Billed as “the best deal in the history of shopping”, Amazon Prime is one of the world’s most popular subscription services and offers a powerful example how this self-confessed customer-obsessed company earns customer loyalty by first being loyal to its users, delivering compelling benefits they simply can’t resist.
Originally launched in 2005 as the fastest delivery service for customers, the company has continuously focused on adding an unprecedented range of benefits for Prime users, and despite giving up “millions of pounds” in shipping revenue in its early years, in Q4 2019, the company announced over 150 million paying members. Five days later it also closed its first trading day as a member of the exclusive “trillion-dollar-valuation” club. Co-incidence? I don’t think so. Instead it illustrates the benefits of this customer obsession and how, with patience, it can drive extra-ordinary shareholder value for those investors who share their vision and are prepared to wait.
In this article, we’ll explore the compelling concept behind Amazon Prime, which CEO Jeff Bezos described in 2016 as such great value “it would be irresponsible not to join”.
Amazon outlined its principles for subscription success which are simple concepts yet few companies have managed to come close to matching its value proposition. The core benefit features premium shipping for a fixed monthly fee of £7.99 in the UK, or $12.99 in the USA and launched initially with a two day delivery guarantee, which it has since improved further to just one day delivery for millions of items, with no minimum order needed.
Based on these compelling principles, Amazon earns an estimated revenue of almost $18 billion alone from Prime subscriptions, yet it’s estimated the transport and logistical costs to deliver this service far outweigh this income. Bezos is quoted as saying this investment is part of a commitment to “high standards” that customers expect.
Principles for Amazon’s Subscription Success
- Faster delivery.
- Predictable and guaranteed.
- Unlimited orders delivered for one fixed annual cost.
For consumers, the immediate benefit of speed is instantly rewarding, and is reinforced every time they order. The “sunk cost” mindset is a key factor that drives more frequent purchases, eliminating lost sales such as when individual delivery charges were prohibitive and resulted in the customer shopping elsewhere.
From its original focus on books and electronics to its current comprehensive range including grocery products, there is no doubt that consumer perception has become more akin to a “free delivery” service that they enjoy every time they spend.
An equally compelling benefit for Prime subscribers is access to exclusive and compelling video, books and music content undoubtedly designed to compete with standalone subscription services such as Netflix and Spotify and includes:
- Prime Video – which features Amazon Originals and in true Amazon style has won numerous prestigious awards yet still has its sights set firmly on winning an Oscar.
- Music is also included with over two million songs available ad-free for Prime subscribers.
While Amazon Prime initially become popular for its obvious benefits of speed and simplicity of product delivery, this additional layer of unique and exclusive content at such scale delivers an entirely new proposition and unique selling point that positions Amazon even further ahead of its rivals. As well as ensuring almost universal appeal to members, content drives a more emotional connection and loyalty than shipping benefits alone every could.
Companies are Amazon Subscribers too
One additional dimension to Amazon Prime is the version launched exclusively for business customers – simply called Amazon Business Prime. First launched in 2015, this program is also a paid membership program with fees varying according to user numbers, costing anything from $499 up to almost $11,000 in fees for larger enterprises!
With benefits way beyond just shipping, Amazons Business Prime is a fascinating subscription model which focuses on the benefits of bulk discounts, price comparisons, integration with purchasing systems, and exclusive pricing in order to justify its hefty price tag.
Clever & Consistent
Jeff Bezos has been named the best-performing CEO in the world in 2014, as well as Time Magazine’s “Person of the Year” award over twenty years ago, so his subscription model is one that convenience retailers can certainly copy with pride. Whether online or offline, investing in one consistent and compelling service that users pay for once yet return frequently, ensures a virtuous circle of loyalty behaviour.
Subscription packages successfully drive repeat traffic to stores, creating additional opportunities to sell more and delight customers again and again.
Amazon’s CFO Brian Olsavsky confirms that the apparent overnight success of its subscription program does in fact stem from their long term strategy to provide value as well as a commitment to “continually add benefits” beyond free shipping. The latest example is free two-hour grocery delivery for Whole Foods Market purchases, a service which previously cost $14.99 a month. Unsurprisingly grocery delivery orders more than doubled in the fourth quarter of 2019.
Profit from Prime
In closing, the power of Prime is perhaps best appreciated by estimates that members spend 4.6 times more with the brand than non-Prime members. A truly incredible statistic when users are paying for benefits and the opportunity to shop cost effectively.
We’ve previously written about a similar strategy by Alibaba in China with its paid subscription VIP programme called 88 and Amazon’s program is the Western equivalent.
Two of the world’s biggest brands proving that being loyal TO your customers with compelling benefits is the best way to earn loyalty from them.
Liquid Barcodes is a leading global loyalty and digital marketing technology company specialising in the convenience store and foodservice industries. Our proprietary cloud-based technology platform allow retailers to create and manage their digital marketing campaigns with a proprietary process we call the “customer connection cycle’ to engage, promote and reward customers activities in real-time across digital and media channels.
How we do it:
We have developed the most advanced loyalty and digital marketing technology platform specifically for convenience store and foodservice retailers globally.
Retailers use our self-service dashboard to create and manage loyalty driven marketing campaigns that increase purchases with their existing customers, as well as effectively target and acquire new customers through partners or paid media channels.
One core component of live loyalty is gamification. We have gamified branding, loyalty and promotions. We believe this approach is essential in order to get customers’ attention and ultimately truly engage them with repeatable actions thereby winning their loyalty.
Check out some of our exciting/proven results here:
Chief Content Officer, Liquid Barcodes and Independent Loyalty Consultant
With over twenty-five years marketing experience, I specialise in loyalty marketing consulting, managing consumer loyalty propositions, strategy and operations. In addition to working with Liquid Barcodes, my clients have included Telefonica O2 Priority, Three Mobile, Electric Ireland, Allied Irish Bank and The Entertainer Group (UAE), as well as Avios – the global points currency for some of the world’s top airlines. I am also a former judge for the Loyalty Magazine Awards and host of the “Let’s Talk Loyalty” podcast.