(Changes references to Randy Allen below the sub-heading
'REVOLT' to "her" from "his" and to "Allen" from "he.")
By Lou Carlozo
CHICAGO Feb 26 As an Amazon Prime customer
since December 2012, Michelle Huffman of Milwaukee has gladly
paid the annual $79 fee for the perk of free two-day shipping on
items ranging from tea and cookbooks to DVDs and Nestle Smarties
(milk chocolate buttons imported from Germany).
But if Amazon.com Inc raises its annual Prime rates
by between $20 and $40, as the e-commerce giant hinted it might
during a quarterly earnings conference call in January, Huffman
will rethink her decision.
"At that price, I honestly think it will be cheaper to buy
my quinoa and tea cups at stores - even if they cost more," says
Huffman, 27, a web producer. "I know I get Prime Video with
membership but I don't see that as much of a benefit, since we
already have Netflix."
Amazon spokeswoman Julie Law confirmed a price increase is
being considered, but declined to elaborate on what form it
Noting the selection has grown from 1 million to 19 million
items since 2005, "Prime is incomparable today to where it began
nine years ago," Law says. "Even as fuel and transportation
costs have increased, the $79 price has remained the same."
Huffman has plenty of company in her assessment of the value
Prime offers at a higher price point, especially as online
competitors, and even Amazon's own subsidiaries like Zappos.com
and Diapers.com, offer free shipping.
Experts agree that if Amazon resorts to an across-the-board
price hike, there's a high likelihood of consumer revolt.
At the current fee, Prime makes sense for customers who
order around 10 packages a year, says Randy Allen, a professor
at Cornell University's S.C. Johnson Graduate School of
Management, basing her estimate on an average shipping cost of
about $7 per order, which Allen says is conservative.
That volume encompasses a "majority of customers," Allen
says, especially those who order high-ticket items, from stereo
speakers to big-screen HDTVs, that would bring even higher
For a price point of $99 to $119, customers would have to
order 14 to 17 packages a year, Allen estimates.
That's not too many for a customer like Huffman, who placed
17 orders in 2013.
It also would make sense for Liz Springer Carey, an educator
from Birmingham, Alabama. She and her husband signed up for
Prime about 3 years ago, and they've averaged 21 orders per year
ever since. They've bought shoes, clothes, printer ink, and even
sonic screwdrivers from the British sci-fi show "Dr. Who."
Nevertheless, neither Huffman nor Carey think it would be
worth it to spend more than the $79 they've grown accustomed to,
and many others agree.
In a survey of more than 6,400 current Prime customers,
Prosper Insights & Analytics found that 63 percent of consumers
would pay only the current $79 fee for Prime - and no more. An
additional 29 percent would pay $89-$99, and only 8 percent
would pay $109 or more, a $30 minimum increase.
"It's not going to work - if Prime members get this blanket
email that rates are going up $20, Amazon is going to see a push
back for this," says Pam Goodfellow, Prosper's consumer insights
director. "The few consumers willing to pay $109 for Prime are
younger, predominantly male, have a lot more money to spend and
spend heavily on the electronics category."
The customers who fall by the wayside are likely to be the
lower-volume shoppers, precisely the ones Amazon is trying to
grow wallet share from, says Rafi Mohammed, founder of Culture
of Profit, a Cambridge, Massachusetts consulting company.
Prime members are already big spenders, averaging $1,340
annually, while customers with no other Amazon relationship
(such as having an Amazon-branded credit card or owning a Kindle
e-reader device) spend only $529 annually, according to Consumer
Research Intelligence Partners, a Chicago-based research firm.
Some industry analysts counter that consumer grumbling could
quiet down quickly once Amazon customers get used to whatever
the new Prime fee will be.
"Look at what happened at Costco, when they raised
membership fees - nothing," says Laura Heller, executive editor
of FierceMarkets Retail. "Some heavy Prime users love the
service and feel they get a lot for the annual fee."
That said, Heller says hiking the fee past $99 could be a "a
big psychological barrier" for shoppers.
Instead of crossing that barrier, Heller predicts the
company will keep its annual fee below $100, but charge separate
fees for some services that are now included for free.
(Editing by Beth Pinsker and Bernadette Baum)