I pledge allegiance to the United States of Amazon

Discussion
Image: Amazon.com
Jan 26, 2016

Amazon.com is becoming as American as apple pie. While I’m not ready to follow those who believe that Amazon is nearing a day when it will vanquish all its retailing rivals, there is little doubt that the company has wound itself into the fabric of Americans’ lives.

At this point, there is plenty of evidence to support the view that the website has become the de facto search engine for those researching potential purchases online.

Today, 21 percent of those living in the U.S. are members of Amazon’s Prime program, according to a report by Consumer Intelligence Research Partners (CIRP). Even more impressive is that 46 percent of U.S. households have a Prime membership. (A Cowen & Co. study puts Prime household penetration at 41 percent, according to Internet Retailer.)

Michael Levin, a partner and co-founder of CIRP, told USA Today, the household penetration number is particularly relevant to understanding Amazon’s progress because “most couples and families use a single membership.”

The growth rate for the Prime program is impressive. In September 2014, according to CIRP, Amazon had 29 million members in its two-day shipping program. By the end of 2015, the number had grown to 44.7 million.

That last number actually puts Amazon ahead of Netflix for subscribers of its video streaming service (a Prime program perk). Where Amazon has fallen short is in converting its subscribers into viewers. That’s part of the reason the company has focused more on developing original content, like “Mozart in the Jungle” and “Transparent.”

According to Mr. Levin, per Investor’s Business Daily, 40 percent of Amazon Prime members use its free streaming service at least once a week. Forty-seven percent of Amazon’s Prime members in the U.S. are in the program for the free shipping.

What does the growth in Amazon Prime memberships mean for Amazon.com and its competitors? How much less likely, for example, are Prime customers to shop on sites other than Amazon after purchasing their annual memberships?

Braintrust
"Amazon does not have the answer to everything and as hard as it may seem to believe, there are innumerable brands and items not available there for other merchants to key on."
"The growth and penetration of the Amazon Prime program is astonishing, considering that many analysts were skeptical that Amazon could follow the Costco "membership fee" model only a few years ago."
"Amazon has turned itself into a company that has relationships with customers that activate continuously, rather than transactionally, i.e., only when someone has to buy something. That puts it into rarified air like Facebook/Google."

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18 Comments on "I pledge allegiance to the United States of Amazon"

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Ken Lonyai
BrainTrust

Those paying for Prime have a vested interest and commitment. To get their money’s worth they need to use the service offerings enough to recoup their investment. So it’s easily assumed that most Prime members will turn to Amazon first, at least for items that they know are sold there, categories that they’ve had positive experiences with or that they believe can be found there readily enough. As long as Amazon meets any or all of those scenarios and delivers on service and fulfillment at a reasonably high level, the cycle will be self-sustaining.

However, Amazon does not have the answer to everything and as hard as it may seem to believe, there are innumerable brands and items not available there for other merchants to key on. So other retailers still have lots of opportunity to stay away from commodities and commodity brands, offer unique items, focus on verticals and even create new categories for themselves which they can master. Service, logistics and fulfillment of course will have to be on par with Amazon, or differentiation will ultimately fail.

Dick Seesel
BrainTrust

The growth and penetration of the Amazon Prime program is astonishing, considering that many analysts were skeptical that Amazon could follow the Costco “membership fee” model only a few years ago. The program has created a loyalty firewall around the overall Amazon business, since Prime members receive an array of benefits from music streaming to free (and fast) delivery.

Fee revenue also provides Amazon with some incremental profit considering its overall strategy is to gain share at the expense of margins. This allows Amazon to keep building out its infrastructure and to achieve a market dominance rare in the recent history of retail. Nobody is impregnable (see Sears and Walmart as recent examples), but Amazon is building a huge moat around its business.

Camille P. Schuster, PhD.
BrainTrust

Retailers need to offer online services that are close to the efficiency of Amazon. They have already invested in real estate and infrastructure and employees. Showrooming is not a way to profitability so retailers need to find a way to get consumers to come to the stores AND purchase. If they can’t do that, their online services need to be better than Amazon and extremely profitable to make up for their real estate losses. Understanding consumers in general will not solve the problem. Each retailer needs to take that general knowledge and integrate it with exceptional understanding of its own consumers. Then the retailer needs to be creative about making in-store experiences enticing to their consumers and finding a way to add value to the purchasing process for their consumers.

