Over 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:
- Amazon quietly offers Prime members 10 percent off Kindle Fire tablets.
- Amazon signs an exclusive deal with HBO for sought-after older TV shows.
- Amazon launches Prime Pantry, a service that will deliver large amounts of household goods to your home for $6.
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.
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.
But 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. To 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.