Chapter 11 – AmazonInstructionsAs 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 whichconsists of a hardware and software device that displays content from various e-books andother 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. Thegoal of Amazon is to change the way people enjoy media content. Amazon offers over 540 000titles 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 Times bestsellers and new releases sell for $9.99 most daily newspapers are available for $5 to $10 permonth and magazines are approximately $1.50 per month. The Kindle store offers thousandsof free popular classics including titles such as The Adventures of Sherlock Holmes Pride andPrejudice and Treasure Island. In addition customers can download over 1.8 million free pre1923 out-of-copyright titles from other websites. In 2010 Macmillan a group of publishingcompanies in the United States requested that Amazon increase the price of its bookselections 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-bookpricing environment is Apple. Apple offers publishers the chance to sell their content through itsnew iBooks store. All publishers who choose the iBooks store to distribute their content havethe ability to set the retail price. Apple would also collect 30 percent of the retail price using theagency 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’sintroduction 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 newmarket. However the correct retail price along with its impact on publisher pricing has yet tobe determined for the long run. How much power do publishers have over the retailers. Whatpricing strategy should Amazon adopt for the long-term success of the Kindle and e-books?1. What is the decision facing Amazon2. 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?
