Innovation towards customer satisfaction

While scanning the blogosphere, I came across a blog entitled Using a Customer Culture for Competitive Advantage, I was intrigued by the first article that came up about Amazon. The article raved about how Amazon is an innovated company because of it’s mission to save customer’s money. Amazon, from this blog, seems to be a very profitable and holistic sounding company by being customer oriented  and not driving up Kindle prices unlike Ipads that are overpriced nearly half of what they are actually worth. But how successful are they really? Amazon is also known for never truly making a profit. Every Kindle they make, they are actually losing money. A study by market-research firm iSuppli last year estimated the total cost of materials for the 3G Kindle at $155.56 – about $33 less than the $189 selling price for the device. Since iSuppli’s estimates do not include the cost of software, licensing, royalties, manufacturing expenses (Amazon outsources production of the Kindle) and a cut for the wireless carriers, analysts suspect Amazon likely sells the Kindle at a slight loss (WSJ). So after reading about how innovative and honorable the company is, it still making as much of a profit as it should be. So is being innovative worth losing profits? In forecasting, I cannot imagine this innovation being a huge success, but maybe this is what needs to happen before the end success comes.


3 thoughts on “Innovation towards customer satisfaction

  1. As a Kindle user, I am very surprised to hear the Amazon is in fact losing money when selling a Kindle. I never thought about the high production costs that go into Kindles, especially the licensing and royalties. I wonder if they make a better profit on each ebook they sell. If the Kindle was truly losing Amazon so much money, I would think Amazon would discontinue the line. However, Kindles have an established brand name and are very popular. Therefore, is it worth it to lose some money for good brand reputation and popularity?

  2. After reading this post, I did a little research of my own to see how and if Amazon was making money off of e-books. While the Kindle and e-books are not generating a large amount of profit for Amazon now, they will be in the future. Amazon has already started publishing its own books, both e-books and paper books. According to the article, “Self-published and Amazon-published books are still likely a small part of all the ebooks sold, but they’ll likely grow. And as Amazon moves up the value chain in publishing, as the possibilities of self-publishing on Kindle draw more and more writers to side-step the traditional publishing process, and as Amazon gains additional negotiating leverage over publishers, Amazon should make serious money from e-books”

    Going off of what Jenna said, I think it is definitely in Amazon’s best interest to continue to operate with low profits/a slight loss in order to gain market share in the future.

    Read more:

  3. Like Jenna, I also have a Kindle and had never really considered that Amazon might be losing money with each sale. In retrospect, though, it’s not entirely surprising because of the extremely low prices for which Kindles have usually sold. With the introduction of the new Kindle Fire HD, though, I wonder if Amazon will finally turn the corner and begin to see more of a profit. The new tablet has an 8.9″ screen and is Amazon’s attempt to compete more directly with the iPad, which I find ironic because of the rumors of an upcoming iPad mini announcement (arguably Apple’s attempt to compete with the Kindle Fire and other smaller tablets). Depending on the success of this product, I think Amazon has higher profits on its horizon. I think innovation will finally pay off for the company.

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