Microsoft Faces Nightmare On Xbox HD DVD Marketing Street

This week, Microsoft slashed the price for the Xbox 360 HD DVD disc player from $179 to $129, using the company's Gamerscore and Major Nelson blogs to market the $50 price cut in the U.S., Canada, Australia and New Zealand. There are plans to spread the news with Xbox 360 Dashboard banner ads, e-mail newsletters in late February, and limited retail store advertisements.

A marketer's worst nightmare remains finding reasons for consumers to buy products being phased out or ones that will become obsolete, especially for a technology brand. New product cycles are about every six months.

Some view the price cut as a desperate move by Microsoft to revive the HD-DVD brand, following decisions by movie studios, producers and retail stores to side with rival Blu-ray format.

Industry experts wouldn't speculate on when Microsoft might discontinue manufacturing HD DVD disc players as an accessory for the Xbox 360, but did weigh in with marketing advice when products appear doomed to failure.

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"When something quickly goes from sizzle to on sale, there's an indication something is up," says David Allen, professor of marketing at Saint Joseph's University in Philadelphia. "Traditionally, that means the technology manufacturer knows before anyone else how the tide is going, but there are still consumers that don't know it and feel it. They just see a great price."

When companies continually cut prices, they are telling you it is over, Allen says, but it's a bigger strategic decision on whether to pull "their tents and give the victory to Blu-ray, which appears to have gained momentum," chimed in Allen's colleague, Michael Solomon, professor of marketing.

"Marketers can play a role in determining what differentiates the two formats, and bring it to the attention of consumers," Solomon says.

Solomon suggests that marketers define the playing field in a way that's advantageous and make sure the attributes people use to compare the two products favor the product being marketed, similar to trying to sway voters on political issues to make them more popular.

Bonnie Carlson, president of the Promotions Marketing Association, advises such marketers to hunker down and focus on existing business after dropping the price, which appeals to those who want the latest technology but can't afford it. "I would focus marketing messages on what made the brand successful in the first place," she says. "I would also look toward international markets, but limit the amount of money spent on advertising and marketing in the United States."

A white paper posted on the Microsoft Xbox 360 Web site provides insight into the choice: "As the formats developed, we were intrigued by both HD DVD and Blu-ray formats. ... We believed that both formats held promise for high-end content. As we dug deeper, we began to see how much was just hype and what was truly possible. ... We took a critical look at the reality of what both formats deliver. Over time, as the specifications for both formats gelled, we concluded HD DVD was the format that offered more promise."

Not according to recent statistics. Blu-ray DVD disc player sales took an 82% share in the week ending Jan. 27, with HD DVD claiming the remaining 18%, reports Nielsen VideoScan.

Microsoft declined to confirm, but industry insiders say the Redmond, Wash. company plans to transition from HD DVD to the Blu-ray format for the Xbox 360 accessory, following Warner Bros.' move announced last month. The Time Warner studio's news that it would back the Blu-ray disc format and stop distributing movies in HD DVD later this year sent a crushing blow through the industry.

Mikko Alasaarela, entrepreneur and independent marketing consultant, says Microsoft doesn't have much choice. "If they launch a Blu-ray device now, no one would buy the HD DVD disc players from them," he says. "The right strategy is to lower the price and get what they have out of inventory."

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