Is $119 too much to pay for an Amazon Prime membership?
Amazon.com has over 100 million people subscribed to its Prime program, which offers free shipping, video viewing and a host of other perks for an annual fee of $99. Yesterday, Amazon announced that it was taking the price for an annual membership up to $119. Will Amazon’s legions of fans be willing to pony up $20 more a year to remain in Prime? Will the increase slow Amazon’s ability to attract new members to the program?
On the company’s earnings call yesterday, CFO Brian Olsavsky told analysts that the Prime program is a strong driver of Amazon’s top line growth.
“We continue to increase the value of Prime, including speed selection and digital entertainment options,” he said (via Seeking Alpha). “We’ve been expanding free same-day shipping and one-day options. And our two-day shipping, it’s now available on over 100 million items, up from 20 million as recently as 2014. And we continue to add digital benefits like Prime Video.”
Amazon shrugged off concerns about raising its annual Prime membership rate from $79 to $99 in 2014. At the time, Amazon had gone eight years between raising its subscription rate and most, even those who grumbled, justified the increase based on added benefits and the fee remaining just south of $100.
With its latest announcement, Amazon is essentially admitting that operating Prime is an expensive proposition for the company. In addition to expanded benefits, Amazon has invested heavily in expanding its own private fleet of delivery services. It is in the process of bringing Whole Foods into its package of benefits with free two-hour Prime Now deliveries in a growing number of markets.
Mr. Olsavsky said Amazon has a number of programs in place for individuals who may find paying $119 in one shot too much. He pointed to a monthly subscription option as well as discounted programs for students and other groups. In the end, he said, “We do feel it’s still the best deal in retail, and we just work to make it better and better each day.”
Amazon posted a net sales increase of 43 percent during the first quarter, while operating income rose 92 percent to $1.9 billion.
- Amazon.com Announces First Quarter Sales up 43% to $51.0 Billion – Amazon.com
- Amazon.com Q1 2018 Results (Earnings Call Transcript) – Seeking Alpha
- How will Amazon replace Whole Foods’ rewards program? – RetailWire
- Is Amazon Prime more vulnerable to competitive threats? – RetailWire
DISCUSSION QUESTIONS: Do you expect Amazon to face reluctance from consumers to the increase in its annual Prime program rate? How do you expect Amazon rivals to react?
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42 Comments on "Is $119 too much to pay for an Amazon Prime membership?"
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President, Max Goldberg & Associates
Some Amazon Prime customers may gripe, and others may quit, but the overwhelming majority will pony up the extra $20. We’ve become addicted to one- and two-day delivery and the host of other Prime services.
Managing Partner, Advanced Simulations
Of course there will be reluctance, but I’m betting the extra $20 per body will outweigh the losses from those who leave. It’s unlikely that heavy users of Amazon Prime will leave, so you still have the long-term expected value of most of your base. Rivals can do what they want – they aren’t going to beat Amazon at its own game.
Strategy Architect – Digital Place-based Media
I fully agree, Stephen. Retaining existing Prime customers is not a huge challenge at a $20 increment, and those who leave are likely suitably culled for the interim. The recapture strategy will be interesting to see.
Senior Vice President, Dechert-Hampe (retired)
Agreed Stephen. Folks who didn’t grow up in the days when “pricing actions” was part of the annual marketing plan aren’t geared to do the “pricing math.” A 20 percent price increase requires a 16.7 percent defection rate before it doesn’t pay out. That’s why we brand managers could never win the argument with the finance guys against price increases!
Managing Partner, Advanced Simulations
So we don’t always long for the good old days, do we, Ben?
Managing Director, GlobalData
For regular users of Amazon, the free delivery perk from Prime is valuable. However, membership also gives a whole host of benefits including access to content. As such, I still see the new price point as very good value.
Netflix faced a similar dilemma a while back and opted to increase subscription fees. There was some initial drop-out, but this was more than offset by revenue gains. And over the longer term, membership numbers have continued to grow. I expect Amazon will follow a similar pattern.
Strategy & Operations Transformation Leader
This stealth price increase is a bit concerning. Amazon may face a slight PR backlash as the company just announced that they have more than 100 million subscribers and the number is growing. If Amazon could clearly articulate the incremental value benefits associated with these increases, then it may be more acceptable.
