Is Amazon Prime more vulnerable to competitive threats?

Following Amazon’s widely-covered move last week to raise the price of its Amazon Prime delivery service from $79 to $99, ShopRunner, which partners with brick-and-mortar retailers to ensure two-day shipping, launched a program waiving its normal $79 fee.

The twist is that the offer is exclusively for Prime members who have not yet renewed their membership at the higher rate. Providing proof of past Prime membership to an e-mail, DoneWithPrime@ShopRunner.com, earns the deal. ShopRunner also promises not charge more than $79 when the free membership renews in a year. They note: "and we won’t charge your card automatically."

ShopRunner offers unlimited free two-day shipping on products from more than 85 stores including Newegg, RadioShack and Tiger Direct in the electronics category to American Eagle, Timberland and Tommy Hilfiger in apparel and accessories. The service has no minimum order size and they cover the cost of return shipping.

"People are a little upset with Amazon," Fiona Dias, ShopRunner’s chief strategy officer, told The New York Times. "We hope a lot upset."

Amazon Prime goes beyond ShopRunner to include streaming video via Prime Instant Video, including original movies, and access to the Kindle Owners’ Lending Library that allows Prime members to borrow one free e-book a month. Reports also claim Amazon is in talks with music labels to add streaming music to the list of Prime perks.

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Although the Prime rate hike wasn’t as high as the $40 that was reportedly being explored, the biggest complaints seemed to be from those who don’t use streaming videos or e-books and just want cheap delivery. When word of the possible increase came out in early February, many assumed Amazon would bundle prices for those who only want the shipping advantage.

Many complainers also noted that they’re already paying taxes on Amazon purchases for the first time. Amazon blamed the rate hike — the first since the program was launched in 2005 — on rising costs of fuel and transportation as well as increased overall use of the program. Amazon is also raising the price of Amazon Prime for students-from $39 to $49. Prime Fresh memberships will remain $299.

Many reports still valued Prime as a rich deal, particularly for those enjoying all its perks. One drawback to ShopRunner was that users had to go to each individual retailers’ website to find items instead of a one-stop option like Amazon.

Another Prime competitor was said to be Newegg’s Premier program, which costs subscribers $50 a year for free three-day shipping and free returns. Newegg’s program skews toward computer products.

Other options would include Target, which offers free shipping with some restrictions to REDcard members. Walmart offers free shipping with any order over $50 but has no full-year delivery perk program.

BrainTrust

Discussion Questions

Has Amazon Prime’s rate hike opened up significant opportunities for its competitors? Where is that competition most likely to come from?

Poll

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Paula Rosenblum
Paula Rosenblum
10 years ago

I think if Amazon had gone up to $129, it would have lost a LOT of people (including me). Too big of a jump, and too tempting to try to do the math (subscription to Netflix would cost X, I spent Y in total last year, etc.). At $99, I figured it was worth it to just re-up, and I imagine others do too.

The “oh by the way” with Shoprunner (that you have to go to separate retailer sites to take advantage) would be an issue for me and many others, I think. And NewEgg’s program has always felt pretty “meh” to me – the assortment’s not broad enough to matter, and much of what they sell costs enough that I expect free shipping on it anyway.

But Walmart could finally make some inroads if it undercuts the price. The extreme success of coupons.com’s IPO sure illustrates that people (especially in the US)are bargain hungry. Target still has a problem as far as I can see. There’s still a disconnect between stores and on-line and the data breach sits on people’s minds. Even Sears might get a slice of the pie.

This is a very tough game. Amazon’s shareholders rightfully expect profits. The current business model makes that challenging. But changing will cost the company’s top line.

Nikki Baird
Nikki Baird
10 years ago

I suspect that a lot of shoppers will whine about it, but dutifully pay their $20 extra to maintain their membership. As Amazon points out, they have not raised the fee in 8 years, so it’s not completely unreasonable. I would contrast Amazon’s price increase to Netflix’s disastrous price restructuring that the company has only recently recovered from – where Netflix basically changed their pricing so that you paid more for less of an offering. Amazon is constantly tweaking and experimenting with Prime, and it’s an area where I expect that we’ll see more services added over time – streaming music being one possibility.

As for the competition, ShopRunner is interesting, but I suspect it will be some combination of a benefits aggregator like ShopRunner, and the retailer’s own unique loyalty program. It’s not unheard of to charge to belong to a program – Costco, for example, and Best Buy’s RewardZone. It is the combination of free shipping and additional perks that makes Amazon’s program different.

Dick Seesel
Dick Seesel
10 years ago

The apt parallel is Costco’s raising of its membership fee, which hasn’t hampered its growth over the long haul. As long as Amazon has tested the response to the price increase, and provided they keep marketing Prime as a suite of benefits, I expect the complaints to die down quickly.

Jason Goldberg
Jason Goldberg
10 years ago

I wish ShopRunner all the success in the world, but I think they are at a major customer experience disadvantage to Prime that has nothing to do with price.

Amazon is a single URL that millions of shoppers use to start their shopping journey. During that journey they can easily filter their search to “just” the 22M items that are prime eligible. So looking for prime eligible items is an organic element of the customers preferred shopping flow.

ShopRunner means you have to know in advance which retailers support ShopRunner and hope they have the goods you are looking for. If you guess wrong, you’d have to leave the site and make another guess. No one starts their shopping journey at ShopRunner.com, and there is no universal search feature that can help me find ShopRunner eligible purchases across multiple sites. So ShopRunner requires me to substantially change my shopping behavior. That is a big disadvantage.

