Such a deal! Amazon.com, Inc. (NASDAQ:AMZN) is lowering the price of its Fire Phone from $199 to just $0.99 with a two year contract. But wait! For one low, low price you also receive a free year of Amazon Prime, which costs $99 per year.
With a commitment to AT&T, you can purchase Amazon’s Fire Phone with just $0.99
That’s right. For less than a can of soda you can now purchase a cell phone. The catch, of course, is the two year commitment to AT&T Inc. (NYSE:T), which, at $60 per month, ends up costing $1,441. If you just wanted the phone it would cost $449 based on the retail price.
The phone represents Amazon’s launch into electronics manufacturing – quite a departure from the firm’s traditional online retail core of selling other manufacturer’s products. However, one consistent management tactic could be visible in both the marketing of their own Amazon-produced product and their online retail store: price cuts.
In dramatically cutting the retail price of the fire to next to nothing, Amazon is following a path it blazed in the online retail world – selling products for literally not much more than they cost to produce. Such low-profit margin sales tactics have drawn ire of Wall Street investors who are growing increasingly impatient for the firm to generate investor profitability, not just sales growth.
Amazon’s announcement on Fire Phone pricing raising concerns
The timing of Amazon’s announcement is raising questions as well. With one day to go before the expected launch of Apple Inc. (NASDAQ:AAPL)’s new iPhone, smart watch and other potential products, Amazon could be trying to deflect the spotlight from a major competitor. But is it generating the right type of buzz?
“Nothing says ‘Our new product is selling great!’ like dropping its price down by 99.5% two months after launch,” sarcastically wrote TechCrunch’s Greg Kumparak.
While official sales numbers from the phone’s launch are not available, speculation has centered around 300,000 units sold, well shy of expectations. The Amazon offering follows the fate of the Facebook phone, which was similarly a dud of a product offering.
In light of what was perceived as an act of desperation, snarky Tweets were soon to follow.
“Perhaps Amazon should start partnering with Family Dollar Stores, Inc. (NYSE:FDO), Dollar General Corp. (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR) to sell its Fire Phone. Only 99 cents!” Tweeted Miriam Gottfried, Wall Street Journal’s Heard on the Street columnist.
“Amazon should make the Fire phone like that Radiohead album and let users pay whatever they want for it,” Tweeted Wall Street Journal writer Tom Gara.
Amazon’s Fire phone is scheduled to go on sale in Europe on September 30th. This is not an auspicious method to launch the product heading into a new market. Perhaps they should just start the pricing at $0.99 rather than drop the price two months later?