Maybe Amazon didn’t just pull off the perfect price increase, after all?
“Based on immediate Prime member reactions, they may have underestimated the negative effects of the increase,” said Robert Passikoff, founder and president of Brand Keys, a customer loyalty research consultancy.
Four days after the Amazon told its Prime customers that it will be charging $20 more, or $99 a year, for its loyalty program, customers are still showing their dissatisfaction on the company’s forums.
Many had believed that Amazon played its cards perfectly: More than a month before the price increase, it warned customers prices would go up — as much as $40. So, when it finally increased prices by $20, it seemed cheap. Additionally, the retailer sold the price hike as a way to offset transportation costs, with members still getting other perks, like streaming video and book rentals, for free.
It was speculated that Amazon’s price hike was going to go down similarly to when Costco raises prices for access to its warehouses. Costco finds that the renewal rates actually hold steady or climb each time it hiked fees.
But, in fact, Amazon’s 25 percent rate hike is just steep enough that it’s making customers second guess whether it’s worth it.
Amazon is known for its cheap prices, and with the $20-price-hike looming, customers are doing the math. They are pointing out that many are now paying for sales tax in some states, where they weren’t before; and they aren’t watching the 40,000 TV shows and movies that come bundled with the membership; and that often two-day shipping takes more time than promised.
According to a survey conducted by Brand Keys, which measures brand engagement and customer loyalty, Amazon’s rating fell from 93 percent to 83 percent in the two days following the price hike. The survey, which was reported earlier by CNBC, was conducted among 1,050 Prime members from March 14 to March 16.
“Consumer expectations are always on the increase, and when it comes to online retail, they operate in a ‘what-have-you-done-for-me-recently?’ paradigm,” Passikoff told CNBC.
The company’s help forums are also active with customers discussing a number of factors that are contributing to their decision to flee. In a discussion called “Who else won’t renew Amazon Prime at $99?,” there’s 83 posts, which may or may not be small given the roughly 20 million Prime members.
One company benefiting is ShopRunner, which jumped at the chance to sign-up Prime customers to its competing service. For a limited time, it’s offering a $79 membership for free. Today, it told GeekWire that it has seen sign-ups increased by 850 percent the day of the announcement compared to the number of sign-ups ShopRunner normally sees daily.
“Time will tell if this was a brilliant or bonehead move on Amazon’s part, but for us, the scales do not tip in this family’s favor. We will not be renewing,” one customer wrote in the forum.
Another unhappy customer, under the name Jason Byrd, wrote that he doesn’t think Amazon Instant Video is a good enough perk, and that two-day shipping is not very reliable. “The Prime movies or horrible and there is NO guarantee to their 2 day delivery which I might get 50% of the time. Just don’t see renewing it as a result. Not for $99.”
In the forum, another customer raised questions about whether Prime eligible items were the cheapest way to shop: “I realize that shipping costs have risen over time, but I’ve also noticed that the prices of “prime-eligible” products are higher (sometimes considerably higher!) than ones that don’t qualify for prime. The way I see it, Amazon has already been compensating for higher shipping costs through price increases for quite some time.”
If you are asking many of the same questions, Slate.com created a handy widget to calculate whether Prime is worth it for your family. It asks how many items you purchased last year and how many of them were Prime eligible.
As an example, I purchased 23 items that were all eligible. It found that I’ll be paying an extra $7.23 a year under the new regime, so it recommends that I only continue paying if I find that Amazon’s library of e-books, movies and TV shows is worth that amount.
Since I also pay for Netflix, maybe not.