OnDemand WTP Pricing Research

Pricer’s Points: Why the Amazon Fire Phone price isn’t cheap. | Matt Burnett

Jeff Bezos unveils the Fire Phone

It’s been about three-weeks since Amazon unveiled its first smartphone to the world: the Fire Phone. Now the dust has settled it’s possible to try and understand exactly what Amazon is trying to achieve with the Fire Phone pricing.

Some commentators have criticised the company for not doing what it’s done in the past with the Kindle and Kindle Fire – sell at an incredibly low price to sell as many devices as possible and make money selling content. Admittedly, that was what I was expecting before the announcement.

However, when you look at what the device actually does it becomes much clearer why this isn’t a device being sold cheap. A feature Amazon took time to talk about during the announcement was Firefly. The technology allows you to use the phone’s camera to identify literally millions of different objects. Once identified you can then very simply purchase them from Amazon. It’s this feature which hints at the Amazon’s strategy – the whole purpose of the Fire Phone is to get users to buy more goods from Amazon and bring them ever more into the Amazon ecosystem.

So what does this mean for the Fire Phone price? Or put another way: why isn’t it cheap? Surely the more people who use this phone the better for Amazon? Possibly not.

For the answer you need only look at IBM’s latest report into mobile shopping. The report shows shopping via a mobile device to be growing at a fast pace and beginning to account for a significant chunk of total online spending. The IBM report details that the average online transaction in the U.S. is worth $132. This compares to $124 for tablet users and $108 for smartphone users. And here’s the nugget that we’re looking for: users of Apple’s devices outspent Android users by 37% in November 2013. Why? Well users of Apple’s devices tend to be wealthier quite typically because Apple prices its devices much higher than competing Android devices. And for that reason they have more money to spend.

And that’s why the Fire Phone price isn’t as cheap as other Amazon devices. It needs to sell the device to people who then have the disposable income to buy goods from the company through the phone. Selling the device at cost would most likely sell more devices, but if Amazon’s strategy is for users to then buy goods from the company via the phone then this would be unlikely to happen if those users have a lower level of disposable income.

* This article was originally published on the MattBurnettBusiness.com – a blog about business, pricing and technology.

Hi, I’m Matt Burnett and I’m a pricing analyst for a UK DIY retailer and a graduate of the University of Portsmouth. I’ve previously worked at, The Southern Co-operative, IBM and Waitrose.

I’ll be using this blog to share my thoughts on topical business issues (mostly pricing) and my interests in technology. I’d love to hear your thoughts on anything I write.

If you wish to get in touch you can find me on both Twitter (@Matt_Burnett) and LinkedIn, you can also find me on Google+.

4 Comments on "Pricer’s Points: Why the Amazon Fire Phone price isn’t cheap. | Matt Burnett"

Trackback | Comments RSS Feed

Post a Comment

WP-SpamFree by Pole Position Marketing