Tag Archives: Pricing

Amazon Prime Is A Marketing Problem, Not A Value Problem

Much talk has been made over Amazon’s decision to raise its Amazon Prime program cost to $99 per year, up from $79 per year.  It’s the first time in the program’s nine-year history that the price was raised.  This comes shortly after Amazon raised the rates in countries throughout Europe.  Combine that with the fact that Amazon has only made a relatively marginal profit and is a publicly traded company, and it’s not that surprising that Amazon would raise the rate of Amazon Prime.

In fact, there were rumors that Amazon might raise the price to $119 per year, even up to $139 per year, so the fact that the price only went up $20 per year is actually small.

However, there are many people complaining about the price increase, enough so where they are reportedly considering dropping their Amazon Prime subscription before the next renewal.  At last check on this DealNews poll, there were 200 more votes to end their Prime subscriptions before renewal, about 58% willing to end it versus a 42% willing to keep it (essentially around 4 in 7 people willing to end it versus 3 in 7 people willing to keep it despite the rate increase).

Some are wondering if people are still getting enough value from their Amazon Prime subscription to justify the increased cost.  Well, let’s consider what you get:

– You get free 2-day shipping on nearly every items fulfill by Amazon, even if you don’t spend the minimum $35 as non-members must do.

– You get to borrow one free book each month (though you need an actual Kindle device; Kindle mobile apps or desktop applications do not quality for this benefit).

– You get access to Amazon Instant Video, including many free television episodes and series, movies, and more.

Those benefits alone give you more than what other subscription-rate video-only providers give you, such as Netflix or Hulu Plus, thanks to the countless number of items you can shop for online.

In addition, Amazon plans to release a new streaming radio service for Amazon Prime members in early April, thus entering the free online streaming industry alongside competitors such as Pandora, Spotify, Google Now, and iTunes Radio.  Thus, even more value will be provided to Amazon Prime subscribers.

Thus, I think it’s safe to say that the value of Amazon Prime is as high as ever, and soon to be even higher.  Why, then, are many people complaining and even considering ending their subscriptions to Amazon Prime?

In my opinion, it has to do with Amazon’s marketing.  How many times have you heard the magic number of “$99”?  Probably too many times – every time you think of Amazon or Amazon Prime, I’m sure that number has popped into your head, along with the soon-to-be old rate of $79.

This $99 is what people keep focusing on, and, thus, have overlooked what that number actually is.  That $99 is a yearly rate, not a monthly rate, and this is a point that Amazon has failed to remind people of.  In fact, to my knowledge, they haven’t even compared their service to Netflix’s.

Remember that Netflix offered their streaming online movie and television service for $6.95 per month, then it went up to its current $7.95 per month.  Not too many make mention of the $7.95 per month cost now. (Many subscribers and investors DID complain about the fact that Netflix raised the cost 60% to offer both DVDs and streaming to customers after they originally offered the two together for $9.99/month, plus the fact Netflix didn’t offer a discount for bundling the two together).

The $7.95/month cost, when multiplied by 12 months per year, comes out to an annual cost of $95.40/year, less than $4 cheaper than the new Amazon Prime rate.  As mentioned above, value isn’t the problem with Amazon Prime – it still offers way more than Netflix for that $99/year.  However, Amazon has failed to emphasize this in their marketing.

One of the main keys to marketing is pricing, and presenting that pricing so that it represents the most value.  This is usually shown by breaking a price down to its lowest unit cost.  You see this exhibited by many companies; one common example is life insurance companies breaking down life insurance to cost per day.  I’m sure you’ve seen Alex Trebek talking about Colonial Penn’s life insurance coverage costing “less than $.35/day; that’s less than the cost of a daily newspaper.”

When higher-cost items are broken down into smaller units, they are much more palatable to the budget-conscious consumer.  When you keep prices at higher units, especially ones pushing $100 like the new Amazon Prime rate, it’s going to be naturally oppressive to people because most people consider $100 to be sizable money.  However, if that cost was broken down by month or even day, it would be much more palatable to most and likely would quell much of the anger and dissension that has gone through the Amazon Prime subscriber base.  The yearly cost of $99 broken down by month comes out to be $8.25/month, $0.275/day (less than the cost of Colonial Penn’s life insurance daily rate, in fact).

This would especially be true if Amazon was comparing that monthly cost to a comparable service like Netflix or Hulu Plus, both of which do not do anything in regards to carrying a large inventory of items and shipping them to the consumer.  This would reemphasize the value subscribers are getting with Amazon Prime, and for most, would justify the higher rate increase.

Due to the fact that Amazon has failed to do this, everyone is fixated on the $99/year cost.  Certainly, the one-time payment of $99 can be a sizable amount for many, but when you consider that it’s a yearly cost and the fact that most households easily pay that much and more per month for their cable and Internet subscription packages, their groceries, their clothing, their utilities, their car insurance, their home insurance, and other essentials and non-essentials (cable and Internet, while important, isn’t exactly an essential package like food and shelter), you can see that the Amazon Prime rate increase isn’t that substantial for the value a subscriber gets.

Yet, Amazon is letting the public run wild with the $99/year price increase as being the “end of the world” and a good reason to end their subscriptions to Amazon Prime, even if they’ve been loyal subscribers for years.  This is another example of where the power of social media and online communication via the Internet must be monitored and responded to right away, as Amazon really hasn’t combatted this pervading viewpoint that the price increase is unreasonable.

As mentioned above, it was inevitable that the price increase would happen; after all, Amazon makes a marginal (in relative terms) profit compared to most companies, especially those that are publicly traded on a stock exchange.  Of course, investors will get antsy over rising costs and slim profits, so Amazon had to take some step to increase their revenues.  Besides the fact they raised the minimum purchase price for free shipping to $35 from $25, they’re raising the price of Amazon Prime to $99 from $79.

Again, though, it’s a relatively minor increase compared to what was originally proposed, not to mention it’s a one-time yearly fee, not a twelve-time monthly fee.  Most people pay far more per month for food, clothing, car insurance, health insurance, cable and Internet TV subscription bundles, etc.  Yet, most of those people aren’t complaining to the extent that they are about the Amazon Prime price increase, and that’s because of how those services are marketed as compared to Amazon’s marketing of Prime.

For Amazon to quell this anger and dissension amongst the Amazon Prime subscriber base, they need to do two things:

1. Break the yearly price down by month, even by day (as I did above), and emphasize that in their marketing.

2. Reemphasize all of the value subscribers will continue to receive, including the new music service that is scheduled to come online next month.

The first item has been non-existent, while the second item has been haphazardly done at best.  I really think that by emphasizing these two points, Amazon can help to quell the concerns and anger coming from much of the Amazon Prime subscriber base and keep many of them from fleeing.  If too many of them leave, this could start a bad cycle, as Amazon’s profits will suffer, scaring investors further and making Amazon consider more price increases in the near future, which will only make subscribers even angrier and giving them more impetus to unsubscribe from Amazon Prime.  It will be interesting to see the numbers of how many Amazon Prime subscribers stay and how many go as the new rate increase kicks in.

What do you think of Amazon’s rate increase of Prime? Reasonable? Unreasonable? Are you a subscriber to Amazon Prime? If so, do you plan on keeping your subscription or dropping it? Why? Feel free to answer any or all of the questions in the comments box below.