Now at $99, should you quit Amazon Prime? It’s more expensive than you think

Amazon's "Dear John" letter to Prime users.
Amazon’s “Dear John” letter to Prime users.

Amazon Prime can be a pretty good deal for users. Heck, if all you do is stream a Ken Burns documentary series rather than buy it, you’ll come out ahead, even at the new $99 price point. So the usual consumer reporter “how dare they” response to Amazon’s price hike today should probably be muted.

HOWEVER, today is a good day to make sure that Amazon Prime is still a good deal for you. And it’s also a day we should really all be wondering: What the heck is wrong with Amazon?  Just last year, Wired made a compelling argument that Prime could be free and Amazon would still profit wildly from it. (That story also explains why the service is more expensive than you think; more in a sec).

So why is Mr. Bezos reaching deeper into our pockets? Because investors are finally getting impatient with the retail giant hemorrhaging red ink. It smacks just a little of desperation to me.  But that’s for a business story another day.

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Over $20, should you consider canceling Amazon Prime?  The shallow answer is pretty simple. Did you order roughly one item every month from Amazon last year, and are you pretty dead set against waiting a week or so for the things you buy? If so, then prime is worth $100 to you, even if you don’t stream video. Lifehacker.com has a great breakdown of all the permutations regarding shipping costs, but you’ll pay at least $5-$10 for most items, unless you always order over $35 and select super-slow shipping. So at 10-15 orders per year, Prime pencils out for you.

Any less than once a month and you are probably wasting your money, unless you watch enough Amazon Instant Video that you can consider canceling your Netflix subscription. Netflix still has better selection, but Amazon Instant is no slouch (And I *love* the Ken Burns Jazz series, not to mention Baseball).

So, simple right?  Not so fast.  The dirty little secret of Prime is that it has an almost magical impact on Amazon shoppers, who spend a heck of a lot more on the site once they sign up.  Amazon is famously tight-lipped about company vitals, but outsiders (Consumer Intelligence Research Partners) have calculated that prime members spend more than twice as much  every year ($1,224) as  non-Prime customers ($505).   One consumer blogged about joining Amazon Prime and found her shopping at the site increased three-fold.

Naturally, this doesn’t necessarily mean these shoppers are spending more overall. They might simply be shifting purchases due to the lack of “friction” from shipping costs, a perfectly rational (and budget-friendly) choice.  But that line of thinking is incomplete. Plenty of behavioral studies show consumers spend more when there’s less friction — that’s why you spend more when using credit cards then cash, and why you don’t get quite as upset about toll road increases now that you pay with EZPass. So it’s more than likely you prime members buy more than you would otherwise, meaning prime will cost you a heck of a lot more than $99 annually. Maybe hundreds more.

Then there’s this pesky issue, which keeps coming up. Two lawsuits accuse Amazon and its partners of raising prices for Prime members. I will not speak to the validity of those lawsuits, but in general, it seems certain that shoppers hooked on prime stop shopping around for items, and fall into the habit of simply buying from their favorite online retailer. That makes them an easy target for higher prices in general. Don’t forget, Amazon pioneering dynamic pricing — charging some customers higher prices than others. Prime customers are certainly a prime target for this, if not now, then in the future.

Hey, Amazon has to make money somehow.

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About Bob Sullivan 1381 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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