Amazon (NASDAQ:AMZN) has put big money into enhancing its Prime service, which, when it first began, simply offered members free two-day shipping on millions of items sold by the online retailer.
Now, Prime contains a free Netflix-style video service, as well as a streaming audio offering. The goal for the company is to keep people paying $99 a year for the service not because it makes money on that fee, but because Prime customers spend more money with the retail leader.
Prime subscribers spend almost $538 a year, nearly double the $320 per year spent by non-subscribers, according to a study conducted by RBC. The survey, conducted in June 2014, was based on the answers of just over 2,000 Amazon.com shoppers -- 708 Prime members and 1,357 non-Prime customers.
More dollars spent means Amazon will do just about anything to keep Prime customers happy. Some estimates put Prime subscribers at 50 million, but those folks may not know as much as they think they do about the service.
Prime (and non-Prime) customers might get a lower price from a third-party seller
A busy thread on Amazon's own help forums details how in some cases items are actually cheaper if you purchase them from an account which does not have Prime. The challenge comes from how Amazon presents items. Prime members generally see Prime-eligible items listed first, while a non-Prime member is shown the same item from a third-party seller at a lower price. The company attempted to clear up the confusion, which has resulted in two lawsuits, in an email to GeekWire earlier this year:
Prime customers are not charged more for products, Prime is an express shipping service -- not a pricing program. What often happens is that a customer does not realize they are looking at a Prime shipping eligible item that may be sold by several different third party sellers. They appear to be identical items at different prices -- but Amazon's more than 2 million third party sellers can set their own pricing on the millions of products they sell in the Amazon Marketplace.
“Amazon always shows customers – both Prime and non-Prime – the lowest possible price,” an Amazon representative told Fool via email." For example, "Available at a lower price without free Prime shipping from other sellers" is mentioned on many product and there are links to offer listing pages. This is visible to all customers. So, Prime customers need to do the math as to when a lower price makes up for the loss of free shipping.
There are now third-party retailers offering free shipping for Prime members
Prime's free two-day shipping is no longer being offered only on products shipped by Amazon. The company is now making deals with third-party retailers to offer the perk on items ordered on their sites. The first of the deals, Re/Code reported, is with British fashion retailer AllSaints, which has started offering Amazon Prime members free, next-day shipping on purchases they make on AllSaints.com.
Amazon is extending the service, which it calls Prime Pass, but it has met with skepticism from other retailers who don't want to share info with a rival, the technology news website reported. Prime members who want to make a purchase from AllSaints must log in with their Amazon credentials and use the payment methods they have stored with Amazon to qualify for the free shipping deal. Amazon charges AllSaints a small fee each time one of its customers clicks through from Amazon.com to AllSaints.com, but it does not take a cut of the sale, according to Re/Code.
Amazon offers unlimited photo storage for Prime members
Amazon keeps looking for little ways to make Prime more essential, and it introduced a new one on Tuesday. The service, Prime Photos, provides free unlimited photo storage in Amazon Cloud Drive. With the new offering Prime members can:
- Upload photos from iOS and Android devices, Fire tablets and Fire phones, and Mac and Windows computers and have them stored for free in the Amazon cloud.
- Access photo collections at any time from nearly any device -- including the big screen using Amazon Fire TV or the newly announced Fire TV Stick, as well as PlayStation 3, PlayStation 4, and select LG and Samsung smart TVs.
- Add photos to Cloud Drive in their original version so customers never have to worry about losing the full resolution image.
Currently, for non-Prime members, Amazon offers 5 GB of storage free and charges $10 year for 20 GB of services, $25 for 50 GB, with prices topping out at 1,000 GB for $500 annually.
It's the sum of the whole
While shipping was the initial attraction when Prime launched in 2005, the company has evolved the service to keep it valuable even if customers don't buy as many physical goods as they once did.
No customer is likely to buy Prime because it offers free photo storage or lets you buy from other companies with free shipping, but the collective whole of those services makes the $99 annual price a better value, and that should keep people on board.
[Editor's note: Updated article to properly note 3rd party sellers on Amazon may offer lower prices than Amazon lists itself.]
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.