Amazon raises the cost of Prime by $20
March 13, 2014 11:06 AM
Amazon.com Inc. is raising the price of Amazon Prime for U.S. consumers for the first time since the program’s 2005 launch.
The largest e-retailer in the Internet Retailer 2013 Top 500 Guide today announced that it will soon begin charging $99 for Amazon Prime, its loyalty program that offers free two-day shipping and other benefits such as video streaming and e-book lending. Amazon’s home page encourages consumers to sign up for Prime to lock in its current $79 annual rate before the cost jumps $20 in a week.
The move was widely expected after Amazon telegraphed a Prime price increase during its fourth quarter earnings call.
The retailer also raised the price of Prime for U.K. shoppers earlier this year—from 49 pounds (US$82) to 79 pounds (US$132). When Amazon increased the cost of Prime for U.K. consumers, it also announced the launch of the video streaming service Prime Instant Video.
Even with a price increase, Prime is the “best deal in shopping out there,” Sebastian Gunningham, Amazon’s senior vice president of seller services, tells Internet Retailer. “The price of Prime hasn’t changed even though we keep adding more services. It’s a club that people love and will continue to love as long as they see the value of membership continue to grow.”
Since Prime’s launch, Amazon has increased the number of Prime-eligible items from 1 million to more than 20 million, Amazon says in a note on its home page. It has also expanded Prime’s scope beyond free shipping by adding features such as video streaming.
Roughly 23 million U.S. consumers are Prime members, according to estimates by Scot Wingo, CEO of e-commerce services provider ChannelAdvisor Corp. Those shoppers are extremely lucrative; Wingo estimates Prime members spend about four times as much as other Amazon shoppers.
Gunningham says Amazon, No. 1 in the Internet Retailer 2013 Top 500 Guide, has created a “very profitable” model with Prime.
“Belonging to Prime is like owning a vacation home,” he says. “When you own a vacation home and you want to go on vacation, more often than not, you’ll go to your vacation home.” When Prime members need to buy an item online, more often than not, they buy from Amazon, he says.
However, the price increase may lead some shoppers to cancel their Prime subscriptions. A recent Bizrate Insights survey found that 85% of Prime members who also shop at other online retailers would not renew their Amazon Prime membership with a price increase. And Stock Trader’s Daily, an online publication aimed at investors, says it expects the increase to cause Prime’s membership to fall about 15%.
Not everyone is convinced Amazon will see blowback from the move. Wingo thinks the increase will have minimal impact. "If it was over $100 I think folks would think about it, but at $99 I think the change is under the radar," he says. Colin Sebastian, an analyst with R.W. Baird Equity Research, similarly expects "little likelihood of meaningful churn from the price increase."
Still, some Amazon competitors are seizing on the price increase to drum up business. For instance, the delivery service ShopRunner is offering Prime members a free one-year membership to its service, which offers free two-day shipping from retailers such as Toys ‘R’ Us Inc. (No. 30 in the Top 500 Guide), Blue Nile Inc. (No. 74) and eBags Inc. (No. 149). ShopRunner is normally $79 a year.