CRITICAL THINKING CASE

Kindle Keeps Same Price Even During Recession

In October of 2008, talk-show host Oprah Winfrey gave her endorsement to Amazon. comse-reader, the Kindle. An endorsement by Oprah Winfrey has proven to be a gold mine for consumer product companies, and, in difficult economic times, this endorsement may be critical to the Kindles ability to ride out recessionary times and move into mainstream America. The Amazon Kindle is a portable reader that downloads books, blogs, magazines, and newspapers wirelessly. The material is then displayed on a high-resolution electronic paper display that looks and reads like the real thing (even in sunlight). The Kindle was first launched in late 2007, and, due to the wireless partnership with Sprint required for the product downloads, was only available in the United States. Retailing at $399, Amazon.coms first offering of the Kindle reportedly sold outin five and a half hours. Eventually, the price dropped to $359. Upon introduction of the Kindle, Amazon.com had upwards of 90,000 digital titles available for downloading. While Amazon did not report sales figures for the Kindle, one analyst reported that about 500,000 Kindles had been sold prior to the launch of the Kindle 2. The Kindle has one major competitor, the Reader by Sony. Sony launched the Reader, priced at $299, in 2006 and it is available in the United States, Canada, and the United Kingdom.Later versions of the Reader sold for between $299 and $400. Product downloads to the Reader require that the Reader be attached to a computer to download material from a special Web site. As of November 2008, Sony had reportedly shipped around 300,000 Readers since its launch. In February of 2009, Amazon.com released the Kindle 2 in the United States at a price of $359. Rather than lowering the price of this next generation Kindle, Amazon opted to provide upgrades and keep the price constant. The new Kindle offered several product improvements over the original Kindle: Slimmer Lighter 3G wireless allowing downloads from anywhere, anytime Improved display Longer battery life Greater storage capacity Faster page turns

New text-to-speech feature allowing the device to read out loud Larger selection of reading material Additionally, famed author Stephen King wrote a novella available exclusively for the new device. While there was considerable interest in learning about the new and improved Kindle 2, bloggers across America were focusing a lot of attention on its price. The general consensus among the bloggers was that the price was too high given the difficult economic times. However, according to Amazons CEO and founder Jeff Bezos,there was no way to simultaneously provide upgrades and reduce price. The maintenance of the $359 price tag for the Kindle 2 has led some to question the pricing strategy and ultimate business model for the Kindle. From a price perspective, many wonder if the somewhat high price point is practical in a bad economy. Will U.S. consumers part with $359 for an unnecessary electronic gadget? With respect to the business model, the focus is on where money is to be made in this market. By 2009, e-books were onlyaround one percent of overall book sales. With such huge untapped market potential, it seemed that there was considerable money to be made in the sale of e-books. Making money in the e-book marketplace would mean that consumers had to first have an electronic reader such as Amazons Kindle or Sonys Reader. Driving down the price of the electronic readers would mean more sales of the readers and, thus, more sales of the e-books. With the Kindle Store offering over 245,000 books, newspapers, magazines, andblogs available for downloading, many wondered about the rationale behind the pricing of the Kindle 2.

Questions

1. What pricing objective is driving Amazon.com with its Kindle product offering?

2. What is the companys pricing strategy?