CEO Tom Caporaso discusses the recent Prime membership price increase and the unwavering loyalty displayed by its members in this recent Retail TouchPoints article.
(As originally published on Retail TouchPoints on April 27, 2018.)
Amazon will increase the annual cost of its Prime membership to $120. The change will become effective May 11 and will apply to Prime renewals beginning June 16.
In explaining the reasons for the price hike, CFO Brian Olsavsky cited rising costs associated with Prime delivery and digital benefits in a call with investors. He expressed confidence in the value of the service despite the new price, noting that Prime’s two-day shipping offer has been expanded to 100 million items from 20 million in 2014. The retailer also is adding value through expanded digital video options and a renewal of its contract with the NFL to stream Thursday Night Football games.
The price hikes follow strong results in Amazon’s Q1 2018 report: retail sales were up 43% year-over-year to $51.0 billion. Amazon Web Services (AWS) sales reached $5.4 billion, a 49% jump from Q1 2017. Major customers include Amway, which used AWS to build an Internet of Things (IoT) platform with a serverless architecture.
“On the AWS front, the sales increase of almost 50% was accompanied by around a 140 basis point improvement in operating margin, indicating that enterprises continue to shift increasing IT workloads into the public cloud,” said Stephen Sohn, Technology Analyst at Moody’s in comments provided to Retail TouchPoints.
Prime last saw a price bump in March 2014, when the cost was raised from $79 to $99. At the time, a survey by customer loyalty research consultancy Brand Keys found overall brand perception among Prime members had decreased from 93% to 83%.
The decline in esteem failed to generate a noticeable impact: Amazon announced that it had more than 100 million Prime subscribers earlier this month, exceeding an October 2017 estimate from Consumer Intelligence Research Partners of 90 million subscribers.
“Prime members show their unwavering loyalty by spending nearly five times that of non-Prime members,” said Tom Caporaso, CEO of Clarus Commerce in an interview with Retail TouchPoints. “Judging by the massive increase in membership since 2014, I think consumers see and appreciate the consistent value they can get from Amazon Prime. I don’t think this new membership price increase will negatively impact the standard bearer for all loyalty programs.”
CEO Jeff Bezos noted that Amazon shipped more than five billion items in 2017 through Prime, and that “more new members joined Prime than in any previous year.”