However, the Prime membership costs are now entering into a more exclusive, upper-income level, as other online competitors are attempting to compete with the overall Prime value proposition. Amazon’s reach is far and wide and expanding, so it will be increasingly more challenging to go head-to-head against the Prime machine.
In my humble opinion, the $20 per year cost increase most likely will not result in anyone dropping Prime.
Principal, Cassarco Strategy & Analytic Consultants
At $119 per year, Prime Membership is still a no-brainer. With the $20 price increase, Amazon is mostly charging for its dramatic improvement in membership benefits over the past year. But I think that there is also an acknowledgement that the retail business may be shifting out of hyper growth mode into just “regular growth” mode. The most interesting, undiscussed number in Amazon’s Q1 earnings is the 13 percent growth rate of online stores, down from 17 percent in Q4 and 22 percent in Q3.
EVP Thought Leadership, Marketing, WD Partners
No. We’ve all added it up, it was WAY too much of a bargain.
What’s more interesting about all of this though is the fact that the Amazon business model is really proving out, which could/should change the way companies think in the future. That model is: growth first at any cost/learn what works/boffo profits later. It takes guts, faith and amazing intuition to not want “tests” to be profitable, but that ’90s way of thinking obviously has to change.
Congrats to Amazon for proving the “profit doomers” wrong. Stay the course and keep showing us that new path.
With the news of Amazon’s huge quarterly profits, and its $25 billion in cash on hand, plus Amazon Web Services surging in growth by nearly 50 percent, the company can certainly weather any short-term decline in new Prime members and renewals. Meanwhile, with more product brands and retailers expanding their offerings within Amazon, the value of Prime is on the rise with all shoppers, so I am confident that this increase will have little effect on the company’s results, especially since the shopping portal delivers less than 4 percent of the profit story, while AWS is trending to deliver up to 30 percent of the profits.
Vice President of Marketing, OrderDynamics
Amazon will definitely hear complaints about it. But it doesn’t matter. Yes, consumers will pay the $119. Amazon is a revenue and margin optimization machine. They have calculated the impact. They might lose a few shoppers, but that will be much more than offset by the incremental revenue this generates. The next question is, will they will increase it another $20 next year, or the year after?
For rivals there is an opportunity to be the hero. Will it have an impact? Well, passion and determination will always make a difference, but other retailers have a way to go to catch up to Prime. This would have to be a starting point — as long as it is in addition to another game changer. Give the customer extra value, service or a better offering.
Senior Retail Writer
People will complain, but I don’t think many will cancel their memberships. Amazon has us sucked in and we are used to two-day or Prime Now shipping. Collecting an extra $20 from the majority of subscribers will more than make up for the loss of any cancellations.
President, founder and CEO Interactive Edge
With free delivery with Prime, and the discounts that we take advantage of at Whole Foods, it is still a pretty good price/value proposition. For those that use it on a regular basis, as we do, it is still a good deal. Ask me when they raise the price again and I may have a different answer.
Managing Director, StoreStream Metrics, LLC
We live in a nanosecond world where we expect instant gratification. Amazon Prime delivers on that expectation. An extra $20 will be absorbed quickly and quietly. I’d be surprised if Amazon lost more than 1 percent of their existing Prime customers. Don’t forget about Prime Video.
Managing Director, RAM Communications
Costco’s initial annual membership fee was $25 back in the early 1980s. They’ve increased the amount by $5 about every five years, resulting in the current Gold Star membership fee of $55 per year. We don’t hear about much pushback when Costco announces increases, why would there be any for Amazon?
Independent Board Member, Investor and Startup Advisor
A 20 percent hike is difficult to overlook, unless you have completely weaved Amazon’s Prime-only services into your daily life. I suspect limited push back by some consumers but the true net effect might be a slowing down in membership growth rate rather than churn.
From a competitor perspective, the hike by Amazon may actually give competitors a green light to raise their own fees or at the very least provide a narrative for having such fees.
What Amazon has been doing for Prime members is to continually increase the value derived and ensure they personalize their communications to the particular savings and access to services that are most meaningful to each member. Amazon’s commitment to deepen and broaden their strategic moat keeps both competitors out and current customers in.
Chief Customer Officer, Incisiv
It appears unanimous that consumers will pony up the extra $20. The only comment to add is that with the Amazon broadcast programming included with Prime, it’s still a no-brainer.
