Amazon needs a lesson in timing. On the same day last week, it announced both that it was posting “jaw-dropping earnings per share of $3.27 ($1.6 billion) on revenue of $51 billion for its first quarter,” and that it is raising the price of its flagship subscription product, Amazon Prime, by $20 per year, or 20%. After recently announcing that it had reached 100 million subscribers, the price increase alone could raise some eyebrows, though many of the subscribers pay discounted rates for various reasons. The timing of the price increase, in conjunction with such an outstanding earnings report, left a bad taste in many subscribers mouths.
In January of 2018, Amazon had already announced an 18% increase in the cost of Amazon Prime’s month-to-month subscription price as well as its monthly student rate. While we have been told by President Trump, rightly or wrongly, that Amazon receives favorable shipping rates from the USPS, there is no question that its overall shipping costs are going up. It does not ship exclusively with the USPS, and this is one area where costs will continue to rise. However, since Amazon Prime bundles its free shipping with its streaming video service, even for those who do not want or use it, many are speculating that the price increase is related to the announcement of the $1 billion production costs associated with the Lord of the Rings prequel series that will be coming soon to Amazon Prime.
Experts indicate that much of Amazon’s revenue results are due to Prime subscriptions as well as its cloud computing service, AWS. The acquisition last year of Whole Foods also added nicely to its bottom line revenue figure. Retail online sales slowed, but are still showing a profit.
While a survey showed that Prime members are 95% loyal, announcing such a significant price increase on the same day that a stellar earnings report came out may cause some subscribers to think twice. Those especially likely to reconsider are the ones who do not utilize the streaming video service, or who use it sparingly. Amazon may want to think about offering some standalone products, such as free shipping, or streaming video. While this could reduce the overall revenue for Prime subscriptions, it may help keep some from leaving, and encourage others who have never subscribed to Prime before to subscribe to just the service that they need.
Until now, Amazon has clearly been doing something right, but it needs to be careful not to take its subscribers’ loyalty for granted, and it may be time for some changes in order to ensure that everyone feels they are getting the best value for their subscription. At the very least, it needs to avoid announcing a price increase on the same day that a very positive earnings report is released.