Earlier this year, Amazon (NASDAQ:AMZN) announced a new payment plan option for its Kindle devices. Device payment plans have become the rage recently with wireless providers such as AT&T and T-Mobile. But they end up costing customers more than paying the standard contract fee. Is Amazon pulling a similar trick, or simply trying to stay ahead of competition from Apple and Google (NASDAQ:GOOG)(NASDAQ:GOOGL)?
This isn't the first Kindle payment plan that Amazon has offered, but the company tends to have a release strategy for the promotions. A pre-holiday installation plan with a higher down payment was a move to increase device sales over the important holiday shopping season. The current deal popped up around the time that Amazon revealed its new Fire TV streaming box.
Is the payment plan a good deal for consumers and for Amazon?
Amazon's Kindle payment plan terms
The terms of Amazon's Kindle payment plan stand apart from the consumer-gouging payment plans from wireless carriers.
Customers simply pay 20% of the full price for the chosen Kindle model at checkout, plus any taxes and shipping fees. The rest of the device is paid off in four additional monthly payments that start a month after the initial down payment. Sweetening the deal, Amazon won't perform a credit check, and it charges no interest, early payment charge, or any other hidden fees.
Compare Amazon's offer to those of AT&T and T-Mobile, which offer installment programs called Next and Jump, respectively. Customers get to make a smaller down payment on a smartphone and upgrade devices more often than the standard two-year contract. But there's a catch or two.
The payment setup means that the customer ends up paying -- at the very least -- the full, unlocked price of the phone by the end of the payment period. And that would be fine, except the short-term upgrades require trading in the previous device. That means a customer has to trade-in a device that was fully paid off rather than getting to sell that device or hand it down.
Amazon's own deal isn't without catches. Read the fine print, because not every shopper will qualify for the Kindle Offer. Customers must first meet the following requirements:
- Reside in the U.S.
- Possess an Amazon.com account that's been active for at least two years
- Had a valid payment method, such as a credit card, associated with that account for at least 90 days
There's also a one-Kindle limit per account. But even with all of the stipulations, the deal might bring in a fresh wave of Kindle customers who were hesitant about shelling out $300 or so for the higher-end Fire models.
Amazon's catches aren't made to milk more money out of the consumer over the course of payments. So what's the point of offering the plan?
Why is Amazon offering payment plans?
Analysts have long accepted the fact that Amazon sells its Kindle Fire devices at a loss. But it's worth it to the company to encourage customers to experience the Android-boned interface and explore what a Prime membership has to offer while shopping for e-books and music straight through the device.
Amazon wants people to fall in love with the Fire interface now more than ever, as the company's products start to become closer rivals to those from Apple and Google. Kindle Fire products price a lot lower than Apple's iPads but fall in-range with some Android tablets. The payment plan without credit approval means the Kindle tablets might soon reach the hands of budget-conscious shoppers.
The rise of Android's operating system proves that budget shoppers can serve as the deciding factor in the tablet wars. According to research firm Gartner, the Android OS accounted for nearly 62% of the global tablet market in 2013, compared to 36% for Apple. That's because the price range of Android makes the devices more accessible to the general public.
Amazon can utilize the expanding Android market share while further connecting consumers with its own interface, Prime offerings, and shopping potential. And consumers who connect now to the Kindle Fire might turn around six months from now and plunk down money for a Fire TV.
Foolish final thoughts
Amazon is working on all fronts to create a permeative lifestyle brand that can integrate into several aspects of daily life. The Kindle Fire payment plan helps consumers who couldn't afford a device outright without any interest charges, credit checks or long-term trickery. And Amazon still gets to expand its potential shopper base.
Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Google (C shares). The Motley Fool owns shares of Amazon.com and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.