Amazon Briefing: Why Amazon is boosting Prime subscription perks
This is the latest installment of the Amazon Briefing, a weekly Modern Retail column about the ever-changing Amazon ecosystem. To receive it in your inbox every week, sign up here.
Amazon is adding new benefits to its Prime services ahead of what may be a tough holiday season to maintain growth.
Last week, Amazon increased the number of ad-free songs and podcasts that Prime subscribers may access for free. As of November 1, Prime members have access to 100 million songs, up from 2 million — the same full catalog typically provided by paid streaming audio services. “We continue to innovate on behalf of our customers, and to bring even more entertainment to Prime members, on top of the convenience and value they already enjoy,” Amazon Music Vice President Steve Boom said in a press statement.
Retail analysts said Amazon is trying to avoid creating a lot of whitespace for other subscription programs offered by rivals like Walmart+ and Best Buy Totaltech that are trying to capture new customers at a faster pace. The Seattle tech giant also faces a challenging future as the holidays draw near.
“Amazon is being forced to compete as other retailers are getting more serious about the platform model,” Jason Goldberg, chief commerce officer at Publicis told Modern Retail. “They want to continue to show growth in the Prime program so they feel they need to add new benefits to entice new customers,” added Goldberg.
Amazon last revealed the Prime service had over 200 million members in a letter to shareholders in April 2022. “Amazon has very deep penetration in Prime numbers so it can increasingly be harder to entice new Prime members,” Goldberg said.
Rival Walmart is also pursuing a similar strategy with the recent addition of a free Paramount+ subscription for Walmart+ members that started in September. Beyond membership perks, Walmart is also working on getting items to Walmart+ customers faster, while lowering the cost of delivery through a significant increase in the number of orders fulfilled by its stores, the company said in its second-quarter earnings call. According to a Morgan Stanley poll cited by The Wall Street Journal, Walmart’s Walmart+ service has an estimated 16 million subscribers. “Total accounts are up about 9% over last year, and the penetration of Plus members continues to climb,” Walmart Chief Executive Doug McMillon said on the earnings call. Amazon hasn’t shared growth numbers for Prime since April.
“While Amazon is in the commanding lead position. But it’s still true that programs like Walmart+, and Best Buy Totaltech are evolving faster and capturing new customers faster and I’m sure Amazon doesn’t want to create a lot of whitespace for that,” said Goldberg.
Last year, Best Buy introduced its annual subscription service Totaltech priced at $199.99 which offers members exclusive pricing discounts, free delivery, product protection and standard installation for tech goods along with unlimited tech support. “Considering the macro environment and decline in our product sales, we are encouraged with the pace at which we are acquiring new members. In Q2, nearly half of the new members joining the program were either new or lapsed customers, reinforcing how the value of this program resonates beyond our existing loyal customers,” said Best Buy Chief Executive Corie Barry during the company’s latest earnings call in August.
Besides expanding its Amazon Music catalogue, this year the company also added new same-day delivery benefits from third-party retailers to help with membership retention in the Prime ecosystem. In August, Amazon announced a partnership with retailers like Pacsun, GNC, Superdry and Diesel to offer same-day delivery to Prime members in select ZIP codes across more than ten cities. In July, it struck a deal with Grubhub to waive delivery fees for Prime members at select restaurants.
“Adding additional perks like expanding Amazon Music’s catalog for Prime members provides more reasons for Prime members to keep subscribing,” said Brad Jashinsky, director analyst at research firm Gartner’s marketing practice. “As consumers continue to grapple with inflation, they are going to look for places to cut back and canceling subscriptions like Prime is one place to cut back,” he added.
Gartner’s research has shown that the cost of subscriptions and the lack of frequent use are the two biggest reasons consumers cancel subscriptions, Jashinsky said. The addition of Amazon Music, Prime Video and other benefits — in addition to the main Prime benefits of free shipping and member pricing — increase the frequency of how much consumers are interacting with Amazon Prime, he explained.
Ultimately, the Prime membership program is evolving beyond a mere shopping program or a delivery program. Prime’s key benefit has been fast delivery of goods, which has contributed immensely to Amazon’s success in its core e-commerce business. But the company has more recently been changing that strategy and building out a set of softer features and benefits linked to shaping the media consumption habits of its members.
“Increasingly, the benefits that Amazon is adding are appealing to the consumer’s lifestyle, not necessarily exclusive to shopping. It is trying to add more things that are sticky to the overall lifestyle of the family. It’s more content consumption and more convenience and more surprise and delight moments,” said Goldberg.
Amazon news to know
- Amazon’s Cape Town office project gets nod from a South African High Court, Bloomberg reports.
- Amazon expands Buy with Prime payment and shipping options to third-party retailers and DTC brands in India, TechCrunch reports.
- Amazon pauses hiring for corporate workforce, CNBC reports.