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On Amazon Prime

Update: Looks like good ol’ Bezos has been reading BitBubble in his spare time (yes, I’m kidding. No, I’m not that delusional). Amazon Prime comes free for college students for a year! Way to hook ’em! http://www.amazon.com/b/?node=668781011

The day-to-day tech world tends to think of innovation primarily in terms of products and features – Foursquare’s “checkins” and game mechanics being an example of lauded innovation that’s being ripped off by others at an alarming pace.

On the flip side, we tend to simply ignore or discount great process innovations that produce fundamental behavior change. For me, this was the case with Amazon Prime. I always thought it didn’t make a lot of sense to pay 80 dollars for free 2 day shipping if you were an infrequent Amazon shopper. After all, you’d have to be already buying 2o or more items a year, roughly, for it to make economic sense.

It turns out that I got the whole thing exactly backwards – Prime *turns* infrequent shoppers into rabidly frequent shoppers. Amazon Prime isn’t – or at least shouldn’t be – aimed at the people who were already heavy shoppers. It should be aimed at people like myself. You see, last year a friend got me on his friends/family Amazon Prime account (20 dollars instead of 80 since we pooled) and I then realized how powerful/addictive Prime can be. I’ve since quadrupled my annual spending on Amazon and actively try to not walk into brick-and-mortar stores. Point, click, ship-to-office, done.

So what Prime has done, instead, is produce serious behavioral change by reducing online buying friction. I know I won’t pay for shipping anymore, so I don’t have to worry about nebulous S&H pricing. I don’t have to try to package my purchases together to get over the 25 dollar limit – packaging frequently delays transaction consummation and i end up driving to Target. I now buy early and often and with disorganized impunity. The end result: I have the honor of paying Amazon 20 dollars a year so I can buy four times as much stuff as I did 2 years ago. Who’s the smart one in this equation?

The final question, then, is: Why doesn’t Amazon push Prime more aggressively? Why is the entry point to Prime 80 dollars? Why can’t there be Amazon Subprime (okay, bad name choice) that does free 3 day shipping for a lower price point? I’m sure Amazon could extend this to the logical conclusion by looking at the spike in yearly purchase volume after a user acquires a Prime subscription. Is it foolish to imagine a world where 80% of all Amazon customers are all on Prime and buying more and more with free shipping? And why haven’t other general retailers like Walmart.com (with the exception of Overstock) adopted this innovation en masse?

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Categories: life
  1. aryan
    June 9, 2010 at 4:54 am

    Saumil — all good points.

    Seems like you haven’t been to brick & mortar stores in a while. Think about all these merchants – borders, gap, macys etc.. and their merchant cards. The idea is to build customer loyalty and lock them in from going to another merchant.

    Instead of having another trim-level / sku for amazon prime — amazon should revisit the current pricing to make it more sensible to drive infrequent shoppers to adopt it. On one hand, pricing it at some substantial price like $80 deters infrequent shoppers from adopting it because, just like you were looking at # of transactions per year to break even, infrequent shoppers will look at their shopping behavior to make a judgment call. On the other hand, making it ridiculously cheap (say $5) or free, might lead to high penetration but may not lead to prodding the customer to do more transactions to break even on the card fees.

  2. June 9, 2010 at 6:18 am

    @Aryan: agreed! There is a fine balance to be struck between making the program exclusive enough (for psychological as well as shirt-loss-prevention reasons) and making it more easily accessible. But I think we both agree that this is a behavioral gold mine that Amazon seems to not have exploited thus far.

  3. January 5, 2012 at 7:18 am

    The final question, then, is: Why doesn’t Amazon push Prime more aggressively? Why is the entry point to Prime 80 dollars? Why can’t there be Amazon Subprime (okay, bad name choice) that does free 3 day shipping for a lower price point? I’m sure Amazon could extend this to the logical conclusion by looking at the spike in yearly purchase volume after a user acquires a Prime subscription. Is it foolish to imagine a world where 80% of all Amazon customers are all on Prime and buying more and more with free shipping? And why haven’t other general retailers like Walmart.com (with the exception of Overstock) adopted this innovation en masse?

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