At some point almost every company faces a major price change decision. Here’s why the Amazon Prime price hike won’t be a repeat of the Netflix pricing disaster.
There are lots of options for approaching the pricing problem. You can quietly test pricing options on your sign up page like 37 Signals (and hundreds of other companies). You can create a major customer relations fiasco by introducing both a large price increase and an onerous change to your service structure like the infamous Netflix debacle. Or, like Amazon, you can delay increasing your price for nine years and add significant value to your service. As a customer, I’m all for this approach and am certainly willing to pay a little more for better service.
MarketingLand.com reports that 39% of Amazon’s customers are prime members and these customers spend more than twice as much with the online retailer – $1,340 vs. $650 on average. (These figures are based on survey data from Consumer Intelligence Research Partners.)
Like thousands of other customers, my husband and I signed up for Amazon Prime when it was introduced in 2005. Honestly I don’t know if our annual shipping costs would have exceeded the cost of the program in every one of the nine years, but the dead simple convenience of being able to order a couple of books or a DVD or some household item whenever we need it without any shipping friction to impact the purchase decision has been well worth the $79. Sure, I still prefer to group my purchases into more efficient groupings and store things on my wish list or in the shopping cart until I’m ready to put in an order. But if one of my children gets invited to a birthday party and I’m too busy to schlep to Toys R Us, it’s great to be able to order just one toy.
Having one Amazon prime membership for the household (on my husband’s Amazon account) for free shipping was fine all these years. But since we signed up, Amazon Prime has gotten better and better. They added free Kindle book lending. They added 40,000 streaming movies and videos. The free shipping has gone from super saver 3-7 day delivery to blisteringly fast 2-day delivery (and sometimes only one day). Freaking awesome.
In December, Santa brought two Kindles for the kids. 😉 I decided to purchase my own Amazon Prime membership so the kids and I could stream videos conveniently on their Kindles and on my iPad. (We already enjoyed the streaming feature from my husband’s membership with our Roku, but switching accounts on the devices is a hassle.) The option to borrow books on my Kindle was an added bonus.
So now, our family’s annual Amazon Prime has gone from $79 to $198 ($99×2). You know what? It’s STILL a good bargain. Sure, many Amazon customers who don’t really use and enjoy the perks of the Amazon Prime service may decide to drop it at the higher price point, but I bet their big data geniuses have figured out that their best customers won’t mind all that much. CIRP’s research bears this out. MarketingLand.com reports that even if the price increase had been $20 higher, 94% of the Amazon Prime customers they surveyed would “definitely” or “probably” still choose to renew.
Actually, wouldn’t it be great if more of the companies we rely on would increase their prices by 25% and improve their service 200% just like Amazon?