After a huge fourth quarter that saw Amazon (NASDAQ:AMZN) grow its Prime membership base by handing out free 30-day trials, the company has held onto those gains in the first quarter of 2015, according to new research from Consumer Intelligence Research Partners.
What: The research firm estimates that as of the end of March 2015, 42% of Amazon customers were Prime members, which translates to about 41 million Prime members. Prime members, CIRP reported, spend "on average about $1,100 per year, compared to about $700 per year for non-members."
"Amazon Prime membership held steady in the March 2015 quarter," said Josh Lowitz, partner and co-founder of CIRP. "We think that the influx of new Amazon Prime members in the holiday quarter of 2014 included an unsurprising percentage of shoppers that did not continue their membership following their 30-day free trial. Given this Prime customer acquisition reality, the net result is in a small increase in members relative to the holiday quarter."
So what: It's not the holidays any longer and Prime not only held onto the gains it posted at least in part due to the free trials, it grew membership by a small amount. That's impressive and shows that the company has been able to convince a decent percentage of its customers that Prime offers value. That's especially important at a time when Amazon has increased spending on the membership service, ramping up its video selection, which includes a growing number of originals, and adding the Prime music service.
Now what: For Amazon, it's about creating a tie between the company and its customers beyond having a credit card on file. The challenge is growing beyond its current percentage of users who elect to pay $99 per year for Prime service or to find ways to bind people to the company through other Amazon devices.
It's not just Prime members who are good for the company. People who own a Kindle reader or tablet are "as productive as Amazon Prime members, spending $1,300 per year compared to $650 per year for customers who do not own a Kindle e-reader or Fire tablet," the CIRP report said. That makes sense because owning a Kindle makes buying from the online retailer very easy.
The problem for Amazon is that getting more people to buy a Kindle has proven a challenge.
"Kindle Fire and e-reader owners are by far the largest group of Amazon hardware owners," said Mike Levin, Partner and Co-Founder of CIRP. "But as a percentage of the Amazon customer base, that group has plateaued at about one-third of Amazon customers."
What's yet-to-be seen is whether the other Amazon devices such as Echo or Fire TV follow the same pattern. But, for Amazon, the equation appears to be simple: Get customers to sign up for Prime or buy a Kindle and they will spend more.
Daniel Kline owns shares of Apple. He is a Prime member, owns an Echo, Fire TV, Fire TV stick, two Kindle tablets, and a Kindle e-reader. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple. 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.