Is $119 too much to pay for an Amazon Prime membership?
Amazon.com has over 100 million people subscribed to its Prime program, which offers free shipping, video viewing and a host of other perks for an annual fee of $99. Yesterday, Amazon announced that it was taking the price for an annual membership up to $119. Will Amazon’s legions of fans be willing to pony up $20 more a year to remain in Prime? Will the increase slow Amazon’s ability to attract new members to the program?
On the company’s earnings call yesterday, CFO Brian Olsavsky told analysts that the Prime program is a strong driver of Amazon’s top line growth.
“We continue to increase the value of Prime, including speed selection and digital entertainment options,” he said (via Seeking Alpha). “We’ve been expanding free same-day shipping and one-day options. And our two-day shipping, it’s now available on over 100 million items, up from 20 million as recently as 2014. And we continue to add digital benefits like Prime Video.”
Amazon shrugged off concerns about raising its annual Prime membership rate from $79 to $99 in 2014. At the time, Amazon had gone eight years between raising its subscription rate and most, even those who grumbled, justified the increase based on added benefits and the fee remaining just south of $100.
With its latest announcement, Amazon is essentially admitting that operating Prime is an expensive proposition for the company. In addition to expanded benefits, Amazon has invested heavily in expanding its own private fleet of delivery services. It is in the process of bringing Whole Foods into its package of benefits with free two-hour Prime Now deliveries in a growing number of markets.
Mr. Olsavsky said Amazon has a number of programs in place for individuals who may find paying $119 in one shot too much. He pointed to a monthly subscription option as well as discounted programs for students and other groups. In the end, he said, “We do feel it’s still the best deal in retail, and we just work to make it better and better each day.”
Amazon posted a net sales increase of 43 percent during the first quarter, while operating income rose 92 percent to $1.9 billion.
- Amazon.com Announces First Quarter Sales up 43% to $51.0 Billion – Amazon.com
- Amazon.com Q1 2018 Results (Earnings Call Transcript) – Seeking Alpha
- How will Amazon replace Whole Foods’ rewards program? – RetailWire
- Is Amazon Prime more vulnerable to competitive threats? – RetailWire
DISCUSSION QUESTIONS: Do you expect Amazon to face reluctance from consumers to the increase in its annual Prime program rate? How do you expect Amazon rivals to react?