“Amazon continues to add value to Prime membership, most recently with 1-day delivery, and these enhancements along with the overall growth in online shopping seem to keep membership numbers increasing,” says Josh Lowitz, partner and co-founder of CIRP.
Prime membership is important to Amazon for several reasons. The retailer’s subscription revenue, which is largely made up of Prime membership fees, totaled $14.17 billion in 2018, a 45.7% jump year over year thanks in part to Amazon raising its Prime membership fee to $119 from $99 in spring 2018. Subscription revenue accounted for 6.1% of the company’s revenue, up from 5.5% in 2017.
Even more important, Prime membership creates stickiness, as once consumers sign up for Prime, they are unlikely to cancel their membership. 64% of consumers who sign up for a trial membership convert to a paid membership, according to CIRP, and 93% of consumers continue to pay for the program after 1 year, while 98% stay signed up after they’ve been Prime members for 2 years.
More people tried Prime during the 2019 holiday season than any previous year, Amazon says. In 1 week, more than 5 million new customers started Prime free trials or began paid memberships worldwide. Prime members who tried grocery delivery for the first time this holiday season increased by more than 80%. Millions of Prime members saved at Whole Foods during the holidays.
When Prime debuted in February 2005, there was nothing else like it: Shoppers could pay the service’s $79 annual fee to receive 2-day delivery on all their orders for a year rather than $9.48 it charged to deliver a single book within a couple days. The idea was that by convincing consumers to prepay for “free” and fast shipping, it 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, during the retailer’s 2005 fourth quarter earnings call in February 2006. In the same call, he said consumers had saved more than $475 million in shipping costs.
Over the years, Prime has added more than free and fast shipping, such as streaming TV shows, movies and music, exclusive discounts at Whole Foods stores, Prime Now 2-hour delivery and Amazon Photos.
In an August 2019 Digital Commerce 360/Bizrate Insights survey of 1,055 online shoppers, 39% of shoppers said they used Prime features beyond shipping products, 31% said they made a purchase on Prime Day 2019 and 10% used Prime benefits at Whole Foods.
Prime’s promise of fast delivery has helped establish Amazon as an alternative to the physical store. While Prime was initially only available for an annual fee (which is now $119), Amazon has expanded Prime to enable shoppers to pay monthly (at a premium rate of $12.99 per month), as well as to offer discounted memberships to students ($6.49 a month) and lower-income consumers who have an EBT (electronic benefits card) or Medicaid card (at $5.99 per month).
New pricing options may be a factor in growth, says Mike Levin, partner and co-founder of CIRP. “On the one hand, the monthly membership option makes it easier for customers to join without committing to a significant annual fee. On the other hand, it allows members to stop and restart a membership to match their shopping patterns,” he says.
Amazon continues to accelerate the speed at which consumers receive their online orders. In late April 2019, Brian Olsavsky, Amazon’s chief financial officer, announced Amazon’s plans to transform Prime’s shipping offer into 1-day free shipping. Less than 3 months later, the retailer said it was offering more than 10 million items available for 1-day delivery coast to coast, and same-day delivery on “millions” of items to Prime members in 44 major metropolitan areas.
Zak Stambor contributed.