Expert Weighs in on Amazon Prime’s Pricing Problem

Source : http://www.flickr.com/photos/ianders/

Source: http://www.flickr.com/photos/ianders/

When Amazon.com (NASDAQ:AMZN) recently shared its plans to possibly raise the price of its popular Prime membership program, many analysts grimaced. A membership currently costs $79 dollars a year, and although many Amazon customers have hopped on board as of late, not all analysts and investors have been convinced that Amazon will continue to maintain all of its current members if the company bumps the program’s rates up $20 to $40, potentially alienating some customers. The concern is that Prime users won’t renew their membership if Amazon goes ahead with the price hike, but according to Rafi Mohammed, a pricing-strategy consultant, Amazon’s Prime program has other issues to deal with, too — and its pricing strategy is just one of its problems.

According to Market Watch, Mohammed believes that Amazon needs to rethink the structure of its Prime program and unbundle some of its more miscellaneous features. The consultant suggests that Amazon get rid of the video-streaming and Kindle digital-book borrowing services it currently offers its Prime members, and Mohammed also believes that Amazon should consider restructuring Prime with different pricing levels so customers can choose what level of service they want to pay for. He says executives should look at the varying price levels cellphone companies offer as guidance.

Many cell phone companies offer different membership deals that appeal to consumers’ varying usage levels, and Mohammed believes that Amazon’s Prime service could benefit from that strategy. He explains, via Market Watch, “The key lesson in pricing for any company is to understand that customers are different. There’s so much more to pricing instead of a simple two-lever, up-and-down strategy. There’s a lot of ways you can slice that pricing. Let people self-select the shipping and pricing option. The notion of offering customer choices is something that becomes standard in all industries. Most companies should offer good, better, and best prices.”

Mohammed has a point. While some Amazon customers take full advantage of the program’s benefits and shop online exclusively from Amazon.com, the increased price of a Prime membership might not be worth it for those consumers who only benefit from Prime every now and again. They are the customers that Amazon is at risk of losing, but if the e-commerce giant could somehow come out with a new Prime package that offers lower prices and a diluted set of Prime perks, they might be more inclined to stay. Even Mohammed said he was not sure if he’d continue paying for his Prime membership because he doesn’t use it enough to justify the price hike.

As for the programs that the consultant believes should be cut from the Prime program, Amazon’s video-streaming and Kindle digital-book borrowing services should be the first to go, says Muhammed. According to Market Watch, he says “it’s just not intuitive” to offer those services under the Prime umbrella, and there is no proof that existing members currently take advantage of the features. If the increasing cost of offering those services is leading to Amazon’s price hike, they’re not worth it to many users.

So, it’ll be interesting to see if Amazon actually listens to the consultant’s advice, or whether CEO Jeff Bezos goes ahead with his own plans. Though the e-commerce company currently seems stuck in a sticky situation with the future of Prime, if we know anything about Bezos, it’s that the executive knows what he’s doing, and he’ll likely find his way out of this risky position, too.

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