Amazon uses charity to kill two birds with one stone: great PR, and a cunning expansion strategy
Put yourself in Jeff Bezos’ shoes: your Amazon Prime membership scheme is hugely successful. So successful, in fact, that almost all Americans who can afford to join (and like the idea) have done so! Great news – but where does growth come from now? Lowering the price would bring in millions more people, but eat into profit margins – an unacceptable loss. What’s the solution? Only lower the price for people who can’t pay the full amount.
Amazon’s share price is up by 32% so far this year!
SOURCE: Yahoo Finance
This unconventional strategy is usually a no-go in business. Lowering price tags dents demand and exclusivity, and plays havoc with profit margins. But Bezos’ play hinges on a rare stroke of genius: define Amazon as a public good. In doing so, the company can lower barriers to entry for its Prime service, vastly and rapidly expanding into new socio-economic strata without having to lower it for anyone else, or risk damaging the perceived value of the service.
This approach is essentially a privatized form of welfare - and that can only help raise young, internet-savvy, consumers’ perceptions of Amazon. After all, a staggering number of them supported Social Democrat Bernie Sanders failed attempt at securing the Democratic nomination in the last electoral cycle.
This is a road Amazon started to walk back in June last year, when Amazon slashed prices for customers who receive government assistance. But this week, they moved further along it, adding millions of Medicaid (the public health insurance program for low-income Americans) recipients to the list. These people will be able to get access to Prime for $5.99 a month. Less than half of the regular price.
Amazon executive Aaron Perrine told reporters at Recode that these discounts would increase people’s access to “aspects of the digital economy – some conveniences and benefits – that I think a lot of us take for granted.”
Dominion holds Amazon in its Global Trends Ecommerce Fund.
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