As expected Amazon announced a $20 price increase in the cost of its Amazon Prime service (from $79 to $99). It will take effect when customers are up for renewal. Based on consumer survey data, Consumer Intelligence Research Partners (CIRP) estimates that Amazon currently has 27 million Prime members.
These subscribers constitute 45% of Amazon customers. I suspect this estimate is high.
Will the price increase cause some of them to not renew? I’m not going to renew for one — not because I can’t afford it but because I don’t get enough value from it. The CIRP survey data argue that 6% will not renew, while 67% will definitely renew. Others are less certain at this time.
CIRP tested different price points and found that “at $119, 40% of subjects say they will definitely not renew their membership.” Based on the survey data it’s possible that Amazon will lose 10% to 15% of subscribers as a result of the price increase. But things like complacency and auto-renew may mitigate that.
If we assume roughly 20 million Prime members on average for 2013 that represents nearly $1.6 billion in revenue. Using the new $99 fee and CIRP 27 million member estimate, Amazon would make $2.67 billion on an annualized basis after the price increase. Assuming no new Prime members and a 10% decline in subscribers from the current 27 million estimate, annualized revenues at the new $99 price point would be $2.4 billion.
However when viewed as a loyalty tool — Prime members buy more and more often — Amazon is making a lot more on Prime. In its letter to subscribers this morning announcing the price increase Amazon simply reiterated the current benefits of Prime:
The CIRP survey data argue that Amazon has hit a price ceiling of sorts at $100 and will need to add benefits to increase membership significantly.
What about you? If you’re a Prime member does the current price increase make you inclined to cancel or not renew?