Amazon has announced their new $79 Kindle, which is set to launch next week along with the new Kindle Fire and Kindle Touch. This new device is supported by adverts in the US, allowing Amazon to sell it at the competitive price of $79.
However, according to a recent report, the new Kindle actually costs Amazon $84.25 to manufacture. This means that Amazon is effectively losing $5.25 on the sale of each device.
Amazon’s Strategy Behind the Pricing
While it might seem counterintuitive for Amazon to sell the Kindle at a loss, this strategy is not uncommon in the tech industry. By pricing the Kindle at $79, Amazon aims to attract a larger customer base. The low entry price makes the Kindle accessible to a wider audience, which in turn can lead to increased sales of Amazon’s digital content, such as eBooks, audiobooks, and subscriptions to services like Kindle Unlimited.
Moreover, the inclusion of adverts on the device provides an additional revenue stream. These adverts are typically for Amazon’s own products and services, which can further drive sales within the Amazon ecosystem. This multi-faceted approach allows Amazon to recoup the initial loss on the hardware through various other channels.
Long-Term Benefits and Market Penetration
The long-term benefits of this pricing strategy are significant. By getting more Kindles into the hands of consumers, Amazon is effectively expanding its market share in the e-reader space. This increased market penetration can lead to higher brand loyalty and customer retention. Once a customer is integrated into the Amazon ecosystem, they are more likely to continue purchasing content and other products from Amazon.
Additionally, the Kindle serves as a gateway to Amazon’s other services. For instance, a Kindle user might be more inclined to subscribe to Amazon Prime, which offers benefits like free shipping, access to Prime Video, and more. This creates a symbiotic relationship where the Kindle acts as a catalyst for further engagement with Amazon’s wide array of services.
Although we suspect that overall, if you take into account the revenue Amazon generates from the advertising on the new Kindle and also the content sales for each device, the company will be making a profit for each one it sells.
Another aspect to consider is the potential for upselling. Once a customer has a basic Kindle, they might be tempted to upgrade to a more advanced model like the Kindle Paperwhite or Kindle Oasis in the future. These higher-end models come with additional features and a higher price tag, contributing to Amazon’s profitability.
In summary, while Amazon may initially lose $5.25 on each $79 Kindle sold, the broader strategy is designed to create a sustainable and profitable ecosystem. By leveraging advertising revenue, content sales, and the potential for upselling, Amazon aims to turn this initial loss into a long-term gain.
Source Gadget Venue
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