Amazon Prime’s retention rates are just sick

Discussion
Photo: Getty images
Jun 02, 2016
George Anderson

How do you spell customer loyalty? If you’re someone who regularly shops online, then the answer is likely to be A-m-a-z-o-n-P-r-i-m-e.

According to an analysis of Amazon Prime memberships by Consumer Intelligence Research Partners (CIRP), 73 percent of people who take advantage of a free 30-day trial membership are likely to pay the $99 needed for an annual subscription.

Ninety-one percent of first year subscribers are likely to renew their memberships for a second year while 96 percent of those who have been part of Amazon Prime for two years are re-upping for a third year.

According to CIRP, Amazon had a slight drop-off in Prime renewal rates after it raised its annual membership to $99 from $79 in 2014. Fortunately for Amazon, renewal rates rebounded within 15 months.

“When it announced the price increase, Amazon enhanced the benefit mix with a larger library of streaming video, including more original programming, a selection of free e-books, online photo storage, and occasional Prime members-only products and pricing,” said Josh Lowitz, partner and co-founder of CIRP, in a statement. “This contributed to the improved retention rate for customers after the first year of membership.”

DISCUSSION QUESTIONS: How do you explain the impressive renewal rates for the Amazon Prime program? What part will Prime play in Amazon’s future retailing success?

Braintrust
"Amazon proves that you can buy consumer loyalty as long as you're willing to give things away and lose money."
"I think the secret to Prime retention is Amazon’s willingness to keep adding value to the program."
"Now for Amazon: How do they keep the growth going in terms of converting more and more of those non-Prime members to Prime, etc.?"

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28 Comments on "Amazon Prime’s retention rates are just sick"


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Bob Phibbs
BrainTrust

As much as everyone bows to Amazon with their unbounded ambition and access to capital from Wall Street, one has to ask, with roughly 60 million Prime members, have they reached saturation? Is it really likely that Prime is going to grow as much as it has? It is nothing new. Those who have it have told their friends.

Yes it has been key to their growth but frankly I’m shocked that 25 percent of those free-trialers don’t continue — perhaps they don’t plan to buy as much online as they thought.

Tom Redd
Guest

Real simple here — free shipping and free entertainment services eat up Amazon’s margins, more than we will ever know, but the value to normal people is huge. On other websites I pay shipping, but their products are better and their websites are more informative. Amazon has a layer of its website store with reviews you cannot trust at all.

To win in retail the way Amazon has you need to lose something. Their brand carries no real image of quality so they pay for that with free shipping. If you go Prime then run that $99 out via buying brands you know, not new things.

Max Goldberg
BrainTrust

There are many reasons why consumers stick with Amazon: Price, convenience, customer service and variety. When a retailer has all of these elements going for it, sales and profits will follow. These are basic building blocks for any retailer. Amazon promises and Amazon delivers. Almost any major retailer would kill to have over 54 million households pay $99 a year for the privilege of shopping in its store(s).

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
1 year 10 months ago

Amazon proves that you can buy consumer loyalty as long as you’re willing to give things away and lose money. The recent analyses of Amazon’s shipping cost problems should give us all pause in praising Prime.

That said, Amazon has been smart in finding something of clear value that consumers find highly meaningful. However they are paying a huge price to deliver it.

I think this makes it very tricky to decide whether there’s something retailers should learn here. Prime is a solution to a unique and very serious problem for Amazon: why order from Amazon when everything has to be shipped? Retailers don’t generally have this problem.

For me, this leaves a bottom line that is simply: retailers need to find innovative things that are meaningful to consumers but they shouldn’t try to compete directly with Prime. Along with this advice, retailers should also look for things with stronger business models than Prime. Amazon has created a problem for themselves.

Charles Whiteman
Guest

Retention rates that high reflect two things:

1. Customers really like Amazon;
2. The benefits of the program are really compelling.

I think the first is the result of Amazon doing a great job of focusing on a great customer experience.

The second I think is mostly about self-selection … in other words, those that opt in to the program are those who like the idea of buying a lot of their general merchandise online from Amazon. Prime’s free two-day shipping benefit gives these people great value, which causes them to renew.

That said, I am still very surprised by the fact that 73 percent of those who take advantage of the free 30-day offer become paying Prime members. That really is impressive!

Bob Amster
BrainTrust

My take is not different from Max Goldberg’s. This is not a deeply philosophical discussion or analysis. Customers can find what they want most (if not all) of the time. They can find bargain prices. The delivery (I assume) is accurate a large percentage of the time. Shipping is free with all Prime suppliers. Delivery time is quick. There is a widespread belief (brand recognition and value) that a consumer can find and buy most of what they need by going to Amazon. What other ingredient of good customer service am I missing?

Kim Garretson
BrainTrust
1 year 10 months ago

On the first question: When you experience Prime like I have several times, ordering at 7:30 p.m. and having the goods on your doorstep at 6:00 a.m., it’s hard to imagine not re-upping. And one major part Prime will play in Amazon’s future success is making sure the Jet.com, Alibaba and others trying to copy it will fail.

