Amazon Prime’s going to cost more? Since when?
In January 2018, Amazon announced that it was raising the price of its popular Prime membership from $10.99 to $12.99 per month.This price change means a few things for loyal customers of the major online retailer. While this price change may seem small, it is an 18 percent increase, which translates to an additional $24 per year for consumers who pay for their Prime subscription each month rather than buying an annual subscription, according to Investors’ Business Daily. Moreover, this raises the total annual cost for a month-to-month subscription from $132 to $156. If you are an auual Prime member, don’t worry – this price change doesn’t affect annual subscribers, who will continue to pay $99 per year.
Why are they doing this?
Apple has yet to release a statement on the reason behind the price increase, but the increase shouldn’t discourage consumers. According to Forbes, many of the products Amazon sells are not only less expensive than at traditional retailers but also are delivered right to your doorstep, in two days or less (Prime members can get next-day or same-day delivery on certain items, if they live in certain delivery areas). This means fewer trips to the store, no waiting in line at the register, and consumers save money on gas and other travel expenses. Since Amazon’s acquisition of Whole Foods, the retailer has promised that Prime members will eventually benefit from exclusive discounts at Whole Foods.
Prime only seems to be getting more popular among consumers, with December 30, 2017, being Prime’s highest-volume day of video streaming around the world according to their end-of-year press release. According to Cowen Analyst John Blackledge, it was reported that in December 2017 85 percent of Prime members purchased items on Amazon, accounting for 65 percent of total Amazon purchases that month.
Amazon stands to benefit substantially from the price increase, and will generate an extra $300 million annually by the increase, according to Cowen & Co. Consumer Intelligence Research Partners (CIRP) showed that as of October of 2017 Amazon had roughly 90 million US members and further reported that these members continued to spend on average about $1,300 per year, compared to $700 annually for nonprime users. The CIRP estimates that in the US, 63 percent of Amazon customers are Prime members. “Amazon Prime membership continued its steady growth as in recent quarters,” said Josh Lowitz, Partner, and Co-Founder of CIRP.
“Membership grew 6 percent in the most recent quarter, the same rate as in the June 2017 quarter. Prime also grew by 38 percent, the same growth rate as in the same twelve-month period the year before, from October 2015 to September 2016.” Prime members’ renewal intention has also improved gradually in the past several quarters and remains at very high levels according to CIRP. Amazon shares are up 46 percent since it reported third-quarter results on Oct. 26 and consumers seem to be behind the company as Amazon achieved record sales on Cyber Monday and Black Friday as buyers responded to a sea of deals and promotions.
What does this mean for me?
Perhaps consumers shouldn’t fret at the price change. With an array of digital services (movies, photos, music) and free 2-day shipping on more than 100 million items, the $2 price jump may be justifiable to consumers. As Amazon integrates its Whole Foods acquisition into its Prime membership and those members start to see benefits at the grocery store as well as in their online experience, Prime’s value proposition for consumers stands to increase even more.
In addition, any Amazon member who subscribes on an annual basis will not see any price change. While Amazon does not publicly release numbers for how many of their Prime members are annual vs. monthly subscribers, this change may have a side effect of driving monthly members towards annual memberships. Prime member retention is very good, as a large majority of Prime members choose to remain members. In the September 2017 quarter, 95 percent of Prime members reported that they would “definitely” or “probably” renew their Prime membership, compared to 94 percent of Prime members in the September 2016 quarter.