Amazon uses charity to kill two birds with one stone: great PR, and a cunning expansion strategy
Select language to see a machine translation of this article. The original language of the Article is English and the translation is provided for your convenience.

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!

graph 0803 amazon

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.”

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


If you would you like to receive the Newsfeeds daily, please click here to sign up now!

Help us make this Newsfeed better by rating this article. 1 star = Poor and 5 stars = Excellent
0.0/5 rating (0 votes)

Disclaimer
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.