Amazon is investing heavily in its Amazon Prime customer loyalty program. Prime is so important to Amazon that Amazon is willing to lose significant amounts of money to develop the program. When Prime was first introduced, Amazon charged $79.00 for the service that only included quick shipping. However, Amazon has added many new features to Prime, but kept the cost the same. Prime is one of Amazon’s biggest investments as it transitions to an Internet megamall.
One of Amazon’s top-‐selling products is the Kindle Fire. Amazon is offering a book-‐lending service for Prime customers who also own the Kindle Fire. However, some publishers require Amazon to pay for the digital copy every time a customer borrows a book. For example, the “Hunger Games” books have a wholesale price of about $8.00. Amazon will buy those titles for Prime customers to borrow. Some analysts estimate that several million Prime customers own a Kindle Fire, meaning that the lending service could potentially cost Amazon tens of millions of dollars annually. Amazon also recently added a digital voice service for Prime customers. It cost Amazon $350 million to strike deals with studios to offer this extensive video catalog.
Analysts believe that Amazon spends about $90 annually on Prime customers, losing about $11 per customer. Such spending has put a damper on Amazon’s profit as operating expenses rose to 48% last year. Still, some analysts believe that Amazon can offset those losses by getting fees from other merchants who sell through Amazon’s website. Furthermore, Amazon stands behind its investment with Prime customers because of the loyalty the program creates to the company.
1. How is Amazon enhancing the attractiveness of Amazon Prime?
2. What are the advantages and disadvantages of investing in Amazon Prime?
Stu Woo, “Amazon ‘Primes’ Pump for Loyalty,” The Wall Street Journal, November 14, 2011.