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Amazon Prime is the most successful Membership Program of the internet. With over 200 million paying members (as of Q1 2021), Prime is an integral part of the American e-commerce giant's business model and has shaped Amazon's development in recent years. decisive characterized.

Today we take a detailed look at the importance of Prime for Amazon. Among other things, we would like to look at the history of Amazon Prime. We will take a closer look at the development of the Prime program from its original idea to its current form and will find out why Prime is so successful & important for Amazon's expansion, how this is reflected in the company's figures and how the Amazon Prime Day within a very short time to a most important shopping days of the year.

What is Amazon Prime?

Amazon Prime is a Paid subscription modelwhich offers its members a number of advantages over the free Amazon version. For their monthly fee of EUR 7.99, Prime members particularly appreciate the fast and free premium shipping of their orders (in some urban regions even within 24 hours). In addition to faster shipping, Prime membership offers many other advantages.

The in-house streaming portal "Prime Video" is particularly popular. Although Prime Video cannot quite keep up with its big competitor Netflix, it is still home to many high-quality series and movie formats that provide great entertainment. In addition, Prime members also have their own music library with Amazon Music and unlimited photo storage with Amazon Photos.

 The history of Prime

Amazon Prime was 2005 was launched by Jeff Bezos. At that time, Amazon was still more of a marketplace for books and DVDs and not yet the top dog of online retail as we know it today. While brick-and-mortar retail was still enjoying great growth rates and expanding rapidly at the time, Amazon was primarily fighting against the much larger market leader eBay in the online sector.

However, the idea of Prime did not just come about in 2005. Rather, it was a further development of the "Free Super Saver Shippings". This was a service that guaranteed free shipping as soon as the value of an order exceeded a set limit. Initially, this limit was $99, but over the years this threshold was gradually lowered. Even today, this guarantee of free delivery still exists (in Germany, for example, from an order value of EUR 29).

But back to Prime. Inspired by the Free Super Saver Shipping Jeff Bezos published a letter in September 2005 in which he presented the new "Amazon Prime" service. By paying an annual membership fee of $79, interested users could receive free 2-day shipping on all future orders. For a better understanding: At that time, 2-day shipping regularly cost just under $10. Prime was therefore already worthwhile for customers from the 9th order - an absolute "no-brainer" for many users.

Prime's offer was attractive to users and correspondingly popular. However, precisely for this reason, internal Criticism high-ranking Amazon employee on the Prime program. Vijay Ravindran, former Director of Ordering at Amazon, remembers that back then Great uncertainty in management and there was resistance to Jeff Bezos' Prime initiative. Many feared that free delivery would bankrupt Amazon or that even if the Prime program turned out to be successful, it could lead to major and unpleasant changes in e-commerce.

Despite all the resistance, Jeff Bezos held on to Prime. As we know today, his assumption turned out to be correct and over the years Prime became increasingly important for Amazon.

The importance of Prime for Amazon

It took Prime almost 13 years to produce the first 100 million members could win, then only 3 years by 100 million more members to grow. The number of users who shop online on Amazon is increasing and Prime is growing more and more worldwide, not least due to the coronavirus pandemic.

However, Prime is not only of great importance to Amazon thanks to the high number of members. Although Amazon itself does not publish any data on Prime members, a study by Bank of America was able to gain interesting insights into Amazon Prime members.

It was noted that Prime members in the year just under $2,000 on Amazon. That's almost 4 times more than the average customer without a Prime account.

Amazon Prime Meaning

Average annual spend on Amazon (USA) - Source: https://qz.com/2004369/the-pandemic-made-prime-even-more-valuable-to-amazon/

Prime members also Twice as many search queries and spend more time on Amazon than non-members. Almost a third of Prime users take less than 3 minutes to make a purchase decision on Amazon and half buy products in less than 15 minutes.

For the majority of Prime users (almost 80%), Amazon is also the first Starting point for online shopping. This is particularly unusual, as the Google search engine is usually the starting point for searches on the Internet.

