New Amazon Prime Prices
The price of Amazon Prime in the United States is expected to increase in the next few years. The company has decided to start by increasing the price of the monthly subscription from $10.99 to $12.99. Over 30% of prime members pay monthly, so the increase in price is expected to raise revenues by a hefty 300 million dollars. The price of the annual subscription is also expected to increase, but the change will gradually take place over the next four years. Amazon Prime is an extremely popular service offered by Amazon. Prime revenue has increased 49% in the last year. As the Forbes article states,“ some of the perks of the Amazon Prime subscription include free 2-day shipping on more than 100 million items, unlimited streaming of music (Prime Music), movies and television shows (Prime Video) and cloud storage for photos.”
To its over 80 million members, Amazon Prime is definitely worth purchasing, whether the service is bought monthly or annually does not matter. Some of the order qualifiers are the express two-day shipping, unlimited music streaming, Prime Video, the price (annual value and monthly value), and unlimited storage. The order winner is the two-day shipping. Amazon markets heavily on this perk of the membership. Quick shipping means you can avoid the hassle of waiting in lines, traffic congestion, parking lot congestion, and you completely eliminate the risk of going to the store only to find out that they ran out of what you were looking for. Similarly, Amazon executives know their Prime service will be profitable. As the Forbes article mentioned, Amazon is raising its prices because it knows it can. Even with the price spike, the value of Amazon is evidently higher than the actual price to many of its subscribers.
Lastly, all companies face the law of demand. If Amazon raises it price it runs the risk of losing customers. Some customer may not value it enough to keep the membership after the 20% price increase. Nonetheless, the price increase for the monthly subscription may encourage people to upgrade to the annual membership. This switch would save month to month members $78-$160 a year. Amazon must have made a decision and decided that the price change was its best option. My only concern with this is that Amazon has a large market share of the E-commerce industry. Raising the prices solely because it can be done makes me uneasy about the future. The increase in revenue from the price change allows Amazon to continually buy out its competitors; such action can lead to oligopoly or monopoly, two market structures that lead to overpricing and under-producing. Amazon gives their members a lot of value for their money, but as the price continues to go up the value absorbed by consumers will decline. To conclude, the price is only increasing for U.S customers. This seems weird to me. I would think that if an international company, such as Amazon, planned to raise its price it would raise it everywhere. This is not the case for Amazon, most counties actually pay less than America for their prime memberships.
Sources- https://www.forbes.com/sites/jeanbaptiste/2018/01/20/why-amazon-is-raising-the-price-of-prime-memberships-this-year/#463eb4ca485d
http://fortune.com/2017/04/27/amazon-prime-revenue/
I totally agree that the order winner is the two-day shipping. It is a good point that, by incrising the price many customers might re-evaluate the value of each other qualifier and get to the point that the fast shipping is not as valuable as the price. This is a risk that Amazon is taking. The company has probably gather some data and made a studio in order to evaluate this change in the customer´s preferences anv values. They do know that an increase in the price might lead to a decrease in the number of customers but I think that, if they are already considering rising the price is becasue the do believe that the order winner will remain the same; fast shipping. And, in my opinion it is a good idea to raise only the price in the USA because is a way to see (experiment), if, their theory, (customers do value fast shipping more than price) is correct. If they raise their price in all of the countries the risk of loosing a considerable amount of customers is higher than if they just do it in the States. A company needs to grow, and right now Amazon has a competitive advantage that no one elses has, but, this will not always remain constant, they need to improve, and, in order to do that they need new ideas, and they need to put those ideas into practice in a small segment, before going through their whole market. We can not forget that there is also a risk by doing nothing and mantain the status quo.
As you said, the free two-day shipping that Amazon Prime subscribers receive is definitely the order winner. I would argue that this is the main attribute that has forced many brick and mortar retailers to close stores or even go out of business. When customers are making their purchase decisions, they are placing much higher value on saving time by not physically going to a store than the price they are paying for their membership. Many customers would prefer to wait two days to receive their product in order to avoid the hassle going to a brick and mortar retailer. Also, one could argue that Amazon’s move to increase the price Amazon Prime memberships was warranted. I would argue that the movie and music streaming services are enough reason for a price hike. For example, Netflix recently raised their rates. I believe that their is an increasing demand for services like Amazon Prime and Amazon reacted accordingly. Also, to your point about the danger of their increasing market share and prices, I agree except for that their are many retail giants like Walmart who are trying to take any piece of Amazon’s e-commerce market share they can get. I believe that stores like Walmart will act as a price control and help protect consumers from monopolies and inflated prices.
I completely agree with Michael. When I was reading about the price increase the first thing I thought of was the video and music streaming services. I personally use the prime streaming services about as much as I use Netflix but for different reasons. I think that Amazon Prime has better movies whereas Netflix has a better variety of TV shows. Because of the multitude of benefits for being a Prime member, I believe a price in increase is more justified for Prime than it is for Netflix. I think that if customers were to compare Prime membership versus Netflix membership, the free two-day shipping would be an order winner.
