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Amazon.com’s $2-5 Sweet Spot

Amazon.com’s MP3 customers are showing $2 is a low enough price to pick up just about any album. Yesterday’s $1.99 special was Classics by Aphex Twin. The collection of mostly fast and abrasive techno music is currently at #2 on the site’s MP3 album chart (second only to a 30-track Beach Boys compilation selling for $5). OK, so a well known name (in electronic circles) can rise near the top of the chart with a near-giveaway price. But what about lesser known artists? Today’s $1.99 special is Trouble in Mind by Hayes Carll. The album by the Houston-based artist was released on April 8 by Universal Music Group’s alt-country imprint, Lost Highway. As the CD sits at #268, the low-priced MP3 album is at #13.

A look at the MP3 album chart shows Amazon.com customers’ love of bargain hunting. The top eight titles are all on special — five of them are priced at $5, two are going for $1.99 and one (by John Coltrane, currently a featured artist) is $5.99. Nine of the top 25 titles cost $5 or less.

Of course, the sweet spot varies according to demand. The Illusion of Progress by Staind, the highest non-sale title, has enough demand to merit a normal sale price. Same goes for the Mamma Mia! soundtrack that sits at #12 with a $9.49 price.

Such sale prices are probably (I’m guessing since I have no sales data to back me up) low enough to create incremental purchases that will not infringe upon the sales of popular new releases. A $2 album is practically a pack of gum at the check-out aisle. That’s found money. Those prices are good for consumers’ willingness to fill holes in their collections, good for labels to spur demand for a catalog title or raise awareness for a developing artist. And judging from the regularity by which I visit Amazon.com’s MP3 page to see what’s on sale, the store’s pricing strategy can go a long way in getting repeat business.

Compare iTunes’ and Amazon.com’s best sellers and it’s clear Amazon.com is the home of the deal. iTunes’ current top 100 does not have a single album priced under $6.99 (it does contain three low-priced EPs). While Amazon.com is gaining unit market share through catalog sales and one-off specials, iTunes is doing brisk business selling titles are regular prices. That greater profit margin represents the value of loyal, practically locked-in customers who would rather pay full list price than shop around. I think Amazon.com will be able to grab the business of some frequent iTunes buyers who enjoy browsing through sale titles and looking for bargains. The larger question is if they can change the game by getting business from the more casual-yet-full price-paying iTunes customer.