The annual price of an Amazon Prime membership in the US is going up by 20 percent.
The e-commerce titan on May 11 will hike Prime's fee to $119 a year from $99, finance chief Brian Olsavsky said Thursday during an earnings call with analysts. The new price will apply to existing Prime members' renewals starting June 16. If your regular renewal is on or after June 16, you won't be allowed to prepay for another year at the currently lower rate, an Amazon spokeswoman said.
It's only the second time Amazon has increased the cost of its annual Prime membership since it was first introduced in 2005. In 2014, the company raised the price to $99 from $79.
Even so, the boost to Prime's fee -- particularly above the psychologically significant $100 level -- could threaten future renewals and new Prime customers. Prime is one of the company's most important businesses, helping build loyal, repeat customers who tend to spend about twice as much with Amazon as do non-Prime shoppers.
Prime's biggest customer base is in the US and most of those members sign up on an annual -- instead of monthly -- basis. That means tens of millions of US customers will be affected by the change.
Amazon CEO Jeff Bezos just last week revealed that Prime hit over 100 million paid members worldwide, owed in part to the company's continued push to add new benefits, including the Prime Video streaming service, more same-day shipping, the Prime Now rapid delivery program and the Prime Day annual sale.
"We still feel this is the best deal in retail and we work to make it better and better every day," Olsavsky said on the call.
He added that the price hike was partly to reflect the higher costs of offering Prime, with its rising shipping fees and additional perks. The number of eligible items for two-day shipping at no additional cost increased in recent years from 20 million to more than 100 million items in the US, the company said.
The cost of the new annual membership remains a better deal than the monthly fees, which amount to $155.88 a year. Amazon raised the price of monthly US memberships in January by 18 percent to $12.99.
One way Amazon has been able to boost membership fees without raising the annual price beyond $100 is by creating a bevy of add-on subscriptions, such as Prime Pantry, Amazon Music Unlimited and Audible Channels. That effort, perhaps, wasn't doing enough to help Amazon recoup its rising shipping costs for Prime members.
Amazon's first-quarter earnings, which were also reported Thursday, were again strong, with the company posting its second consecutive quarter of over $1 billion in profit. Shipping costs in the quarter rose 38 percent from a year earlier to $6.1 billion. Subscription fees, which include Prime memberships, rose 56 percent to $3.1 billion from a year earlier.
Michael R. Levin, co-founder and partner of Consumer Intelligence Research Partners, said Amazon will likely take a temporary hit from the price hike, with some Prime members opting not to renew and others avoiding signing up.
But, with Prime experiencing strong renewal rates, at over 90 percent after the first year and even higher after the second year, he said most customers will accept the higher price.
"After you sign up for that second year, they've got you for life, man," Levin said. "This is a pretty strong signal that they're pretty confident that they'll keep a lot of members."
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