Last updated: Amazon raises price of Prime membership, will consumers balk?

Amazon raises price of Prime membership, will consumers balk?


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An email in my inbox this morning announced that the cost of my Amazon Prime membership would be increasing from $79 a year to $99 a year as of January 2015.

The student rate for Prime is also increasing, but only by $10, from $39 to $49 annually.

While the advance notice is appreciated, I was less enthused about the new price. While $20 isn’t such a big deal in the grand scheme of what I spend online in a year, bringing the cost of a Prime membership to just about $100 pushes the boundaries of my tolerance and made me question the value of the service.

This isn’t the first price increase from Amazon in the last 12 months, either: in October, the company announced that the minimum purchase amount for its Free Super Saver Shipping option from $25 to $35.

If it’s giving me pause, it’s probably going to get under the skin of plenty of other consumers, too.

“The question is: are there enough existing Prime customers willing to shell out more cash for the same service? Potentially, but that’s not a risk worth taking,” says Natalie Berg, global research director at Planet Retail. “Amazon is already deeply embedded with its shoppers, but they will have to justify this price hike by providing additional value to customers.”

Berg points to membership-based retailers like Costco, which she says maintains both its value proposition and reputation for innovation, as an example of the type of brand that can raise its membership fees without any “significant” customer attrition.

“The cost of home delivery is causing mounting anxiety in the retail sector,” she adds. “As the appetite of consumers for buying online maintains its dramatic growth, many retailers will find themselves unable to cope with the financial burden of home delivery services. Fulfillment is set to be the next major battleground in retail and the casualties may be heavy.”

Indeed, in their email about the change, Amazon points the finger at increased fuel costs, however subtly, by reminding consumers that despite these costs the price of a Prime membership has remained the same for the past nine years.

The company also refers to the tens of thousands of streaming videos it has added, as well as the millions of items that qualify for free shipping, prompting users to recall all the benefits if that Prime membership.

“We always say that paid loyalty is the best type of loyalty,” says Tom Caporaso, CEO of Clarus Marketing. “As one of the leaders in the subscription commerce field, though, Amazon surely recognizes the risks and rewards of raising the price of its Prime memberships.  There were rumors that they were going to increase the annual fee by up to $40, so today’s $20 increase might be seen as evidence that even the most loyal customers have limits on what they’re willing to pay for certain benefits.”

Caporaso speculates that Amazon will attempt to offset any drop in membership by expanding the benefits of a Prime membership.

“We’ve heard that there are plans to add a streaming music service to the program, which might help stem cancellations,” he tells us. “That’s a very competitive market, though, both on the artist-facing side and the customer-facing side, so offering streaming music as a Prime add-on may not be a decision-changer for a lot of potential members. Amazon may also try to tie their streaming TV box service into the membership offer, which might be more attractive to their core audience.”

What do you think? Will the price increase hurt Amazon at all?

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