At this point in time, it’s no longer of a question of whether Amazon Prime rates will go up in 2014, but when—and by how much. The service, which costs $79 a year, is unsurprisingly popular: It offers free, unlimited two-day shipping on more than 19 million items.
Yet that $79 price point has remained unchanged since Prime debuted nine years ago, while gas prices during the same time period have shot up by 50 percent or more in many parts of the country. Amazon has also prepared customers for the inevitable, hinting during its quarterly earnings conference call in January that rates might jump anywhere from $20 to $40.
That raises two questions from my perch: First, who might stick around (and who might flee) in the wake of a Prime price hike, and what kind of increase Amazon can get away with—if any.
- Do you pay for Amazon Prime now? And if so, will a price increase scare you away — let us know in the comments.
“I think the reason you’re hearing about it now is that this is a quiet window to start socializing the idea and feel out the potential backlash or fallout,” says Tim Nelson, president of Tris3ct, a Chicago-based leading, independent marketing agency.
Nelson, who has an extensive background in retail strategy and shopper marketing, adds: “There is a ceiling on how high they can go before seeing a significant drop off in new sign-ups. At the same time, most of their loyal users are getting sufficient value that they would be willing to pay significantly more.”
So what’s the ceiling? Nelson thinks that “even at $119, it is a great value for a heavy user and not out of line with premium memberships at some club stores. They could always promote off that level for new subscribers much like the way telecom players operate.”
Nelson’s take makes sense, but it’s also hard to predict how much time shoppers need to get used to the idea of higher Prime. For now, at least, it may be a non-starter: In a survey of more than 6,400 current Prime customers, Prosper Insights & Analytics found that 63 percent of consumers would only pay the current $79 fee for Prime. An additional 29 percent would pay $89 – $99, and only 8 percent would pay $109 or more, a $30 minimum increase.
“Every other competitor out there will be upping the ante and trying to get those shoppers, so Amazon has to be very careful from a lot of different angles,” says Pam Goodfellow, Prosper’s consumer insights director. She adds that few consumers willing to pay $109 for Prime are younger, predominantly male and have more money to spend—most heavily on the electronics.
To break it down: Members willing to keep Prime at that price point maintain average household incomes of nearly six figures; 75 percent are under 45 and 65 percent are male. And for these consumers, it’s worth it to keep Prime to have the convenience of automatic free shipping on high-ticket items ranging from stereo speakers to big-screen HDTVs.
Whether customers stay or go in the event of a price hike could indeed boil to the variable that consumes Amazon CEO Jeff Bezos: speed of delivery. (He famously predicted a few months ago that drones will deliver packages to customers within the next five years via “Amazon Prime Air.”)
“Consumers have to decide whether it makes sense to bear a higher cost to receive packages in two days as a Prime member, versus roughly 3.5 days for standard shipping,” says Jordy Leiser, CEO of StellaService, a retail customer service analytics company. “Our data shows that standard deliveries take longer on average for consumers on the West Coast, so paying for Prime membership may make more sense for people living in that part of the country.”
Then again, when StellaService examined more than 100 major retailers in the second half of 2013, it found that Amazon Prime was hardly alone in the quick delivery game. “Consumers can order many of the products offered by Amazon from Amazon-owned Zappos and Diapers.com, which will consistently deliver in roughly two days for free,” Leiser says.
And indeed, if Prime rates go a bit too high for the tastes of some shoppers, it could be enough to send them looking for more cost-effective options. Then again, it may pay to do the math before bolting away to the arms of another e-tailer.
Let’s suppose that the average shipping charge for a package runs $8. At the current cost of Prime, you only need to order 10 items to recoup your investment. But even if Prime goes up to, say, $119—a $40 jump, or nearly 50 percent—you’d only have to order 15 items to break even. That may sound like a lot, but averaged out over a year, it’s slightly more than one item per month.
And yes, Prime is more than just shipping on the items you buy. It also includes access to Amazon Instant Video, which has more than 15,000 titles, and Amazon’s Kindle library. One scenario has Amazon unbundling some services with different pricing levels for streaming services, the Kindle library and shipping,” says Laura Heller, executive editor of FierceMarkets Retail.
“Another has it adding more services including next day or even same day delivery in more markets,” she adds. Could there be some kind of dramatically different new offering? Sure. If Amazon is planning to hike Prime pricing, it’s entirely possibly there will be some kind of new service that would compel customers to pay it.”
Now it’s your turn: What would you pay to keep Amazon Prime, or what would it be worth to you as a new subscriber? Let us know what you think below.
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