Reactions are mixed today after Amazon confirmed it was raising the price of Amazon Prime to $99.

amazon prime benefitsImmediately following the announcement, Wall Street sent its stock skyrocketing up, or by roughly $13 a share, to $383. Later in the day, shares leveled out to $371 as the whole market struggled to maintain gains.

But more important than how Wall Street feels is how consumers will react to spending $20 more a year for free two-day shipping and other perks, like free streaming video. The program is a cornerstone of the Amazon’s e-commerce service, and it makes for incredibly loyal customers. Some analysts estimate that Prime members spend twice as much as those who don’t belong.

Today, consumers were somewhat numb to the first price hike in nine years, with very few examples of people venting on Twitter. It helped of course, that in January, Amazon had forewarned customers that the price for Amazon Prime was going to go up as much as $40. 

Amazon doesn’t disclose how many members it has, although it says it’s in the “tens of millions,” so it will be difficult to figure out if there will be any long-term impact of the changes. 

Here’s a round-up of analyst expectations and reactions by others: 

Consumers were incensed by Amazon instituting much steeper price hikes in the U.K. and Germany. In February, Amazon increased the price by 64 percent to $131 in the U.K. after it started bundling free shipping together with Lovefilm, a movie rental service it bought that’s similar to Netflix. People turned out on Amazon forums in droves, mostly complaining of the rate hike and the two services being tied together.

Amazon forums discussing the price hike in the U.S. are much tamer with consumers applauding the speed at which they get Prime packages and characterizing video streaming is a nice perk.

Wedbush’s Michael Pachter estimates that Prime has 25 million members, and says he expects it to grow by at least 5 million annually, even with a price increase. 

Piper Jaffray’s Gene Munster estimates that 5 to 15 percent of Amazon Prime members will drop the service. In a survey of 500 U.S. Prime subscribers, he found that 66 percent would be unlikely or highly unlikely to renew if the price jumped to $109 from $79.

— Consumer Intelligence Research Partners said only 58 percent of Prime subscribers surveyed said they would renew their memberships if Amazon raised the price to $99.

RBC Capital Markets’ Mark Mahaney estimates the price will generate up to $400 million in operating income, even if 1 to 5 percent of Prime members drop the service. 

— ShopRunner, which is a competitor that offers free shipping to members across various online retailers, believes some members will be unhappy and is temporarily lifting its 79 membership fee to woo former Prime users.

— UBS analyst Eric Sheridan said to retain Prime members, Amazon will have to add additional content, such as a streaming music service, in order to justify the price hike. In addition, he says Amazon may have to spend more money on marketing Prime.

Comments

  • aaronbrethorst

    3% does not a skyrocket make.

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