Zel Bianco
BrainTrust

Amazon Prime’s free shipping has already changed the game for competitors — if you pay $99 per year why would you pay for shipping anywhere else? The convenience and wide range of goods also makes Amazon a first stop for many shoppers. Competitors need to innovate and find ways to draw in shoppers.

Max Goldberg
BrainTrust

The growth of Amazon Prime means that the company has a particularly strong relationship with an even larger number of consumers. That relationship causes consumers to start their shopping decisions with a visit to the website, taking away page views from competitors, which is a huge leg up. On the Internet your competition is only a click away, making that first click very important.

If Amazon is able to hold down prices it will continue to receive an inordinate amount of consumer attention. If not, consumers will begin to check pricing and shop elsewhere. That price advantage, along with speedy delivery and great customer service, should allow Amazon to maintain its advantage at the expense of other retailers.

Adrian Weidmann
BrainTrust

The most relevant and valued aspect of Amazon Prime is the free two-day shipping. The video streaming service is a nice touch but not a driver to sign up for Prime. Once purchased, it becomes very difficult to use another site. Once you actually pay for something, you take it far more seriously and as such you’ll go out of your way to leverage your value. It would be interesting to see a statistic of Prime subscribers that actually use another site for purchases. I, for one, typically will shop actual brand sites for very specific items other wise I’ll end up on Amazon. One notable exception is Zappos for shoes. Once again, free shipping both ways is a very strong attraction.

Joel Rubinson
BrainTrust

Amazon has turned itself into a company that has relationships with customers that activate continuously, rather than transactionally, i.e., only when someone has to buy something. that puts it into rarified air like Facebook/Google. They have built a relationship where people would grieve if the service was no longer available. Put it all together and the Amazon has created a pipeline to consumers at scale that opens up amazing leverage and future commercial possibilities.

Ben Ball
BrainTrust

A Prime membership is just like a Costco membership. For most people, once you buy it you are committed. Everyone carries a Walgreens card and a CVS card in Chicago. But most belong only to Sam’s Club or Costco. Everyone has an American Airlines AAdvantage Club card and a United Rewards card who flies out of Chicago. But you have to be a truly ardent traveler to pay for both the Admiral’s and the Red Carpet Club (and probably on an expense account!).

Add in the Amazon Prime Rewards Card not yet mentioned here and you are looking at free shipping plus 5 percent cash back on every purchase. And you’re going to go somewhere else for that new vacuum cleaner?

Ed Rosenbaum
BrainTrust

As an online company Amazon has no equal. They have invested in the infrastructure and have certainly marketed them selves better than any others. Zel wrote earlier, if you paid to be a Prime member why would you pay a shipping fee anywhere else? Little more needs to be said.

Renzo Ferro
Guest
Renzo Ferro
1 year 9 months ago
Amazon has been great at setting their positioning as a trusted partner for online purchases and living by it. Consumers recognize the brand as the source for secure and convenient shopping experiences, and important equity the brand has with his users. With Prime, they included an additional added value that serves the incremental need from the younger generations for immediate (or almost immediate) redemption, and eliminating the hassle to be in-store in order to do a search. Prime is doing great with the young and wealthier shopper (Fortune.com Dec 3, 2015), a segment of the market that an early adopter of technology. The Prime subscription is good at creating a sort of “club” experience, differentiating itself from the rest (Walmart.com, Target.com), bringing another plus to the value added that this service represents for the brand, and helping the consumer group differentiate from the rest. The registration numbers have soared in the last year, and that’s a fact. We need to wait now for the next wave, when we will see what’s Prime’s retention and new registrations metrics, then we will be able to define its clear potential. For the moment, the additional services (streaming and music) are interesting add-ons that… Read more »
Doug Garnett
BrainTrust

My wife is a Prime member. But what she joined for hasn’t worked out. Amazon very quickly removed the staples she was seeking from the kinds of goods for which Prime was accepted.

All that makes me very cautious about the issue. Amazon clearly knows how to “impress the pundits with big numbers” — a modern marketing tactic from the internet folks. What’s not very clear is whether “big” is “meaningful” in this case.

For example, Walmart’s online sales in 2014 were a mere 3% of their total revenue. Yet Amazon’s entire sales (cloud services, devices they manufacture, etc) were only 5X Walmart’s online sales….

All of a sudden, Amazon’s “power” is far less daunting — they begin to look like just another company who does well … But the hype seems pretty silly.

Lee Peterson
BrainTrust

Amazon has one goal: World Domination … and it looks pretty good right now! The Everything Store; no kidding. 39.3% of holiday online business very impressive. We once did a white paper called “Amazon Can’t Do That.” I think our next one will be “Amazon Already Did It.”

