Online giant Amazon has been spotlighted as a retail innovator with its dedication to creating a seamless customer experience. While the retailer has been praised for its personalization strategies, Amazon now has an eye on the future, unveiling plans for a series of new investments, including anticipatory shipping and drone delivery.
The latest news from Amazon causing a commotion, though, is the eTailer’s decision to increase its annual membership fee for Amazon Prime from $79 to $99. Amazon indicated on the web site that if a membership renews before April 17, 2014, customers will be charged the standard rate of $79. But starting April 17, 2014, all Amazon Prime members will be charged $99 on their respective renewal dates.
An Amazon Prime membership offers a number of benefits, including free two-day shipping on most products, one free book rental per month via the Kindle Lending Library, and free movie and television streaming via Amazon Instant Video.
But will the $20 price hike have a substantial impact on customers’ overall loyalty to Amazon? Moreover, will Amazon’s decision influence whether Prime members renew their subscription or new members sign up?
Through a survey of 1,050 Amazon Prime members March 14-16, 2014, customer loyalty research consultancy Brand Keys concluded that the membership rate increase negatively impacted two important engagement drivers for online retailers: Brand reputation and brand value. Overall brand perception among Prime Members decreased from 93% to 83%.
“Based on immediate Prime member reactions, Amazon may have underestimated the negative effects of the increase,” said Robert Passikoff, Founder and President of Brand Keys. “Consumer expectations are always on the increase, and when it comes to online retail, they operate in a ‘what-have-you-done-for-me-recently?’ paradigm. Price increases weren’t what Prime Members were expecting.”
Although Amazon hasn’t announced any definitive plans for expected revenue generated from the membership increase, the eTailer may be able to invest more aggressively in improving its transportation and distribution strategies, according to Rob Howard, Founder and CEO of Grand Junction, a provider of same-day delivery technology. “These investments will allow Amazon to roll out more delivery options going forward — likely focused on different service levels and subscription packages for Amazon customers at different price points.”
Price Trumps Speed In Delivery Race
When shopping online, consumers consider a variety of factors, including price, shipping speed and delivery options. However, 75% of consumers indicate that convenience is one of the most important elements of an online shopping experience, according to research from Acquity Group.
“Faster delivery speeds at little to no extra cost is very compelling for consumers who are pressed for time or don’t want to fight the mall crowds,” noted David Chang, Managing Director and SVP at Acquity Group, a part of Accenture Interactive. “Delivery flexibility will also continue to improve as retailers battle for customer attention and loyalty.”
Even though delivery speed is central to satisfying time-starved shoppers, they will “only pay to a certain degree,” Chang explained. “Despite all the other considerations, respondents in Acquity Group’s study ranked price the most important factor when shopping online.”
Faster shipping speeds have now become the standard for many online-only and multichannel retailers. In fact, Amazon’s average delivery time for standard shipping is approximately 3.5 days, according to research from retail customer service analytics company StellaService.
With a minimal difference between standard and Prime delivery speeds, consumers will have to weigh the benefits of having a membership, according to Kevon Hills, VP of Research at StellaService.
“One thing Amazon has focused on is speed of delivery and convenience — we can see that through our data,” Hills said. “Internal processes — even outside of Prime — are very consistent. It’s really up to the consumer to determine whether Prime is worth its price.”
Hills added that depending on the product type, consumers would have to complete more than 20 orders over the course of a year for Amazon Prime to be worth the investment.
However, other industry experts indicate that because current Amazon Prime members have come to expect speedy deliveries, they may be more than willing to pay an extra $20 a year.
“Once customers are accustomed to rapid shipping, and that is certainly true of existing Prime users, it’s tough to go back to slower shipping,” Howard said. “No other retailer has an offering even close to Prime, so frankly there is currently no real viable alternative. Take a look at the expedited shipping rates of most retailers and you’ll see that even at $99, Prime is a bargain.”