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.
- Amazon.com Announces Fourth Quarter Results – Amazon.com
- Amazon (AMZN) Q4 2020 Earnings Call Transcript – The Motley Fool
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?