Microsoft's Chris Lewis
On lowering and raising 360 prices, and the importance of aggressive pricing in the run up to Christmas
After the rumours and speculation, Microsoft has today announced a lowering of the Xbox 360 Elite price worldwide, to GBP 199 / USD 299 / EUR 249. As well as phasing out the Premium unit, in Europe the Arcade price has actually risen to GBP 159.
Speaking to GamesIndustry.biz, Microsoft's vice president of Interactive Entertainment Business in Europe, Chris Lewis, talks through the thinking behind the changes, reveals that there are more hardware bundles due before Christmas, and discusses why it's important for Microsoft to continue to lead the market with hardware pricing.
Q: Firstly, you now have two console SKUs on the market rather than three? What's the reasoning behind dropping the Premium console?
Chris Lewis: We felt that the time is right and there's been a demand to clarify our SKUs and our offerings to the consumers. We continue to offer an entry console in the Arcade unit and, now we've lowered the price of the Xbox 360 Elite, we're confident we're offering a premium gaming experience at a very competitive price.
Q: Why drop the HDMI cable from the Elite - doesn't that undermine the idea of the Elite as the superior gaming and entertainment console?
Chris Lewis: We wanted to get the Elite pricing to a figure that is acceptable for consumers so they have the option of a premium console gaming experience. Removing the HMDI cable gives the flexibility to consumers who can then decide which type of cable they want for their specific gaming and TV screen set-up.
Q: You've raised the price of the Arcade unit, is that purely due to currency fluctuations?
Chris Lewis: We're not unusual in that regard, as I'm sure you know. Other consumer products have had to realign price points in line with changes to local market conditions, let's put it that way. From our point of view we're still confident we offer the most affordable console on the market. It's still fabulous value and consumers are still flocking to the product, but we do have to offset exchange rate fluctuations that have been impactful. And the UK has been one of the most impactful, in terms of Sterling, and that is now reflected in the changes that we've made here in the UK and across Europe.
Q: So there's no added value you're going to add to the basic Arcade unit?
Chris Lewis: The product is still our entry point and it still offers a great experience straight out of the box. You still get a great Xbox 360 experience. I think what we've learnt over the years is that it's important for us to be able to offer great value and an entry point, particularly in continental and southern Europe, where we needed to have a more aggressive entry point than perhaps we had in previous years. We learnt through the first version of Xbox that it's important to offer great value, but price alone does not always satisfy a consumer's appetitive; you have to offer the best content, the best services, the best platform, and you've got to back that up with a marketing campaign that works under local marketing conditions. The texture of Europe means that we have to be very clear and targeted about what we offer there. All of which, I'm pretty confident, that we're now in a great position. We've got well in excess of 9 million installed across the region and a great head of steam as we head into Christmas with all of the content that we announced at E3 and beyond.
Q: So you don't think it was a mistake dropping the Arcade price so low, and giving the impression that this was a cheaper, inferior 360 offering?
Chris Lewis: Well, we're very happy with the results, and we placed a lot of time and rigour on this. We do a lot of consumer research and we thought it was the right thing to do at the right time. We wanted to inject more pace into the business 18 months ago. We also doubled our investment in media, we dropped our pricing twice last calendar year to get to what we thought was the right value offering across all of the SKUs at that time whilst putting in a high-level investment in marketing and people and the organisation to get us into the leadership position we now enjoy. We've got no tolerance to see that performance drop. Which is why we've aligned the prices in the way that we have today, and that's also why you've seen the content and partnership announcement that we've made already, and will make in the future over time. The time is appropriate, we've got a good head of steam now and I'm very confident we'll have a fabulous Christmas.
Q: With the Arcade increased in price, and the only console option with hard-drive is the GBP 199 Elite rather than the cheaper Premium model, haven't you effectively increased the price and created a higher barrier to entry for new Xbox consumers? It's more expensive tomorrow than it is today.
Chris Lewis: I don't see it that way. The way to see it now is that we're trying to make the premium Xbox 360 experience even more affordable for people. We're giving access to the Xbox 360 Elite. Research clearly shows this, when you reach these magic price points that are very important in the consumer marketplace, when you reach EUR 249 / GBP 199 you do open up much more volume and accessibility. We're excited to offer that premium Elite product at that price. From our point of view we've rationalised and clarified the SKU line-up and made the premium experience even more affordable for people.
Q: Between now and Christmas, can we expect any alternative SKUs for the console – changes in hard-drive configuration, different colours etcetera?
Chris Lewis: There will be bundles available. We'll have different content in the market that will be exciting to our consumers to both the hardcore and the broader consumer - as you know we are very keen to develop offerings in the market whether they are bundles or specific content, and we'll encourage retail, as they always do very professionally, to differentiate themselves on the High Street with different offerings themselves. Looking across to the portfolio of what's going to be available for Christmas, I think we've got a really nice mix this year, it's going to be clear to the consumer, they're going to feel that they are getting better value and some of the content out there is going to be really ground breaking. I don't have any specific announcements to add to that, but there will be lots coming and we're certainly not resting on our laurels in any way, shape or form.
Q: Was this price cut a direct reaction to Sony's price cut announcements last week?
Chris Lewis: As we've said before, we have our own rhythm that we march to and that's not going to change. The timing was very deliberate, these things take considerable time to plan, and for that reason I'm sure you'll appreciate this is very much part of the strategy that was planned some time ago. We think it's very appropriate anyway, we've always said we'd offer great value and be competitive, we're still EUR 50 or better in price than our nearest competition, and we'll focus on creating great value as well as fabulous services and content for consumers. This is part and parcel of the plan. Last year you saw us aggressively impact our pricing content, the NXE announcements and all the other things – this is part and parcel of a series of developments for the life of the Xbox 360.
Q: How significantly do you expect the price cut to improve sales between now and Christmas? Do you have a percentage or unit increase target?
Chris Lewis: We don't specify what that is. We know that when we get to price points that are logical and sweet – and EUR 249 / GBP 199 is certainly one of those – we know that we see exponential growth rates. The holiday phase will give us seasonal growth of course, but we have a very bullish plan this year, we have bullish plans every year. Our appetite to continue to win, and to hold our lead and grow our lead over the competition is very central to what we have planned in and budgeted in for the year. I can't be specific about what those percentages are, but rest assured they're pretty aggressive.
Chris Lewis is vice president of the Interactive Entertainment Business for Microsoft Europe. Interview by Matt Martin.