Rafi Mohammed, author of the book “The Art of Pricing” spoke in a new Bloomberg TV segment about Microsoft’s Xbox One and its current price point.
According to Mohammed–who has studied pricing issues for 21 years–Microsoft made the right choice when they decided to abandon their DRM policies, but he believes the Xbox One’s premium price could “derail” the system this holiday.
Mohammed said that the fact that every Xbox One comes with a Kinect 2.0 is a benefit over the PS4 (which undercuts Microsoft’s Xbox by $100 but users must pay $60 for the peripherals) but he believes Microsoft should decrease the Xbox One’s price point by making Kinect an accessory; However, Microsoft has stated that the Kinect is built into the system as an integral part of the Xbox and must be connected at all times for the console to work properly.
“You want to get that console in consumers’ hands, and then where you really make the money is off of the games, So it was really surprising that they charged such a premium, especially when they had a lot of negatives…like the very restrictive DRM, which they did retract on.”
“One of the key things is that they really listened to their consumers and they did backtrack and they reduced the price, but I still think the price is too high,” he added. “So it’s still a $100 premium.”
According to Wedbush Securities analyst Michael Pachter ISPs have incentives to subsidize the Xbox One in the same way that mobile carriers subsidize smartphone purchases which would allow Microsoft to offer a subsidized version of the Xbox One for a lower price in exchange for a $60 monthly broadband commitment for two years.
Microsoft has stated that it won’t modify the Xbox One’s price point and Don Mattrick defended their pricing strategy by arguing that they are “over-delivering value.”
As I’ve said before, both the PS4 and the Xbox One are top-notch devices; therefore, I believe that it’ll all come down to non-price competition and that means that they will try to distinguish their products on the basis of attributes like quality of service, extensive distribution and consumer focus; however, pricing and content will always be crucial during the transition period.
