Business school professors have several theories about why companies slash product or service prices and offer incentives to draw customers. Experts have to be scratching their heads as Amazon.com Inc. (NASDAQ: AMZN) has slashed the prices by as much as $50 on some Kindle e-readers, and offered two-hour delivery to boot.
The offer has strings attached. It is only available to Prime members (Amazon’s $99 a year service, which includes its streaming media service and levels of free delivery, but rarely for the same day). And only one to a customer. And “while supplies last.”
The Kindle offer is a Trojan horse. Its primary goal appears to be a means to draw customers to other products that can also be had with two-hour free delivery. To get this package, customers have to be members of Prime Now. The offer only applies in cities where Amazon already has a two-hour delivery. And, obviously, people have to sign up for Prime.
Outsiders have speculated that Amazon does not make money on either Prime or the Kindle. This theory presumes that Prime “tethers” customers to Amazon, and that many of the Prime members will shop for everything from eggs to lingerie. Amazon still has to fend off competition from brick-and-mortar stores and other streaming media services, particularly from Apple Inc. (NASDAQ: AAPL) and Netflix Inc. (NASDAQ: NFLX).
Is a Kindle discount a way for Amazon to make money, or another of the plans by CEO and founder Jeff Bezos to gain and hold customers? Bezos is notorious for losing money on programs that he thinks will drive profits later. It is Wall Street’s biggest gamble by one of the most widely admired CEOs. None of those things mean the Kindle promotion will work. It is likely nothing more than a calculated gamble.
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