Wednesday, February 11, 2009

The Genius Behind "Sold-Out"

I found it very strange that Amazon sold out of the Kindle right before the peak of Christmas season. They sold out just in time to miss Black Friday and Cyber Monday and then put the Kindle on a twelve week back order. How on earth could Amazon mess up their anticipated demand by that much? A twelve week back order? Really?

At first, it struck me as product suicide, now it strikes me as brand brilliance. Kindle owners, you have been played.

General Background:

When introducing a product upgrade, there are two basic problems:

1) Your current customers, the early adopters who were devoted to you from the beginning will feel wronged and demand compensation (like when the iPhone 3G came out).

2) Anyone who recently purchased the older version will just return it if they are able.

The Facts:

1) Amazon sells out of the Kindle in November 2008, putting it in a 10-12 week back order.

2) The Kindle is Oprah's favorite new gadget. On October 24th she has Jeff Bezos on her show and he offers $50 off to Oprah viewers who purchase the Kindle before November 1, 2008.

3) The number of Google searches that included the word Kindle jumped 479% on October 24th (Oprah/Kindle day).

4) Amazon has a special Christmas return policy that lets you return anything purchased after November 1st, 2008 for a full refund, as long as you return it before January 31st, 2009.

5) The company went radio silent on Kindle 2 until the first week in February.

6) Amazon introduced the Kindle 2 on February 9th, 2009.

7) Amazon tells current Kindle owners that if they order by midnight on February 10th, they will receive first priority on the Kindle 2.

My Speculation:

1) Amazon decides to push as many Kindles out the door before their November 1st special holiday return policy starts. Oprah loves her Kindle, they know that, why not offer her viewers a discount? At that point Bezos probably knew how many Kindles they had in stock and he probably knew they were going to sell out well before their Kindle 2 was introduced, so why offer a $50 discount? While it is hard to say no to Oprah, it is easier to say yes if it means that people would flock to buy them before the offer expired on November 1st and the special holidat return season started. Amazon could sell their soon-to-be obsolete inventory and not have to worry about holiday returns or getting stuck with useless Kindles.

2) Amazon waits until after their holiday return window has closed to announce the Kindle 2. If they released the news for the Kindle 2 before January 31st, their November sales revenue numbers would take a hit as the last of the November Kindle purchasers took advantage of their holiday return policy and traded in their model for the newer version.

3) By placing the Kindle on backorder for 12 weeks, Amazon builds an unnatural demand for the Kindle, making the Kindle seem almost unattainable.

4) Then at the Kindle 2 press conference, Bezos tells current Kindle owners that they will be first in line to receive the Kindle 2 if they place their orders before midnight on February 10th. If they hadn't been sold out of the Kindle for so long, a promise like this would seem irrelevant: "so you are telling me that I if I purchase one, I'll get one?" That's an awesome deal Amazon, awesome. I buy something, you send it. Talk about exceptional customer service. . .

So, in sum, Amazon doesn't ship any Kindle during the Christmas season, but they do accept orders and build demand. They (i) turn just having the ability to buy their product into 'good customer service,' (ii) don't have to worry about throwing a bone to the early adopters and (iii) don't have to deal with any excess inventory on the original Kindle because by the time people know about the Kindle 2, no one who owns a Kindle 1 would fall into the return window time frame.

Kudos to Bezos. He played us like a bunch of puppet bookworms. Now, on to placing that order for the Kindle 2. . .

ps- you can email me at andrea@bobarra.com or find me at bobarra

3 comments:

Mr. Spit said...

Whatever the brush you use to paint this situation, I was very glad that I could order a new Kindle after my Kindle 1 screen was damaged on the 9th.

Steve P. Davis said...

Wow. That's some very compelling analysis and I'm totally convinced. It seems like an awful lot of work though, considering that the Kindle 2 reviews indicate that it's only a minor upgrade.

No doubt, though, that this is better handling than Apple's $600, No Wait! $400 iPhone introduction.

Steve P. Davis said...

Not only that, but Nintendo has also followed a very similar build-interest-through-scarcity strategy:

http://eaves.ca/2008/12/11/wiinomics-nintendos-scarcity-strategy-keeps-paying-dividends/