Amazon.com Inc. (NASDAQ: AMZN) has marked down the price on its Fire tablets, which many analysts believe have never sold well. The deals target subscribers to Amazon’s Prime service.
The new offer cuts the price of the Fire 7 from $49.99 to $34.99 and for the Fire 8 from $79.99 to $54.99. The tablets run a 1.3 GHz quad-core processor and have up to eight hours of battery life and as much as 16 gigabytes of internal storage. The tablets are Wi-Fi enabled but do not have the ability to work on 4G networks as many competing tablets do.
The promotion may do two things for Amazon. The Fire has not been a mainstream tablet in a market dominated by the Apple iPad and Samsung Galaxy. The deal is a way to push inventory and spread Amazon’s brand. There is a very good chance Amazon loses money on the deals, but the company is known for its plans to post red ink on some products and services to promote others.
Second, Amazon Prime is one of the company’s most successful products and is considered core to Amazon’s strategy to get and hold customers. Prime members have access to huge libraries of streaming media, some of which Amazon produces itself for huge amounts of money. It needs to build its Prime base to underwrite those production costs. Prime also offers special deals on free shipping and discounts on goods and services sold on Amazon. It charges $99 a year for a Prime membership.
The value of Prime to Amazon is huge, according to recent research. Consumer Intelligence Research Partners released data that show Prime membership hit 80 million earlier this year. In addition, the research showed that Prime members spend $1,300 a year with Amazon, compared to $700 for people who are not members.
The price cuts on the Fire tablets are extraordinary, given the prices of competing tablets. However, Amazon has reason to keep Prime members happy. The loss on a tablet here and there, under the circumstance, barely matters.