Skip to content

Posts tagged ‘Amazon’

Amazon is primed for a price increase

Image

In last week’s analyst call, Amazon executives noted they were considering a price increase of up to 50% for their popular Amazon Prime subscription service. This paid “loyalty program” offers subscribers:

  • Free two-day shipping on millions of items
  • Unlimited instant streaming of 41,000 movies and TV episodes
  • Over 350,000 Kindle titles to borrow for free

It’s been a hot news item in the popular press and in the retail industry, but is it a big deal?

The price elasticity of a Prime membership will be based on customers’ perceived value, of course. At $79/year this seems like a relatively simple decision for someone who buys a handful of times per year, uses Prime Instant Video and maybe borrows a few Kindle titles. The emotional arithmetic goes like this: 80 bucks divided by 12 months is just under 7 bucks per month seems like a good deal for free shipping and videos (BTW, nobody seems to talk about the Kindle book borrowing; I guess we don’t care about this one very much).

At around $7/mo, that’s less expensive than Netflix, so it’s a no-brainer if you’re a light-to-moderate viewer of streaming video. I believe if the price rises to exceed the monthly Netflix charge, people will reconsider. They may not leave Amazon, but they will pause to compare whether it’s still the good deal they were getting before a price hike.

I believe Amazon could soften the impact by letting all us subscribers know how much value we’re getting from our Prime subscriptions. At least, they could personalize and let those customers who are receiving “high value” know what a deal they’re getting:

  • Your subscription costs $79/year
  • You’ve received $68 in free shipping + 12 months of streaming video (compare to Netflix or Hulu Plus at $96/year) + 4 Kindle books borrowed for a savings of $54 (compared to their purchase price)
  • Amazon Prime gave you $218 in value for just $79.

Reinforce that value-received message a few times and most folks won’t balk at a modest rate increase.

A few more recommendations for Amazon:

  • Do a phased increase rather than a 50% rate hike overnight
  • Test various rates to get an accurate measure of elasticity — easily done with all the customer behavioral data at Amazon’s disposal
  • Test a monthly rate rather than an annual one to emphasize the value compared with Netflix and Hulu Plus (and to lower the perception of being “locked in” for a year)
  • Consider personalized pricing based on the value customers are already receiving people who order frequently may find a higher price to be a good deal while infrequent buyers may be more sensitive to a rate hike
  • Validate whether the payment of a Prime subscription increases customer propensity to buy from Amazon so they can maximize the value of the subscription fee — then weigh the elasticity risk against this increased purchase propensity. That calculus could help find the ideal sweet spot where Prime subscription cost balances perfectly with increased purchase volume.

See my comments and others from the RetailWire Brain Trust on RetailWire.com

Amazon Goes Down – Score One for the Little Guys

Yesterday the little guys in retail—by that I mean everyone smaller than Amazon (in other words, everyone)—got a brief reprieve from the e-commerce juggernaut that is Amazon.com. According to isitdownrightnow.com, the Amazon.com site was down for something like 41 minutes. Across the U.S., would be Amazon shoppers received errors starting around 2:50 pm EDT. I received a few incredulous calls from friends and family assuming the problem must be with their ISP and asking if I was experiencing the same outage.

Image

Since I’d recently reposted an infographic about what happens in 60 seconds online, I had the one-minute sales figure for Amazon in mind. A quick calculation says Amazon’s outage cost them about $3.4 million (41 minutes X $83,000/minute). Ouch, that’s more than most of us make in a week!

As soon as I realized Amazon was unreachable, I looked out my window and was reassured to see that local brick-and-mortar retailers were still up and running. The good news: brick-and-mortar retailers tend not to go down except in case of 7.3 earthquakes or other natural disasters, which are pretty rare, thank goodness.  The bad news: their other major threat, Amazon, is ever present — well, except for yesterday’s brief outage.

Retailers are racing to reinvent themselves to stay relevant in the face of the ongoing weak economy, rapid technological change, and the threat of show rooming—where their stores become the de facto showroom for online retailers, who frequently end up getting the sale because of their lower prices. The pressure is intense, and Amazon’s outage didn’t even last long enough to let retailers catch their breath. But maybe, if you just HAD to buy something during that 40-minute outage, your local electronics store, bookseller, or apparel shop might have gotten your business. It’s a nice thought, anyway.

Amazon has been mum about what happened, although they say they were NOT hacked, so apparently this was not a malicious outage. Malice or not, there may be a few IT folks in the Seattle area soon looking for new jobs. If you’re a mid-sized specialty retailer looking for experienced eComm IT hotshots to help you nail your omni-channel tech, now’s your chance.

<lance>

p.s. If you’d like to do your part to help Amazon make up for yesterday’s lost revenues, you can start with my “Gift Ideas for Lance” wish list. Don’t delay. Amazon needs you!

%d bloggers like this: