After 9 years, Amazon has finally decided to increase the price of its Prime membership – and it’s not an insignificant amount. The cost of Amazon Prime will increase on April 17, 2014 by a hefty $20 (from $79 to $99), and the Prime membership will continue to include free two-day shipping, access to Prime Instant Video, and the Kindle Owner’s Lending Library. The Amazon Prime membership is undoubtedly one of the best online loyalty programs available today, and so this significant price change will likely be a true test of just how much consumers are willing to pay for the perks of free shipping and digital perks. Will consumers stick with Prime? Most probably will suffer the price increase; however, there will definitely be a few who drag their heels when faced with a $99 bill. Only time will tell, but perhaps a gradual increase of $5 or $10 would be received by current customers.
So why the price increase? Amazon claims that they are boosting prices to combat with rising gas and shipping costs, but that’s likely only half the story. My guess is that the increase is partially due to offset the costs of Amazon’s recent hiring spree, in addition to adjusting the price to make up for the new services that it has offered in the last few years (movies, TV shows, books, etc.).
My fellow analyst, Nick Holland, theorizes that shipping is the reason for the price jump; specifically, small items being routinely being delivered in two days that offer small to no profit margins to Amazon. He told me how he recently used Prime to ship some cans of tuna, and I myself just received a package of buttons from Prime without paying for any shipping. Daniel Van Dyke, our mobile research specialist, argues that the Prime increase is due to the future rollout of Amazon’s music streaming service, which will attempt to compete with Pandora and Spotify. Do any of Javelin’s readers have theories on why Amazon is choosing to increase their Prime membership?