The Wall Street Journal reported this afternoon that Barnes & Noble Inc. cut the price of its Nook e-reader to $199 on Monday. Hours later, Amazon.com Inc. responded by slashing the price of its standard Kindle e-reader to $189. Both models had been $259.
Barnes & Noble also unveiled a new Wi-Fi-only model of the Nook, lacking a connection to cellular networks, that costs $149. All three moves show that competition over electronic-book readers is turning to a new battlefront: price.
What’s the fastest way to commoditize a product? It’s doing what Barnes & Noble and Amazon began to do today – engage in a price war so that the only differentiating aspect the consumer sees between your product and your competition is price.
So why have Barnes & Noble and Amazon decided to go down this road? Perhaps they believe that cutting prices will translate into increased market share. But cutting prices where you have no real cost advantage will often permanently hurt both profits and revenues.
In this case, both companies have reduced prices by over 25% without a corresponding cut in costs. The kicker being that market share between the two will remain relatively unchanged.
Well done Barnes & Noble. Well done Amazon!