Joshua Tretakoff
Guest
Joshua Tretakoff
1 year 9 months ago

Prime has grown from a revenue generator to the central core of Amazon. On average, studies have shown a 40% increase in annual spending on Amazon, once a customer becomes a Prime member; that’s 40% that moved from some other retailers. While other services have attempted to duplicate the free 2-day shipping benefit (ShopRunner), the secret sauce is Amazon’s ability to surprise and delight with faster than advertised shipping, Sunday delivery, and always the best price.

If you look at the attempts of Jet.com to muscle in on the space, they are throwing the only thing that can dislodge Amazon: prices and money. Whereas Walmart and Target were the American standards for prior generations, this generation is Amazon’s. The only thing that can knock them off is sustainability and value, things they seem very focused on.

Arie Shpanya
Guest

Prime is one of Amazon’s most successful offerings, in my opinion. They continue to add more perks to both attract new subscribers and retain the millions they already have. If subscribers are making good use of it, they’re much less likely to shop elsewhere (because why pay for slower delivery from another site?) and likely to continue with the subscription the following year.

Amazon is doing everything right when it comes to Prime: it’s easy to sign up for a year and there is little reason to leave the program or shop elsewhere. That to me is a recipe for continued growth and success.

gordon arnold
Guest
One of the more fascinating aspects of a business plan and/or results is the use, omission and interpretations of data to support a perspective or opinion. Meaning that it is not what you are looking at, but how you are looking at it that matters. Cash flow and sales growth can be easily disguised as market enthusiasm with operations cutbacks and very expensive incentive programs. Amazon, like Twitter, Facebook, Yahoo and others, have big numbers to discuss and perhaps even flaunt in the Information Technology market’s face. The cost of doing business their way may very soon be seen as old fashioned or restrictive to the market that is learning and exploring more easily than ever with astounding real core growth. We live in a now society that is littered with the empty remains of corporations and whole markets gone by the wayside. Nowhere in history is this more true than in our information age. The truly amazing companies in the information business will tell us that they meet the market every day with change as in new and proven leading edge technologies. They listen closely for the next product opportunities when the market responds to new product with “I… Read more »
Lance Thornswood
Guest

Growth in Prime membership speaks volumes for Amazon’s brilliance in driving customer engagement. By piling on enough program benefits to ensure everyone can find two or three reasons to rationalize the annual Prime fee, they’ve created a pipeline of ongoing customer contact points.

And by ensuring Prime’s program benefits cross multiple usage occasions, Amazon has also built in greater relevance than any of their competitors:

  • with Netflix you get streaming movies and TV
  • with Apple Music you get streaming music
  • with Target’s RedCard you get free shipping

*** BUT with Amazon Prime, you get all that (and then some) ***

Prime makes Amazon more relevant as a one-stop-shop, and that drives more repeat customer visits — such a critical driver of retail sales.

Having a Prime membership doesn’t mean you won’t watch Netflix, listen to Apple Music or shop at Target, but it does mean that every time you do one of these things, you’ll probably also check out Amazon. And if every once in awhile, you end up watching, listening or buying from Amazon instead, pretty soon that adds up to some real money.

Georgina Bliss
Guest
Georgina Bliss
1 year 9 months ago

The key to Amazon Prime is the free shipping — albeit, including shipping with the Prime Membership. Consumers do not like hidden fees and costs. Shipping vexes consumers especially when a consumer is confronted with a high shipping cost. It can make or break the sale. Amazon’s brilliant marketing strategy to eliminate “the hidden shine” cost from the purchase equation was a bold and great move in the “retail chess game.”

Kenneth Leung
BrainTrust

I am a prime member and to get the maximum value, it does change your consumption behavior from shopping to media consumption (Music and Video). Amazon Prime is basically the lifestyle equivalent of a Costco membership. I would say I use Amazon as my initial shopping engine to establish a baseline before I do research on others.

wpDiscuz
Braintrust
"Amazon does not have the answer to everything and as hard as it may seem to believe, there are innumerable brands and items not available there for other merchants to key on."
"The growth and penetration of the Amazon Prime program is astonishing, considering that many analysts were skeptical that Amazon could follow the Costco "membership fee" model only a few years ago."
"Amazon has turned itself into a company that has relationships with customers that activate continuously, rather than transactionally, i.e., only when someone has to buy something. That puts it into rarified air like Facebook/Google."

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