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Posted by Nomad on 01/19/07 05:46
Aaron J. Bossig wrote:
> getrich@1upandup.com wrote in
> news:1169165483.934864.286800@v45g2000cwv.googlegroups.com:
>
>>> Rich, that's based on retail. Microsoft doesn't make money off the
>>> retail price, their money is made off of the price at which they
>>> sell it to the retailer or the wholesale price. It's possible they
>>> are close to breaking even on the console with games putting them
>>> in the profit column.
>>>
>
> Retailers don't make much profit on video game hardware, so the
> sticker price you see for any given console is probably going
> directly back to the manufacturer. Like anyone else, they make their
> money on the games and accessories.
>
> So, comparing the retail price to what MS claims is the production
> cost is, actually, a very fair analysis. The only other factor is
> the shipping cost from the factory to the retailer.
True, retailers don't make much profit on video game hardware but that
doesn't mean they don't make ANY profit, especially major chains such as
Best Buy.
First, with regard to the cost of the console, the quoted figures only take
into account the direct cost of components. I don't recall if they also
took into account the cost of assembly or the cost Microsoft is paying the
assembly plant.
Second, shipping is not the only other factor. There's R&D which is usually
amortized over the lifespan of the product, overhead and burden (the part of
Microsoft's cost of doing business they attibute to the console not to
mention all those directly employed in the console unit), marketing and
advertising including the dollars they have to give major chains for
promotional consideration (appearing in Sunday circulars, space for floor
demo units, appearing in a chain store's TV and radio ads,etc.) and whatever
else they must apportion for support and warranty repairs.
Throw in all of that and you eat up that $75.70 real fast. The difference
between $399 and $323.30 would be about a 19% markup. Best Buy is probably
marking around 5% gross profit on each console sold, about $20 a unit. No
retailer, certainly not a major chain will sell a console at no profit and
figure they are going to make it up on game sales. First, they don't have
to. Microsoft and Sony for that matter, need the major chains in order to
get mass distritution. Second, just as the console has a cost to Microsoft,
that same console, has a cost to the chain which goes well beyond what they
pay for it. In addition to cost of space in their warehouse, they have all
kinds of other overhead costs, including but not limited too, the cost of
all the people who handle or otherwise deal with the console, the sales
clerk in the department, the head of the department, the guy on the loading
dock, every single person in a given store who touches that console, has a
cost not only to the store but the entire chain and the chainstore has all
of its overhead as well going right up to top management.
Gillette may be able to sell their razor at a loss in order to sell razor
blades but do you have any idea how much money they have to spend with a
retailer to get the retailer to push and position not only their razors but
the blades and I assure you, those stores make a profit on every razor sold.
--
Nomad
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