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Amazon Can Survive Peak Prime With the Right Strategy

Amazon Can Survive Peak Prime With the Right Strategy

(Getty/Leon Neal)

By    |   Sunday, 30 October 2016 11:33 AM

Amazon CEO Jeff Bezos is so obsessed with Amazon Prime, he once called it "irresponsible" not to belong to the membership program.

Indeed, in recent years Amazon.com Inc. has moved away from an initial strategy of undercutting competitors on price to a laser focus on signing more people up for Prime.

Now, that business model could be shifting again. 

More than 65 million Americans are now members of Amazon Prime, which offers two-day shipping, streaming videos and other perks, according to data out this week from Consumer Intelligence Research Partners. (Amazon doesn't make Prime membership numbers public.)

There's still room to grow: Based on those estimates, only around a third of the 200 million Americans age 18 through 64 are Prime members. That number goes to 46 percent when taking into account married couples who potentially share one membership. What's interesting is that membership growth levels this quarter began showing signs of a slowdown. 

To attract more Prime members, Amazon has been reaching out to lower-income households, according to a recent survey from Cowen & Co. That suggests Amazon could eventually hit a limit on how many customers it can attract. Underlining this point is Amazon's recent addition of a monthly Prime subscription for $10.99 a month. Previously, the membership cost $99 a year. 

Slower growth was bound to happen. The bigger the base, the harder it is to grow.

Just look at what's happening to Apple. As Gadfly colleague Shira Ovide wrote this week, the gargantuan phone and computer maker defied gravity with sales growth of at least 7 percent per year for 13 straight years -- until, well, it didn't. 

Reaching peak Prime -- and, again, we're not there yet, but we will get there eventually -- isn't necessarily a bad thing for Amazon. It just requires a slight pivot on strategy, away from an intense focus on signing up Prime members. Increasingly, it will be about how much Amazon can get existing Prime members to spend.  

Already, Prime members annually spend twice as much as non-members, according to CIRP. We're now seeing big pushes from Amazon into mega-retail spending categories such as apparel, streaming content, and music -- part of an effort to make Prime members spend even more.

Next up is groceries, a highly fragmented market Amazon hasn't yet been able to crack. A Business Insider report out Wednesday cited internal Amazon planning documents calling for 2,000 Amazon Fresh-branded physical outlets over the next decade.

Not only do groceries represent a $1 trillion market in the U.S., but they could help push Prime members into buying more stuff from Amazon more often, creating the sticky habits the company needs to push those customer basket totals higher and keep its revenue growth engine running.

 


Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

© Copyright 2019 Bloomberg L.P. All Rights Reserved.

   
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Amazon CEO Jeff Bezos is so obsessed with Amazon Prime, he once called it irresponsible not to belong to the membership program.
amazon, prime, strategy, shopping
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2016-33-30
Sunday, 30 October 2016 11:33 AM
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