The Popular Prime Membership
The Prime service charges customers a membership fee of $99 per annum and grants members the benefit of guaranteed two-day shipping. Doesn’t stop here! The perks of being a prime member just keep on increasing (unlimited photo storage, Prime now, and the list goes on).
And all the perks that are provided by Amazon are bearing fruit! And how!
CIRP on Prime Membership
The Consumer Intelligence Research Partner (CIRP) offers the following numbers about Amazon Prime Membership (CIRP surveyed 500 U.S. customers who purchased goods on Amazon in the March quarter).
- The number of people subscribing to this service has increased to 41 million (as of Mar 31).
- Since the end of December (that is in 3 months) Amazon Prime has added about 1 million new subscribers.
- 42% of Amazon’s U.S. customers are Prime members. Prime members on an average spend about $1,100 a year at Amazon compared with about $700 a year for non-members (57% more)
- 34% of Amazon customers in the U.S. possess an Amazon Kindle e-reader or tablet.
What this Means to Amazon
It’s important to understand the nature of Amazon’s core business. Amazon is mainly an online retailer. This kind of business has a very low barrier to entry. It is cheaper to set up and thus attracts a lot of competition. There is no limit to the number of competing businesses that are waiting to snatch share away from the existing players. eBay and Alibaba are all part of this bandwagon. Online retailers also face competition from brick and mortar stores with an omni-channel format like Wal-Mart .
Therefore, carving a niche in this business requires a lot of marketing, an excellent customer service model and a rational pricing strategy. Dealing with all three and getting it right in order to maximize profits is definitely a lot of hard work.
To be a formidable player in this space, Amazon must constantly offer excellent services. Prime is a part of an enhanced delivery strategy — an important part of Amazon’s growth.
The reason why Amazon keeps increasing the perks of Prime members is because as subscriptions go up, operating margins of the company increase. That’s why such services are very important.
According to Seeking Alpha, “At the full $99/year rate (many users still get discounts), 41M subs would yield $4.06B in annual revenue.”
Also, the Prime advantage to Amazon is when people pay a subscription charge, they want to maximize on it. As a result, they use the service as much as possible, driving sales for the company. Since these people become repeat customers, it increases customer loyalty for the brand. Amazon is giving more and more products and service perks to members so that they stick around.
Others to Join the Bandwagon
Amazon remains reluctant to divulge its Prime membership number. However, it did state that Prime subscription increased 53% globally and 50% in the U.S. in 2014.
However, we can estimate its growing importance by the way its competitors are rolling out similar services.
eBay is testing a Prime-like program in Germany that it plans to roll out more broadly in the country in the second half of the year. Dubbed as eBay+, the new service guarantees free, fast shipping and returns for customers who (according to the local press in Germany), pay about $17 to $22 a year.
Others include Overstock.com Inc., which offers free shipping for $20 a year. Wal-Mart also recently announced that it would roll out a $50 per year loyalty program (half of what Amazon charges) with access to more than 1 million products online that ship in three days or less (compared to Amazon’s two days).
Right now, Amazon is clearly the leader! Let’s see whether its competitors can take its place.