
By daftrok on 10/17/2006 12:21:54 AM , Rating: 4
I've been browsing through Wikipedia about the Playstation 2, Xbox, and Gamecube and found this:

Playstation 2:
* US$299.99 (October 26, 2000, Launch Price)
* US$199.99 (May 14, 2002)
* US$179.99 (May 13, 2003)
* US$149.99 (May 11, 2004)
* US$129.99 (April 20, 2006)

Xbox:
* US$299 (November 15, 2001, Launch Price)
* US$199 (May 15, 2002)
* US$179 (May 14, 2003)
* US$149 (March 29, 2004)

Gamecube:
* US$199.99 (November 18, 2001, Launch Price)
* US$149.99 (May 13, 2002)
* US$99.99 (September 25, 2003)

This trend doesn't really surprise me, but its useful to take a gander at. It is very similar to the situation coming up. The console with the year head start did not bring down its price. Also, looking further into Nintendo:

Nintendo 64 at launch cost 199.99.
Super Nintendo at launch cost 199.99.
Nintendo Entertainment System (NES) at launch cost 199.99.

This is very interesting. Now I am under the assumption that The Nintendo Wii is esentially an overclocked Gamecube. Now I am not entirely sure of the production costs, but I am having trouble understanding why did Nintendo end their 20 year tradition of selling their consoles for under 200 dollars? They said they had millions of consoles (some are speculating 9,000,000+!). I mean, the lower end Xbox 360 is selling for 299.99, and 50 dollars is really not as big as a difference. Also, Nintendo hit some MAJOR competition with the Gamecube:

Gamecube:
Units sold 21 million (June 2006)

Xbox:
Units sold 24 million

Playstation 2:
Units sold 106.23 million worldwide

In fact, judging from these sales and numbers, it would make sense selling it for under 200 dollars and keeping the Nintendo tradition alive. Poor Gamecube had to cut down their prices to a mere 99.99. A sub-100 price for a console has NEVER been done prior to a release of its successor.




RE: Nintendo's interesting move
By dagamer34 on 10/17/2006 1:06:16 AM , Rating: 1
The fact of the matter is that people who were going to buy the Wii when it was $200 are still going to buy the Wii when it's $250 (an includes a pack-in game).

In case you haven't noticed, times have changed. While I'm sure people who love to have a $200 Wii, it's still the cheapest out of the 3 by a margin of at least $50 ($150 if you're not crazy and don't consider the gimped version of the 360).

Besides, if you really want to go buy a Wii at $200, you can wait until next summer if you want. I don't think you'll survive though. :P


RE: Nintendo's interesting move
By daftrok on 10/17/06, Rating: 0
RE: Nintendo's interesting move
By WxGuy192 on 10/17/2006 2:06:47 AM , Rating: 1
quote:
In fact, judging from these sales and numbers, it would make sense selling it for under 200 dollars and keeping the Nintendo tradition alive.


You expect the price of the latest Nintendo console to always be $199? Even with 3%/yr inflation for the past 15+ years (or whenever the NES originally debuted), the starting price for Nintendo's latest-n-greatest SHOULD increase every year. Now, tech prices have plummetted for anything resembling "comparable technology" in the past 10-15 years (as tech almost always seems to do, except for graphing calculators for whatever reason). However, gaming consoles almost always strive to have the biggest and baddest tech available. Obviously, different companies decide just how "bleeding edge" they want to be, since the more advanced, the more expensive (see PS3). Regardless, when you're looking at the newest console, I would always expect it to be more expensive than the previous generation. At the very least, it'd be the same price, but I wouldn't count on that.


RE: Nintendo's interesting move
By willow01 on 10/17/2006 2:12:58 AM , Rating: 1
I wouldn't mind seeing the number of sales for each of the price points, although it would be difficult to see when they are packaged with games and accessories.


RE: Nintendo's interesting move
By Loser on 10/17/2006 4:22:14 AM , Rating: 2
pricetag of 250 is simple economics
why let ppl who would have paid 250, let them buy for 200?
later the price will drop.
about 99 cube: dont forget after major price cut they were STILL making profit. now think about this for a moment, imagine the profit of the wii.


RE: Nintendo's interesting move
By encryptkeeper on 10/17/2006 9:39:48 AM , Rating: 1
Now I am under the assumption that The Nintendo Wii is esentially an overclocked Gamecube.

