Pricing for the Amazon Kindle: Part I

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As an avid reader – and avid pricing guy –I’m fascinated by the approach Amazon is taking to pricing books for the Kindle device, and the opportunities they have for pricing. In this two-part series, I will explore three classic pricing aspects and how they relate to the Kindle. The first post will focus on Segmentation and Bundle Pricing.

Segmentation

I have a friend called John. We were at school together. We’re similar in many ways. But for a vendor to treat us the same would be to miss an opportunity. While we are both bibliophiles, with similar tastes, a friend and I differ in one important respect: I am a collector. I like owning paper books (see picture above) and I actively want to put the book on my shelf, re-order my system, log the item in my book database (a terrible confession: I even considered implementing the Dewey Decimal System in my library). I travel a lot, so I also want the convenience of having a great number of options on the Kindle device in my laptop bag (and indeed the Kindle app for my iPad). 

Bundle Pricing

Amazon is missing the opportunity to offer me a bundled price. If the paper book and the Kindle version are both $10, I’d happily pay something more than $10 and something less than $20 for the both. 

My friend is an academic, a minimalist, a hyperactive multi-tasker, and a technophile. He doesn’t care if he never touches another paper book again. He would, I’m sure, gladly pay more for a Kindle version because it offers so much more to him. Indeed, for him the drawbacks of a paper book mean that he actively doesn’t want them. Even $1 would be too expensive for him, when you consider their place on his value-equivalence chart. 

Customer segmentation can be a great deal of work; in Amazon’s case I would suggest that it’s well-worth doing. Kindle is clearly a core part of operating strategy – it takes the front and center spot on their homepage, is a cornerstone of their media events, and has seen massive investment thus far.

Still, while the Kindle comes in many different sizes and price points, it’s a loss leader. Amazon isn’t segmenting its customers where it counts – with regard to content they sell for Kindle.

There are book-lovers, like me; there are frequent travelers; there are people who live in tiny apartments; there are people who love technology and simply must own the latest and greatest. These segments have different value propositions, and should be treated differently in the messaging and pricing. And the great thing is that data is available for all these things – and Amazon almost certainly has a great deal of it.

Tune back for the second part of this series, which will focus on cost-plus vs. value-based pricing and volume pricing.