I agree that the order winner for Amazon customers is the two-day shipping option and the current price of the prime membership might not be a deterrent for customers. However, I disagree with the Forbes statement that Amazon should increase its price for prime membership simply because “it knows it can.” The first aspect that Amazon needs to be cognizant of is the increased competition in e-commerce from Walmart. According to a recent Forbes article about Amazon and Walmart’s competition in the e-commerce sector, Walmart’s percentage of visitors who actually ended up purchasing products is significantly increasing. Therefore, the notion that Amazon will continue to remain the giant of the e-commerce retail industry might be under threat. As its competition increases, Amazon should be more careful about suddenly spiking prices since customers have an alterative in the shape of Walmart now. Moreover, Amazon recently opened its first brick-and-mortar store in Seattle and has since been having problems with the technology installed in its stores. For example, Amazon is having trouble charging customers who come to shop as a group since it is hard for the sensors to detect AmazonGo apps in the customer’s phone at the same time as customers leave the store. On the other hand, Walmart’s stronghold is its brick-and-mortar stores where it has maintained a strong customer base. With the gap between Amazon and Walmart closing down in online retail and Amazon having trouble with its first GO store, it might not be the best idea to increase the price of prime membership for Amazon. Customers might be more likely to shift to Walmart as price becomes an order winner.
https://www.forbes.com/sites/tompopomaronis/2017/12/20/walmart-vs-amazon-a-surprising-turn-in-the-battle-for-e-commerce-glory/#4fc77aff2514
https://gizmodo.com/amazons-first-automated-brick-and-mortar-store-opens-to-1822277611
Hi Brianna,
I found an article (linked at the bottom of this post) that compares Amazon Prime to Alibaba’s “Singles Day,” which mimics Amazon Prime. Singles’ Day is just one day a year in November on Alibaba’s site, kind of like Black Friday in the US but much bigger. The article says, “During just the first five minutes of Singles’ Day in 2016, shoppers spent as much money ($1 billion) as Amazon’s entire 30-hour event in 2017.” In addition, the sales from Amazon Prime Day, Black Friday and Cyber Monday totaled only accounts for 43% of Singles’ Day revenue.
I wonder Alibaba’s success has at all influenced Amazon’s decision to increase Prime membership prices. Alternatively, I wonder if Alibaba will offer some kind of Prime membership in the future, although I believe this would decrease the success of its one-day event. I agree with Amazon’s decision to increase the price of Prime membership, since Alibaba’s success with similar expedited shipping shows so much success and a demand for these services. One day events definitely increase anticipation and evidently sales, but as a customer I would value having Prime services available more than once a year.
http://www.businessinsider.com/amazon-prime-day-vs-alibaba-singles-day-2017-7
Elizabeth, I found your article about Alibaba’s “Singles Day” a great topic that connected well with Amazon! I definitely think they both have competitive tactics that both you and Brianna talked about with both companies’ process strategies. Both Amazon and Alibaba specialize in flexibility strategy, in regards to the high volume, variety, and customization of products they offer. However, Amazon offers Amazon Prime membership to add extra value and differentiates itself from Alibaba in its time strategy, in guaranteeing two-day shipping. However, Amazon Prime is a constant option, and Amazon definitely has taken advantage of the power it holds over its consumers in increasing the price of Prime. In contrast, Alibaba was able to use its hold in the Asian market to take advantage of Single’s Day and to outcompete Amazon in just 5 minutes in comparison to Amazon’s 30-hour event. Alibaba altered its time strategy to create the urgency and desire in its consumers through Singles Day which was strategically intelligent.
Brianna,
Two summers ago, I worked at a marketing firm and the summer interns were given the task to plan an all-office event for a day. As we planned everything out, contacted the equipment team, and purchased all the necessary items, a few days before the event we realized that we needed a few more things and fast. Now I see that this happened often in the office as I remember the Amazon Prime purchases building up on the excel worksheet. The large variety and quick service has worked well for Amazon. I agree with you in saying that customers will continue to use Amazon Prime despite the increase in price. The benefits they receive in return far outweigh a two dollar increase in price.
However, as I see from Elizabeth’s comment above, Amazon should be careful with their actions as competitors like Alibaba can soon take this industry right from under their noses. As order winners suggests, what differentiates Amazon from Alibaba now? Now the increase in subscription price will be taken into consideration. Quite similar to how Amazon disrupted in-store shopping. So, do you foresee this possibility?
I believe that Amazon is making the correct strategic decision when raising the price of its Prime membership. While Amazon’s major focus is supply chain management and a focus on low prices, Prime remains a premium service. Many of the benefits of membership far outweigh its costs for many consumers as several others have mentioned above. By having the free two day shipping it makes Amazon competitive with major brick and mortar retailers as well, as it is able to offer goods and an equal or lower price due to its efficient management and the connivence of its free two day shipping is for many customers an order winner. It provides a major benefit against stores like Wal-mart where if customers are willing to wait the two days, they could have the good shipped to them instead. This slight increase in price on this premium service also allows Amazon to generate more revenue to bolster its bottom line as it has finally become to show profitable quarters for the last two years.
As for its rising competition against similar web sites such as Alibaba, I believe that Amazon dominates the market so heavily in culture, price and connivence that it will be tough for its competitors to gain a foothold domestically. Bezos has always said that the customer is always going to be loyal to the lowest prices, and with that mindset in mind it will be hard to beat Amazon and its supply chain system.
http://www.businessinsider.com/walmart-and-amazon-are-business-feud-of-the-year-2017-12