Thursday, March 13, 2014

Amazon Prime price increase - trust the anecdotal evidence, or the surveys?

It's happened. The rumored price increase for Amazon Prime has been announced, and a $20 increase in the standard annual price (from $79 to $99) will take effect on the customer's next renewal.

As Alexis Kleinman notes, this is the first price increase in nine years - and while a 25% increase may seem steep, if you've been a long-term member and annualize the increase, it isn't so bad. (Which raises the question of whether Amazon should have increased prices every year, rather than doing it in one fell swoop, but that's a topic for another time.)

So what will happen? First I looked at the anecdotal evidence, as seen in Alex Scoble's Facebook thread. The majority of commenters there felt that Amazon Prime was still a good deal. However, Scoble's Facebook friends are probably atypical, since we are more likely to be cord-cutters, and thus are more likely to use the streaming capabilities of Amazon Prime.

But what about a more broad-based survey? Back in February, Reuters reported the results of a survey:

In a survey of more than 6,400 current Prime customers, Prosper Insights & Analytics found that 63 percent of consumers would pay only the current $79 fee for Prime - and no more. An additional 29 percent would pay $89-$99, and only 8 percent would pay $109 or more, a $30 minimum increase.

At the time that the survey was conducted, all sorts of price increase figures were being rumored, while the actual price increase was lower than some estimates. (In fact, I wonder if Amazon intentionally leaked a high price increase value, so that consumers would be pleased when the actual price was lower. Again, a topic for another time.)

So now that Amazon will be priced above $79, will over half of Amazon's customers drop the service at the next renewal period? The Proper Insights people think so:

"It's not going to work - if Prime members get this blanket email that rates are going up $20, Amazon is going to see a push back for this," says Pam Goodfellow, Prosper's consumer insights director. "The few consumers willing to pay $109 for Prime are younger, predominantly male, have a lot more money to spend and spend heavily on the electronics category."

Yes, this could potentially be a disaster along the lines of the Netflix disaster when it initially split up its mail delivery and streaming services. (Of course, things are fine several years later.) But my personal suspicion is that this is much ado about nothing, and most Amazon Prime users will happily renew at the higher rate.

Then again, I've been wrong before.

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