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This is why Amazon will soar in the smartphone market

Published Dec 17th, 2013 7:45AM EST
Kindle Fire Pricing Strategy

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According to a brand new study from Consumer Intelligence Research Partners, those Amazon customers who own a Kindle spend $1,223 on Amazon products annually. Amazon customers without the tablet spend “just” $790 annually. This $443 gap means that Amazon’s strategy of selling Kindle Fire tablets at near zero margins is working like a charm. Keeping the Kindle device pricing low is creating an army of consumers who are spending freely on Amazon products. In the light of these numbers, it could make perfect sense for Amazon to not only sell its tablets at zero margins, but maybe even below cost.

These figures mean that it is now practically certain that Amazon will push into smartphone market. The Kindle impact on tablet users is too delicious not to extend to the mobile phone market. An effective smartphone push would help Amazon lock its key customers into a permanent state of Amazonhood — a mental state where any purchasing impulse can be immediately satisfied with a few clicks, no matter where you are.

The CIRP survey found out that consumers who own a Kindle device visit site more often than non-owners — AND they shop across more product categories than non-owners. The tablet seems to have an impact shaping consumer behavior beyond jacking up the annual dollar spend, increasing curiosity about a wider spectrum of products.

Replicating this with a smartphone is a carrot that is likely to tempt Amazon to go for an aggressive handset pricing route. A high-end smartphone for free with an 18-month contract or something in that region; or perhaps an unusually good deal on mobile data pricing. Once Amazon makes its phone move, it is likely to wipe out whatever dreams Motorola and HTC had of ever returning to relevance in the U.S. market.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.