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Will Amazon Prime Fee Increase Affect Merchant Sales?

Online merchants are wondering what if any effect Amazon Prime’s price increase will have on their sales. Amazon began notifying members of Amazon Prime on Thursday that the renewal cost was rising from $79 to $99. This after the company recently raised the minimum spend to get free shipping from $25 to $35 as part of its Free Super Saver Shipping program – and after raising the cost of Amazon Prime in the UK last month from 49 pounds to 79 pounds, at the same time adding streaming movie and TV service to that country’s service.

Amazon Prime offers members free 2-day shipping on most items it ships, including FBA items belonging to third-party merchants stored in its Fulfillment Centers. It also offers discounts for expedited shipping on those items.

Over the years, Amazon has expanded Prime to include Prime Instant Video, giving members access to movies and television shows (some available for free, others for a fee), as well as a free lending library for owners of its Kindle ebook readers. But as far as Amazon sellers are concerned, the shipping benefits of the program are of most importance.

Sellers who use Fulfillment By Amazon (FBA) like the membership program, since buyers with Amazon Prime see sellers’ FBA items as offering free 2-day shipping to those buyers. Will the higher fee will mean fewer buyers participating in Prime, or could the higher fee result in Prime shoppers using Amazon more for online purchases in order to “get their money’s worth,” some wonder.

Sellers who don’t use FBA aren’t directly impacted by Amazon Prime, since it doesn’t cover Marketplace orders – only the products Amazon itself ships directly including FBA items.

Amazon had prepared Wall Street analysts for the fee increase in January during its quarterly conference call, telling them it was considering raising Prime fees by between $20 – $40. Media also picked up the story, so some customers may actually be relieved that the fees did not increase by $40.

John Blackledge of Cowen and Company estimates there are 23 million Prime members in the U.S. and said a good portion of Amazon Prime member sign-ups take place in the fourth quarter, and he wrote in a research note on Thursday, “We expect continued growth of Prime members, despite the price increase.”

Colin Sebastian of RW Baird said he saw little churn risk from the price hike, noting there were precedents for increasing memberships with little impact on subscribers, such as at club stores. “Also important is that Amazon only earned $3.1 billion in shipping revenues in 2013 on shipping costs of $6.6 billion.”

Amazon sent a letter to Prime members on Thursday morning (March 13), informing them of the new fee upon renewal. One letter received by a member of the EcommerceBytes editorial staff and signed, “the Amazon Prime Team,” read:

We are writing to provide you advance notice that the price of your Prime membership will be increasing. The annual rate will be $99 when your membership renews on May 20, 2014.

Even as fuel and transportation costs have increased, the price of Prime has remained the same for nine years. Since 2005, the number of items eligible for unlimited free Two-Day Shipping has grown from one million to over 20 million. We also added unlimited access to over 40,000 movies and TV episodes with Prime Instant Video and a selection of over 500,000 books to borrow from the Kindle Owners’ Lending Library.

For more information about your Prime membership, visit our Prime membership page.

One lesson sellers can take away from the Prime fee increase: if your products are selling ridiculously well, consider raising the price. Amazon revealed in December it had actually put the brakes on new member signups at peak periods during the holiday season to ensure current members were not impacted by the surge. That was a big clue the time might be right to raise the price.

Over on the AuctionBytes Blog, Julia asked in January, What Price Would You Pay for an Amazon Prime Membership – let us know what you think.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.