Dick Seesel
BrainTrust

I think the secret to Prime retention is Amazon’s willingness to keep adding value to the program. The merchandise content gets better, the speed of delivery keeps improving, the streaming offerings keep getting better and meanwhile Amazon’s competitors just can’t keep up. The membership model may be a page taken from Costco’s book, but it obviously drives revenue and incremental profit in a low-margin business model.

Richard J. George, Ph.D.
BrainTrust

In a word, “addictive.” Like the cat that tasted fresh tuna there is no going back to the canned stuff. The Amazon trial program is classic. It allows customers to use the free shipping and other services and decide for themselves whether the annual fee is a value-added proposition. Apparently, from the retention rates, it is perceived as such. Amazon Prime acts more like an airline loyalty program. Namely, it ties the person to the sponsor and makes it harder to leave. Think about the times you have scheduled a less convenient flight with your preferred airline to keep the perks you have earned. The benefits associated with Amazon Prime are not fully appreciated until you use them and face the potential of losing them. Brilliant marketing by Amazon.

Bob Amster
BrainTrust

I love the “cat” analogy!

Ben Ball
BrainTrust

The same way Costco does. They offer real value for the membership fee.

Life is not this hard, folks.

Mark Price
BrainTrust

Amazon Prime encourages customers to purchase from additional product categories beyond what they originally came for. Customers with a high confidence level in e-commerce (becoming the standard these days) and seeking convenience (also a growing standard) are attracted to add products to their purchases since the shipping is free and Amazon provides a sticky customer experience.

In my experience, the added value services are less of a benefit than the broad array of products, competitive pricing, strong customer experience and free shipping.

Research has shown that retained customers purchase more often and “deeper in the catalog” than newer customers. What Amazon loses in shipping fees is offset by the incremental purchases. Not only do those incremental purchases provide additional revenue but they also permit Amazon to leverage volume to get better deals from manufacturers, thereby increasing their margin.

David Slavick
Guest

Amazon is NOT buying loyalty. They are offering a subscription service that pays itself back with enough frequency of transaction volume. The advantage is selection, convenience and consistency of service experience. These are the hallmarks of brand interaction which breed loyalty and subsequent renewal. Consumers vote with their wallets. Renewals are a testimony to Amazon’s service excellence and preference born of effective offer management, insights through advanced analytics and brilliant leadership from Bezos on down.

Tony Orlando
BrainTrust

Pretty much everything said here is true, and Amazon does it better than anyone. I have a business account that does not require a Prime subscription, and any purchase over $49 is free, so Amazon knows how to win online and they will not let up anytime soon.

Shep Hyken
BrainTrust

Loyalty comes from value and confidence. Amazon has done an amazing job of not just talking value, but proving it. They back it up by letting people try it at no charge. And when people experience the Amazon way, they understand the value proposition. And as long as the customer uses Amazon, they are constantly reminded every time they buy something — that their Prime Membership is paying off.

Lee Kent
BrainTrust
Prime has been a major draw for Amazon. We all get that the customer feels there is great benefit in the Prime program. That goes without saying, but … What I would like to know, and I’m sure many of you already know this: is the money made through the Prime subscription covering the loses? My understanding is that the recent profit reported by Amazon was largely due to their network services and not retail. We also recently discussed, right here, the huge shipping expenses and their impact on Amazon’s margins. With all that in mind, it is very hard for me to say that Prime is a success, much less that it will play a big role in Amazon’s future success. I would have to see some real numbers. Yes it has grown the volume of their business because the customer wins, but is that a winning business model? No other retailer would be treated by “The Street” the way Amazon is under these same circumstances. They would be getting torn to shreds for… Read more »
Ed Rosenbaum
BrainTrust

I like what Max said also. What retailer would not want 54 million customers, period? Let alone having them paying $99 a year for the privilege of buying from them. It’s great when you can be assured of almost $54 million before you even open your doors.

Gene Detroyer
BrainTrust

Online shopping is all about ease and convenience. Amazon Prime, in one easy stroke that you never have to think about again, makes a purchase easier (I never have to think about the cost of shipping again, ever).

And the value for Amazon is a merchant’s dream. If you use Prime, you go there first. if you see what you want, you buy it and never get to a competitive website.

Brian Numainville
BrainTrust
Amazon Prime IS a part of Amazon’s success story. First, once you pay for a membership you can’t help but feel you should take advantage of it. And as long as you are shopping, why not buy a few additional recommended items? So what if I need to wait for a day or two to get the item? I saved money and don’t have to go somewhere to get the item I bought, so that makes it convenient too. I don’t buy the argument that waiting for an item is a big deal — if it is something you need right now, sure, you will head to the store to get it. But if you are busy, chances are it will take a day or two to get around to getting something at a store, so you may as well buy it on Amazon with Prime and you will get it in two days anyway. Plus you can watch a movie or listen to some music that comes along with the Prime subscription on your… Read more »
Michael Day
BrainTrust

They deliver consumer value. No smoke and mirrors. Nothing ambiguous. The Amazon Prime value proposition has the goods and people see the value. It’s that simple.