You did all of that research on console price history and you didn't bother to do any research on the Wii? It is NOT just an overclocked GameCube. If you are going to do an investigation, investigate everything unless you don't mind looking like an idiot. The Wii has everything you could want in a home console, except high def graphics (only a few people have high def tvs now anyway) and DVD playback (which they can probably add later through the Wii updates they plan to do, but they left it out saying everyone has DVD players at home, which is true).
It is interesting to see the Cube sales numbers next to Xbox's numbers. I would have figured that the Xbox would have been farther ahead than they were. Also, in two years, almost as many DS systems have sold as the Gamecube. Incredible.


RE: Nintendo's interesting move
By Spivonious on 10/17/2006 9:58:51 AM , Rating: 2
I can believe the DS statistic. I just got one and it's great! Who'd have thought that a touchscreen would make games fun? :)

About the list of features for the Wii, it does EDTV resolutions (480p) which is the same as a progressive-scan DVD. For my $200 old-fashioned tube tv, that's more than enough. I think you have an argument that most people don't have HDTV, especially not kids with limited budgets. I thought that they said the Wii would have DVD playing capabilites, but I might be remembering wrong.

I also thought that the XBox numbers would be way more than the Gamecube, but thinking about it now, while working at Gamestop last year I sold way more Gamecubes than XBoxes. $99 is hard to resist, and $59 used? Where do I sign? :)


RE: Nintendo's interesting move
By daftrok on 10/17/2006 3:26:57 PM , Rating: 2
So you consider millions of people with HiDef a few? And you're calling me an idiot. Granted, the Wii has nice features (Wifi, Bluetooth, and the insane amount of backwards compatibility), but the fact of the matter is that in the span of 5 years, Gamecube had 21 million buys, which is not a great number. But the main edge that Gamecube had was its price. Wii has that edge, but not as strong as last year. If the Wii had a definitive amount (say 3 or so million by the end of 2006), then selling at 250 would make economic sense. But if it is at the extreme, say 9 million, chances are there will be a price cut sooner than expected, I just wish it was 199.99 now rather than in 4 months. It makes economic sense, but I'm cheap so I want it at 199.99, like it was for the past 20 years.


RE: Nintendo's interesting move
By ET on 10/17/2006 9:51:52 AM , Rating: 2
Now I am under the assumption that The Nintendo Wii is esentially an overclocked Gamecube.

????

If a new GPU, 512MB Flash, SD support and WiFi (not to mention the details we don't really know yet, like RAM) amount to "an overclocked Gamecube" to you, then your understanding of the concept of overclocking must be different than other people's.


RE: Nintendo's interesting move
By ogreslayer on 10/17/2006 11:42:58 AM , Rating: 3
The 'Hollywood' GPU is hardly new, a "built from the ground up" 243MHz chip with 3mb of embedded texture cache is hardly some leap of technology from the 162MHz chip 'Flipper' witn 1mb of embedded texture cache. The GPU is a virtual product refresh, and a sad one after 5 years.

IBM, Making a console killing here :-), didn't do much to the Power PC core in 'Broadway' either. Its really just a significantly shrunk and better process. Probably going for 1Ghz+ here over the 485MHz of Gekko.

Overclocking is hardly the right word but the overall experience of the system will match the term quite well.
When compared to its predeccesor and especially its competitors thats what it amounts to. Nintendo is charging $250 for a system that is highly technologically inferior to both the others in this generation. It makes the 360 core almost seem like a deal when you compare the totality of what is offered; hell at $250 it gives me slight pause at whether a $500 Blu-Ray player from Sony is overpriced...


RE: Nintendo's interesting move
By Crusader on 10/18/2006 11:22:37 AM , Rating: 2
ogreslayer-

You have VERY good points.

I think the price of the Wii does make the Xbox360 Core system look great.. and the Bluray player (some call it a PS3) look good at $500 or whatever its going to cost.


RE: Nintendo's interesting move
By daftrok on 10/17/2006 3:29:22 PM , Rating: 1
The GPU is stronger, with a flash upgrade, an SD slot and a wireless card (and bluetooth)...sounds overclocked to me.


Just Wondering
By vbNetGuy on 10/16/06, Rating: 0
RE: Just Wondering
By wind79 on 10/16/2006 9:28:25 PM , Rating: 2
The margins are for the retail shops, not for Microsoft and Nintendo. Xbox360 are still selling at a loss.


RE: Just Wondering
By Le Québécois on 10/16/2006 9:31:30 PM , Rating: 2
Those are the prices retailers must pay when buying the product before selling it.

Knowing what's inside the Xbox360 I really doubt they are making any money on the console itself.


