Why is Microsoft dropping the Xbox 360 price so fast?

The Xbox 360 is on track to have 2 million sales in the UK by next week, according to industry number crunchers at Chart-Track, as Microsoft continues its Baked Beans strategy of slashing the price in quick succession.

Microsoft’s 360 strategy has become more than apparent since the most basic model, the Arcade rejig of the old basic package, is being sold for less than the Nintendo Wii ; one of the main selling points of which had been its low cost for mass appeal.

Microsoft announced a series of price cuts in the run up to Easter, putting the cheapest 360 models RRP to £199.99, with the top-end Elite model going for £259.99, and the move seems to have paid off with an increase in sales – 40 percent in the first week after the price cut was announced, though this naturally tapered off the following week, only to increase again over Easter.

The strategy puts the Xbox 360 firmly in the mass-appeal end of the market. Where once Microsoft had touted the console as a next-gen, extremely premium product with plenty of high-end nifty features, from the hard drive and graphics through to the online play ; now the console is battling in under the £200 wire, a price-point that traditionally sees a console break open new swathes of the market.

The PlayStation 2 had a renaissance in sales when it sneaked in under the barrier, and it is an ongoing example that low-low prices still shift a lot of hardware – the now extremely low-priced PS2 was one of the surprise strongest sellers over the Easter period, having already put in a strong performance over Christmas.

The 360, despite having been launched in 2005, has seen the likes of the PlayStation 3 – a year old on the UK market in March – catch up quite quickly. The PS3 reached the 1 million milestone in February, in less time than the PS2, which took 50 weeks to sell 1 million units. The Xbox 360 in contrast took 60 weeks to sell 1 million units, and is only now reaching the 2 million mark whilst the momentum of the PS3 is propelling it to catch up quite quickly.

The ace in Microsoft’s deck used to be that it brought the 360, which we must remember is only the second generation console from Microsoft taking on the previously completely undisputed champion, to market a good while before Sony ; cannibalising market share by sheer virtue of being on the market. Now that the PS3 is proving quite successful in its first year (though still not as successful as Sony would like), Microsoft is slashing the price of the 360 aggressively.

This will, Microsoft hopes, not without some merit, give the 360 some more momentum, opening the console to new consumers with a lower pain threshold than previous price points invokes, convincing them that the 360 is the far better option to the PS3. The effort is also aimed at cutting into Nintendo in a way the console had not been able to previously, through a two-pronged price and marketing effort.

It is no mistake that the lowest-end model of the 360 has been rebranded the “Arcade” edition, invoking family friendly visions to compete with the established Wii reputation as a console for all. Price and the perception of a mass family friendly appeal will sell more consoles than all the hardcore, high-end credentials in the world ; a position that Microsoft and others can thank Nintendo for creating in the past few years between the DS, Wii and a host of cute, intelligent, and different games.

So, Microsoft will hit 2 million Xbox 360’s in the next week. It has, with the introduction of the high-priced PS3 and low-priced Wii into its once lonely position as the next-gen console on the market, decided to go the route of tapping into the vast fields of low-price, mass-appeal consumers ; rather than try to play an expensive game with Sony, where the marketing battle to attract just one high-end gamer costs a lot more than it does to slash the price of a unit by £50 and make soothing noises at the masses willing to pay £200, but not £210, for their console.