Is Amazon’s Prime Service worth $79?

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Interesting article written by Brad Stone in this week’s Bloomberg Businessweek magazine that dissects Amazon.com’s shipping service, Amazon Prime, which guarantees delivery of products within two days for an annual fee of $79. The article, titled What’s in the Box? Instant Gratification, boosts that:

“Amazon Prime may be the most ingenious and effective customer loyalty program in all of e-commerce, if not retail in general.”

Additionally, the article attributes Amazon Prime as one of the main factors that Amazon’s sales grew 30% during the recession; driving Amazon’s stock price up almost 300% in the last two years.

Amazon Prime service is used by only 4 million of Amazon’s 121 million active buyers worldwide, but this small percentage of Amazon customers accounts for as much as 20% of Amazon’s overall sales. When Amazon customers join Prime, some estimate that their Amazon purchases increase by about 150 percent.

Robbie Schwietzer, vice-president of Amazon Prime had this to say about the service:

“In all my years here, I don’t remember anything that has been as successful at getting customers to shop in new product lines.”

So while the service clearly benefits Amazon, the other question to ask is: Does it benefit consumers?

While many members swear by the service and even evangelize about it (talk about satisfied customers!), others question whether Prime is a good deal (or not). In most cases today, Amazon offers free shipping to customers who buy more than $25 on a single order and in many cases these orders arrive within two days to certain parts of the country.

Here’s my take. As a paid user of Amazon Prime for the past four years, I too recognize that because of Amazon’s improvements in shipping over that same time period, the service’s value has been diminished slightly. But when I really think about why I continue to pay $79 per year for Amazon Prime, I come to the conclusion that the real value for me is that it reduces the uncertainly of when Amazon items will arrive after my purchase. I know every time I buy something from Amazon, it will arrive at my doorstep two days later – no matter whether it’s a small book or a large network printer. That’s what I value the most – the psychological reassurance that my Amazon deliveries will be consistent and without risk. It’s similar to paying for insurance. And that’s important for me, because in most cases, I’m ordering something that I really needed (or wanted) yesterday. Now I’m not sure if others feel the same, but I have to believe that the psychological aspect of this does resonate with others.

Here’s the takeaway: The reduction of uncertainty and risk–in this case, Amazon Prime’s guarantee that items will arrive at your door step within two days no matter what you have ordered–can be a powerful driver of value. And while it’s harder to quantify, this particular aspect of value should not be overlooked.

Republished with author's permission from original post.

Patrick Lefler
Patrick Lefler is the founder of The Spruance Group -- a management consultancy that helps growing companies grow faster by providing unique value at the product level: specifically product marketing, pricing, and innovation. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.

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