Amazon Weighs a Prime Price Hike — Can Users Tip the Scale?
Amazon.com (NASDAQ:AMZN) currently enjoys significant success with its Amazon Prime membership system, both luring customers in and keeping them satisfied with attractive benefits like two-day free shipping and and access to Amazon’s TV and movie library. However, two studies recently conducted by Bizrate Insights and Consumer Intelligence Research Partners illuminated that the company may still face the risk of many users soon canceling their subscriptions, because the report’s results highlighted a disapproval in the possibility of Prime price hikes, and those are exactly what Amazon may be planning.
Amazon delivered poorer-than-expected quarterly results last week, and following the earnings release, the company’s executives said during a conference call that they are considering raising the price of Prime in the U.S. by $20 to $40. According to USA Today, the current cost of a Prime membership — $79 a year in the U.S. — hasn’t changed in more than a decade, but the Seattle-based company now recognizes the need to consider a price hike on account of rising transportation and fuel costs. Prime members don’t agree.
Bizrate recently surveyed nearly 200 Amazon Prime members and asked whether they would continue paying for Prime if the cost of a subscription went up. According to USA Today, almost 46 percent of those surveyed said the current $79 price was already too high, while 24 percent said $89 a year was too high, and 15 percent said $99 was too much. Less than 8 percent of Amazon Prime members who responded said they would pay any amount for the program. It is evident that Amazon is now treading on thin ice.
Amazon’s Prime membership also benefits the company in more ways than many customers recognize. Reports conducted at the end of last year showed that American customers spend an average of $968 on Amazon regularly, and the highest-spending shoppers are those who are Amazon Prime members, Kindle device owners, or Amazon Visa cardholders. A Prime membership’s cost — $79 per year — isn’t a bank-breaker by any means, but it is still enough to convince consumers that if they are going to fork over the cash, they should be getting their money’s worth by shopping exclusively at Amazon and taking advantage of all the benefits, especially free shipping. Amazon Prime members spend an average of $1,340 on the site.
Thus, Amazon still enjoys the current undivided attention of its consumers, but if it finds that, financially, the company has to raise prices, it could be in trouble. A recent survey by CIRP, also highlighted by USA Today, found that almost 10 million or 58 percent of the company’s Prime subscribers had been members for less than a year; therefore, they are expected to be less loyal than older ones. According to CIRP’s results, 7 percent said they would not renew the Prime membership if Amazon executives executed a price hike, and of those who had been members less than a year, 10 percent said they would not renew.
But still, despite the risk a price hike poises, Amazon may have no choice, especially since the company is now focusing on convenience rather than low prices. Rising transportation and fuel costs have forced the company to recognize that it may not be able to offer both — the lowest prices and the most convenience — so now it may be time that Amazon chooses between one or the other for its Prime members, and the company may favor convenience.