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Will Amazon’s customers go along with its Prime rate increase?
Amazon.com is raising the price for an annual subscription to its Prime program to $139 a year in the U.S., up from the current $119, which took effect in 2018.
The new higher annual rate will go into effect for new Prime members on February 18. Current price members will see their membership price increase when they renew on or after March 25.
Amazon has not seen significant fallout in the past over its decisions to raise Prime fees and it is counting on the case being the same this time. The retail and technology giant is pointing to increased costs, including wages and transportation, to help provide justification for a higher subscription rate.
Brian Olovsky, Amazon CFO, said yesterday on an earnings call that the company “saw strong growth in new Prime member sign-ups” during the fourth quarter. This may have been aided, in part, by Amazon moving Prime Day to October.
“Prime members continue to shop with greater frequency and across more categories than before the pandemic began, “ said Mr. Olavsky.
The number of items sold on Amazon’s platform that come with free one- or two-day delivery has increased 50 percent. U.S. Prime members received more than six billion free deliveries in 2021.
“Prime members also continued to expand their usage of Prime’s digital benefits, including Prime Video and Prime Video channels. Amazon Music launched podcasts in September, and in Q4 Prime members listened to millions of hours of podcasts each month,” said Mr. Olavsky, who added that Amazon is also seeing success on the grocery front.
Amazon has continued to fine tune the perks of Prime membership to keep subscribers happy. A company press release pointed out that Amazon expanded free same-day delivery from 48 metropolitan areas when it was introduced in 2018 to 90 today. Other benefits include free delivery from Amazon Pharmacy and expanded offerings in Prime Reading and Prime Gaming.
The company remains a revenue and profit producing juggernaut. Total sales were up nine percent in the quarter. Amazon posted a profit of $14.3 billion, doubling its gain from a year earlier, despite posting an operating loss for its North American e-commerce business. Profit gains were due, in large part, to Amazon’s investment in Rivian Automotive, an electric vehicle manufacturer that went public in November. Amazon Web Services also had a stellar showing with $5.3 billion in operating income.
Discussion Questions
DISCUSSION QUESTIONS: Do you expect that Prime members will be okay with the hike in Amazon’s annual subscription rate? Have you seen evidence that consumers may push back in 2022 against large profitable companies that raise prices?
Poll
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Lisa Goller
B2B Content Strategist
Michael Day
Retail Industry Executive, Genesys
The $20 Prime hike will cause some defection, but I’m sure Amazon already well tested this pricing and they can live with whatever defection they’re projecting.
Die-hard Prime fans likely won’t go anywhere. Even mighty Amazon is not impervious to cost pressure, and the price increase is proof positive of that. But what Amazon continues to have that so few others do is a true revenue flywheel and profits from AWS.
That’s a $1.70 a month. It won’t matter. What matters is we get our goods in record time every time, and that’s still going down.
So let me be sure I understand this. They eliminate the free Whole Foods delivery option and replace free with an outrageous $9.99 fee, they spend billions sending Jeff to space, and now they want to raise membership fees 15 percent. And they are doing all of this when the competition is catching up and surpassing them in so many ways (see Target’s and Walmart’s omnichannel excellence)? Maybe they better push up the release of Lord of the Rings to March to distract people.
Even though most Amazon shoppers will likely go along with the increase, the pairing of this announcement with Jeff Bezos’ tone-deaf yacht story doesn’t do the company’s PR any favors. The increase is also at odds with competitors that continue to reduce delivery and membership fees.
Amazon is so embedded in our convenient ordering mindset that less than $12 per month seems inexpensive even as it represents a 17 percent. They certainly won’t see a 17 percent drop so it will be net positive for Amazon regardless of the dropoff. Where they haven’t done enough is in proving the competitive value of Prime Video to make up the difference.
I think customers will stick with Amazon because it’s not enough of a hike to make it feel as if it’s no longer a good deal. Consumers using Prime are ordering so frequently that it’s an ingrained behavior at this point to use Amazon. Convenience is a major factor in retail behavior decisions, and Prime is the epitome of convenience. If the price hike goes above $200, though, I think subscribers will start to question whether or not they actually need most items delivered so quickly.
Somebody has to pay for Bezos’ new superyacht and the temporary removal of a bridge in Rotterdam (couldn’t make this up if I tried). No, they’ll have some fallout with people cancelling, but not their loyal core – particularly those who are frequent orderers and/or watch a lot of Prime. They’ll be hoping they make up for lost subscribers with the increase.
If the member is using the service, they know the value that Amazon provides. If they aren’t, this might be the reminder that is needed to cancel their membership. Unfortunately, the cost of doing business is rising. Most consumers recognize that in the higher prices they are paying at the register. I expect most Prime members will be okay with the increase in the annual subscription rate.
And Amazon also knows that there will be plenty of press about it – and competition will have their competitive input, as well. I’m sure they have thought about that and are ready to deal with whatever press comes their way.
Sure, I expect that the overwhelming majority of Prime members will be okay with the price hike. Actually, more than OK. Prime is still one of the most amazing values in retail. It pays for itself many times over during the course of the year. Amazon has worked hard to make sure the value delivered increases over time. This is not price gouging because they can. This is ever increasing value promised — and delivered. But we can also be sure to read kvetching about “inflation” and “monopoly — break ’em up!.” Prime is a great value — period.