All the media attention around the price increase for prime, creates an opportunity for ShopRunner to make some noise which will certainly help them grow. But it’s not going to suddenly allow them to take a bunch of Prime’s marketshare.

Ryan Mathews
Ryan Mathews
10 years ago

An opportunity? Yes.

A significant opportunity? I don’t think so.

I’m also in the minority of people that feel they could have probably gotten away with a $40 hike.

Look, these are customers — like me — who are already paying $80 a year for expedited service and no delivery charges. So, that probably means customers who are ordering large ticket, heavy items and/or are ordering smaller items more frequently. For these customers what’s another $20?

Sure, there may be some fringe customers who suddenly realize the economics aren’t really working for them, but my bet is that $99 Prime is still going to be seen as a good value by the majority of the target market.

Anne Howe
Anne Howe
10 years ago

To me, Amazon Prime is still worth the $20 extra spend. The barrier outlined by Jason Goldberg for ShopRunner is a significant lack of convenience – my sense is that shoppers who frequently use online sites value convenience as much as they do free shipping.

Ken Lonyai
Ken Lonyai
10 years ago

This rate hike is a minor bump in the road. The convenience and product selection can’t be touched by ShopRunner. The time for ShopRunner to make a serious stab at grabbing customers away from Amazon was years ago, that is, if it was even possible then or if they could have afforded some low/no cost lure.

There will be some grumbles and a small loss of Prime members and then Amazon will go on merrily growing its business. Remember, Amazon recently stated stated “More than 1 million customers around the world became new Prime members in the third week of December.”

Bill Davis
Bill Davis
10 years ago

Not really, because no one else really has the breadth of products in a single location that Amazon offers. Let’s not forget that their competitors are trying to use this as an opportunity to grab some customers which they should, but I see this as having little to no impact due to the value that Amazon provides.

Tony Orlando
Tony Orlando
10 years ago

Amazon is the king of online, and $20 will not change the hearts of many loyalists who will gladly fork over the extra money. Why? Because they like the innovations that Prime offers them, such as live streaming, and the one-stop shopping, which to me is still the best around. If Walmart decides to make inroads with free services, than this could hurt a little, but Amazon is way too big, and their followers are hard core, like Yankee Fans.

Kelly Tackett
Kelly Tackett
10 years ago

Yes, Amazon Prime’s price hike has created opportunities for companies like ShopRunner to make inroads, particularly among those Amazon shoppers who just use Prime for the all-you-can-eat shipping. Given that the hike is less than expected ($20 vs. $40), I suspect Amazon will have less need to justify the increase with added services, particularly among anyone who has actually shipped a package in the past year and seen how expensive it is.

Still, as competition heats up in this space, some retailers may find themselves unable to cope with the financial burden of home delivery services, prompting fulfillment to be the next major battleground in retail.

Steven Kuhlman
Steven Kuhlman
10 years ago

Until Walmart figures out how to compete online with Amazon they will be no threat. After two beyond poor online experiences with Walmart.com I will not shop there for the foreseeable future. A $20 increase in Amazon Price still delivers a value.

Camille P. Schuster, Ph.D.
Camille P. Schuster, Ph.D.
10 years ago

The opportunities only exist if the competitors can provide something of value to the consumers for a price they are willing to pay. Those consumers who use all the Amazon services may not be so upset because they find enough value to justify the higher price. However, it may be wise for Amazon to have different kinds of memberships – depending upon the service for which the consumer wants to pay. That will be much more complicated but having one price for delivering fresh food, doing one-day deliveries, and streaming videos may be difficult to bundle. Consumers typically only prefer bundle deals if they were considering purchasing the individual items. If they did not want the items in the bundle, there is no reason to pay the bundle price.

Ed Dennis
Ed Dennis
10 years ago

I really don’t think so. I was an Amazon Prime member before they started streaming. Imagine my delight when they added this Netflix equivalent service for FREE! I joined prime for the 2 day delivery and will gladly pay an additional $40 to continue as an Amazon Prime Customer. What may happen is that occasional customer might drop out, but they aren’t receiving any service from Amazon to begin with. My question to you is where else do you go? You can get mad all you want, but there isn’t an alternative.

Jesse Karp
Jesse Karp
10 years ago

No. Amazon Prime was a value at 79 dollars and it continues to be a value at $99. This should have little to no impact on membership rates and it will be incredibly challenging for competition to creep in and steal away market share because of this price change.

Linda Spott
Linda Spott
10 years ago

It is all about the money and how many people want to support Jeff Bezos “shipping” R&D development program using small helicopters and sidestepping UPS/FedEx? Good luck Amazon!

Ed Rosenbaum
Ed Rosenbaum
10 years ago

Certainly we could have expected the fallout; and we heard it loud and clear from many sides. But in the long run, this will have been forgotten and Amazon will continue with only a slight blip. I do think they might want to watch their top line carefully over the next several months to gauge how serious the loss will be, if any.

Peter Larson
Peter Larson
10 years ago

Every Amazon customer that I’ve talked to IRL thinks this is a big deal. And most of them never saw the appeal of Prime in the first place.

Look, in October 2012 sources close to Amazon said there were 3-5 million members.

In January of this year, Amazon confirmed over 20 million members.

That means that over 75% of Amazon Prime members have been with the program less than 2 years! They passed on Amazon at $79 for almost a decade before “giving it a shot” AFTER they sweetened the deal with instant video.

Now, the honeymoon is just ending, the consumer is realizing the service isn’t quite as comprehensive as Netflix, and the price is already getting jacked up?

If you signed up in 2013, you don’t care what the price was in 2006. It’s going up 25% from where you got in.

That’s too much, too fast.