Price cutting is easily among Amazon.com's (NASDAQ:AMZN) favorite tool within its e-tail arsenal. The company has just done it again, and this time it's for a top-selling gadget: the Kindle Fire HD.
Amazon has just slashed the price of its flagship tablet down to $169, down from $199, for a 16 GB model. The 32 GB model got a similar reduction and now costs $199. The company says the discounts are for a limited time only, but Amazon has made temporary discounts permanent before. The Kindle Fire HD is currently Amazon's top selling product in the electronics category, and the price reduction will inevitably reinforce that title.
There are a number of reasons Amazon is feeling generous.
The Kindle Fire HD was launched last September, which means the device is approaching the end of its product cycle. If Amazon sticks to its annual timing, third-generation Kindle Fire models would be due out in just two months. In March, Amazon also permanently cut the price of the 8.9-inch Kindle Fire HD model, bringing the entry-level price down to just $269 (following a temporary discount). The company said it was expanding production volumes, which was helping create cost efficiencies and reduce costs. Those savings were being passed along to the consumer. The same should be happening to the 7-inch model too.
Rival bookseller Barnes & Noble (NYSE:BKS) finally just gave up on tablet hardware, announcing that it would no longer manufacture devices and was hoping to transition to a co-branded strategy. As part of B&N's last-ditch effort to clear out its remaining inventory, the company had already extended discounts on its newest Nook tablets. A comparable 7-inch Nook HD with 16 GB of storage costs $149, and Amazon needed to close that gap somewhat.
It's also true that Amazon's tablet unit sales are highly seasonal, and right now it's facing a summer lull. Since Amazon refuses to gives investors numbers on tablet units, we must rely on third-party estimates for its shipments. IDC estimated that Amazon shipped 1.8 million tablets in the first quarter, a 70% sequential drop relative to the 6 million units it shipped during the holiday quarter.
A price cut will give Amazon a bump in unit sales this quarter ahead of new models, while putting pressure on rivals and delivering cost savings to consumers. Classic Amazon.
Fool contributor Evan Niu, CFA, has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.