"Price Elasticity and iPods"
Farhad Manjoo enjoins would-be Kindle competitors not to make the mistake the iPod’s rivals made:
Lesson No. 1: Beat the Kindle on features, not just price. One of the reasons the iPod managed to stay on top for so long was that Apple was constantly innovating. Its rivals would match its features—stylish design, unbeatable interface, ever-better capacity—but by the time they got there, Apple had invented some newer, better, smaller, sleeker iPod, and its old version was now passé. Eventually there seemed to be only one reason to buy a rival device—it was cheaper. But it turned out price wasn’t a deciding factor for most people. Customers chose the pricier iPod because it offered a lot more, not to mention because it had become a fashion statement.
I think it’s worth considering a slightly stronger claim. The lower prices of iPod competitors was actually a problem. By releasing products that didn’t have any strikingly better features, but have somewhat lower prices, vendors of non-iPod MP3 players are basically selling a product that signals “I’m too cheap to buy a name brand digital music player.” That’s sort of poison. Costing less money than a rival product is a good thing, but signaling “I’m Cheap!” is not.