Price Elasticity Smacks Sony, Blu-Ray, Playstation
You'd think that if a company got rid of the competing technology, it would be able to gain market share. Not so for Sony. Market share for Blu-ray discs have actually fallen since HD DVD was taken off the market. Grabbing market share is regular DVDs, according to Nielsen VideoScan.
When you look at the dynamics, it's hardly surprising. In the consumer electronic space, it's hard enough to get people to pay a premium when times seem good. And yet Sony, whether competing against no one in high definition movies or against Microsoft and Nintendo in the game console market, seems to insist on ignoring price elasticity. The company may be winning the margin battle, but its losing the market war.
Historically, Sony has liked to have a premium pricing strategy. There have been times that their products were so in demand that they could. But times, and consumers, have changed. They know that prices eventually come down and are less willing to shell out for what they know they can get cheaper. I'm not talking about the gotta-have-it early adopters. I mean the average citizen.
Why else would Microsoft have dropped price on Xbox 360 models? Because they decided that there was some significant price elasticity in the game console market, and that they couldn't keep their prices up and win. Sony did drop its price on a 60GB Playstation 3 down to $499:
Our initial expectation is that sales should double at a minimum," Jack Tretton, chief executive of Sony Computer Entertainment America, said in an interview [at the time]. "We've gotten our production issues behind us on the PlayStation 3, reaching a position to pass on the savings to consumers, and our attitude is the sooner the better."How generous.
People have become savvy to the pricing strategies that vendors use, whether of the "we have to raise prices for the new format that we know you want" argument or the "we're not selling any more at the higher prices, so maybe we'd better drop them a bit" strategy. And there's generally another choice on the market. (Ironically, even in late 2007, Playstation 2 was outselling Playstation 3.)
When there is no perceived real competitor, as was true with the iPhone, consumer electronics companies can't keep the prices soaring for long. Apple found itself dropping the iPhone price by $200 just months after the product came out.
Still Sony forges on, sure that its name means that people will spend more. Blu-ray has become a blunder by a company and an industry. It was as though Sony wanted to make up for losing control of the video recording market back in the Betamax and VHS wars. But it was clear that Blu-ray was all about the vendors, with increased choices of digital rights management. The extra recording space? Clearly they aren't going to give things away any more than they have on DVDs. Blu-ray equipment cost far more than that for HD DVD, and once again people are essentially being asked to repurchase entertainment they've previously bought. Adoption remains low, which keeps prices up, which keep pushing consumers away.
The difference between the change from records to CDs and the switch from DVDs to Blu-ray is that people can now download media, and that's an option that Sony can't make go away. Heck, the content side of the company can't afford to ignore users that want to download content either. Maybe Sony will eventually drop Blu-ray prices, but by then it may be too late. This is not a company swimming in profit. In its 2008 annual report, reported net profits were under 4.2 percent. That's almost down in the profitability territory of resellers. Of course that might explain the drive for premium prices. If the company makes that little profit when they charge a lot, what color would the ink be if prices were more competitive?
Blu-ray player image courtesy Sony Corp.