Amazon Echo is becoming an important part of life for the consumers who are shifting from the smart speakers to Amazon Echo or Google home and Apple new Homepod. The speakers are currently used for playing music and even setting timers when the user can get updates on the weather ‘or even traffic. The speakers have an ability to establish an ecosystem in the homes of the consumer. According to a connected intelligence report close to 60% of the Amazon Echo and Google, home users have included other accessories like thermostats, appliances, security systems and lighting. The platform is therefore adapting and will offer more options which are likely to expand business application.
There is an increase in the reliance on voice in the past few years. According to a Voicelab 2017 Voice report, there will be close to 33 million devices in circulation. According to another survey, only 11% of the current users will buy a competing brand (Marchick, 2017) . Another report by Mindshare and J. Walter Thomson points out that over 50% of millennials are using voice commands at least once every month (Chamberlain, 2018) . Consumers are now using voice recognition as their preferred communication interface.
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Amazon capitalizes on commerce to enhance the distribution of its products. This will allow third parties to build new applications and knowledge which can include extending search capabilities. Most customers prefer the Amazon Echo due to its music and books 46.7% followed by a smart home device as well as games and devices at 29.1% and news and podcasts at 26.5%
Price Elasticity of Demand
A change in the price for Amazon Echo does not affect the quantity demanded by the consumers. A slight increase in the price, for example, will not result in a significant decline in the quantity demanded. The product conforms to the law of demand and therefore a significant increase in its price will lead to a decline in the quantity demanded. Amazon Echo is therefore relatively inelastic. The magnitude of elasticity is less than one implying that the product is slightly responsive to price (Story, 2016) . The change in the quantity demanded, in this case, is smaller than the change in the price and therefore expenditure on the product is expected to move in the same direction as the price. For example, a 10% decrease in the price can lead to a 7% increase in the quantity demanded which implies that the price elasticity of demand is 0.7 and therefore expenditure on the product will decrease by 3%. Expenditure, in this case, decreases in the same way the price declined.
Income Elasticity and Cross price Elasticity and advertising elasticity of Demand
Amazon Echo has few substitutes and the level of competition is still low as the main competitors are Google and Apple. Amazon Echo is a normal good which means that an increase in the income for the consumer leads to an increase in the demand for the product. A change in real income for the consumer affects the demand for the product. An increase in the income, for example, leads to an increase in the demand. The product has positive income elasticity which can be associated with normal goods. The income elasticity of demand is more than 1 showing that Amazon Echo is a superior or luxury good.
The cross-price elasticity of demand is positive implying that an increase in the price of a competing product like Google Home leads to an increase in the demand for Amazon Echo. The product has a positive cross price elasticity showing that the two are substitutes. An increase in the price of Amazon Echo or Google Home leads to an increase in the demand for the other. The demand for one product will fall if the price of the other decreases as one company tries to obtain part of the competitor’s market.
Advertising elasticity of demand is positive which shows that an increase in advertising efforts for Amazon Echo leads to an increase in the demand. However, advertising does not lead to a quick bump in the sales like in the case of fairly inexpensive goods. Similarly, other factors affect the demand for Amazon Echo and therefore advertising elasticity is not a good indicator ( Story, 2016) .
The elasticity of the Amazon Echo is affected by the substitutes with the major competitors being Google home and Apple. An increase in the price for a substitute product leads to an increase in the demand for the other. Similarly, the product has a high degree of necessity due to the many uses like in thermostats, appliances, security systems and lighting. The main consideration is the initial purchase price for the product (Story, 2016) . The customers require a small time for decision making as the demand is high and they do not have more time to adjust their purchase behavior due to an increase in the price of the product. A permanent price change might be possible in the future if competitors develop better products or if the demand declines.
References
Chamberlain, L. (2018). What Marketers Need To Know About The World Of 'Connected Intelligence' |. Retrieved from https://geomarketing.com/what-marketers-need-to-know-about-the-world-of-connected-intelligence
Marchick, A. (2017). The 2017 Voice Report by Alpine (fka VoiceLabs) - Alpine.AI. Retrieved from https://alpine.ai/the-2017-voice-report-by-alpine/
Story, J. (2016). Price elasticity of demand and marketing: Mastering elasticity to market Strategically . Middletown, DE, April.
