Members pay $79 annually to join Amazon Prime, the service that gives customers two-day shipping on almost all Amazon orders at no extra charge. To the rational consumer, the question of whether or not the membership is worth it depends on how much they’d otherwise spend on shipping. But to Amazon, the $79 membership fee is a ploy to get a monopoly on shoppers’ online purchases—and the more impulsive the purchase and the more impatient the shopper, the better. Amazon Prime “was never about the $79 dollars,” says a former Amazon employee who helped launch the service. “It was really about changing people’s mentality so they wouldn’t shop anywhere else.”
The above quote comes from a BusinessWeek story chronicling the amazing rise of Amazon Prime, which has been beyond successful at getting members to buy more in pretty much every way—more often, more variety of items, more period. Some numbers and comments:
Analysts say Prime members increase their purchases on the site by about 150 percent after they join and may be responsible for as much as 20 percent of Amazon’s overall sales in the U.S. The company’s executives acknowledge only that the program gets people to buy more—and more kinds of items—on the site. “In all my years here, I don’t remember anything that has been as successful at getting customers to shop in new product lines,” says Robbie Schwietzer, vice-president of Amazon Prime and an eight-year veteran of the company.
What this program has done is something that’s normally very difficult to accomplish: It’s changed consumer habits, and, perhaps even more remarkably, it’s changed them in ways that solely favor Amazon. The service is better than any freebie promotion, which even if it’s good at driving traffic to the website, is short-lived. Instead, the Prime membership program gets consumers in the regular habit of at least checking with Amazon before making any online purchase. This is a habit that Amazon obviously loves, which is why it’s been giving away Prime membership for free to moms and college students—to get them in the habit of doing the vast majority of their shopping at Amazon.
For folks who are paying the $79 annual membership fee, well, they naturally want to take advantage of the service and get the most for their money. And how does one do that? By buying stuff all the time at Amazon and getting as much “free” two-day shipping as possible. It’s a huge win-win for Amazon: collecting money for a service that helps turn customers into almost blindly loyal shoppers.
Now you might ask, as I have in the past, Does it make any sense to pay for free shipping? The answer is no. It makes about as much sense as the average impulse buy. And that’s what this is really about: Prime’s incentives create a scenario in which consumers are far more likely to buy impulsively and thoughtlessly. Here’s one take on Prime that I wholeheartedly agree with, quoted in the BW piece:
“I don’t think it’s a bargain at all,” says Kit Yarrow, a professor of psychology and marketing at Golden Gate University who recently got a free Prime trial and cancelled it after a month. “Really what people are paying for is immediate gratification.”
And they’re paying alright, they’re paying.