By Scott Levine, VP, Strategy—December 9, 2011
New Tablet or New Content Delivery Vehicle?
Is it possible that marketing minds were behind the pricing model on the new Amazon Kindle Fire?
It’s a logical conclusion, since Amazon is actually selling the Kindle Fire at $199, which is below the cost of manufacturing the tablet according to numerous reports including this one in the Wall Street Journal.
“The Kindle Fire, at a retail price point of $199, is sold at a loss by Amazon, just as the basic Kindle is also sold at a loss at the current $79 retail price point,” said Andrew Rassweiler, senior director of teardown services for IHS. “Amazon makes its money not on Kindle hardware, but on the paid content and other products it plans to sell the consumer through the Kindle.”
The razor and blade business model has been around, well, since the razor and the blade. It’s the same basic principle as the printer and the cartridge, where a manufacturer makes a product that is dependent on the continuation sales principle. Once the blade has dulled, the razor is no longer functional; once the printer’s toner cartridge is empty, the printer is basically a paperweight until a new toner cartridge is installed.
The Kindle Fire is built for one main purpose, which is to consume paid content from Amazon. The other features, such as Wi-Fi, email capabilities, .pdf and .doc readers and the ability to play Flash, are gratuitous extras in Amazon’s marketing plan.
Preliminary results are showing that Amazon has hit the proverbial ball out of the park. There are even some reports that the Kindle Fire is taking a bite out of Apple’s iPad sales. Debates are taking place online, offline and in the media regarding the battle between Kindle Fire and iPad. No one is claiming that the Fire can match the iPad feature for feature, as it obviously cannot; however, this isn’t about a head-to-head feature comparison. This is all about VALUE.
The $199 selling price IS Amazon’s marketing strategy. That price point is also their sales strategy, their product strategy and their strategy for selling content going forward. What Amazon is really marketing is their Amazon Prime subscription service, which is being sold for $79 per year and includes:
• Unlimited instant streaming of thousands of movies and TV shows with Prime instant videos
• A Kindle book to borrow for FREE each month from the Kindle Owners’ Lending Library
Amazon Prime members also receive free two-day shipping on millions of items sold on Amazon.com, and Amazon is currently offering a one-month free trial.
The actual piece of hardware is indeed a content delivery vehicle. And hardly anyone other than Amazon is considering the marketing repercussions that huge sales of Kindle Fires will have specifically on the demand for content from content providers. So magazine publishers, network and content providers of all shapes and sizes are currently vying for a piece of this newly created content consumption market.
Amazon’s aggressive online marketing campaign and transactional website are all part of the overarching marketing strategy that started with the razor-and-blade model in mind from the very beginning.