Chapter 11 – Amazon
Instructions
As the print industry declines, the e-book reader may
exert a dramatic impact on book, magazine, and newspaper pricing. Amazon.com
jumped into this market with the Kindle, which consists of a hardware and
software device that displays content from various e-books and other digital
media. It can access content through downloads using the Sprint EVDO network.
Free access to the Internet via cellular networks is available at no cost to
the consumer. The goal of Amazon is to change the way people enjoy media
content. Amazon offers over 540,000 titles for the Kindle, containing the
largest selection of the books available for reading devices, including U.S.
and international newspapers, magazines, and blogs. New York Timesbest
sellers and new releases sell for $9.99, most daily newspapers are available
for $5 to $10 per month, and magazines are approximately $1.50 per month. The
Kindle store offers thousands of free popular classics including titles such
as The Adventures of Sherlock Holmes, Pride and Prejudice, and Treasure
Island. In addition, customers can download over 1.8 million free,
pre-1923, out-of-copyright titles from other websites. In 2010, Macmillan, a
group of publishing companies in the United States, requested that Amazon
increase the price of its book selections from $9.99 to around $15. Amazon,
in response to the request for new pricing, temporarily removed Macmillan
books from the Kindle store. Another key player in the e-book pricing
environment is Apple. Apple offers publishers the chance to sell their
content through its new iBooks store. All publishers who choose the iBooks
store to distribute their content have the ability to set the retail price.
Apple would also collect 30 percent of the retail price using the agency
model. This agency model used by Apple gives publishers more control in
pricing. Typically, the prices for newly released e-book editions are $12.99
to $14.99. Amazon’s introduction of the Kindle is a response to the new
market dynamics. Amazon’s insistence of a $9.99 price point was an attempt to
offer a flat, easy-to-understand rate to help build a new market. However,
the correct retail price, along with its impact on publisher pricing, has yet
to be determined for the long run. How much power do publishers have over the
retailers. What pricing strategy should Amazon adopt for the long-term
success of the Kindle and e-books?
1. What is the decision facing Amazon
2. What factors are important in understanding this
decision situation?
3. What are the alternatives?
4. What decision(s) do you recommend?
5. What are some ways to implement your
recommendations?
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