Based on customers’ perceived value received from Amazon Prime, most subscribers will accept the price increase. Loyal Amazon customers benefit from free shipping on numerous orders during the year and many other premium perks like access to video, music and reading services. For most loyal customers, Amazon Prime is price inelastic.
Amazon keeps rolling along – adding perks and benefits to its Prime membership. This modest increase (less than $2 per month) should not deter existing customers who are hooked on Amazon. It may have some detrimental impact on potential new customers. This is a good opportunity for Walmart, Target and the ilk to generate their own new customers. However the overall economics support the increase for Amazon.
Americans are addicted to Amazon, it isn’t going anywhere. Sure, we may complain about a cost increase, but you can’t beat the benefits. $139 a year for a huge product selection, fast delivery, unlimited music, and streaming television is a bargain. We’re hooked. Amazon’s goal of total world domination is working.
Price elasticity is a confusing subject to the layperson. “My Snickers bar got smaller but the price is the same” provides a momentary furrowed brow, but is soon forgotten. With less tangible purchases, like Prime membership, the consumer has to think about what they are getting for their money — and then it is soon forgotten. For me, the two primary benefits are access to free programming on my Roku and free shipping on Amazon.com purchases. I will grumble for a few minutes when the autopay membership fee hits my credit card, but I’ll forget about it within five minutes of my next binge-watching session of Fleabag.
There will be some fallout wherein some former members will abandon ship. The value proposition for many more is so strong that those customers will absorb the increase and continue their loyalty to Amazon.
Most members will accept the price increase, however it is probably not an opportune time to announce it with Amazon sales increases over the holiday season. I believe eventually there will be a breaking point – I don’t know where, but if it ever gets to $200, I am out.
I venture to say that most of their customers will not even realize the raise or feel it. Or care!
Yes, most Prime members will pay $20 extra per year, as we’re addicted to Amazon’s convenience, speed and reliability.
Prime members stay loyal for Amazon’s unmatched bundle of goods and services. Since its 2018 membership fee increase, Amazon has continuously added value. Reliable availability, even faster delivery and more Prime Video content keep us coming back.
Amazon has brilliantly ingrained its offerings into our frequent habits, which makes it harder for us to leave. (And since its service is solid, we aren’t heading for the exits.)
As for push back, consumers have more choice among retail players. However many companies have recently announced price increases, too, due to risks like inflation, labor shortages and the steep price tag of profound digital transformation.
Amazon won’t see a material loss of members and therefore will reap huge gains in revenue from the $20 increase. That said, I do think that many issues that Amazon faces from worker strikes to work culture to Bezos’ flops in the media is giving consumers meaty topics to think about and will slowly erode the ubiquity Amazon enjoys.
I don’t foresee any significant drop in membership due to the $20 a year increase.
The increase might be griped about, but the vast majority of Prime members will stay.
Prime TV alone versus no-ad Hulu and Netflix is a bargain. Now add in Prime delivery speed. No delivery charges. 5 percent rebates on your Prime card. At $139 it is well worth it.
The only way customers will push back is if they don’t use the benefits or can’t do the math.
No one likes a price increase, but Amazon’s hike is reasonable for a number of reasons. First, it hasn’t increased prices since 2018. Second, costs are going up for Amazon like everyone else. But third, and most important, Prime still represents fantastic value for money and is a very sticky ecosystem. I expect there will be some very minor churn but, for Amazon, the benefits will massively outweigh any losses.
I’m convinced that Prime members will pay almost anything for the service. Don’t tell them that it’s possible to get free shipping from Amazon without paying for Prime.
Of course they will. Just like Netflix. Just give it to me.
Most Prime members will stay on board and not like the hike at the same time. As others have noted, the convenience of quick and free delivery, array of inventory and access to free return without packing/re-packing will soothe ruffled feathers.
We have one of each in our household. One addicted to Amazon Prime and one that shops for the best deal. The Amazon Prime member will not change due to a cost increase when everything else is going up like gas and food. The perceived value is greater than the cost. Note that unless you frequently purchase on Amazon and/or watch Amazon streaming, you may have to consider the cost increase. Overall, expect Amazon sales to increase and be offset somewhat by increased labor costs.
The Amazon prime value proposition is hard to beat, and while the price increase may create some friction, it essentially is a $1.67 increase for months. However, the timing is far from ideal, as our society is dealing with the dynamics of record inflation, cost of living increases, supply chain constraints, and are in the midst of a global pandemic.
The prime membership is worth it if the customers take advantage of the prime shipping, any relevant prime video content, and discounts at whole foods. However, in the streaming content wars, Amazon is somewhat behind the value proposition offered by HBO Max, Netflix, Hulu, Disney, and others. It is clear that Amazon has created an inelastic product and pricing offer that is hard to compete with.
Same comment as last time on this question, and Amazon Prime value has just gotten stronger in the mean time. Even at $129 Amazon is not going to have much attrition. Also, Amazon continues to offer lower subscription rates to grow membership with targeted demos with lower household income subscribers, etc.:
Posted on: 04/27/2018
No one is “ok” with a price hike, but it will be absorbed by most of the Amazon community. The amount of increase is not enough for a major fallout with customers (~17%) though it may hinder new sign-ins, Prime has already saturated most of the US market. Haven’t seen blatant efforts at consumer pushback, especially since the retail sector is doing well.
Absolutely OK! Prime members use Amazon for everything it offers including easy access, huge selection, great returns and customer service, fast shipping, and retail leading product availability speed. What is there not to like for a simple price increase after 4 years?