How Amazon Loses on Prime and Still Wins - MIT Technology Review
▻https://www.technologyreview.com/s/601889/how-amazon-loses-on-prime-and-still-wins
Maybe more important: Prime Day 2015 helped boost membership in the subscription shopping service. Prime members pay $99 a year for the right to two-day shipping on 30 million items, plus streaming video and music and other perks.
In return, Amazon gets customers to buy more from them than they otherwise might.
Analysts at Consumer Intelligence Research Partners estimate that Amazon has 63 million Prime members in the U.S., with 19 million joining since the first Prime Day last July. Those members spend more than the typical Amazon browser—on average $1,200 per year, compared to $500 per year for nonmembers, according to the research firm.
Mulpuru estimates that free shipping on Prime purchases costs the online retailer $1 billion a year. Because of the logistical challenges of getting shipments to a customer in 48 hours, Prime orders often have to be split up and sent from more than one location—a big cost for a retailer operating at a thin profit margin to start with.
But even if Mulpuru is right, and the additional revenue from Prime is not enough to overcome the costs, that is unlikely to worry Amazon executives, she says. CEO Jeff Bezos’s business philosophy, she notes, is “that too much of a profit means you’ve lost an opportunity to grow.”