Talking Point: Nintendo Makes Bold Move with the 3DS

3DS price cut an act of genius, or madness?

OK, deep breaths everyone. In its co-ordinated worldwide press releases on 28th July, Nintendo made a truly unexpected move. Some analysts were anticipating a potential 3DS price drop in the run up to the all-important holiday season, but the sheer scale of the reduction has caught many off guard. With the recommended retail price dropping to $169.99 in the US, as well as a speculated price of £150-£160 in the UK, Nintendo has dropped the trade price by roughly a third. That’s a significant change, so we thought we’d try and look at the various issues at hand and what they could mean for the 3DS. If you want the bare facts as they develop, don’t forget to check out our Nintendo 3DS Ambassador and eShop FAQ.

Why has Nintendo done this?

There is one obvious reason: money. The announcement coincided with the confirmation of financial losses in the last quarter. For a company accustomed to enjoying mammoth profits in the last five years, this will have been difficult to swallow. Officially, some blame was placed on costs of 3DS advertising and Wii U research and development; unofficially, it's clear that disappointing 3DS sales have been a contributing factor. Just 700,000 3DS consoles were sold between April and June, a truly terrible figure.

Beyond the disappointing commercial performance, this could be seen as a reaction to the market in which Nintendo finds itself. In the dedicated handheld gaming sphere, the PlayStation Vita looms large on the horizon. With powerful PS3-style graphics and some interesting features, it's a device attracting a lot of buzz. In addition, Nintendo may be facing up to the challenge of smartphones and tablets; the casual market in particular is being drawn in by iOS and Android games. By introducing a price point not far off the retail price of the DSi XL, Nintendo is clearly making the case that, like the older DS devices, this is a reasonably priced entertainment system.

Putting all its chips on the table

One thing is abundantly clear: this decision is a gamble. On the one hand, this price drop takes the fight to Sony, Apple and Android. At E3 2011, Sony made a big deal of its price point matching that of the 3DS; Nintendo has pre-empted that move in a surprisingly aggressive way. It has been speculated that Sony may be swallowing losses on each Vita device at their current price point; if true, it seems unlikely that they’ll be able to match $169.99. It's certainly bold, but it's up to individuals whether this is a show of commercial chutzpah or fear-induced panic.

The positive spin is that Nintendo is showing some muscle. Launch didn’t go to plan? No sweat, we can live with slashing the price. Only a company with a lot of cash can use these kinds of tactics, and Nintendo is demonstrating that it's in the game to win it. Not only is the 3DS going to be significantly less expensive than the Vita, it's enjoying a four-month head start at this price point. In addition, Super Mario 3D Land and Mario Kart 7 are both confirmed for release during the crucial holiday shopping season. These are both blockbuster franchises and may go a long way to persuading parents to include a 3DS in their kiddy-wink’s Christmas stockings. As mentioned earlier, the price is almost on a par with current DSi XL prices, so the sales bump could potentially be impressive.

From a financial standpoint there are sources, such as Bloomberg in Japan, stating that Nintendo will now make a loss on each sale of the device. It's interesting to consider this against the backdrop of estimated costs of production. Prior to the price drop, it was speculated that Nintendo was enjoying positive profit margins on each sale. We’re not talking about whether retailers made a profit — they rarely do on hardware — but the money that Nintendo received in trade sales. A speculative breakdown of the 3DS build costs (via Eurogamer) established an estimated cost of around £61.76. Sources suggested that the original trade price was around £170, though a reduction of about a third would bring that down to around £114; these are rough figures. Even considering Nintendo’s 3DS costs for marketing, R&D, packaging and labour, it was a reasonable assumption that they were receiving a profit from the original trade price. The price drop does change that, but considering the estimated base cost and the profits that the company has enjoyed in recent years, we would suggest that Nintendo can swallow the costs in the interests of building the 3DS user base.

The negative sides of this price-drop argument are just as numerous, however. As suggested earlier, some are interpreting these moves as an act of panic, a sign that Nintendo is choking under the pressure of a poor launch. While consumers could see the price drop and buy the device in droves, it's also possible that trust in the product will be shaken, causing buyers to stay away. It also reflects poorly on the original recommended retail price of $250, or around £230 in the UK. Was Nintendo greedy and arrogant with this pricing, taking advantage of early adopters? The fact that so many retailers immediately went below £200 in the UK suggested that they also had concerns about this pricing.

It's these early adopters that are potentially the biggest concern for Nintendo. Although many early buyers will have sniffed out good deals on launch, there will be those who paid well over £200. These consumers may feel hard done by, a fact acknowledged by Nintendo of Europe in an apologetic press release. Acknowledging the scale of the price drop, the statement admits that this may “cause you, the loyal fans who supported Nintendo 3DS from the beginning, to lose trust in us, and this is not our intention in any way.” The statement goes on to “express our gratitude to our special customers like you”; it is rare for Nintendo to be quite so humble in its language.

Is the 3DS Ambassador Programme enough?

In an attempt to offset the disappointment of those who’ve already bought into the 3DS experience, Nintendo is offering 20 free downloadable titles in the coming months. Devices registered before 12th August will receive 10 NES and 10 Game Boy Advance titles at no cost. There are some juicy titles being offered, especially from the previously unavailable Game Boy Advance titles, though some gamers with a Wii may already have some of the NES downloads. While the NES releases will eventually be available for purchase to new owners, there is uncertainty over whether the GBA titles will follow, or whether these will be genuine exclusives for ambassadors.

Early reaction to the offer seems mixed. On the one hand it seems like a fair reward with a decent market value (at eShop prices), especially for gamers who’ve already had some months of enjoying the 3DS. The counter-argument is that early adopters are being bought off with old games and no choice in what those gifted titles are, many of which may already be owned. This scheme simply won’t please everyone, but short of giving existing owners cash – which won’t happen – Nintendo may argue that it is a reasonable gift for customer loyalty.

What do you think?

There are a lot of issues around this price drop and we haven’t covered them all. We want to hear what you think:

Existing 3DS owners - Is the ambassador programme offer enough to appease you? Do you feel your early purchase has been worth it so far?
Potential 3DS owners - Does this price change affect your decision on whether to purchase a 3DS? Is this strategy winning you over?

Let us know what you think in the comments below.

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