The Inevitable Price Hike

March 18, 2014 Nick Begley

My name is Nick and I’m an Amazon Prime member. And I’ve been addicted to the service since I joined on November 28, 2012.

Last week, I received an email from “The Amazon Prime Team,” with the following subject line – Customer: Upcoming Changes To Your Prime Membership. I was fairly sure this was the inevitable price hike announcement, but I was interested to see how much they were increasing the membership fee.  During its quarterly earnings call in January, Amazon revealed that it may increase the price of the yearly subscription by $20 to $40. I was hoping (and wishing) for the lower end.

The letter stated that Amazon was implementing a $20 price hike for a one-year membership to Prime. Well played, Amazon. I was now “relieved” by a $20 increase.

The 25% increase – from $79 to $99 – is the first since the membership scheme was introduced in 2005.  This was specifically called out in the email sent to members. That same letter noted that fuel and transportation costs have grown significantly over the last nine years, along with the number of items eligible for unlimited free Two-Day Shipping (from one million to over 20 million). Amazon has 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” over the course of the last nine years.

While I understand Amazon’s approach to position the price increase by promoting many years of steady pricing and value added over time, I think they missed an opportunity to package up my story and individual Prime habits.

How do you position price hikes?  Do you use existing customer data to help make the case?

A Prime Example

Amazon could have created a page within my account that provided me with key activities over the course of my history with the company, including:

  • Number of orders per year.
  • Number of times I was below their $35 free shipping threshold since joining Prime and the amount I saved in shipping costs.
  • Number of transit days saved when comparing the free standard shipping (5-8 business days) to Prime’s 2-day shipping.

They could have also considered calling out the free standard shipping threshold required by a sampling of Amazon’s competitors in the United States:

  • Best Buy – $25.00 (4-8 business days)
  • Home Depot – $45.00 (4-6 business days)
  • Walmart – $50.00 (6-9 business days)
  • Old Navy – $50.00 (7-9 business days)
  • Kohl’s – $75.00 (3-6 business days)

I took a quick look in my Amazon account and created a graph to visualize my use of Amazon before and after joining Prime. This quick exercise justified my use of the service. I’ll gladly renew my membership at the $99 price point when my time comes.

Amazon Orders

Could this approach backfire if the data doesn’t justify the membership for the customer? Sure, but that piece of the puzzle needs to be part of Amazon’s strategy. Customers could then be encouraged to increase the use of their Prime service between now and their renewal date.

The use of data can be just as compelling for entertainment and events organizations, clearly illustrating the value of a membership.

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