The new price increase for Amazon Prime. This new rate will come into effect on May 11 for new subscribers and as of June 16 for customers renewing their subscription. “Costs are important,” says Brian Olsavsky, CFO. No increase has yet been formalized in other countries.
Pillar of the strategy
This is the second time that the premium price has gone up. In 2014, it went from $ 79 to $ 99. Like four years ago, Amazon is betting that the impact will be limited in the long term on the number of subscribers, which has just exceeded the 100 million mark – a majority in the United States, according to analysts’ estimates. “The premium value for consumers has never been higher,” says Olsavsky, highlighting new delivery options and the many services available to Prime customers.
The Prime subscription, long termed Premium in France, was launched in 2005. It allows first to benefit from free delivery in two working days (one day in France). Since then, Amazon has added other services to attract new customers. In the United States, the company offers a catalog of streaming movies and series, a music listening platform, access to a digital book library, and online photo storage. She also added food delivery in two hours.
Over the years, Prime has become one of the pillars of the development strategy of Amazon, whose turnover last year reached $ 178 billion (144 billion euros). And it keeps them loyal: by ordering on another commercial site, they will certainly have to pay postage. “Prime subscribers spend on average twice as much as non-subscribers,” notes Daniel Ives of GBH Insights.
Winning strategy but costly
If the program is successful, it also costs the company a lot. In 2016, its net delivery costs, ie after the postage paid by some customers, amounted to $ 7.2 billion, 43% more than in 2015. Since last year, Amazon no longer publishes this data in its annual report. In addition, the group spends several billion dollars a year to supply its video offer. What to sink its margins: in 2017, its operating margin, excluding AWS, its subsidiary specialized in the cloud, was even negative.
But unlike its rivals, the Seattle company is not under pressure from Wall Street to maximize its profits. What it sells to investors is the continued strong growth in sales and ambitions in new segments. In the long term, Amazon is destined to become the “everything store”, the shop that sells everything. A promise that seduces. The share price has increased sixfold in the last five years. Its market capitalization now exceeds $ 750 billion.
And the company does not intend to slow down its investments, especially in video content. In November, Amazon announced the acquisition of rights to produce a television series based on the world of The Lord of the Rings for an amount of $ 200 and $ 250 million. An unprecedented amount that illustrates a change of course. Priority is now given to productions that are likely to have a much greater impact. Like many successful Netflix series.