Importance of a Pricing Strategy
For the success of any product, its pricing strategy is very important. It determines the profit margins, the net revenue and sales volume. It is also related to product placement. Pricing also affect other marketing mix elements like features of the product, the target market etc. Video game market is a complex place. The technology is advancing every second and companies are products like X Box 360, Nintendo and play station.
It is also known that whenever customers make a decision to but what console they prefer, price is not the only thing that they consider, the features of the product, the life of the product and their adaptability to the technology is also considered. Another important feature considered is the compatibility of the product. These considerations make the pricing even more difficult for the companies. Pricing of Video Games Video games are priced basically on two main strategies by most of the companies. These are either predator marketing or price skimming.
Price skimming, however, is the most commonly practiced pricing strategy. This strategy suggests setting the initial price of the product on high demand basis. This helps in gaining the maximum profit from the market. The main players of video game market are Sony with its famous play stations, Nintendo with its Nintendo Wii etc and Microsoft with X Box 360. The latest version of play stations in the market is the play station 3 which is launched in Australia, US, UK and the entire Europe. The introduction of play station 3 was the result of extensive research into the entertainment needs of the potential customers.
Initially when launched it was introduced in Europe and not in US, however US is one of the most important markets because high volumes of sales are expected in this territory (Haskins, 2007). When not launched in US it kind of de-motivated the customers in US however the company was looking at a broader picture. The European gaming community is far more less active than US thus play station 3 was first introduced in this market to see the effect on people and their adaptability to the new model.
This introductory pack was known as the starter pack which was 60 GB with backward compatibility. Play station in different countries within Europe was launched at different prices, in Ireland and UK this starter pack came with a separate in-store promotion on the 60 GB model (Haskins, 2007). The initial pricing was really high as high as $713 to $ 847 and Sony denied any decrease or discount in the price. The main reason for this high price is because the companies want to clear the shelves for any previous model of the product in market.
When a new product is introduced in the market the companies offer a discount on the previous version of the same product so as to clear the shelves. When Play station 3 was launched in US it was done using the same strategy that the product was initially priced at a high dollar amount and the price of the last version was reduced. However like the European market where the sales of play station were low, the same product was an out standing success in US, especially North America. The reason being that it is more expensive as compared to the Nintendo Wii which is one third of its price.
Sony as to gain the lost market share in Europe has to reduce the price because it did not have any other option. Thus in order to increase the market share and maintain the reputation of the organization some companies also decrease the prices of similar products in different markets. The pricing strategies also matter with the target market, the age group and the demographics that is the ratio of males and females, the number of people that adapt the technology fast and also the technology laggards in that specific group of people.
Sony’s target market consist of people between the age group of 16- 24, this age group influences the house hold technology purchases thus the play station is always priced high (Can the Wii outsell the PS2? , 2009). Another reason is the image of SONY and the perception of high quality, user friendliness and reliability related with the brand. Sony’s play station 2 also came with backward compatibility features thus was a geater success in the market. On the other hand Nintendo is targeted to a younger market.
They attracted 8 to 12 year old video game players, thus the pricing of Nintendo is always low. Microsoft however has targeted a huge market first with its collaboration with Sega and then with the launch of a separate console by the name of XBOX. High technology is the feature that has always been related to the brand image of Microsoft, thus Xbox when launched first in Northern America was a great success even though the price was high (Foundation, 2006).
The pricing strategies are also influenced by the features of the product. Play Station 2, Nintendo Wii and Xbox are all the same generation consoles. Even though the play station 2 was priced at a higher price as compared to Nintendo Wii, it was sold more than Wii, the reason being that play station 2 had backward compatibility features, and it offered a disk based system and was the first one to provide the facilities of DVD etc with its console.
The 2nd highest sales were of Microsoft Xbox because they focused on the fact that the future of this industry is online gaming (Can the Wii outsell the PS2? , 2009). Thus specific to a gaming industry the things that matter the most in developing the pricing strategy include the features of the product because the technology is advancing at the speed of light and customers always want the latest. The second thing that impacts the pricing strategy includes the brand name and the perception in the minds of the people (Foundation, 2006).
The product in different markets can be priced at different prices; the reason for this is that the company needs to maintain the market share that is specific to every market. The last important factor that these major companies Sony, Nintendo and Microsoft consider is the demographics of the target market because this determines the sales volume and the marginal profit and revenue of the organization.
1. Can the Wii outsell the PS2? (2009, January 18).Retrieved February 20, 2009, from http://www. thegameraccess. com/2009/02/can-the-wii-outsell-the-ps2/ 2. Foundation, E. M. (2006). Competitors’ Pricing Strategies. Retrieved February 20, 2009, from http://www. entrepreneurship. org/uploadedfiles/Documents/Pricing_Strategies. pdf 3. Haskins, W. (2007, May 10). Sony Further Tangles PS3 Pricing Strategy. Retrieved February 21, 2009, from TechNewsWorld: http://www. technewsworld. com/story/59691. html? wlc=1235120316&wlc=1235227786&wlc=1235235675