The Production cost for the first generation PS3: $690.23.
The lowest retail price for the first generation PS3: $399.00.
Second generation PS3 production cost:
Yep, that's a loss leader for sure. After the cost to actually sell the console...let's not even think about that. Okay, you're Sony and you built the Lamborghini of game consoles. Problem is, no one is buying Lamborghinis. What to do? One approach is to revisit production costs to make your loss leader less of a loss. But, do you pass the savings along to consumers or do you try to stop the bleeding? That remains to be seen as of now (I think they'll take the cost savings, because a 35% price cut won't amount to many additional sales. Back to the subject at hand:
How did they do it? According to a PC World article, Sony made the second generation of the console extra lean and they applied the time honored tradition of state of the art technology. By using an advanced processor (that's cheaper), the console uses less energy and there was a considerable cost savings in the power supply as a result. A type of micro-environmental win/win? Maybe. The number of components was also reduced, by multi-tasking some components, also with new tech.
Bottom line, Sony is up 35% per sale. Lesson: whether a product or service, the application of state of the art tech can affect your margin. BUT, although the complete destruction of flagship product is a great incentive to get on the ball with eeking out every percentile of margin, you don't have to be working with a loss leader to put your nose to the grindstone and increase your margin, production costs or otherwise.
