Amazon’s new win-win: 18% increase on monthly Prime membership
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Amazon’s new win-win: 18% increase on monthly Prime membership

Amazon’s Prime membership scheme may well stand out as one of the most successful business ideas of the 21st century. It transformed Ecommerce by incentivizing customers to dig deeper into Amazon’s ecosystem, offering them free 2-day shipping and special deals. The value the company received in return can certainly be measured in subscription fees – but a far more meaningful measure is to look at customer engagement. Prime members, on average, spend almost twice as much as non-members, as $1,300 per year.

Amazon’s had a great 12 months, seeing its share price rise by almost 60%

graph 0122 amazon

SOURCE: Yahoo Finance

What’s more, they get exposed to all of the company’s services (you can get free stuff on Amazon Video and Amazon Music if you’re a Prime customer), and quickly become brand ambassadors for the company. In today’s social-approval-led consumer landscape, millions of word-of-mouth testimonials at parties, in offices, and online, are a benefit money just can’t buy.

A couple of years ago, Amazon sought to bring more people into Prime by offering a monthly membership (previously, the only option was to sign up for a year, which would set you back by $99). Now, the company is increasing the price on its monthly membership plan by 18%.

The one thing that we know for sure about Amazon Prime is that users love it. Almost across the board, people think that $99 a year in exchange for free shipping, special deals, a competitive SVOD (streaming video on demand) service with lots of award-winning original content, a streaming music service, and more, is a great offer. Now, it looks like an even better offer: after the price raise, paying monthly for Prime will set you back $156.

It is almost a foregone conclusion that very few monthly Prime subscribers (who are massively outnumbered by those who pay yearly) will leave the platform. People soon get addicted to Amazon’s offering: they “cut the cord” when they see what’s available on Amazon Video, they start buying their groceries online because (with free shipping) it’s much cheaper, they don’t bother hitting the high street for deals – Amazon notifies them of a wide rage of special deals on a regular basis.

What that means is that Amazon is almost certainly in a win-win: either people will start paying a lot more for the same service, or they will upgrade to paying yearly, driving them deeper into Amazon’s ecosystem. It’s yet another masterful evolution of one of the most powerful subscription services in the world.

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.