People visit the city-state's first Apple Store on its opening day at Orchard Road, Singapore
People visit the city-state's first Apple Store on its opening day at Orchard Road, Singapore May 27, 2017.  Edgar Su—Reuters

Why Apple Shouldn’t Follow Amazon’s Lead

Jul 12, 2017

Amazon and Apple have both achieved what most companies aspire to, but only few manage to pull off: They have become a part of our everyday lives. Amazon’s third Prime Day "grew by more than 60% compared to the same 30 hours last year," according to the company, which begs the question: Should Apple launch a similar event to promote sales?

At first glance, it might seem like a good idea for Apple to offer its own version of Prime Day. Indeed, why wait for Black Friday to offer discounts on Apple products? While intuitively appealing, this view reflects a fundamental misconception that Amazon’s Prime Day is just about selling more merchandise by offering discounts. It is much more than that. Prime Day is an excellent means for Amazon to create value for its customers, while at the same time enabling it to achieve several strategic goals:

Promote Amazon Prime membership

Prime membership is important to Amazon for several reasons. First, it is a source of additional revenues and profits. Even if Amazon (amzn) merely breaks even on the sale of products, the $99 annual Prime membership fee makes a sizable contribution to the company’s bottom line. In addition to generating additional revenues, Prime membership has the psychological impact of increasing customer loyalty. Many customers who enroll in Prime are more likely to spend more on Amazon—in part because they’ve paid for it and in part because they now feel that they have made a commitment to shop on Amazon. This approach has also worked very well for Costco (cost), which derives much of its profits from membership fees.

Promote the Amazon ecosystem

Home automation relying on personal digital assistants is the new frontier in creating customer value. With many competitors jockeying for a dominant position in this space, Amazon is determined to become the dominant player and the go-to place for fulfilling many of consumers’ daily needs. The explosive growth of Alexa, Amazon’s personal assistant that launched with the Amazon Echo smart speaker, quickly established it as a viable competitor to Apple’s Siri. Amazon’s ambition to dominate the home automation space and become the personal digital concierge of choice is evident from the fact that the Echo was its most popular Prime Day item this year. And, of course, Echo also makes it super easy to buy more things from Amazon.

Promote Amazon services

One of Amazon’s most important Prime Day deals does not involve a product—it involves Amazon’s own music streaming service. On Prime Day this year, Amazon offered Music Unlimited for four months of unlimited music for 99 cents—an 80%-plus discount from its regular price of $7.99. A late entrant to digital music streaming, Amazon is rapidly making up for it by offering its easy-to-use music players (Echo) and streaming content (Amazon Music) and then using events, such as Prime Day, to promote them.

Promote incremental purchases

Sales promotions, especially once-a-year events, tend to encourage consumers to buy things that they are only marginally interested in, simply because they’re available at an attractive price. This is also true for Amazon’s Prime Day when consumers are enticed to buy things not because they need to have them, but because they are nice to have. The discounts available during this once-a-year sales event provides customers with the justification to purchase these niceties.

All of these factors clearly point to why Prime Day is right for Amazon. But would a similar approach work for Apple?

Apple (aapl) has a fundamentally different business model compared to Amazon. Apple is, first and foremost, a product company with a relatively narrow scope in consumer electronics and digital services. In contrast, Amazon is a mega-retailer offering a vast array of products and services, which enables it to temporarily lower the price of some of its strategically important products to attract more customers and introduce new services to its current customers. Apple simply does not have the breadth of offerings that would make having its own version of Prime Day a meaningful strategy.

Phenomenally successful in building a strong brand, a loyal customer base, and a set of innovative products—some of which (think iPhone) facilitated Amazon’s growth—Apple can find better alternatives to having a Prime Day of its own. Creating the next revolutionary device is one of them.

Alexander Chernev is a professor at Kellogg School of Management at Northwestern University.

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