When Amazon Prime began in December 2004, the goal was to build customer loyalty to Amazon.com. For $79 per year, membership guarantees unlimited two-day shipping on all products purchased from Amazon, as well as all third parties that sell on Amazon.
The innovation was an immediate success. Four million of Amazon’s 121 million customers belong to the Amazon Prime program, and these customers are unlikely to purchase from anywhere else. The program plays directly into consumer psychology: Customers realize that they earn more from the program when they use it more, at no extra cost to them. For example, 10 products purchased on Amazon with two-day shipping likely pay for the $79 membership. If they go on to buy 100 or 1000 products, still for just $79, customers feel like they have put one over on the company.
Many other retailers are trying to replicate this form of loyalty. Several e-tailers have joined together in the ShopRunner program, which offers the same benefits as Amazon Prime but for a long list of retailers. This tactic mainly aims to get customers to shop somewhere other than Amazon, rather than building loyalty for the participating retailers in the ShopRunner network.
Customers almost universally want instant gratification, but they vary in how much they value it. Two-day delivery might be worth even more than $79 for some consumers, whereas others think it is a waste of money.
1. What is Amazon Prime?
2. Will ShopRunner develop customer loyalty the same way that Amazon Prime has?
Brad Stone, “What’s in Amazon’s Box? Instant Gratification,” Business Week, November 24, 2010.