With reports that the Microsoft will eventually drop the price of the Xbox 360 comes a couple questions that remain unanswered. The most prevalent of which is “When is the appropriate time to drop the console price?” Many people have thought that Microsoft might pull something out of the hat in November just in time for the holidays with a price drop but there is no reason for Microsoft to do so for the holiday season. The fact remains that there will be a huge demand for the 360 in the holiday season due to Gears of War and the rest of the games that will be coming out during the time. If the holiday season is not the appropriate time for a price drop then when is the appropriate time?

Logic states that dropping a price right before the holiday season would create such fervor for the console that demand would outstrip supply due to it but why drop the price when there is already demand? The fact is there is no reason to. When Anthony, Brian, and I discussed this same point we came up with the same conclusion – drop the price in a lull period like summer. Taking that point of view dropping the price of the system during a lull would create demand for a product in a period where there usually is only a small demand. Another thing to consider when it comes to the price drop is what is coming out during the summer months or near it – Halo 3, Forza 2, Bioshock, Mass Effect, Lost Odyssey, Lost Planet, and Blue Dragon to name a few would also boost preemptive sales to get ready for a holiday season that is sure to be huge for the 360.

The other thing to consider is how much of a price drop. Traditionally we have seen $30 to $50 first run price drops, the first price drop is usually the biggest one due to percentages associated with the new price. For instance if the PS3 dropped its price $50 from the $600 unit is an 8.3% drop in price and if the 360 dropped its price $50 from the $400 unit it is a 12.5% price drop. Considering that the PS3 would have to lower the price more to get to the same amount percentage wise. Thinking of it in percentages $30 seems like a more appropriate number for a price drop for the 360 premium. However whenever a company does a price drop they have to make sure that the supply is always less than the demand for a product because you want to keep the demand up in the long run.

Due to the way the market is you do not want to go so low that your product is looked at as cheap. No one making a console or any product wants to have their product considered cheap because that affects demand, simple supply and demand economics. The other issue is Microsoft is still 90+ million dollars in the red for this year alone that eventually they have to make back, so dropping the price below what it costs to make the console, would once again, put them even more in the red. Hardware becomes cheaper to manufacture over time but it does still take TIME and many generations of console hardware evolution during a console’s life. There are many factors that have to be considered before dropping the price and the ones I have mentioned are only a few but consider what I have said next time you want a price drop “NOW!”.

- Justin Lowe

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