Principal, Retailing In Focus LLC
As Amazon keeps adding more benefits to Prime membership (everything from better streaming content to enhanced delivery options), most members will willingly pay the extra $20 fee. Amazon has surely done its homework on the value perception at this new price point vs. the costs of additional perks for members.
Senior Vice President, Dechert-Hampe (retired)
Don’t expect a hitch. Costco has been doing it successfully for years without a drop in membership. Prime will be no different.
Co-founder, RSR Research
I think there’s a bigger story at play here — and that the opportunity for other retailers. Amazon is suddenly making huge profits. Has anyone asked why? Two reasons; it is no longer selling products at a lower price (beyond some minor 5 percent differences) and it is outsourcing its “Prime” offerings to third parties. In other words, the company is starting to think more like a retailer that has to make money.
So why is that good news? Retailers, ignore the Prime price increase and focus instead on the omnichannel investments you have made — as more and more third-party prime shipments get messed up (and, at least for me, they really do), you have an opportunity to shine. Search gets interesting. Being good at what you do suddenly matters. I can list some of the companies that will do really well. I can also list those who won’t, because they still don’t understand the need for speed.
I think retailers who operate well will do well. Better. This could be good.
Consumer Advocate, finder.com
$99 is such a great amount from a psychological standpoint. Increasing by 20 percent is quite the jump, inflation wise. I don’t think it will go without grumbles and some attrition but, on the whole, it won’t do too much to hurt numbers.
Retail Transformation Thought Leader, Advisor, & Strategist
We’ve seen plenty of examples of membership services raising prices successfully, just look at Costco for one example. When the service provides real value, and there’s no question Prime subscribers find value in the suite of services, customers will pay. I expect there will be plenty of complaints on social media and in the mainstream media but, in the end, very few customers will drop their membership. Will it slow down adoption by new customers? Possibly, but I can’t imagine Amazon didn’t build a financial model to evaluate this and conclude the impact would be negligible.
President, b2b Solutions, LLC
The math is simple. Amazon would have to lose 20 percent of its Prime members before it net membership revenues would go down. That is not going to happen. Will some members leave? Certainly, but not anywhere near 20 percent.
President, Ipsos Retail Performance
This approach does not seem surprising at all. When you start in a business area it’s common to price aggressively to get early adopters. As a business moves through the curve of adoption it can wean itself off buying business assuming it has a solid value proposition. And price at a premium for the middle majority. I guess this is where Amazon is at, or on the way towards.
For the competition their challenge is clearly overcoming the colossal scale Amazon has, which now includes a feature-rich environment as well as established economies of scale.
Chairman & CEO, H2O+Beauty
Consumers will continue using Amazon Prime with an increased membership rate. The rate increase is not high. Most Amazon Prime consumers have gotten used to the convenience of Prime and it will be difficult to lose so most will likely keep their membership. Amazon is very savvy in providing the trial of Amazon Prime at a reasonable cost so consumers try and stay on.
Consultant, Strategist, Tech Innovator, UX Evangelist
Principal, KIZER & BENDER Speaking
No! Primarily the only complainers will be those who joined and rarely utilize the service. From my point of view, the entire issue has raised the platform for Amazon to demonstrate and brag about their continued focus and efforts of additional services. It all comes down to price versus value. I think all this talk of the increase and services will generate new Prime members.
Founder, Grey Space Matters
Amazon continues to raise the bar when it comes to customer experience and Prime is a large part of that. Given its traditional renewal rate of 95 percent and the fact that there are now 100 million members, that renewal rate may decline slightly. But given its continued “obsession” with customers I wouldn’t bet that growth will slow significantly.
Meanwhile, Amazon rivals will continue to follow and attempt to close the gap though, again, I wouldn’t bet that anyone overtakes Amazon. As Bezos said, there is a lot of humility with respect to ever-changing (and rising) customer expectations. Read his letter to shareholders and see if you do not agree.
And here are some more of my thoughts on Amazon (from earlier this week).
VP, Digital Experiences at WWT
The $20 increase is negligible. We’ve all done the math and Amazon Prime continues to be a service where the large majority believes the value far outweighs the price.
Given the demand and addition of *many* services under the Prime umbrella (e.g., delivery, music, movies, etc.) … the next move is likely a tiered price/categorization of Prime services that will be much more appealing across all income brackets. Amazon has excelled with a “one price, get all services” model, but it’s not a long-term reality given their breadth.
Tiered Prime options would be a win for more consumers and allow Amazon to place a premium on the urgency/demand of services like same-day delivery.