RE: Just Wondering
By regnez on 10/16/2006 9:47:33 PM , Rating: 3
not only is MS not making money on the 360, they are actually losing a good deal. http://businessweek.com/technology/content/nov2005...

on top of this, MS lost $4B with the original xbox.

it is going to be a long time before MS makes money in the video game industry.


RE: Just Wondering
By MilitaryTech on 10/17/2006 1:57:39 AM , Rating: 2
True but Microsoft has billions of dollars to burn-more so than Nintendo or Sony, so they'll be around.

Of course, the way Sony is acting (like Nintendo was in the late 80's), Microsoft could eventually topple Sony because Sony has become incredibly arrogant as of late.


RE: Just Wondering
By Spivonious on 10/17/2006 10:00:54 AM , Rating: 2
Maybe on the systems themselves, but the markup on the controllers and games is ridiculous. I bet MS makes at least $30 for every $50 controller sold.


Wrong, wrong wrong...
By whymeintrouble on 10/16/2006 9:53:49 PM , Rating: 1
These prices are what Joe retailer would be paying for the product, NOT what the big box stores are paying. The Bigs will negotiate their own prices, usually due to such large quantities.




RE: Wrong, wrong wrong...
By Le Québécois on 10/16/2006 10:47:08 PM , Rating: 2
Maybe you're right, maybe not because if you look at what I said about computers, I was talking not only about joe retailer but also about the bigs(like you called them). In fact when it comes to computer you can often find lower price at joe retailer than the bigs because even is they pay a little more their only way to compete is by having lower prices. Even if it's just a couple $ less they will have lower prices(I'm talking here about on site retailers, online retail is a whole different thing).


RE: Wrong, wrong wrong...
By ColossusX on 10/17/2006 12:11:28 AM , Rating: 2
CompUSA is hardly a Joe-retailer and would classify as a Big-Box store. The money for the maker and the stores is typically made in the accessories and games, not on the console itself.


By Le Québécois on 10/16/2006 9:20:55 PM , Rating: 4
I never though that the profit margins in the console market was really that different then the one for computers. In Canada(maybe that's why we pay more for computer...)computer stores try to aim at a 15% average profit for their products.

I know because I used to work at a computer store and until recently had acces to suppliers prices lists.




PS3 Margin
By wind79 on 10/16/2006 9:23:52 PM , Rating: 2
Any chance of including the PS3 profit margin in that chart for a better comparison?




RE: PS3 Margin
By Crusader on 10/18/2006 11:28:16 AM , Rating: 2
I'm guessing the PS3 "margins" would be comical in comparison. They're model is probably mind bogglingly horrid in comparison to Nintendo and MS's.

And will only get worse due to the extreme competition Nintendo and MS are going to put up vs the PS3.
Methinks PS3 will be relegated to the hardcore gamers this time.

I'm 25 years old, and if I had kids theres no way I'd pick up a $600 PS3 for them.
If I wasnt going to play the console I'd just by them the $299 360. At 7 years old they prob wouldnt miss the premium package as long as it plays the games.

Knowing what I know of the performance difference and what your getting from the Wii vs 360.. the $50 is well worth it and when Christmas shopping thats what I'd pull off the shelf.. not a $600+ PS3. No way, thats absurd.

Not to mention, sony cut prices for their home market in japan.. but stick us Americans with full price? No thanks japs, peddle your crap elsewhere in that case.


grammatical errors
By JonathanYoung on 10/16/2006 10:58:54 PM , Rating: 2
"Raw percentages, however, may not tell the entire story. XBOX 360 Premium would net the retailer a higher amount at $15.78 as compared to $12.49 for the Wii, which turns a tables a bit."




CompUSA Pricing
By Drexial on 10/17/2006 3:03:53 AM , Rating: 1
i can tell you that those are accurate as far as the pricing goes. but it is true that those are just the prices that the store is paying for them. MS is most likely taking a little bit of a hit on their consoles. but you also have to keep in mind that microsoft has the muscle to negotiate prices with its suppliers. so im sure that they aren't hurting as much as they say. i can say margin on products is ridiculous a lot of the time. but as far as Desktops and Notebooks in comparison. the cost of the product is going up and the retail price is going down. so what used to be an easy $50-$200 margin is now about$15-$50 this really started happening in the last quarter. This is stressing the importance for retailers to sell accessories. As far as sony loosing money on the PS3. I can tell you that sony is making PLENTY of money off of their laptops and home theater products. In some cases i have seen 20-40% mark up. Though they have gotten a lot better at competitive pricing and now a days its basically their nitch tech, like their 11in notebooks and 17inch media center 1080 media center notebook are the only ones that are really marked up anymore.




"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997

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