Analysis: Amazon Prime’s monthly fee increase
As Amazon continues to expand its influence from its traditional base of higher-income customers (where it has penetration rates well over 50%) to lower income customers (penetration rates are more in the 30% range), one of the tools it has utilized to draw in customers struggling to invest Prime’s $99 annual membership up front has been the monthly membership rates. Amazon's move to increase Prime’s monthly rate (from $10.99 to $12.99) while keeping its annual membership at $99 reveals one of two things — or a combination of both.
The increase in price might reveal that Amazon's strategy to grow the lower-income segment is working since the company is loath to increase price in an area it is trying to grow. Thus, the decision to increase the monthly rate is a signal that the lower-income segment growth goals have been achieved.
Or the move could signal that the inherent "cost" of servicing these smaller-ticket customers might be high enough to risk potentially losing some of the segment by rising the monthly fee.
A combination of both of these scenarios may be at play, which is the scenario I suspect most likely.
Retailers competing with Amazon should utilize this information to develop a better understanding of the threat that Amazon poses to their middle- and lower-income customer. They should also understand that it points to a potential weakness in the Amazon model — and highlights an opportunity for brick-and-mortar retailers — when it comes to the high cost of transacting online with lower ticket customers.”
The increase in price might reveal that Amazon's strategy to grow the lower-income segment is working since the company is loath to increase price in an area it is trying to grow. Thus, the decision to increase the monthly rate is a signal that the lower-income segment growth goals have been achieved.
Or the move could signal that the inherent "cost" of servicing these smaller-ticket customers might be high enough to risk potentially losing some of the segment by rising the monthly fee.
A combination of both of these scenarios may be at play, which is the scenario I suspect most likely.
Retailers competing with Amazon should utilize this information to develop a better understanding of the threat that Amazon poses to their middle- and lower-income customer. They should also understand that it points to a potential weakness in the Amazon model — and highlights an opportunity for brick-and-mortar retailers — when it comes to the high cost of transacting online with lower ticket customers.”