Managing Partner Cambridge Retail Advisors
While some consumers may grumble about the Amazon Prime price hike, most will grin and bear it. Why? Because it is still a great value for even moderate uses of Amazon Prime’s many benefits. Since more than 50 percent of product searches start on Amazon, it is a habit for most people and an addiction for some. The video value alone is worth the price and the Whole Foods benefits are just beginning to be unveiled.
I don’t think Amazon is concerned with competitors’ reactions, as they don’t have serious competition, which is concerning. Walmart is the most worthy competitor in the U.S. and Alibaba is serious competition internationally, but not a legitimate competitor in the U.S. — yet!
CEO, The Customer Service Rainmaker, Rainmaker Solutions
We complain whenever a company or service increases the price. It is natural to want to protect the money we have no matter what our economic status might be. My guess is Amazon will hear the complaints and noise. Amazon will continue with the plan to increase the cost. And life will go on as if nothing had happened. Such is life.
Principal, KIZER & BENDER Speaking
Sure, some subscribers will grumble about the $20 increase, but most will just carry on because Amazon is still a good value. It’s easy, it’s addicting, and we’re in too deep with what Amazon has to offer.
Principal, KIZER & BENDER Speaking
When I mentioned the increase to my Millennial daughter she said, “It was $80 when I joined.” Then shrugged her shoulders and said it is still worth it.
From a profit perspective it is the right thing to do. Just think how many members would need to drop to make up for the profit from an increase in cost of membership. My only suggestion is to keep the first year at $99. Prime is addictive.
Retail Industry Executive, Genesys
Amazon will not miss a beat. The value IS there. As with Costco (the membership program Jeff Bezos used as the model when he launched Prime) people now have an emotional attachment to Prime membership. Like Costco, Amazon Prime membership, at its current price points, remains for the most part inelastic, etc. Members might complain but few will cancel their Prime memberships.
Retail and Customer Experience Expert
As long as people get their value they will pay. For those heavy users of the content plus shipping, an extra $20 isn’t going to the break the bank. That’s like 5 orders of regular shipping costs. Some at the margin will cancel, but I doubt it will be material.
CFO, Weisner Steel
Obviously this is a cost/benefit decision for people — or more precisely a cost/PERCEIVED benefit decision — so I would expect some marginal decline, but not much: $20 is probably pretty unimportant to most people who subscribe. That having been said, the move is surprising. Prime seems like a classic loss-leader, and the goal is to get people in the Amazon data-base more than recover shipping costs, so I find it counter-productive to sub a higher token amount for a lower one. Perhaps the bean counters scored a small victory.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Late to the game on this discussion and tend to support the thread of the comments made by other Braintrust members. My contribution is like the cat who tasted fresh tuna — there is no going back to the canned options. Amazon Prime represents fresh tuna.
Depending on the alternative price options, Amazon may lose some customers. However, overall Amazon provides a level of customer delight that can withstand a price increase that translates to less than 6 cents per day.
Chief Amazement Officer, Shepard Presentations, LLC
One thing Amazon does is give you a lot of bang for your buck. In the beginning, it was more about free shipping than anything else. The benefits Amazon offers up, for the customer that takes advantage of the offers, is far more valuable than the $119 they are asking for. And, for a consumer that pays the higher membership, the likelihood of them using Amazon more increases. People do want to get their money’s worth!
Director of Marketing, Wiser Solutions, Inc.
Amazon knows what they’re doing. The Prime services they offer are worth much more than $99 and even more than $119, if used as intended. Customers won’t appreciate the increase, but they will pay it. If the extra $20 per membership helps offset their astronomical shipping costs in a meaningful way, then kudos to Amazon.
CEO, President- American Retail Consultants
No. Like all inelastic demand subscriptions and products, Amazon’s Prime membership is both a cash cow, as well as a great way to create more profits with very little expense. $119 is a great price for the next 5 years, until we see Walmart/Jet catch up, and other specialty .coms become a stronger presence online. This is a smart move for Amazon, and should have been done long before today.
Founder and CEO, Bobsled Marketing
It would be a stretch to assume that the price increase will make the Prime program profitable for Amazon. There are massive costs associated with offering free 1 or 2 day shipping nationwide, which few consumers appreciate. But with a higher price point, Amazon will be able to offset the increasing operating costs of the service as they build up their fulfillment infrastructure in the US and abroad.