While in the meantime ¾ of American households have a Prime membership, Amazon is also growing internationally thanks to Prime. Prime is particularly well received in Europe and South America. One driver here is not only the free delivery of Amazon Prime, but also the Prime Video streaming portal. Dave Fildes, Amazon Head of Investor Relations, confirmed in an interview on April 29, 2021, that Prime Video users "have higher engagement and higher conversion rates [...] and Prime Video is an excellent mechanism to bring new people into the Amazon Prime program".

What is even more important for Amazon, however, is that once a user is a Prime member, it is very unlikely that they will cancel the service again. According to a survey by the CIRP research network more than two thirds of users also take out a paid membership after the free Prime trial period. In addition, only 7% of consumers cancel their Prime membership after the first year. After 2 years, only 2% percent cancel - 98% of all users remain loyal to Amazon in the long term.

For most members, Prime is one of the main reasons why they store on Amazon in the first place and use 70% are very satisfied with their membership. This is mainly due to the fact that Amazon gives its users exactly what they want with Prime. A platform to store online without having to deal with one of the biggest hurdles of e-commerce - shipping costs.

This incredibly high level of loyalty among Prime customers is also reflected in the company's figures. For example, the 200 million Prime users worldwide generate almost 25 billion dollars for Amazon. This corresponds to 7% of the company's total turnover. This does not even include the several hundred billion dollars in purchases that Prime users make on Amazon.

 

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Amazon Prime sales in billion dollars - Source: https://mk0apibacklinkov1r5n.kinstacdn.com/app/uploads/2021/04/amazon-prime-revenue-960×730.webp

 

It is therefore clear to see that Prime is one of the main reasons for Amazon's success. Prime has been one of the major growth drivers for the company for many years and its users are loyal revenue generators. This is particularly evident in the example of Amazon Prime Day.

Prime Day as a mega event & highest-selling day

Amazon Prime Day is a annual shopping event exclusively for Prime members. The event was first launched in 2015 to celebrate Amazon's 20th anniversary and has been held once a year on irregular dates ever since. However, celebrating its birth was not the only reason for introducing this special sale. Another important goal that Amazon pursued with the creation of Prime Day was to increase the number of Prime members.

With particularly good deals and discounts on almost all products, it was possible to create a low entry threshold and give non-members a good reason to subscribe. Discounts on high-priced electronic products such as laptops, gaming consoles, televisions and their accessories, as well as e-commerce classics such as fashion and beauty products, make Prime membership even more attractive.

And the success once again proves Amazon right. This year's Prime Day alone, which took place over two days in June, resulted in sales of almost 11 billion dollars for Amazon. This makes the event one of the strongest sales days in global retail alongside the Black Friday sale, Cyber Monday and the Singles Day of Chinese Amazon challenger Alibaba.  

For Amazon itself, Prime Day is now even the Best-selling day of the year. No figures are published on the number of new members gained, but in view of the high conversion rate of Prime members already mentioned, it can be assumed that Amazon can attract many new consumers to itself and its ecosystem of services through Prime Day. Prime Day is therefore another good example of why Prime is so important to Amazon.

Conclusion: The Meaning from Prime for Amazon

Amazon Prime is the most successful membership program on the Internet. But for Amazon, it is much more than that. Prime is one of the Main factors for the great success and strong growth of Amazon in recent years. It has contributed significantly to Amazon's development and made it the largest company in the world. According to US columnist Jason Aten, it is even "the Best idea in the history of entrepreneurship".

The Prime program binds its customers to Amazon and not only increases consumer loyalty, but also average sales. It even changes the purchasing behavior of consumers in favor of Amazon.

Prime has enabled Amazon to strengthen its position as World market leader and consolidate its position in online retail. In view of the steadily increasing number of members and the importance that Prime has had for Amazon to date, it can be assumed that Prime will continue to grow and will rely even more heavily on Prime in the future.

Tobias Dziuba

My name is Tobias and I am the founder and managing director of the Amazon agency Adsmasters GmbH based in Düsseldorf.

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