For the first time since 2015, Amazon (NASDAQ:AMZN) plans to raise the price of its Prime service for existing members. New users already have to pay the increased cost of $119 a year, up from $99, or they can opt to pay a $12.99 a month, an increase from $10.99.
That's a $20 increase on the annual membership and an extra $24 for those paying month to month. Some may consider that a steep increase, but whether it's worth it for people to join or renew the service, which offers free two-day shipping on over 100 million items along with many other perks, depends on how people use it.
What is Amazon Prime?
Amazon CEO Jeff Bezos acknowledged that Prime has over 100 million members in his company's recent annual letter to shareholders. The online retailer does not share any data on how much those members spend, but independent research from Consumer Intelligence Research Partners (CIRP) shows that Prime members spend about $1,300 a year on Amazon.com, versus $700 for non-Prime members.
For their $99, and soon-to-be $119, Prime members get the aforementioned free shipping. They also get access to Amazon's streaming video service, which has a mix of original programming and licensed television and movie content, and they have begun to roll out savings on some items at Whole Foods in certain markets with plans to expand to the whole chain. In addition, Prime members get access to some free Kindle books and a few million songs from Amazon Music.
What is Amazon Prime worth?
If you place a lot of small orders with the online retailer, then Prime clearly makes sense. Amazon offers free 5-8 business day shipping on eligible orders over $25. Shipping costs can vary for orders below that, but most come in at $5.99 per order for the same slow shipping, and double that (or more) for two-day shipping.
That means Prime members who place 20 orders per year that are below the $25 threshold would have earned back $119.80 -- all of their membership fee even at the new higher price -- while getting their items significantly faster.
If you're not someone who places a lot of small orders or who cares much about the speed of delivery, Prime's value become murkier. Prime Video, for example, has some value, but none of its shows have become hits on the level of numerous Netflix series. Still, Transparent, The Grand Tour, The Tick, The Man in the High Castle, and others have their fans, plus there is some quality from HBO in their archive, along with numerous hit films.
Amazon music also adds some value if you're not looking for something comprehensive and are happy just playing themed playlists. The Whole Foods savings can also be a major perk if you shop at the grocery chain and would have normally purchased items included in the deal.
Is Amazon Prime worth it?
If you have integrated buying from Amazon into your normal routine, then Prime is almost certainly worth it. You can place orders as often as you want with no concern about shipping costs, knowing that your order will arrive in two days.
The Whole Foods benefit has the potential to be a major cost offset to the price of a membership as well. If you spend $200 every month at Whole Foods, which is not a hard figure to hit, a 5% savings is $10 saved per month, or $120 saved per year -- a complete offset of a year of Prime.
The Prime Video and Music offerings are more like icing on the cake. They should tip you into the "worth it" category if you're on the fence, but on their own, they're probably not enough to make Prime a good value.
Really, the value of Prime comes down to whether your total shipping savings, Whole Foods discounts, and any added value from the other services add up to $119 a year. It may take some shifts in your shopping behavior, but it's easy to buy only what you need and have a Prime membership pay for itself.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.