Why Has Amazon Cut Prices as Much as 50%?

Retail

Published: June 4, 2016 9:25 am

Last Updated: January 13, 2020 7:13 am

Checking out the weekend specials at Amazon.com Inc. (NASDAQ: AMZN) sometimes reveals not only low pricing for many popular items, but offers a chance to try to figure out what Amazon wants its customers to do. The obvious answer is buy as much stuff as possible, but the company is a little more nuanced than that.

Take the Kindle for example. Amazon is currently selling the devices at list prices, at least as nearly as we can tell. A six-inch, Paperwhite reader sells for $119.99. On the same page are a number of accessories like a power adapter ($19.99) and a leather cover ($59.99) that customers can add to their orders. There are also links to promotions for e-books and information about other Amazon items related to e-books, themselves an important source of revenue for Amazon.

All these items likely have markups above what Amazon pays for them. An inexpensive (the cheapest one is $79.99) Kindle is also a means to sell Kindle Unlimited, which offers permanent access to Amazon’s huge e-book library and audio books. This service carries a price of $9.99 a month, after a free month to try it. A traditional upsell: first offer something that costs little for the company to provide, then follow with an aggressive effort to turn these trials into memberships.

For example, Parrot Zik wireless Bluetooth noise cancelling headphones in black (PF560000BA) are on sale for $99.99, a savings of 47% from the list price of $189.99. This may be a good cross-sell for buyer of audio books from Amazon’s vast selection through its Audible division.

For those who prefer something less bulky, the Etekcity S1 wireless Bluetooth earbuds (783956542175) are on sale for $23.99, a discount of 33% from the list price of $35.99. The catch here is that you either need a Prime membership or you need to buy other items to reach the $49 total that includes free shipping.

If Amazon can get a customer to buy the Prime membership, that customer’s loyalty to the company goes way up because shipping is now free for any size order. That’s a big bonus for Amazon and explains why the company promotes Prime so heavily.

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