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Why Amazon Prime Memberships Might Be Waning

Why Amazon Prime Memberships Might Be Waning

By Rachel Siegel, The Washington Post | Updated: 19 October 2018 11:14 IST

Highlights

Amazon Prime memberships may be starting to step off the gas
In the past year, Prime memberships grew 8 percent: report
In April, Amazon exceeded 100 million paid Prime members

Amazon Prime memberships - the main engine behind the retailer's online dominance - may be starting to step off the gas.

That's according to new research by Consumer Intelligence Research Partners suggesting that in the past year, Prime memberships grew 8 percent - the lowest annual rate since the group began tracking the data in 2012. The group also put the number of US Prime members - a stat Amazon has famously kept under wraps - at 97 million, with Prime shoppers spending an average of roughly $1,400 (roughly Rs. 1 lakh) per year, compared to $600 per year for non-member shoppers.

The numbers offer hard-to-find insight into what one analyst dubbed "as opaque a company as I've ever covered." But they also raise questions about how Amazon might revamp or reimagine Prime when there are fewer and fewer people left to reach.

"It's not a surprise that the member count is nearing saturation in the US," said Josh Lowitz, partner and co-founder of CIRP. "Arguably it's a victory that Amazon got there so fast."

That leaves what Lowitz boiled down to "the magic question:" What will Amazon do next?

Amazon did not respond to a request for comment on CIRP's report. The company's founder, Jeff Bezos, also owns The Washington Post.

Lowitz said that since Prime's inception in 2005, Amazon has homed in on making the service "compelling" to customers, including with two-day shipping, streaming video services and promotions like Prime Day. But as it reaches saturation, Amazon must rely on monetizing its existing Prime members. That might include getting members to listen to their favourite podcasts on an Echo Dot, or a slew of other measures to bring Amazon services and products into daily life.

In time, Lowitz said that approach could position Amazon to "become the pharmacy of choice, the travel agent of choice."

"We think a Prime member is more likely to say, 'maybe I like my dress shirts from Amazon,' because of that trusting relationship," Lowitz said.

(CIRP draws its figures from quarterly surveys of 500 Amazon shoppers. Prime estimates are drawn from the surveys as well as Amazon financial information.)

In April, Bezos announced that Prime membership had exceeded 100 million paid Prime members worldwide. Bezos unveiled the figure in his annual shareholder letter - published since 1997 and widely considered a must-read among executives and business leaders around the globe - and noted that in 2017, Prime gained more new members than in any previous year. By comparison, Netflix at the time had 125 million subscribers.

Estimates on Prime memberships have been the subject of much speculation, especially since the numbers also serve as a metric for Amazon's whopping revenue stream. The math can be difficult to parse: It's not quite as simple as multiplying the cost of a $119 annual membership by 100 million. Some members -- like students, for example -- have options to pay less, while others pay more for a monthly subscription.

Prime approaching a saturation point may be inevitable, but that doesn't mean that memberships should already be described as "flattening out," said Charlie O'Shea, lead retail analyst for Moody's. O'Shea noted that, hypothetically, it's possible for a company to grow at 10 percent, then slip to 9 percent, and still be adding more members in absolute numbers.

"Is it flattening?" O'Shea said. "Well, trees don't grow to the sky. So at some point it has to flatten out. Are we there yet?"

Either way, Amazon will have to prepare itself. Mark Rosenbaum, department chair and professor of retailing at the University of South Carolina, said international markets will be key in helping Amazon clinch massive bases beyond the United States.

But Prime's ease and accessibility rely on advanced and extensive mail systems that don't exist everywhere in the world, Rosenbaum said. One solution may be for Amazon to work with retailers and vendors overseas, like a 7-Eleven, where customers can pick up their packages. Prime has programs through Whole Foods where shoppers can pick up their groceries, for example.

"But how does that work in Bogotá, Colombia?" Rosenbaum said. "How would that work in Mexico City?"

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