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What Retailers Can Learn From Amazon Prime’s Success

  • Written by  Tom Caporaso, Clarus Marketing Group

VP site only Clarus Marketing head shotSince its 2005 launch, Amazon Prime has helped Amazon substantially increase revenues and expand into a wide range of other offerings. Prime’s success, and the steps that went into achieving it, provide a template that can help you grow your own business.

When Prime debuted, its only benefit was free two-day shipping on Amazon purchases. This was a wise choice, if a little ahead of its time. Although online shopping was undoubtedly on the rise, retail e-Commerce sales in 2005 accounted for less than three percent of all U.S. retail sales.

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As one of the first programs to offer shoppers free, quick delivery of online orders, though, Prime was able to build a brand presence that most retailers are still struggling to match. Free shipping has proven its power with direct marketers for decades, and it’s now the go-to promotion for virtually every online retailer during the holiday season. Unfortunately, a limited-time shipping deal every December simply can’t compete with for what Amazon CEO Jeff Bezos has called “all-you-can-eat express shipping.”

Therefore, if you’re charging for shipping on any purchase these days, you automatically risk turning away Prime customers. One research firm estimated the number of U.S. subscribers, as of January 2015, to be as high as 40 million people. That’s far too large a slice of active, eager shoppers to write off.

Offering free shipping at certain purchase thresholds can help stem that audience loss, though, while meeting the expectations of most online shoppers and even encouraging them to increase their cart sizes. Another customer-friendly option, if you have a physical location, is to provide free in-store pick-up of online orders. You can also use brick-and-mortar outlets as localized fulfillment centers for online orders to reduce delivery times on shipments.

Reward And Reach Out To Your Customers

Prime is both a loyalty program and a sales device. It adds value to members’ lives in the form of savings, quick receipt of orders, and, more recently, entertainment and other useful benefits, all of which encourages them to stick with Prime. At the same time, Prime continually drives more revenue to Amazon. Various analysts estimate that members spend anywhere from 40% to 68% more money at Amazon than non-members do.

You probably already have a loyalty program of your own (if you don’t, implement one ASAP). You need to constantly review and refresh the program to ensure that its benefits amply reward your best customers — and set you apart from competitors.  Whether you use points, benefit tiers, or other well-defined, easily-understood metrics, make sure your customers have attractive, ongoing reasons to shop with you repeatedly — and make sure they know it.

A 2013 survey of more than 6,000 people found that the average shopper was a member of 7.4 retail loyalty programs but actively used fewer than five of them.  Useful, actionable communications is the key to member participation. The report found that 94% of members wanted to hear from their programs (57% “always read” program messages, and only 12% said they were getting too many of them), and 93% of members who considered the messages “relevant” were satisfied with the program.

Communicating with its audience is one area that Prime might need to improve. Some members feel that it doesn’t always make sure people know about all of their benefits. By continually updating your customers on everything your program provides, you’ll satisfy their desire for information and keep them engaged and involved. For best results, tailor your message to individual customers according to their shopping histories, actions on your website, and responses to your various promotional offers.

Keep Up With Change

Prime subscriber numbers increased at a solid but not spectacular rate from 2005 through 2011. Then, in November 2011, Amazon added Instant Prime Video and the Kindle Lending Library to Prime’s free, two-day shipping benefit, released the Fire Tablet at the same time, and cross-promoted Prime to tablet owners via a free, 30-day trial. As a result, “growth shot up.”

Not coincidentally, 2011 was also the year that Netflix split its DVD and online streaming services into two separate product lines — with separate $7.99/month subscription fees.  Since customers had been paying $10 per month for the dual service, the decision, announced in July, effectively imposed a 60% fee hike on customers who wanted to keep both benefits. Within a year, 800,000 people had cancelled their subscriptions.

Netflix had proven that there was a thriving, growing market for online streaming, though, and Amazon was ready, willing, and able to offer consumers another option. Plus, since Prime added Instant Prime Video without raising its annual fee, current subscribers could enjoy the service practically for free, and new ones could try it risk-free for 30 days — and get free, two-day shipping. If they joined at the end of the trial, their annual membership cost ($79 at the time) was also substantially less than a full year of online streaming from Netflix ($95.88).

In the years since then, Prime raised the membership fee to $99, but it’s continued to add benefits, including streaming music and unlimited photo storage.  It’s also tailored the program to specific demographics and areas, e.g.,:

  • Amazon Mom offers mothers the Prime benefits plus 20% savings on diaper subscriptions and 15% discounts on items from the Baby Registry;

  • Amazon Student offers Prime to college students at 50% of the regular membership fee, and it’s testing benefits on certain campuses that include discounts on textbooks, same-day delivery, and more; and

  • Prime Fresh provides Prime members in certain (attractive) zip codes with same-day delivery of groceries and other items.

These and other efforts are designed to target desirable consumer groups via offers that meet their exact needs and, together with the power of other Prime benefits, keep them in the program long-term.  Not coincidentally (again), Amazon’s 2014 holiday press release boasted that “more than 10 million new members tried Prime for the first time” over the holiday season.

Very few, if any, retailers have pockets as deep as Amazon’s, so you’re unlikely to be able to expand, let alone experiment with, your loyalty program quite as liberally as Prime can. Nevertheless, you should continually gather and analyze individual user data and wider shopping trends company- and industry-wide to identify patterns and opportunities as early as possible.

One sure trend that requires an immediate response, for instance, is the rise in mobile commerce. Mobile traffic was responsible for 44% of its network traffic in January 2015, and 36% of all sales through its networks that month were made via mobile devices, according to one affiliate network operator.

With consumers becoming increasingly comfortable with shopping through smartphones and tablets, you need to make sure your retail site incorporates responsive web design. This ensures that your customers can shop with you regardless of how they reach your website. Swift implementation will also likely give you a leg up on many of your competitors.

Given its goal to be “The Everything Store,” Amazon is one of those competitors. Although Amazon routinely refuses to disclose any metrics about Amazon Prime members or their sales activities, certain steps on its path to success are clearly laid out for you to follow: Offer free shipping year-round; keep enhancing and refreshing your program; and continually analyze your customers and the industry so you’re prepared to take advantage when conditions change, as they inevitably do.


 

Tom Caporaso is the CEO of Clarus Marketing Group, which builds and customizes subscription programs, including FreeShipping.comReturn Saver, and others. Tom has over two decades of direct marketing experience, specializing in e-commerce, subscription, and custom loyalty programs.

 
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