Sony Strikes Back! Aggressive New PSP Price Cut

Written By: E. Thomas

August 16th, 2011

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Just a few weeks ago we told you about Nintendo and their secret 3DS price drop strategy. [*source] Well Sony isn't taking the news lying down. The company has its own plans, and if they are successful they could ruin the Holiday Season for Nintendo... well at least in Europe. Sony has announced a new model PSP, and along with it an aggressive hardware price cut. Unfortunately the new model and the price cut are only scheduled for Europe, at least for now. However if Sony extends this plan to all global territories their primary rival Nintendo will be in serious trouble this Holiday Season.

Nintendo and the 3DS Price Drop Trap

Nintendo planned to lure their rival Sony into a financial trap by deliberately inflating the price on the 3DS, and then cutting the price just before the Holiday Season. The goal was to lead Sony into selling the PS Vita at a lower than expected price. (Nintendo also aggressively cashed in on their own loyal fanbase.) Sony always sells hardware at a loss and Nintendo knows it. Nintendo simply wants to help Sony dig themselves into a hole. Sure enough, it seems the plan worked. PS Vita is set to launch at the amazingly low price of $250. Unfortunately this price includes a major financial loss on hardware, roughly $70 per unit. [*source] And company head Kaz Hirai has already stated it will take 3 years before PS Vita shows a profit. [*source]

Sony Responds to the 3DS Price Drop

Sony has responded to the 3DS price drop with a price drop of their own. Sony has announced plans for a new model PSP.(shown above) This model will exclude the Wi-fi feature and it will cost only a meager 99 Euros. The exclusion of the wi-fi feature, along with other hardware reductions, obviously helped Sony to lower their price.

While some may question this move I personally think its a brilliant strategy. Currently the Nintendo DSi sells for roughly 130 Euros. And the Nintendo 3DS sells for 170 Euros. This gives Sony a major pricing advantage. And although cynics will be quick to point out that the PSP trails the DS in total hardware sales, this move will definitely help Sony stop potential customers from buying a DS or a 3DS. The price alone will motivate consumers, and so will the quality of the product.

The Value of PSP: Last Gen VS New Gen

One of the factors that truly works in Sony's favor is the extremely high quality of certain PSP games. When you compare games like Metal Gear Solid: Peace Walker, or even more casual fare like Lego Star Wars III, to games on the 3DS there is very little difference in graphics. Now we all know that games are about more than just pretty graphics. (Putting aside the obvious 3D features.) However, the average consumer is a bit more shallow than the average veteran gamer. When you put the PSP and the 3DS side by side, it will be hard for uninformed consumers to see a difference between the software found on the two machines. Now I'm not saying this alone will be enough to help Sony trump the 3DS, but it will be more than enough to steal a few sales from Sony's main rival. Sony doesn't need to win this battle, just shave a few points off the game. The new PSP will also help slow down the 3DS adoption rate, which in turn will help the PS Vita when its launches worldwide sometime early next year.

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Click for Full Size Image

Nintendo Fights Nintendo

Because of this move Nintendo may be forced to drop the price on the existing DS models. The PSP price cut will definitely steal potential customers this Holiday Season. And Nintendo is already under pressure to clear the shelves of the current DS product line. They must also convince buyers to upgrade to the new Nintendo 3DS before the PS Vita hits the shelves in early 2012. Unfortunately for Nintendo this puts them in a very tricky situation. Currently the biggest competitor to the Nintendo 3DS is the Nintendo DSi/XL. If they don't drop the price on the current DS hardware line, Sony will steal consumers. If they do drop the price, then Nintendo will hurt the 3DS as many gamers will choose the older, cheaper system with the large and well established library.

Why the PSP Needs a Price Drop in North America

Unfortunately things aren't all fun and games for the Sony PSP. While the machine continues to do well in Japan, frequently outselling the Nintendo 3DS, the system has disappeared from North American sales charts for the past 5 months straight. [*source 1][2][3][4][5] Well, at least on the charts leaked to the general public.

The absence of PSP hardware sales for the past 5 months seems a bit suspicious. Especially when you consider the only other time we saw something like this was in October of 2005. The PSP was going against the original DS, and GTA: Liberty City battled against Nintendogs. Many people waited eagerly to see the results of this battle, feeling it would be a good indicator of who was going to win the new portable war. Unfortunately when it came time for the monthly NPD sales figures, the PSP hardware numbers never arrived.

Putting all this controversy aside its clear that Sony needs to do something about PSP sales in North America. A price drop on the PSP in this region could have explosive potential, especially during the upcoming Holiday Season. And as I have stated before, a cheaper PSP will accomplish several important goals. It would steal potential customers from Nintendo, it will help slow the adoption rate of the Nintendo 3DS, and it will also help Sony clear the shelves of current PSP products before the PS Vita hits in early 2012.

Bargain Bin Games Bring Big Holiday Sales

Might I also suggest a possible strategy for Sony, just in case they decide to drop the price pf the PSP in North America. The PSP currently has a large and impressive library of outstanding games, most of which can be purchased for less than $20. Now in Europe Sony already plans to include a line of budget titles with their new 99 Euro PSP. These budget games will retail for 10 Euros. The exact same strategy would work incredibly well in the North American market. Budget system + budget games = big holiday sales!

American consumers love DVD dump bins. They can be found in almost every store. Why not offer PSP dump bins? And fill them with cheap games and UMD movies? Now I know some people will scoff when they hear me mention UMD Movies, however I've been finding them at my local dollar store. And people frequently buy these titles. During the Holiday Season, gift giving is about those little extras. A person giving someone a PSP as a gift could also include a couple of games and a few UMD movies. A package like that certainly would look nice sitting under the Christmas tree.

In Conclusion...

While some may be confused by Sony's portable strategy, I personally think they are doing everything right. This price drop will definitely help Sony to remain aggressive in the portable market, while paving the way for greater success with the upcoming PlayStation Vita. Retailers will love Sony's new portable strategy, and so will consumers. And in the end, its us, the consumer, who is the real winner in this heated portable gaming war.

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Pictured Above: Just a small sample of my PSP collection

About The Author:  E.Thomas is our market analyst and our resident portable gaming fanatic. He can usually be found wandering the streets of Hollywood, CA extolling the virtues of portable gaming. Some people might refer to him as the "portable gaming evangelist."