amazonprimeOver the past nine years, people have come to love Amazon Prime as the cheap way to get almost anything from Amazon — and fast. But over the past two weeks, we’ve seen that Amazon has much bigger plans for the service.

Three tell-tale signs:

As the benefits expand, Amazon is clearly hoping consumers will find more reasons to pay $99 for the annual program, after the recent $20 increase in the price of the annual subscription.

But it won’t be easy to change consumer behavior. Those who have grown used to the Amazon Prime of old may resist these changes, worrying that they are paying more for things they don’t really want or use. Some have already begun to ask if the current program is still worth it as prices go higher.

The future of Prime

Amazon has more than 27 million Amazon Prime members in the U.S., with a third of them joining in the past year, according to a recent Consumer Intelligence Research Partners estimate. The numbers have been fueled in part by free trials on Kindle Fire tablets.

But where is Amazon Prime headed?

On Friday, rumors circulated that Amazon Prime could provide members with free services or apps on the company’s upcoming smartphone.

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A third of Prime members have joined in the past year, according to a survey by the CIRP research firm.

This move, and others, hint that Amazon is in the process of building an ambitious program that has no limits.

Will the Seattle retailer be able to pull it off? Can it build one of the largest loyalty programs in retail history? And, more importantly, will the offering be rich enough to get customers to come back and spend even more money on Amazon’s other services, like consumer electronics and physical goods?

When looking at other successful programs, trust will be a key factor.

If consumers believe Amazon is sincere in offering the most valuable service possible, then they will be less likely to scrutinize the fees down to the last penny, and be more likely to blindly subscribe for the long-term, trusting that it will work out in their favor.

Two successful programs, similar in nature, are offered by American Express and Costco. With AmEx, people are willing to pay an annual fee in exchange for travel discounts and other benefits (prestige is often one of them). Costco members, meanwhile, don’t know how much they are saving, but trust that the discount warehouse is giving them the best price in exchange for buying in bulk.

In both cases, consumers are willing to belong without knowing exactly whether they are getting their money’s worth.

Nearly a decade of Prime

When, Amazon first launched Prime nine years ago, it was simple: Customers paid $79 for free two-day shipping. At the time, it was an attractive proposition because very few online retailers were offering free shipping, much less in two days.

Screen Shot 2014-04-23 at 7.38.17 PMBut fee shipping is no longer enough. Amazon’s own subsidiaries, Diapers.com and Zappos.com, will get a package to you faster than Prime for free, and other retailers allow you to pay nominal fees to speed up delivery, especially on purchases over $50.

Not to mention, Prime products are often priced higher to take into account free shipping, giving the appearance that Prime is not such a bargain after all.

As free shipping becomes a commodity, Amazon’s efforts are in overdrive to keep Prime members happy.

New benefits are popping up almost daily, and some are launched so quietly, they can easily be missed.

For instance, two weeks ago, Amazon started offering 10 percent off its tablet line-up to those belonging to its Prime loyalty program. Earlier this week, Amazon launched a new Prime Pantry service, letting customers order household products they might otherwise get from a grocery store in bulk. A 45-pound box costs only $5.99 to ship to your house.

But the really big score for consumers was when Amazon said it will be the first streaming video service to have access to old HBO content.

Nice perks, but pricey for Amazon

Amazon will pay dearly to offer Prime members these benefits.

It’s estimated that Amazon is paying $1 billion annually for TV and movie rights (HBO might cost as little as $200 million a year). Providing free book rentals isn’t inexpensive. Fast shipping, let alone shipping a 45-pound box, isn’t peanuts, either.

In the first quarter, Amazon said its shipping costs hit an all-time high for a non-holiday period. tide in boxTo cover those hefty fees, Amazon has raised the cost of Prime by $20 to $99 a year.

So far, that doesn’t seem to have affected the program’s growth. Amazon claimed during its earnings conference call on Thursday that Prime subscriptions continue to increase week over week. Based on the most recent figures Amazon has publicly disclosed, it had at least 20 million members at the end of 2013, although recent analyst estimates indicate that the number has grown by millions more since then.

But it’s too early to know how the increases will affect Prime memberships over the long-term.

Customers will have to gauge whether the medley of content plus free shipping is worth it, and trust that Amazon will continue to make wise decisions in the future that it will offer things they want at a price that won’t inflate prices further.

One option often floated by unhappy customers is for Amazon to implode the program into a bunch of mini services. People could choose from a number of different bundles: Maybe free two-day shipping would be one, and a more premium service might include content plus shipping.

But that’s not likely to happen soon.

Part of the magic of the program is to make you an Amazon shopper for life. If you pay $99 a year, you’ll favor Amazon over Netflix; buy a Fire tablet over an iPad; and ultimately continue to buy other content and physical goods. Or, at least, that’s how it worked in the past.

One thing that you can bank on is that Amazon wants the decision to be a no-brainer, and for consumers to believe that signing up for Amazon Prime is the best deal possible.

But that decision means maintaining a consumer’s trust. If they can’t do that, then all bets are off.

Comments

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  • Ryan D

    The only service that has been discussed that interests me is the music streaming.

  • JW42

    I am one of those who was a Prime member until the fee increase. I found the fee increase insulting. I was favoring Amazon for any purchase possible… spending thousands a year buying through Amazon as a preference. Getting the monthly subscribe and save items… generally receiving at least one package a day if not multiples. When the Prime increase was announced I knew that would be the end of my Prime membership. Even at $79, I felt at some point my higher level of purchasing as a Prime member should have qualified for earning reduced or free Prime Membership. Because I ordered so much Amazon freely would combine multiple orders into single shipments. That is wise… and that is how they could save costs… but for them to think I owed them 25% more for being a great customer was insulting. I instantly knew I would not renew 2015 at the $99 rate… but the more I thought about the situation and discussed it with others, the more I realized I didn’t even want to continue my 2014 renewal at $79. So, I cancelled Prime completely. On top of that I was annoyed enough to drop all my subscribe and save items. In one month off of Prime, I have bought far more things from other online retailers and in every case I did I got the same or better price as was available at Amazon AND they all shipped out my orders faster than Amazon has been now that I am no longer a Prime member. In many cases I have found savings per item of $1 to $5… on top of saving the Prime membership fee. Unless you value their streaming services, you save more by NOT using Prime… directly by saving the fee and then again by returning to being a wiser shopper. Once you find what you are looking for… instead of searching on Amazon.com… search on google.com… and find the best price. Then, when you find something on Amazon… ALWAYS check their marketplace prices. I buy a lot of CDs and DVDs… and have been saving quite a bit by not buying these things directly from Amazon. In some cases I pay for shipping but the total price with shipping elsewhere was still cheaper than the standard Amazon price with free shipping (whether Super Saver or Prime). Lucky for Amazon though most people seem to equate Prime with it being a savings from having to got to brick and mortar stores…. and miss the fact that they could use Super Saver shipping to their greater advantage. Amazon better hope as the following year unfolds that less 2013/14 Prime members leave than they expect. For me… leaving was a no-brainer and so far I see it has been saving me significantly… if I take my savings realized in the last month and the savings of the Prime fee…. it is going to be a savings of hundreds of dollars on the year compared to when I was more blindly favoring Amazon.

    • April

      just had the worst kind of Amazon Prime experience to date. Without authorization they helped them selves to one of the credit cards that was not tied to my prime account. I had ignored their huge front and center reminders to update an expired card. I did not because I did not like the increase in fees. They actually charged my husbands card since it had been on file for a few purchases he made. That is blatant theft, regardless of their promise to put the money back when I caught them red handed. They are really trying to pump those numbers up and have no scruples in how they go about it.

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