The Real Story Behind Amazon Prime’s Rumored Price Increase

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Prosper Technologies LLC has just released the findings of an online surveythat considers the impact of raising the price of Amazon Prime by $20 to $40. Conducted between February 4 and February 10, the survey asked 6,467 Amazon Prime members what they thought of a rumored $20+ price increase.

No big surprise here — the findings confirm that few consumers want to pay more for the same level of service. But what’s really behind a price or service when it involves Amazon?

I believe that there are three important things to grasp about Amazon and its Prime program that are not revealed in this survey.

  1. Amazon loves misdirection and publicity (watch The Amazon Effect to gain greater understanding). Amazon CFO Tom Szkutak is good at both tactics, largely because he learned from the master, Jeff Bezos.
  2. Amazon Prime is the Holy Grail of Amazon.  However, it is not a shipping program, but rather a loyalty program –a very, very good loyalty program.
  3. The original price of Amazon Prime was not established by a calculation of the cost, but instead set at $79 because it was a large prime number that would be accepted as a good value by the marketplace.

So, what is all the fuss about a price increase for Amazon Prime? In my view, this is the real story:

  • It’s a great publicity stunt to get the point across that Amazon has not increased the price of Amazon Prime in 9 years (Wow, almost a decade without a price increase. Just imagine!).
  • It presents a great opportunity to establish two levels of Amazon Prime, one at $79 for the shipping program (or maybe even a lower price to gain huge publicity), and a somewhat higher price to include the Prime Instant Video and/or Prime Lending Library.
  • It positions the value of AmazonFresh going forward and lays the foundation for the huge value of Amazon Prime Fresh at $299/year (watch Amazon and Walmart: Facing the Titans for more explanation).

With the survey and all of the other news surrounding the price change rumor, Amazon is getting exactly what they want. They are generating good buzz in the press and have a free way to “advertise” the value of Amazon Prime membership as the largest and best loyalty program of all time. Not quite as successful as the drone story on 60 Minutes, but not bad work. Well done!

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Jim Tompkins
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