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Amazon's $79 Question

02/05/2014 02:11 pm ET | Updated Apr 07, 2014

Amazon Prime Price Increase Would Have Broad Impact

Consumer Intelligence Research Partners released analysis of Amazon Prime pricing, from Amazon, Inc. (NASDAQ:AMZN). This analysis indicates that a prospective price increase will likely slow Amazon Prime growth, but improve profitability of Prime customers.

CIRP surveyed 300 US buyers at Amazon.com in the three-month period ending November 15, 2013, and 300 buyers in November 2012.

Based on our survey analysis, we estimate that as of September 30, 2013 Amazon had approximately 16.7 million Amazon Prime members. We estimate that Amazon Prime customers spend approximately $1,340 per year, compared to $708 per year for non-Amazon Prime customers. Finally, we estimate that Amazon Prime members cost Amazon approximately $75 in "free" shipping costs. Prime membership fees, therefore, approximately pay for shipping. Amazon's profit is therefore the margin on the Prime members' purchases.

The majority of Amazon Prime members (58%) reported beginning their membership within the past year (see chart).

Length of Time as a Prime Member
2014-02-05-chart1.jpg

In fact, more than one-quarter of Amazon Prime members started their membership in the three months preceding our survey, which did not include the holiday shopping season. In 2012 we found that only 48% of Amazon Prime members began their membership within the previous year, compared to 58% in 2013. Clearly, Amazon Prime growth accelerated.

Amazon appears to have added about 10 million Amazon Prime members in the twelve months leading up to the survey, based on 58% of 16.7 million members having joined in the past 12 months (9.7 million members).

Overall, 7% of Amazon Prime members indicate that they "probably will not renew" their membership. Yet, 10% of Amazon Prime members that joined in the past year indicate they probably will not renew their membership, while only 3% of Amazon Prime members that have had their membership for over one year indicate they probably will not renew their membership.

These newer members may not have the same loyalty as long-time members. Amazon Prime Members who joined in the past year represent a different risk to Amazon. They have not renewed their original membership, and have not yet had the chance to weigh the value of free shipping and other benefits, such as free streaming video, against the $79 cost.

CIRP based these findings on its survey of 300 subjects who made a purchase at Amazon.com in the three-month period ending November 15, 2013.

For additional information, please contact CIRP.