Amazon’s ‘everything store’ is especially attractive to consumers during the coronavirus pandemic, while the free shipping Amazon Prime members get for their membership fee remains a major reason to shop with the No. 1 online retailer in North America.
When asked to list up to five reasons why they shop on Amazon, 66% of consumers cited “I can find almost anything I need” in a Digital Commerce 360/Bizrate Insights survey of 1,000 U.S. online shoppers in August 2021.
The No. 2 reason was “I’m a Prime member and receive free shipping on most items,” which was chosen by 56% of respondents. 51% cited free shipping through Prime in a similar June 2020 survey, when it was the top choice. However, the “I can find almost everything I need” option was not included in last year’s survey.
Amazon.com Inc. has 200 million members in its Prime membership program worldwide, then-CEO Jeff Bezos said in his annual letter to shareholders published April 15. That compared to more than 150 million Prime members globally in January 2020.
Bezos, who stepped down as CEO in July, did not provide more details on its wildly successful Prime program. However, he did report some staggering figures about purchases on Amazon: Customers complete half of all purchases on Amazon in 15 minutes or less, and 28% check out in three minutes or less.
It’s likely many of those purchases can be attributed to Prime, as it provides consumers the ease of fast and free shipping and returns (a known contributor to higher conversion rates). Additionally, Amazon’s one-click purchase capability on its website and app may speed up purchases on the retail site as well.
In fact, 26% of U.S. online consumers say shopping efficiencies, such as one-click purchases and saved payment information, are a top reason why they buy on a marketplace versus a retailer’s website, according to a Digital Commerce 360 and Bizrate Insights survey of 1,000 shoppers in April 2021. And Amazon is by far the No. 1 marketplace in the U.S.
Prime membership keeps growing
While Bezos didn’t provide details on Amazon’s U.S. Prime membership in his letter, research firm Consumer Intelligence Research Partners LLC (CIRP) released new estimates of the loyalty program on the same day. Amazon Prime membership grew to 147 million members in the U.S. as of March 2021, up 24.6% from 118 million in March 2020, according to CIRP’s estimates. The most recent estimate is based on a survey of 500 U.S. consumers who made a purchase on Amazon.com between January and March 2021.
“In the full year of pandemic shopping, Amazon Prime boosted membership at a faster rate than in the past few years,” says Mike Levin, partner and co-founder of CIRP. He adds that homebound consumers found shipping benefits and other features attractive given the pandemic-imposed limitations in lifestyle and buying habits.
Prime membership is important to Amazon for several reasons. The retailer’s subscription revenue, largely made up of Prime membership fees, totaled $25.21 billion in 2020, a 31.2% jump year over year. Subscription revenue accounted for 6.5% of the company’s revenue last year, compared with 6.8% in 2019 and 6.1% in 2018. Amazon’s net revenue was $386.06 billion in 2020, up 37.6% from $280.52 in 2019.
And once a consumer signs up for Prime, she is unlikely to cancel her membership. For example, 69% of consumers who sign up for a trial membership convert to a paid membership, according to CIRP, and that’s up from 64% reported in Q3 2020. 93% of consumers continue to pay for the program after one year, while 98% stay signed up after they’ve been Prime members for two years. The renewal rate after one and two years remained flat compared with Q3 2020, according to CIRP estimates.
As those renewal rates suggest, many Prime members are happy with the loyalty program. At least 70% of consumers who subscribed to Prime for a year or more were very or extremely satisfied with their experience on Amazon, and two-thirds or more spend more on Amazon now than when they first signed up for Prime, according to an RBC Capital Markets survey of 2,800 consumers in June 2020.
Additionally, over half of Prime members are so sold on Prime they would stick with it even if Amazon raises the price again. (Amazon raised the price to $119 annually from $99 in 2018). When RBC asked consumers if they would cancel their Prime membership if Amazon raised the price to $139, 54% said no and 46% said yes.
Prime is not just about free shipping any more
When Prime debuted in February 2005, there was nothing else like it: Shoppers could pay the service’s $79 annual fee to receive two-day delivery on Prime products for a year, rather than the $9.48 it charged to deliver a single book within a couple of days. The idea was that convincing consumers to prepay for “free” and fast shipping would encourage them to repeatedly return to Amazon to ensure they got their money’s worth.
About a year after Prime’s introduction, the retailer was already touting Prime’s benefits. “We’ve seen increased purchases by Amazon Prime customers across more categories, with especially heavy purchases in electronics, kitchen, and health and personal care,” said Thomas J. Szkutak, former senior vice president and chief financial officer for Amazon, during the retailer’s 2005 fourth quarter earnings call in February 2006. In the same call, he said Amazon customers had saved more than $475 million in shipping costs by using Prime.
Over the years, Prime has added more perks beyond free and fast shipping, such as streaming TV shows, movies and music, exclusive discounts at Whole Foods stores, Prime Now two-hour delivery and Amazon Photos. And Prime members are using the additional benefits.
In the August 2021 Digital Commerce 360/Bizrate Insights survey, 18% of shoppers said they had signed up for Prime in the past year, while only 4% had canceled. What’s more, 16% said they had signed up for such perks available only to Prime members as music and streaming of TV shows and movies. That’s significant, because it gives consumers another reason to stick with Prime—with all the benefits that brings Amazon.
The coronavirus outbreak and all the disruptions in store shopping that resulted made Amazon only more valuable to many consumers: 29% in the August 2021 survey said Amazon is a more important resource to them because of the pandemic.
Don Davis contributed to this report.
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