Why Does Amazon Discount Echo Dot To $39

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Among the most visibly promoted products at Amazon.com (NASDAQ: AMZN), the Echo Dot is on sale for $39.99, down $10 for its normal price. It is, based on a percentage, a big drop. The deal does have strings attached, which is the key to Amazon’s discount.

The Echo Dot which is on sale is the second generation, and most recent, version. To get the deal, however, the shopper has to be a member of Amazon Prime. The streaming-media, get-discounts-on-some-products, free-shipping Prime club program costs $12.99 a month. Amazon recently raised that fee from $10.99.  A Prime membership paid in advance for a year remains at $99.

Several pieces of research show that Prime members are more likely to shop at Amazon than people who come to the site who are not members. If this is true, Prime may drive an important portion of the company’s e-commerce business. Amazon has also invested hundreds of millions of dollars for original programming to support Prime’s streaming services. It probably needs membership growth and ongoing increases in membership subscription fees to make the service profitable. Of course, if Amazon loses money on Prime, and has to discount the price of the Echo Dot to get new Prime members, it loses on two counts.

The Echo Dot is also used to attract people to “upsells”, a way retailers make more money on some products. An Echo Dot buyer is offered an accident protection program for $6.99 in case the product is broken in the first two years of ownership, a “connect” plan which allows Echo Dot to connect with other consumer electronics systems in the home. The price of this is $34.99. People who buy this service need to have a home phone and smartphone. As Echo Dot buyers check out, they are also offered an Amazon gift card for $70, which means $70 more in revenue for Amazon later. As people check out, they are also offered cases for their new Echo Dot. The prices for these range from $9.99 to $19.99

The Echo Dot may cost $39.99 on paper. However, if Amazon’s sells other products and services as people check out, it is worth a great deal more to the huge e-commerce and cloud company.