Sony tomorrow, September 15, is preparing a showcase and will likely reveal it PlayStation 5 price and release date. But how does such a company choose a price like the PS5? How does production and cognition affect the price we see on store shelves?
Well, I’ll talk about that today. Here’s how to set the price.
Materials account and total costs
A materials bill (BOM) is how much it costs a company to purchase all the components to build its product. At Sony and Microsoft, this includes deals with major suppliers such as AMD for the acquisition of SOC (chip system) and with NAND flash (which controls SSDs) manufacturers to include storage.
These costs are probably the first thing that comes to mind when trying to determine how much we should pay for something. BOM is an important part of the arithmetic that companies do when choosing a price. But in reality, this is just the starting point, because, on the one hand, not all costs are even taken into account.
Bloomberg has reported that it will cost Sony $ 450 to make the PS5. This figure is probably close, but we don’t know if it’s the total cost of production, or the cost of production, or just the bill for materials. The difference is that production costs will cover things like assembly and quality assurance processes, and production costs will cover everything related to the development of the product shipped.
Console production is expensive
Even the cost of production doesn’t reflect everything console companies spend. Creating a game box creates many years of research and development, which is expensive. With the console ready, you also need to pack, ship, and occasionally store it. The package alone can increase up to $ 15 per console.
Companies are trying to shorten the shortage of supply chains, but this is a complex logistics job that requires a lot of upfront costs. There is also a risk that demand will not be met, which may force you to pay for faster shipping options. Sony does so with accumulated Delta flights on PlayStation 5, but it is significantly more expensive than seagoing cargo ships.
The new console hardware also comes with growth pains. This means failures in the finished products, but it also means low yields for those SOCs. Taiwan-based TSMC is engraving AMD, Sony and Microsoft SOC into giant plates. They then have to cut the SOC from that plate, like cutting a tray with brown cakes. However, companies pay TSMC for the entire board, and a Japanese report released yesterday states that only 50% of certain SOCs are eligible for PlayStation 5. Sony will have to eat the cost of unused SOC.
For his part, Sony spokesman GamesBeat commented on Bloomberg’s story:
Although we do not disclose production-related information, the information provided by Bloomberg is false. We haven’t changed the production number of the PlayStation 5 since the start of mass production.
Note that Sony does not mention anything about its SOC profitability.
Supply and demand, not community building
At some point, the console manufacturer understands all of its costs. She then has to decide what to charge her customers. While this may seem fundamentally related, price actually acts only as one variable in the equation, which is primarily related to supply and demand.
You know this one. Demand is how much consumers want an item, and supply is how much they have access to that item.
Consoles will be very limited at startup, but this will not always be the case. So Sony isn’t going to cost the PS5 $ 1,000 just because it could probably sell a lot that month.
However, demand is more complex than hardware availability. It’s also about access to quality, select, exclusive games and multi-platform games. The demand for these experiences is high, but the supply is limited because there can be no one but a god of war. You have to pay Sony for that experience. And people are willing to pay a lot for access to it.
But when it comes to consoles, manufacturers want you to have access. They are trying to build a community.
Sony and Microsoft receive a license fee when developers sell games. They also have online stores that cut all transactions by 30%. It works much better if people can afford the hardware they need.
While games are huge business, they are also surprisingly strict and isolated. People identify as players in a way that people don’t identify with as readers. The PlayStation and Xbox brands can take advantage of this to appeal to loyal followers. But it can also respond.
In 2011 and 2012, Microsoft looked at its data and saw that people were watching videos and playing games online using the Xbox 360. So in developing the Xbox One, it did so by focusing on the TV and online features. But the fact that these things coincided with people’s behavior doesn’t mean that game fans wanted that. Gamers revolted and happily picked up the PS4 for $ 100 less, even as Microsoft changed many of its always online requirements.
Players see themselves as a community, and if they decide something is unfair, a monumental effort is needed to reassure them.
For Sony, this means that the $ 600 PS5 is dangerous. The system would probably still be sold at that price, but it could cost outrageous to players expecting a maximum of $ 500.
PlayStation 5 and PlayStation 5 Digital Edition
Another important factor in determining the price is how the two versions of the PS5 face each other. The full version and the disc-free digital model all have the same specifications. A Blu-ray device is relatively inexpensive ($ 50 as a last resort and probably much less). So is Sony charging $ 50 less? Maybe be. Many factors will make that choice.
Small number up front
Microsoft has announced the price of the Xbox Series X as $ 499.99. And that’s $ 500 because a penny is pointless, except that people realize that $ 499.99 is significantly less than $ 500. This is partly because we associate a series of zeros with large numbers. But it’s mostly about that number up front.
Putting a “4” in front of the room is huge. This is even more important for the Xbox S series, which costs $ 2 for $ 299.99.
Marketers love this effect, and Sony probably wants to take advantage of it on the PS5. But this raises an interesting situation.
If Sony sells the PS5 for $ 499.99, it doesn’t make sense to sell the Digital Edition for $ 50 less than $ 449.99. Both numbers are preceded by a “4”. This will make the Digital Edition feel like a bargain (regardless of its actual value). $ 299.99 for the Xbox Series S is even worse, compared to $ 449.99 for the PS5: Digital Edition.
If Sony is worried about Microsoft pricing, it makes the most sense to get a price start of 3 with the PS5: Digital Edition for $ 399.99.
The lure effect compared to pushing consumers towards digital
However, the price of the PS5 automatically falls short of what is now Sony’s most important thing. Whether Sony wants to move PlayStation fans into digital ownership, is it more concerned about the loss of hardware sales.
Sony may want people to buy the PS5: Digital Edition because it gets a higher profit margin from downloads compared to physical media. This could serve the company well in the long run.
In that case, expect a $ 100 difference between the two PS5 variants.
However, Sony may simply want to protect itself from hardware loss. If the PS5 loses $ 500, which is possible, PS5: Digital Edition would lose even more, $ 400 each. The company could make up for the difference over time, but it may have reason to want a profit now rather than later.
In this case, Sony could use the blur effect. The most famous example here is the popcorn. The seller sells small popcorn for $ 4, medium for $ 8, and large for $ 8.50. In a situation like this, you don’t even look small, you think about how you can’t pay just 50 cents more to get big, not medium.
If Sony wanted customers to spend more money upfront than the standard PS5, it could have a deceptive effect with the PlayStation 5: Digital Edition priced at $ 449.99. If the entire PS5 costs $ 499.99 – especially if the PS5: Digital Edition is hard to find – people will only focus on paying another $ 50 to get an uncompromising PS5, not comparisons to the Xbox Series S.
The price of the PlayStation 5 will say a lot about Sony’s strategy
Whatever Sony decides, it should tell us a lot about its overall strategy.
If we get the systems at $ 400 and $ 500, it will probably want more players to adopt digital games in the future. If it costs $ 450 and $ 500, it wants to compete with Microsoft at a higher price. And if someone costs more than $ 500, it’s just because he’s less worried about Microsoft than he is about his own earnings for the next few quarters.
And if that reduces Microsoft, then who cares? Let’s just enjoy some cash and let Sony worry about it.