Paying A Premium For Prime

by Katie Zavadski & Patrick Appel

With Amazon raising the price of Prime by $20, Yannick Lejacq wonders how far Amazon can push consumers:

Giving up a few beers or a dinner out doesn’t seem like much of a sacrifice compared to all the time and money Amazon Prime has saved me over the past few years. But I have to wonder what the current price jump portends for the future of Amazon. The company knows that I’m an addict. And like any addict, I’m not entirely reasonable when it comes to my spending habits. I say that Prime saves me money, but really I’m just assuming it does. The real convenience is that it saves me from lurking on countless other websites just to find the best possible deals.

So once I’m hooked, what’s another $20? Or another $50? How far can Amazon push Prime before it starts to lose customers rather than continue to gain?

Derek Thompson fits Prime into Amazon’s overall business strategy:

For investors, Prime represents a key lever for generating profits in the future. Many of the analysts I spoke to for my business column last year on Amazon said they didn’t think it could raise prices dramatically on most of its merchandise. Instead, they said Amazon could always raise the price of Prime on its most passionate customers and add hundreds of millions of dollars to its bottom line just like that. …

The power of memberships isn’t just that they represent dependable revenue for Amazon in the topsy-turvy world of retail. It’s also that they’re sticky for customers. Couch potatoes have a hard enough time canceling their $90-a-month gym memberships, thanks to status quo bias and general laziness. It’s even harder to justify canceling a $8.25-a-month membership that gets you free fast shipping to the biggest online store, a great digital video offering, and more, just because the price went up by less than $2 a month.

Jordan Weissmann crunches the numbers:

The fact that Prime has stayed as cheap as it has for so long is one more small testament to Jeff Bezos’s willingness to sacrifice short-term profit margins to lure long-term customers. If you only adjust for inflation, a $79 Prime account nine years ago would be worth $94 today. Unlike when it debuted, subscribers also get access to Amazon’s library of streaming TV and movies. As the company has noted, shipping costs are up—the price of diesel fuel for trucks has just about doubled since 2005. And finally, it says subscribers are using the service more often, which by default makes it more expensive for Amazon to run. It costs more to serve up an all-you-can-eat buffet when the diners start pigging out.

Calculate whether Prime is worth it for you here.