An electronic loss leader—
Supermarkets in the San Francisco Bay Area love to advertise specials on items that are actually sold below their costs—these are called loss leaders. Their purpose is to draw people into the store with the hopes that customers will buy other items while shopping. Amazon has a loss leader too and its name is Kindle Fire.
Crunching the numbers
HIS iSuppli, an electronics market research firm, did a parts breakdown of the Amazon Kindle Fire tablet and priced out all of its components plus manufacturing costs and found that the total bill for making a Kindle Fire was $209.63.
Amazon will still make a slim profit
Although the Kindle Fire is being sold at $199 for an apparent loss of around $10, an actual profit of $10 will be realized, on average, for each Kindle Fire sold because of added purchases of digital content, accessories, and other add-ons for the device.
The $20 bag of chips
If this sounds a little wacky, consider that a trip to the supermarket to buy a couple of bags of chips at Calas or Safeway for a two-for-one sale usually ends up with the shopper leaving the store with a shopping bill of $20 or more.
The chips were only a couple of bucks, but the drinks and extra food items padded up the bill.
Amazon hopes that the Kindle Fire will also produce similar results when customers buy other items for their Amazon tablet before going to the checkout page.
A big raise
Whoever thought up the marketing strategy for the Amazon tablet probably should be given a promotion. But if that someone is Amazon CEO Jeff Bezos, his reward has already been paid with the knowledge that his Kindle Fire is just that, on fire.
Source: IHS iSuppi
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