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Explainer: Wii's push, Xbox 360's pull [update 1]

Vladimir Cole
10.16.06
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The information above comes from CompUSA's retail system according to an employee of that company who wished to remain anonymous, 'cept for this link to his or her blog.

The "consumer pays" column shouldn't surprise any of us. What's more interesting is the "retailer pays" column and the subsequent margin percentage (under "retailer keeps"). All else equal, a rational retailer faced with these percentages is going to do a whole lot more to push the Nintendo Wii, because there's more in it for him. Every unit sold will net him higher margin. Though the gross proceeds from each Wii sold are only $12.49 (versus the Xbox 360's $15.78), it's generally a heck of a lot easier to make a $250 sale than a $400 sale.

What do these different prices say about Nintendo and Microsoft marketing strategy? Marketers often incentivize retailers to merchandise and promote their products heavily by giving them heftier margins. This generates demand from retailers for the product, and is called a "push" strategy because manufacturers push product through the retail channel by offering retailers discounts. The Xbox 360's price, on the other hand, points to more of a "pull" strategy in which Microsoft generates end consumer demand for the console that spurs consumers to walk in and say, "I want an Xbox 360." Consumers pull the product from shelves, giving retailers no choice but to request additional units from the manufacturer.

Pull strategy is typically coupled with increased spending on advertising. Push strategies rely on partners to take on some of the promotional duties with mega in-store displays, special mention in store flyers, and so on. These numbers indicate that Nintendo is using more of a push strategy which itself shows increased reliance on retail partners versus expensive and hard-to-measure advertising.

Of course this analysis can't be complete without looking at the rate at which customers purchase accessories and the margins on those accessories. Accessories are the real money-makers for retailers, and we already know from analyst reports that the Xbox 360 sold more accessories per console than anyone was expecting it to. (To keep things simple, we just looked at the base consoles.)

We don't have all the accessory data, nor do we have the PlayStation 3 data, but if we were to receive it via the Joystiq tip line, we'd love to add it to the analysis.

[Update 1: our tipster got his own friggin' site address wrong. We've updated the URL in the first paragraph.]

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