Spend Matters welcomes a guest post from Teja Kappagantula, GEP.
Sony seems to have emerged as everyone’s favorite in the recently concluded E3 for its ambitions to wrest back the crown of gaming from Microsoft. A lot of that attention went to the DRM related differences between the two next generation consoles. Price also seemed to have played a supportive role in galvanizing the people’s opinion in favor of the Sony’s PS4. Buzz on the web starting early this year seems to suggest that Sony is leaving no stone unturned to be the king of the hill again through an all-out attack on Microsoft – announcing the console early, using off-the-shelf parts for design, taking unlimited pre-orders at GameStop and pricing the console lower than Microsoft’s. DRM and other aspects aside, successful execution of all these plans requires a highly agile supply chain and efficient procurement, among other things.
Sony has learned its lessons well:
- Over-engineered/over-spec’ed products do not necessarily ensure success – Though businesses would like to believe otherwise, an ordinary consumer is the most discerning when it comes to personal procurement decisions. It was proved beyond reasonable doubt that consumers pay for “benefits” and not “features” - and no amount of over-engineering can justify higher price tag
- High-levels of customization delay the time to market – This is a hindrance unless it provides significant unassailable competitive advantage. Sony realized this with its “Cell” centric design. Custom design and manufacturing ensure that Sony was a year late with its current generation console into the market and let Microsoft invariably make huge dent to its market share. Using largely off-the-shelf components for PS4, Sony has ensured that it’s time to market will be really short unlike the previous generation. This decision has enabled Sony to confidently take unlimited pre-orders at GameStop outlets
- Target pricing can work wonders for product design and procurement - In bad times where affordability is one of the foremost criteria for any purchase decisions, this is important. While the jury is still out on whether Sony made a right decision to drop its Eye peripheral from the final console package, consumers will always have a stronger preference for a $399 console than one that costs $499. Apart from this, Sony also leveraged its vast experience in consumer electronics procurement and supply chain to ensure that it profits from every next generation console’s sale at $399 (unlike with PS3 where it incurred substantial losses for a long time)
While Sony seems set for success this time around, a lot could change over the next 4-5 months and Microsoft could be the leader. Nevertheless, Sony’s procurement and supply chain teams seem to be giving them a great position to start.
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