Pricing the Kindle Fire the Kindle Fire,

Pricing the Kindle Fire

The Kindle Fire, priced at $199, is just 39% of the price of it's most well-entrenched and popular competitor the Apple iPad2, which sells for $499. Amazon has pursued a market penetration strategy with this product, looking to create a content consumption platform for the future. Apple argues that the iPad2 is a content creation and consumption platform. The price differential of $300 is steep to pay for content creation capability, which is one of the factors in Amazon being so successful with its pricing strategy. Apple could further refine this pricing strategy however and further expand the market.

Defining Kindle Fire Pricing Strategy

The initial pricing elasticity of products that have a high degree of innovation associated with them tend to be more unitary or highly elastic, as demand often outstrips supply of these types of devices (Antonelli, 1989). This factor in pricing often leads industry leaders of technology-based innovative products including Apple to price at the highest possible level of the demand curve to recapture research and development (R&D) costs (Dong-Qing, Liu, 2005).

Apple has been fortunate in defining entirely new sectors of markets with their ability to out-innovate competitors with product designs that excel at delivering user experiences. Amazon enters into the middle of the tablet market Apple initially created with their Kindle Fire, pricing at a level that completely re-defines the demand curve, 39% of the price of the lowest-price Apple iPad2. Amazon is testing the market with this strategy and they need to be even more aggressive with the strategy they are pursuing to disrupt the demand curve for tablet devices.

Amazon needs to take the Kindle Fire down to $125, a 25% price point of the lowest-end Apple iPad2. Pricing 75% below the market leader has shown to be highly effective in re-aligning demand curves while at the same time making market positioning of the lower-priced device well communicated to markets (Neelamegham, Chintagunta, 2004). At the same time they do this price cut, they need to launch a Kindle Fire that has the ability to also create content at their current price of $199. By dropping the price of the Kindle to $125 and launching an enhanced Kindle Fire with a camera, an enhanced operating system supporting personal productivity applications, and no-contract Wi-Fi service on 3G and 4G networks, Amazon would completely redefine the economics of the tablet market globally.