The Amazon Prime Price Hike Is Here

Amazon Big Smile

It’s official: After weeks of rumors, Amazon (NASDAQ:AMZN) has increased the yearly fee for an Amazon Prime membership from $79 to $99. “For the first time since it was introduced nine years ago, the price of Prime is going up,” Amazon said in an announcement about the change. The price of a Prime membership for student members will be $49, and the Prime Fresh membership will remain $299.

Amazon has been mulling the price increase for a while. During the company’s most recent earnings call, CFO Tom Szkutak said Amazon was considering increasing the price of a Prime membership by up to $40.

“Even as fuel and transportation costs have increased, the $79 price has remained the same. We know the customers love Prime as the usage of the shipping benefit has increased dramatically since launch. On a per customer basis, Prime members are ordering more items across more categories with free two-day shipping than ever before,” Szkutak said.

“With the increased cost of fuel, transportation, as well as the increased usage among Prime members, we’re considering increasing the price of Prime between $20 to $40 in the U.S.,” he continued.

Amazon has decided to take a cautious approach with the change by only increasing the fee by $20, rather than $40. Prime membership gives members access to free two-day shipping, the Prime Instant Video movie and TV streaming service, and certain free titles for the company’s Kindle tablets and e-readers. Recent reports have also suggested that Amazon is working on a music streaming service that will help Amazon plug its MP3s and give Prime members an added benefit to justify the price increase.

Sources familiar with the music streaming project who spoke to the Wall Street Journal said the company could make the service so listeners can only listen to a portion of a given song or album in order to encourage them to download the songs from Amazon’s MP3 store. In that way, the service would be similar to Apple’s (NASDAQ:AAPL) iTunes Radio, which also features prominent “buy” buttons so that a listener can purchase a track they might like via iTunes. Sources told the publication Amazon is currently in talks with record companies about obtaining music rights.

Analysts have questioned whether Amazon Prime members would be willing to renew their memberships at the increased price. Since Prime members tend to make more purchases from the online retailer than those without the Prime perks, losing members is a big risk for Amazon to take. The customers Amazon is at the biggest risk of losing are those who don’t buy enough stuff from Amazon to justify the hike, even with the added services that come with Prime.

Some have suggested that Amazon create tiered options for Prime at different price levels, as some may prefer to pay a smaller yearly fee in order to only get free two-day shipping without the other perks to the service. Pricing strategy consultant Rafi Mohammed, who spoke to MarketWatch, said that the miscellaneous features included in Prime need to be unbundled and different pricing levels created to serve different customers’ needs.

The new price will take effect for Prime members the next time they need to renew their yearly membership, so it will take some time before the full effect of the price increase can be known.

More From Wall St. Cheat Sheet:

Follow Jacqueline on Twitter @Jacqui_WSCS