Kmart Ad Trumpets Xbox Price Dip

A Kmart advertising circular is a strong indication that the rumors about a possible price cut for the Xbox 360 might be right. The discount chain's sales ad for the week of July 13 lists a US$299 price for the 20 GB Xbox 360. It represents a $50 decrease from the $349 Amazon.com (Nasdaq: AMZN) lists as the price for the console.

When asked to confirm the price drop, Microsoft (Nasdaq: MSFT) spokesperson Katie Abrahamson declined to do so.

However, Rob Enderle, principal analyst at the Enderle Group, told TechNewsWorld the $50 drop is not a surprise -- though it comes a bit earlier in the year than he had anticipated.

"We thought they were going to do a price cut before the back-to-school season. This is a little earlier than I think most folks figured it was going to happen, but sales for consoles are typically slow now. The Xbox is the oldest of the three [current generation consoles]. With Nintendo ramping reasonably well into the holidays, it was about time for Microsoft to pass some of the cost savings it's been seeing on the component side back to consumers," he said.

Odd Timing

Price cuts for items with a big draw during the holidays typically occur closer to the end of the summer season, and Enderle said slashing the price in July seemed a little early and catches people when they historically are not in the market for a video game platform.

"I probably would have done it closer in so that I could catch the wave of people wanting to buy. Doing it this early -- people aren't really in the 'buying the game console mode' right now, and typically don't get into it until Christmas," he explained.

However, what may make this year different is an economic downturn, Enderle pointed out.

"[People] are staying home. They're thinking about things to do with the kids now that they aren't going anyplace. One of the things parents are likely to do is buy them a game system or something else to keep the kids entertained," he said.

Pricing Strategy

The $50 drop for the 20 GB Xbox 360 still leaves Nintendo's Wii as the lowest-priced gaming console available. However, for the Wii, the price of the console is not the major draw, according to Enderle. "The things that are moving the Wii have to do with what the Wii does and not necessarily price," he said.

"I'm still continually disappointed by their price cuts," Yankee Group analyst Mike Goodman told TechNewsWorld. "They would be in a much better position if they would be a little more aggressive on the price front -- create [a] little separation between themselves and Sony (NYSE: SNE) and create a better reason [for consumers to buy an Xbox 360]."

Microsoft needs to put distance between itself and the PS3 and lessen the distance between the 360 and the Wii, he said.

Enderle also expects to see a price cut from Sony for its PlayStation 3 console this summer.

"The price of components continues to drop, and the Blu-ray drive is a fraction of the price it once was. I think a lot of folks are anticipating that Sony will take a pricing action before we get into back to school," he explained.