Nintendo trade-in threatens price war

Nintendo’s latest tactics to boost slaes of the N64 and attack PlayStation’s share look likely to trigger a price war in the video games market. Marketing-led strategies are under threat from a price cutting spiral.

Nintendo is preparing to return to a sales technique which the computer games industry has shunned for over ten years. It has launched a direct attack on its main rival Sony and its PlayStation.

Industry sources believe the Japanese-based company, which last week announced a further 100 price cut for its N64 games machine, is planning to offer 25 in cash plus two free games to players willing to trade in their PlayStation for an N64.

A source at Nintendo admits the scheme has been discussed and says any trade-in would be handled through specialists Electronics Boutique, rather than other high street electrical retailers.

The scheme is a direct move to take some of the estimated 1 million PlayStations in circulation – sold in the UK since its launch in 1995 – out of the market. In contrast, Sega has sold about 400,000 machines, even though it was launched six months earlier than Sony’s console. Nintendo has sold 70,000 N64s since it was launched last March.

“Sony will fight this tooth and nail,” says one observer. “Ever since it lost out on the Betamax video war, the company took a decision never to be beaten in an industry war. If it decides to back a standard it will back it with everything it has.” But it is unclear how it will counter attack as the industry moves away from being marketing-led to pricing-led.

Nintendo, still arguably the strongest brand name in the industry, slashed the price of the N64 from 249 to 149 last week. And while the console is seen by many as the most sophisticated in the market, there are only 12 games compatible with the machine, while the Sega Saturn and PlayStation have a combined total of over 100 titles.

The Saturn is priced at 169 but comes with two free games, while the PlayStation, priced at 299 12 months ago, now costs 129. Observers expect the price of either, or both, the N64 and the Play Station to hit 99 before the end of the year. They see the price cuts, and now the trade-in scheme, as a return to the marketing and pricing battles, then between Sega and

Nintendo, that characterised the industry in the late Eighties. But the industry has changed and the manufacturers must be getting close to a point where the machines are being sold for less than they cost to manufacture.

In truth, the rivals are fighting over a declining market. In 1992 the total console market was worth 348m, according to Mintel. But because of the growth in the PC market and competition from other youth leisure activities, its value almost halved last year to 176m.

One senior executive of a major software publishing house says: “From now until Christmas its going to be war between Nintendo and Sony. Prices will come down again and there will be a range of promotions. Sega has been left out in the cold in this race. It is not selling enough units to compete.”

Not surprisingly Geoff Glendenning, head of marketing for Sony PlayStation, claims he is not worried by the move.

“Early research shows people are beginning to bring back their N64s because they simply can’t get enough games,” says Glendenning. “They have played the machine for only a few weeks and are already getting bored. If Nintendo introduces that (the trade-in scheme), I think it will backfire.

“We never saw Sega as a real force. However, we welcome the arrival of Nintendo. It’s time we had some competition to help build the market. We have injected an attitude into our machine by marketing it to an older audience as a lifestyle accessory.”

The average age of Sega and Nintendo buyers is early teens, while Glendenning claims an average age of 23 for the PlayStation.

However, a spokesman for a rival console manufacturer says: “The street credibility of a machine accounts for a lot less now. The market is price-led not marketing-led. That is evident from the way Sony has cut the price of its machine three times in the past year.”

The frequent and savage cuts in console pricing means the manufacturers are reaching a point where they are making their profits from the percentage they take from the third-party publishers developing the games.

Officially Sony, Sega, and Nintendo say they can offer these cuts because they can pass on economies of scale as the machines become more successful. In addition, both Sony and Sega are known to be hard at work on successors to the current 32-bit powered PlayStation and Saturn, in order to supersede Nintendo’s machine.

Industry speculation expects Sega to have consoles ready for this autumn’s E3 conference in the US. But Sony’s machine is not expected to be ready until later next year. Neither company will comment on the release dates of their new consoles.

Privately, executives at Sony say any new machine must be able to run games that were originally designed for older generation consoles. The N64 cannot run games from older machines. The battle between Nintendo and Sony is likely to be fought right up until Christmas when it should become clear who has emerged with the lion’s share of sales.

Sega, for the moment, seems to have taken itself out of the race. The company says it is happy with its sales, but they lag behind the other players’. Observers also point to the way it has diversified in Europe over the past 18 months into theme parks, and pub slot machines.

The battle will be between Sony and its big pockets and Nintendo’s highly regarded industry name and its advanced machine. If Nintendo’s expected trade-in takes off, Sony will have to retaliate to bring prices down even further. Effectively a return to the days, before marketing and branding, when the industry stacked things high and sold them cheap.

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