After Amazon revealed Thursday that it's raising the yearly fee for Prime in the US by 20 percent, some vented on Twitter, calling the move "outrageous" and "insulting" and saying they wouldn't renew their subscriptions.
But analysts quickly concluded that Amazon isn't in danger of a mass defection from Prime, saying the benefits of the program were too great to ignore. John Blackledge, a Cowen analyst, even pegged the value of the program at $400 a year -- well above the new price of $119, which is up from $99. That's why you may grouse about the change, but you'll likely pay up and renew anyways.
"There are three great deals in America today -- the Happy Meal ($3.29), Netflix ($10.99), and Prime (even @ new price of $119 – up 5 Grande Lattes…a year)," wrote RBC Capital Markets analyst Mark Mahaney.
The increase should help Amazon recoup some of its ballooning shipping costs, which have been rising as people order more and more stuff using Prime's two-day deliveries. That should help put the hugely popular program on more-stable footing and give Amazon greater leeway to offer more Prime perks going forward. Blackledge estimated Amazon will make an extra $800 million in revenue in a year thanks to the increase.
The new price starts May 11 for new Prime customers and kicks in June 16 for Prime renewals. (No, you can't prepay for a new year at the current price If your regular renewal is on or after June 16.) The new price also remains a better deal than the monthly fee, which at $12.99 ends up being $155.88 a year.
Aside from the folks threatening to leave Prime, plenty of other Twitter commenters sounded resigned to the change. Some even defended the increase as reasonable, given all the new perks added to the program, including streaming videos, more same-day deliveries and Prime Now speedy deliveries. Heck, there seemed to be a lot more social-media negativity against Amazon Key, an in-home delivery option, when that was introduced late last year.
"We do not expect the company to get much pushback from consumers given the increasing value of the service," J.P. Morgan analyst Doug Anmuth said.
The price hike does come with challenges, even if the $20 boost isn't a breaking point for many. With annual US Prime members making up the biggest group of Prime subscribers worldwide, striking the right balance will be vital to ensure Prime remains a successful business.
Amazon also has more competition online now, especially from Walmart, which doesn't charge a subscription fee. The $119 membership could create an opening for these rivals to take a bite out of Amazon's skyrocketing revenue.
"Growth in Prime has slowed from spectacular to merely good," Michael R. Levin, of Consumer Intelligence Research Partners, said, "so it could have an impact on that."
The good news for customers is thatsince the last Prime price increase for annual US members. With any luck, it'll be even longer before the next one.
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