Jeff Bezos built Amazon Prime with advice from his mentor up there in the Great Pacific Northwest: Jim Sinegal, former CEO at Costco (another business model that knows how to deliver value to its members, and where membership renewal rates remain close to 95 percent).

Now for Amazon: How do they keep the growth going in terms of converting more and more of those non-Prime members to Prime, etc.?

Liz Crawford
BrainTrust

Once they’ve seen the convenience, they never wanna leave. Amazon Prime is a time saver, an “agita” saver and even to some extent a money saver. It’s like EZPass — you speed through. Who wants to sit in the cash lane anymore?

Kenneth Leung
BrainTrust

Amazon is an interesting case study for retailers because it isn’t just a retailer, but a consumption experience provider. I pay my Amazon prime for the combination of shopping and entertainment. What Amazon has done with its combination of free shipping and entertainment for Prime members deliver great consumer value that is hard to beat, and that’s why consumers continue to re-up.

The convenience means even if you aren’t getting the absolute lowest price, the majority of Prime members will still order for the experience (I know I have, even if some other place else is cheaper by a dollar or two, I would still order from Amazon). The margins are going to be the issue and the financials will reflect that, and as long as it is sustainable, loyalty will remain and so will revenues.

Ken Morris
BrainTrust

I was streaming Amazon Prime content that was also available via my cable company last night and when the freebie pilot episode was complete Amazon asked me to pay $2.99 for the next episode. My wife went ahead and ordered it from Amazon despite the fact that it was available for free from the cable provider … that my friends is loyalty.

Amazon’s amazing success and cult-like following on Prime is a result of continuing to add more features that consumers truly value. It started with free two-day shipping, but now with streaming books, videos, and music, Amazon Prime is appealing to more consumer desires. Once consumers get hooked on these convenient services and some exclusive content, it is hard to live without it. Amazon is changing the way consumers shop and raising the bar for all retailers.

I think Prime will continue to be the glue that keeps customers loyal to Amazon. However, the growth of Prime will slow, as they have to be getting close to market saturation with currently about 60 million members.

Laura Davis-Taylor
BrainTrust
Laura Davis-Taylor
Co-Founder, HighStreet Collective
1 year 10 months ago

Sitting in the ICX conference today, the keynote was Doug Stephens. He shared that Amazon is getting 60% of all dollars spent online and that 44% of all online searches happen on Amazon. This speaks volumes for their success.

Vahe Katros
Guest

What part will Prime play in their physical showroom stores? I wonder what kind of experience they will design as AMZN opens physical outlets for appropriate showroom categories — but I digress.

Once you start using Prime, you want to use it more. You start migrating other purchases over and then look to see what else AMZN offers (like video) and you buy those too. When you hear that they are going to move into new merchandise categories, you think it’s great. Why not, the experience is great, the issues with returns flawlessly executed, and the delivery exceeds expectations. You may then read about the future of Echo and the Alexa system and if you know about tech and hear about the 1,000s using the skills kit SDK, you think the future really will be the future…so in the near future, I renew my membership.

Phil Rubin
BrainTrust
1 year 10 months ago

Amazon has changed and continues to change the game for many industries, not just retail. Their Prime retention rates are indicative of this and the value they deliver to their customers, suppliers and other partners. People have been underestimating Amazon and Mr. Bezos for years and all you have to do is look at their stock price compared to the S&P 500 over the past five years and see the results. Cynics still abound and those that miscalculate here will lose. Look at Pete Nordstrom’s comments a few weeks ago for the most recent mic drop. See more of my take here.

gordon arnold
Guest

Amazon is showing us numbers that are impressive in terms of growth, but a look under the hood is largely denied. So are we looking at another profit taker or is this a marketing gimmick to buy the business needed to save and/or grow market share?

At the same time, taking a look around the playing field we see that the competition can’t get a grasp of what is going on in e-commerce to the extent necessary to create a winning plan. With all that Amazon is supposed to have going in their favor the growth and profit dollars and percents somehow aren’t what they used to be or should be.

Arie Shpanya
Guest

Online shoppers are highly driven by free shipping offers. While prime is not free, at the time of actual purchase, it gives the illusion of being free, psychologically. Prime will continue to play a large role in Amazon’s future success because loyalty and retention is a key factor, long-term. I recall an article earlier this year that stated Prime members not only spend more than non-members, but spend more over time.

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Braintrust
"Amazon proves that you can buy consumer loyalty as long as you're willing to give things away and lose money."
"I think the secret to Prime retention is Amazon’s willingness to keep adding value to the program."
"Now for Amazon: How do they keep the growth going in terms of converting more and more of those non-Prime members to Prime, etc.?"

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