This came as a response on another site when I discussed my idea for e-books and readers. After thought, I think John Seavey (who made the comment) has some points.
The big argument is that not enough books will be sold to make up the loss lead. There’s a passing assumption that the blades made tons of money for the razor’s cost over its life, while the reader is good for two, maybe three years and each year only 10-12 books will be sold. There’s merit here.
Further I can see some intense marketing opportunities using my previous e-entertainer system: As long as you use your reader to purchase from our store you get a 10% discount on top of all other discounts. Heck, I think if you opened with a “gift certificate” worth, say, $20 or so (books, movies, music) it’d seriously take off.
I still lean, however, to the other direction: sell a very basic reader (or e-entertainer) at a loss, add a minor discount as long as it’s used to purchase from OUR store, and let it run. To explain it I need to add a touch of math. Basically: a man only used a couple of blades a week – maybe three. That’s 100-150 blades. Even with Gillette’s brainstorm, the razor sold for 100-150 times the price of the blade. The secret was that the cost of manufacturing, packing, shipping, selling (etc) the blade was almost nothing – most of the price (a bit over a penny a blade at first) was profit. The first year was catch-up. The second and third were profit. And most men got a replacement razor every two or three years – why not? They were cheap after all.
I’ve said it before, I’ll say it again. Assume ten books and 50 songs and 10 DVDs per year each at roughly 100% markup for e-publishing… The eentertainer is making money before the year is out even giving a ‘store discount’, and the items still cost less than they do as ‘hard copy’. Year two is an even larger profit. Year three may be larger, or maybe it’s time for a new reader. It really doesn’t matter.
The “sell the eentertainer give the packages” feels better only because the reader/dvd/music player costs so much up front. But with everything – heck, even with “just books” – there’s enough volume to make up the difference. Penny wise, pound foolish.