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Complementary Products Pricing: A Lesson from Video Games

Posted by PriceBeam on April 13, 2017
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You have probably heard of Sony's PlayStation or Microsoft's XBOX. And whether you're into video games or not, there's a good reason for you to pay attention to these products: they are teaching us a very valuable lesson on complementary products pricing!

The first Sony PlayStation was launched in the US in 1995. Since then, Sony has launched a new version roughly every 6 years, the PS4 being in 2013. Obviously, there goes a lot of development into a video game console, and these consoles are quite robust, too. There are not much repeat sales, so the most loyal customers will effectively only have owned 4 Sony PlayStations. To recoup the enormous development costs that go into each new model, one would think that the price of these consoles would be incredibly high: after all, even the most loyal customers will only buy the new model once. However, these consoles are, in fact, ridiculously cheap. You can get the latest, state-of-the-art PlayStation 4 at merely $250.

Of course, this is partially due to the intense competition with Microsoft's XBOX. But more so, it has to do with all the complementary goods the winner of this price competition gets to sell. Video Games, Game Controllers, Online Membership Access, and lately also gadgets such as Virtual Reality Goggles and "Gamer Chairs". 
And as you may have guessed, these complementary products are incredibly expensive (the virtual reality goggles cost twice the price of the PS4), and these items don't last for 6 years. Many video games are updated yearly (Think sport games such as Fifa, Madden, NBA and NHL), those game controllers break, and while your virtual reality goggles may last for a few years, I am sure someone can come up with a new gadget that is so insanely cool that you just must own it. And all this go straight into Sony's pocket either directly or via partnership fees.

The lesson here is: If you sell goods which have such complements, you should sell the basis good with relatively low margins, and then cash in on selling additional, high-margin complementary goods. Note the word relatively: You know what has even higher margins than Apple's high-margin iPhone? The charging cables and headphones. But Apple's brand wouldn't benefit from using the same, razor-thin margins that Microsoft and Sony do.

Written by PriceBeam

PriceBeam
PriceBeam posts regular guides, articles and news related to pricing and strategy. Go have a look!