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Amazon Prime Day: Consumers Win, Investors Really Win

By Danny Vena - Jul 15, 2017 at 3:20PM

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The company's "Black Friday in July" may seem like just another sale event, but it holds strategic importance and is a key driver of future growth.

The day after Thanksgiving is often referred to as "Black Friday" in the US, based on the inaccurate notion that retail stores operate unprofitably all year, finally turning a profit due to the massive influx of cash from holiday shopping. Along with Cyber Monday, many believe these are among the biggest retail shopping days of the year.

That may have been true in the past, but e-commerce leader Amazon (AMZN 2.07%) has changed the landscape yet again. Amazon Prime Day 2017 is in the bag, and the company released some key takeaways from the event. Despite being reserved exclusively for Prime members, it was the single biggest shopping day in the company's history. Even more startling is the fact that the event had higher total sales than 2016's Black Friday and Cyber Monday ... combined. 

As consumers ordered more than 6,000 items per minute, Amazon investors are proving to be the biggest winners. Behind the hoopla lies a strategy that will pay dividends down the line and make the gargantuan company even more formidable.

Amazon worker picking items from a bin.

Amazon had record sales for Prime Day 2017. Image source: Amazon.

Prime choice

Since Prime Day sales are reserved exclusively for Prime members, the event is really about adding to this member base. Amazon encourages shoppers to sign up for the 30-day free trial to capture the deals, and that strategy appears to have paid off as, "More new members joined Prime on July 11 than on any single day in Amazon history," according to the company's press release

The loyalty program normally has a cost of $99 per year or a monthly fee of $10.99 and includes a long list of benefits. By getting consumers to try it for 30 days, the hope is that many will stay on permanently.

The company Amazon is mum on numbers regarding its Prime shopper base, but Consumer Intelligence Research Partners (CIRP) estimates that members spend $1,300 on average, compared to $700 for non-members. By encouraging customers to join Prime, Amazon can nearly double revenue from each subscriber that stays beyond the 30-day trial.

On the Echo Dot

One of the major promotions from Prime Day was for the Echo smart speaker and the smaller Echo Dot. When the Echo smart speaker was released in 2014, it was something of a novelty, though it has since invited a multitude of imitators. It was the first of its kind and was a convenient vehicle for Amazon's AI-powered Alexa virtual assistant. The company has expanded the line to a family of products.

As it turns out, Amazon revealed that the Echo Dot was the biggest seller across all categories on Prime Day, with sales up 60% over last year's event. It also reported record sales for other Alexa-powered products, including the Echo, Fire tablets, and Kindle devices.

This isn't the first time, either. Amazon announced in Dec. 2016 that "Echo Dot is the best-selling, most gifted item on" and that "Sales of Amazon Echo family of devices up more than 9x over last year's holiday season." 

A white Echo Dot smart speaker on a shelf.

The Echo Dot was the best seller across all product lines for Prime Day 2017. Image source: Amazon.

This isn't merely about selling millions of these popular products, which many believe Amazon sells at or near cost. Once these items are positioned in the home, they become a kind of in-home sales rep for the company, providing an easy way for customers to make purchases from Amazon's store using the voice-activated speakers. Though exact figures are unknown, CIRP suggests that the Echo family of products has taken up residence in 10.7 million homes.

Analysts from RBC Capital Markets conducted a survey that revealed that 17% of Echo owners have made purchases using the device. They believe that the smart speaker sales, combined with subsequent e-commerce purchases made by using the products, could result in additional incremental revenue of $10 billion annually by 2020. Amazon has a vested interest in getting the devices in as many homes as possible.

A win-win

Amazon reported that "Tens of millions of Prime members made a purchase on Prime Day 2017, more than 50 percent higher than the prior year." Customers were happy with their deal savings, but with millions more Prime members and an untold number of Echo devices arriving in customer homes, Amazon shareholders are the real winners.

Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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