BUSINESS SUMMATIVE

SONY

PLAY STATION 3

To what extent did Sony use the price skimming strategy to appeal to a wider range of

audience to maximise its revenue through PS3 (2006-2009) in the USA?

Relevance of the Research Question

This research question is relevant in today’s world primarily because it discusses Sony’s use of

price skimming strategy and its impact on their performance. Evaluating their extent of success

can provide a detailed response to whether price-skimming strategy is effective and the stage of

the product life cycle it should be applied in (Introduction, Growth, Maturity or Decline).

Defining the pricing element of the marketing mix

According to Indeed (Indeed, 2023), the pricing element is the amount a customer pays for the

product. It also refers to the extent they can go to acquire the product. For a business, the pricing

element is different strategies they can use to convince the audience and maximise their profits.

Background on Sony’s PlayStation

Sony’s PlayStation was released in 1994 by Sony Computer Entertainment. This was a 32-bit

console which announced Sony’s rise in the video-game industry. PS3 was released on

November 17 2006 in the USA.

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Features of PS3

PS3 had 3D stereoscopic gaming which was the first of its kind, it had Play Station Eye and

Move, which were interactive features. All of these unique features created a positive brand pre-

release. It stood out in the market because the CPU power was very strong as compared to X

360. X360 had a CPU cell power of 3.2Ghz, whereas PS3 had a power of 4Ghz, which is a huge

difference.

Success of first play station

Figure 1
Image Source: Tweak Town (2022)

According to this graph as of Q2 in FY2022, the first play station had sold 102.4 million units

out of the 579.1 total million units, which was a 20.24% sales of the total units sold, highlighting

its success.

Why is a valid pricing strategy important for Sony’s PlayStation?

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Based on the above graph, it is pretty evident that there is a constant hype created for PlayStation

consoles. Its first unit itself sold 20.24% of its total units, which highlights the demand for the

product. PS5 itself sold 25 million units under 1 and a half years, which highlights the high

expectations the consumers have from PlayStation. This therefore makes it important for

PlayStation to use the right pricing strategy so as to maximise its profits and keep its demand

constant.

Features of price skimming strategy

According to Investopedia (Hayes, 2024), price skimming is a strategy where the business

begins with charging the highest price for a product that the consumers will pay. This usually

takes place in the introductory stage and is most effective when there are no competitors in the

market or the product is supposed to be premium-priced.

How and why did Sony use price skimming strategy for its PS3?

According to Indeed, Sony had set a high initial price launch of the PS3 at $499 for a 20GB

model and $599 for a 60GB model, which was extremely expensive then. Sony had priced it as

such because they estimated high sales due to the success of PS2, expecting a great number of

potential buyers. However, this was met with criticism because there were other competitors in

the market, such as Wii and X360. Wii costed $250 and included one game (NBC News, 2006).

The X360 Core System costed $299 and the main XBOX 360 costed $399, which led to the

consumers preferring the other consoles, leading PS3 to skim its price.
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Figure 2

Image Source: https://vgsales.fandom.com 1

As seen in the above graph, Play Station 3 had the lowest sales up to 2009.
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As seen in the below graph, the price of PS3 80GB model

decreased by an estimated amount of 50%

PRICE OF PS3 80GB MODEL

FROM AUGUST 2007 TO AUGUST
Figure 3
2009 in the USA($)
800
600
400
200
0

Data Source : https://vgsales.fandom.com/wiki/Price_cuts#PlayStation_3

Advantages of Price Skimming

1) Increase in units sold over time: One of the benefits of price skimming is that an

increase in units sold over time is noticed. This is because demand increases when price

decreases, because the consumer now has the wish and the ability to purchase the

product. As seen with PS3, after its price skimming, the software sales increased by a

huge 769% from 2006-2009.

PS3 software sales figures from 2006-2009

(Million Units)
140
115.6
120 103.7 Figure 4
100
80
57.9
60
40
13.3
20
0
2005.5 2006 2006.5 2007 2007.5 2008 2008.5 2009 2009.5

Series1 Series2

Data Source: https://vgsales.fandom.com/wiki/PlayStation_3

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2) A decent initial revenue: Since the brand perception of PS3 was high before it came out

(refer to figure 1), there were several price insensitive consumers. PS3 sold 13.3million

units in 2006. Even though it was less than its competitors, it was a decent sell-in in its

first year.

3) Adaptation to market needs: Since PS3 was not well-received in its introductory stage

(refer to figure 4), it needed to regain its production cost. They adapted to their

consumer needs, which was evident in their increasing sales over time. This means that

over-time, PS3 was starting to be well-received, where a strong base was established in

the years 2006-2009.

Disadvantages of price skimming

1) Competitors can have better sales: According to Figure 2, competitors have better

sales when a high introductory price is introduced. This is because demand and cost are

inversely proportional. In this case, Wii was priced at $249.99, and X360 was priced at

$399.99 (also refer to figure 5). This data is according to the United States (the Eagle,

2006).

PRICES OF CONSOLES IN 2006 IN THE USA ($)

600
Figure 5
500

400

300

200

100

0
PS3 Wii X360

Data Source: https://www.theeagleonline 1

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2) Lack of first impression can affect the performance of the product in the market in

relation to its competitors: This is a major disadvantage of price skimming because a

company’s performance in the market can be evaluated by analysing its performance

against their competitors. This is evident in Figure 2, where the sales of PS3 from 2006

to 2009 were lower compared to Wii and Xbox. This is because even Wii and Xbox and

used price skimming (Figure 6 and 7).

Price Cuts for Xbox from November 2005 to July Figure 6

2008 in dollars in the USA
300

250

200

150

100

50

0
Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12
May-07

May-08

May-09

May-10

May-11

May-12
Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

Feb-12

Data Source: https://vgsales.fandom.com/ 2

Wii Price Cuts in the USA from (2006-2012)

300
Figure 7
250

200

150

100

50

0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Data Source: https://vgsales.fandom.com/ 1

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3) Reduces the expected performance of the successive product: Even though the

successor is priced at a low price, the brand perception has reduced because now the

consumers think that the product has some flaws. This was evident with the PS4 where

event though it was priced at $399 (Kim, 2024), its sales were lower than that of PS2,

where it ideally should have performed better.

Overall Summary of the analysis

When the PS3 was introduced, it followed premium pricing which was not accepted by the

consumers (Refer Figure 1 and 2). Its competitors, Xbox and Wii, performed better. PS3 was a

big setback for Sony, as it did not perform as expected. The sales were the lowest among all the

consoles (Refer to Figure 1). To improve its performance, PS3 used price skimming, which did

increase its sales, but its performance was the lowest. $499 was an expensive price in 2006 for a

gaming console.

Is price skimming effective

Based on PS3’s case study, it can be said that price skimming in the introductory stage of a

product’s life cycle is the most effective when there are no competitors in the market or the

competitors have price the product in a premium way. I think that Sony did not research the

market well and was not initially adapted to consumer needs, which cost them their sales. If they

had researched their market, price skimming wouldn’t have been the effective strategy.

Penetration pricing would be because the brand perception was so high that Sony would regain

all of its production costs quickly if market research was done.

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Word Count: 1119 including description of images that describe the data in short.

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