How Prime Membership Helped Amazon To Become Trillion Dollar Company ?
The word ‘success’ might seem an understatement when it comes to Amazon – the business juggernaut that people love and retailers envy owing to its size & scale. Since its inception in 2004, the company has grown by leaps and bounds to become the behemoth of e-commerce.
Jeffrey Preston Bezos’s brainchild was founded late in 1994 when he decides to experiment with the growing power of the internet. At the age of 30, Bezos quit his job at a Wall Street-based firm to develop an online bookstore with his five employees. A year later Bezos officially launched Amazon.com, and the rest is history.
From a small online bookstore, Amazon has grown to become the largest online retailer in today’s world. To understand, how big the company has made it since 2004, let us take a look at various tallies done by the global media organization, Fortune. As per Fortune,
- Amazon is the 2nd most admired company in the world after Steve Job’s Apple
- The e-commerce giant ranks 8th amongst companies to be in the Fortune 500 list
- It has been ranked 9th amongst the 100 fastest-growing companies in 2018
- On Fortune Future 50, Fortune’s newest ranking of companies best positioned for breakout growth, Amazon stands at the 13th position
- Jeff Bezos, the founder, and CEO of Amazon has been ranked 4th in “Fortune’s Businessperson of the Year 2017”, which focusses on CEOs who are delivering the goods
Forbes, another global media company, shares similar insights about ‘the everything store’ with its own rankings. According to Forbes,
- Amazon is the 5th most valuable brands in the world, with a brand value worth $70.9 billion
- It ranks 53rd in the 16th Annual Forbes Global 2000 list that includes publicly-traded companies from 60 countries
- Jeff Bezos ranked number 1 in ‘Forbes – The World’s Billionaires 2018’, and was the only person to appear in the Forbes rank with a 12-figure fortune
Seeing such staggering figures makes one wonder… What is the big secret behind Amazon’s triumph? How did it make it so big?
Many consider Prime, Amazon’s subscription-based offering rolled out in 2005, the main cause behind it’s increasing fan-base, and ultimately, it’s snowballing business. If we take a closer look, this general consideration turns out to be quite the reason behind the up-and-coming e-tailer’s glory and fame. The company is currently profiting from more than 100 million Prime members in the US alone who pay an annual sum of $119 to enjoy the benefits of the subscription. Almost 70% of US households with incomes of $150,000 or more are subscribers to Amazon Prime and more than half of all online shopping searches in the US begin at Amazon instead of Google.
As one of the vanguards of the subscription economy, Prime has been an important part of Amazon’s strategy. The company has continuously focused on the evolution of Prime and has been adding more elements to it. The subscription started as a fast & free delivery service for orders of any amount but has now moved onto many other spheres. Initially, Amazon Prime was made available to customers at $79 for a year of free two-day delivery on more than 1 million of Amazon’s different products. Currently, Amazon charges an annual $119 for its prime membership offering free two-day delivery on more than 12 million of Amazon’s different products plus music, movies, and other perks.
A Quick Timeline of Amazon’s Power Strategy
While it is hard to keep a track of all the perks and plusses that Amazon keeps on adding to its Prime membership programs, here is a brief timeline of how things have been rolling out since the birth of Amazon Prime in 2005
2005 – Amazon introduces Amazon Prime – a membership service priced at $79 offering free two-day shipping on all eligible orders within the conterminous United States.
2007 – Amazon launched Prime membership program in Japan, Germany, and the United Kingdom.
2008 – Amazon introduces the program in France as “Amazon Premium”.
2011 – Prime is introduced in Italy. Prime members are also given access to more than 5,000 movies & TV shows without ads within the same charges with Amazon Instant Video. Prime also announced that Prime members’ access to the Kindle Owners’ Lending Library.
2013 – Prime is introduced in Canada.
2014 – Amazon hikes the yearly Amazon Prime US membership fee from $79 to $99. Amazon also announces Prime Music – unlimited, ad-free music streaming. It also adds Prime Photos – unlimited storage for photos in users’ Amazon Drives.
2015 – Amazon starts providing free same-day delivery to Prime members in 14 United States. On July 15th, the company celebrates its birthday with “Amazon Prime Day” offering huge deals and offers similar to those of Black Friday for Prime members.
