In my business selling tickets, I’ve always tried to compete on price and service. While I can’t always beat every price, I can always control the service and usually the two together wins me most battles.
This got me to thinking about the iPad vs. Fire and pricing strategies in general.
I just got a new iPad and I know that Apple makes 30-35% on each iPad. Its an awesome machine, its truly worth it.
I also know that it seems that Amazon doesn’t make money or loses a little bit of money on each Kindle device.
Obviously Apple’s belief is that they make an awesome device and that they deserve to profit. Amazon’s strategy seems to be that they are going to try and make their profit by getting people into their product ecosystem and letting habit take over.
The problem with the Amazon strategy is that they are known as a discount shop to begin with. By losing money on your most popular item, you are setting yourself up to never be able to charge what your product is worth and you are on a slippery slope downward.
Apple has a good formula. They create awesome products and delivery them at a price point that allows them to make a consistent profit.
This makes sense because you also make money on a great deal of the media and software that is packed onto your iPad. Its great. You get people into the ecosystem and let inertia take over.
If I were in Amazon’s position, I wouldn’t be in a race to get the price of the Kindle Fire down even further. Instead I would use the negotiating power of having such a large volume of machines sold to bring down my own cost and get the Fire to the point where every Fire sold brought the company a profit.
In the long run, if you continue to discount everything, there is going to come a point where you are never going to make money on any product and no matter how awesome your store or business is, you won’t be able to survive very long losing money on everything.