Sony Playstation 3: The marketing game for launch

[Sony's Playstation 3 conceptual designs shown at the 2006 Consumer Electronics Show]



Sony stock has been hammered lately, largely in response to a Merrill Lynch report (PDF format) claiming that the Playstation 3 will be priced at nearly $900 because of expensive processors and Blu-ray disks, and delayed until late 2006 or early 2007. Some of this concern comes from the fact that the Playstation 3 was not shown at the Taipei Game Show. The reasoning seems to go, "If Sony doesn't demonstrate working hardware at a gaming show, something must be wrong."

My view: too many people are getting hung up on the technology behind the console and the bits and bytes around that while ignoring the bigger picture. Let's use a marketing lens to view the few facts we have and see if this all still makes sense.

1. Set prices to maximize sales and profits. Merrill Lynch's analysis puts the cost of goods for the PS3 at $900, and still at $320 after three years. But these numbers are estimated costs, not prices. Merrill's estimate of processor cost is quite out of line with processor costs IBM charged both Apple and Microsoft for similar PowerPC chips. Sony also has its own Cell chip and Blu-Ray manufacturing facilities that it can use to manage costs. And finally, Sony may set prices based upon its target market ability to pay rather than its costs to guarantee a successful launch. The bottom line: no one should be interpreting those costs as being anything but influencers, not drivers, of the final price of PS3.


2. Launch when the market, not the product, is ready.Sony itself says it is preparing for a Spring/Summer launch in Japan. But how interested is the consumer in a video game console launch in Spring or Summer? My bet: the Spring/Summer launch is intended to allow the company to work out the bugs while demand is still relatively weak, while building up to a bigger fall production run.


3. Never prelaunch a product before you launch it. Everyone is moaning about how Sony hasn't demonstrated any units nor leaked significant information about the machine. As I noted last week, this is a smart marketing strategy. Leaking information only dilutes the power of the final product launch and does nothing to actually satisfy consumers. Withholding information, on the other hand, builds buzz and word-of-mouth interest. Think of the power Apple gets from all the secrecy around its products. Sony is doing the same thing.

Don't expect Sony's going to play a technology game with PS3 just because it is competing with technology-focused Microsoft. Sony is a marketing company. It sells as much style and excitement as it does electronics. Sony's brand has historically commanded premium prices because of Sony's savvy marketing. That game isn't going to change, even with a next-generation gaming console.

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