Marketing Strategies: PS4 is a Loss Leader in the new Console War

The launch of Sony's PS4 alongside Microsoft's XBox One signals the beginning of a highly intense competitive battle in the games console market. With both the new consoles being launched in time for the crucial Christmas sales period, pricing strategy is crucial in order to gain maximum market share. In the US, Sony has priced the PS4 at $399 (retail). Of course that is the retail price. Distributors will be wanting to make their margin on each unit sold. So how much does it cost Sony to make a new PS4?

This video take a look at the individual component and assembly costs of a PS4. The experts involved estimate that the unit cost of a PS4 is $332 which comprises:

• Processor: $121
• Memory: $64
• Hard drive: $23
• Blu-ray drive $20
• Power management & audio controls: $16
• WiFi chip: $8
• Other components & assembly: $80

The unit cost of $332 does not include packaging or the dual-shock controller which ships with the console. Allowing for a retailer's margin or mark-up, that suggests that Sony is pricing the PS4 at substantially below the variable cost of the console. This is a classic example of a loss-leader. Sony is aiming to grab maximum market share in terms of console units sold, making its main revenues from games licensing and other add-ons.