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Will Amazon Prime Price Hike Drive Mass Exodus?

Will Amazon Prime Price Hike Drive Mass Exodus?
By Jennifer LeClaire

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Amazon's decision to up the cost of its Prime service from $79 to $99 might not dissuade its most frequent and loyal customers from continuing their memberships. But Amazon will lose roughly 10 percent to 15 percent of less-frequent users and have trouble signing up new members because of the Prime price increase, said analyst Greg Sterling.
 

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The e-commerce giant is boosting the price of its Amazon Prime membership service from $79 to $99 a year. In an e-mail to its customers, Amazon blamed the price increase on rising fuel and transportation costs, adding that the price of Prime has remained the same for nine years despite those soaring costs.

Customers who sign up for the Prime service get free two-day shipping, unlimited instant streaming of thousands of movies and TV shows with Prime Instant Video, and they can read free Kindle books each month.

Trying to head off any objections to its pricing decision, Amazon pointed out how much better Prime is now than when it was launched in 2005. "The number of items eligible for unlimited, free two-day shipping has grown from one million to over 20 million. We also added unlimited access to over 40,000 movies and TV episodes with Prime Instant Video and a selection of over 500,000 books to borrow from the Kindle Owners' Lending Library,” according to the e-mail.

Justifying the Price Hike

We caught up with Greg Sterling, principal analyst at Sterling Market Intelligence, to get his feedback on Amazon raising its Prime membership rates. He told us Prime has been a strategic loyalty program for Amazon.

In fact, he called out the fact that Amazon has more than 20 million Prime members. That means the membership service is generating about $1.5 billion in annual revenue for the e-commerce giant.

“There are also likely tiers of Prime members -- those who use the service more and less extensively,” Sterling said. “In its e-mail to users notifying them of the price increase, Amazon attempts to justify it with benefits beyond free two-day shipping, such as free movies and Kindle lending.”

Mass Exodus Coming?

Will Amazon see a mass exodus from its Prime service? That remains to be seen. Sterling, for one, expects Amazon will lose some members in the wake of the price increase.

Of course, there are some who renew automatically and will not even notice the $20 increase, he predicted, while others consciously decide the $100 a year isn’t worth it. That may depend in the end on how much those consumers are taking advantage of the free two-day shipping, IInstant Video and other Prime perks.

“It remains to be seen since these are probably Amazon's most frequent and loyal customers, which is a mitigating factor against defection from the program,” Sterling said. “I'm going to guess however that Amazon will lose roughly 10 percent to 15 percent of current members and have additional difficultly signing up new members because of the price, which looks like pre-paid shipping to most people on the outside.”

Amazon Keeps Adding

Amazon has increased what it offers to customers over the last nine years. Most recently, the company announced a content licensing agreement with BBC Worldwide North America that will make Prime Instant Video the exclusive online-only subscription home for streaming season one and future seasons of the dramatic thriller "Orphan Black."

And in February, Amazon inked a content licensing agreement with Metro-Goldwyn-Mayer Studios that offers Amazon Instant Prime the same exclusivity rights for the MTV series "Teen Wolf."

Also in February, Twentieth Century Fox Television Distribution made Prime Instant Video the exclusive go-to for the popular period drama "The Americans." The list of content deals goes on and on. As Sterling said, time will tell if there’s enough value add for consumers to re-up their annual Prime memberships.
 

Tell Us What You Think
Comment:

Name:

Thomas L.:

Posted: 2014-03-17 @ 12:12pm PT
I turned off the auto-renew on my Amazon Prime membership 2 days after they made the announcement. Amazon's prices have been slowly climbing for the last few years and now that Amazon charges sales tax in my area I'm just not using their site as much as I used to.

Gale:

Posted: 2014-03-15 @ 2:48pm PT
Not at all! After 9yrs a little raise is fine. Can't beat the shipping benefits to regular users. Netflix tested the rate rise and at it. So will Amazon. The airlines do it too. Whatever goes up goes down anyway!



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