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Summary

  • On March 13th, Amazon announced a new price increase for Prime members; after March 20, new members may have to pay up to forty dollars more for their memberships.
  • This likely reflects Amazon finally listening to critics, who are looking for the company to produce more profits.
  • Amazon might see the value of unbundling the various unrelated services that Prime members access, instead of simply raising its membership fee, to ward off loss of market share.

Amazon Prime is a critical aspect in Amazon's (NASDAQ:AMZN) business model. Introduced in 2005, Prime provides members with free two-day shipping on select items. Though growing, the Prime-eligible list is already long enough to satisfy most customers. Over time, Amazon regularly improves Prime by adding perks and privileges for members. These perks include access to Prime Instant Video, a streaming service, well on its way to challenging the ascendancy of Netflix (NASDAQ:NFLX). Under the watchful eye of CEO Jeff Bezos, this company has maintained a strong relationship with Prime members, which is only natural, since Amazon Prime is one of the most important case studies in modern marketing. Amazon has long relied on Prime to deliver a stream of committed new customers.

Dissatisfaction With Prime's Price Hike

On March 13th, Amazon announced a new price increase for Prime members. After March 20, new members may have to pay up to forty dollars more for their memberships. Through the 19th, new enrollees are guaranteed the traditional $79 price tag. Afterwards, new prices will affect enrollments and renewals.

Amazon's story is a contentious example that often divides business commentators. Although there is no questioning Amazon's popularity with investors, many question the fundamental reasons for Amazon's ongoing Wall Street success. Over the years, the company has developed a very original commercial path. In spite of Amazon's vast market share, it is no secret that the company's profits have generally ranged from middling to outright disappointing. (AMZN has beat earnings-per-share estimates just twice in the past six quarters.) Compared to profit-oriented powerhouses like Apple (NASDAQ:AAPL), Amazon has always seemed like a visionary enterprise with a long-term focus. Bezos has never shied from expressing his willingness to forego immediate profits in his quest to revolutionize the retail industry.

Could AMZN Lose Market Share?

Apparently, Amazon is finally listening to critics, who are looking for the company to produce more profits. It remains to be seen whether the public will accept a shipping price hike without pushing back. Like other companies that engage in loss-leading commercial strategies, Amazon may find itself losing market share as it raises prices to meet investor expectations. The company is well-advised to take proactive measures to reduce the pain of the new price hike. Already, Amazon has announced some thoughtful measures like adding a streaming music service to compete with the likes of Spotify.

(Too Few) Steps To Placate Customers

Although this is a good first step, it isn't clear that Amazon is doing enough to assuage its customers. In time, Amazon might see the value of unbundling the various unrelated services that Prime members access. Instead of simply raising its membership fee, Amazon could start offering different service packages at various price points. Although this complex process might involve experimentation, it could prevent many from simply turning their backs on Amazon Prime.

What Should Shareholders Do?

We would advise Amazon shareholders to take profits until shareholders have more visibility on the outcome of this huge change.

Source: A Pricier Amazon Prime Could Be The Wrong Step To Generate Profits