2016 – Amazon Prime is introduced to Indian customers. As per reports from Consumer Intelligence Research Partners (CIRP), Amazon Prime reaches 54 million members. It introduces an optional monthly subscription of $10.99 per month along with its yearly subscription. It also launches its own private-label business, Wickedly Prime- a line of food and beverages for Prime members only.
2017 – Amazon launches Prime Exclusive Phones, a service that displays ads for quality handsets at discounted prices for Prime members only. It also lunches Prime Wardrobe, its first fashion-oriented benefit for Prime members
2018 – Amazon introduces the second hike in the annual US Prime membership fee from $99 to $119. Amazon hits more than 100 million paid Prime subscribers as stated by Jeff Bezos in the annual shareholder letter, 2018.
Why is Amazon Prime such a sensation among customers?
Customers love Amazon Prime, and why wouldn’t they? The giant e-tailer sells almost everything that its customers can think of. And added to that, frequent shoppers and loyal Amazon fans can save on shipping with Amazon’s Prime membership offering. However, the benefits do not stop there. There is so much that people are getting from an annual subscription of Prime that the company has experienced a spike in the number of Prime members over the past few years, even after increasing its membership price twice in five years.
Other benefits that Amazon offers to Prime members, apart from two-day free Prime shipping, include access to Prime Video, Kindle Owners’ Lending Library, Prime Music, Twitch Prime, Prime Photos, Prime Early Access, Twitch Prime, Prime Now and add-on services such as Amazon Channels (HBO, Showtime, Starz) and Amazon Fresh. These offerings have led customers with Amazon Prime membership to spend more than those who don’t. And with perks like these, it’s no wonder why customers are falling head-over-heels for Amazon Prime.
Amazon Prime – Powering Amazon
In 20 years of its business, Amazon has grown to become the globe’s most prosperous e-commerce company. An annual turnover of $ 178 billion and a market value $ 900 billion speak for it. And how did the company achieve such colossal success? Well, by doing the smartest thing possible – turning its customers into subscribers!
Here’s are some facts about the membership service that show how it has helped Amazon boost its business –
- On an average, Amazon Prime members spend $1500 on the online platform every year.
- As of April 2018, Prime exceeds 100 million members
- Almost 70% of US citizens who shop online and have incomes of $150,000 or more have Amazon Prime memberships
- Around 50% of Amazon Prime subscribers use the benefits of their subscription to purchase something online
- According to Forbes, Prime subscriptions could add around $18 billion to Amazon’s top line by 2020
Amazon Prime is the most stunning levers put out by Jeff Bezos and Amazon. By reinventing and modernizing the concept of subscriptions and memberships, the company created its very own formula of customer loyalty with Amazon Prime. Prime has become an essential part of many people’s lives – a daily ritual that they cannot imagine life without. Stats reveal that more than 80% Prime members surf for products at least once a week, and almost half of them end up making a purchase.
So, why is Prime the formula for success for the e-commerce behemoth?
- Firstly, Prime gives customers what they want most i.e. convenience, by giving them a platform to shop online and by removing the one major obstacles in e-commerce – the charges for delivery. Since this pulls down the overall cost of the purchase, customers are likely to buy more or make multiple purchases at a time.
- Secondly, Amazon uses a powerful strategy that groups many services into one package. The add-on services provide customers access to movies, music, data storage, and much more, all bundled under one subscription.
The exponential growth in the number of Prime members over the past few years is not by chance. While the number of Prime members have sky-rocketed, the services provided under the Prime subscription have also increased. This is an epitome of the strong and deliberate concept that Amazon follows – feeding the ‘flywheel’.
The idea follows the simple principle associated with a flywheel. Pushing an extremely heavy flywheel helps build its momentum which further helps itself turn, forming a self-reinforcing loop. In a similar manner, Amazon has built the Prime program forming a self-reinforcing loop, locking customers into a system that offers them two-day, free shipping with added digital services. Once a customer starts using the many services, it becomes difficult for them to leave. In this way, the built-in services aid sales, conversion as well as retention.
If you look back at how Prime started, you might find it amusing that the whole concept of Prime came from Amazon’s Idea Box and was primarily an Amazon employee’s proposal. Today, Prime is considered the cornerstone of Amazon and the big reason behind its enormous success.