This was actually a paper that I wrote for my MBA program for some extra credit. A few thoughts behind the actual success of Prime Day.
With the introduction of new competitors to the marketplace (Wal-Mart’s free shipping program and Jet.com), Amazon is staying ahead of the game with its latest promotion. On July 15, Amazon will be having their biggest sale to celebrate 20 years of providing customers with books, toys, and everything else in between. They have been promoting this sale as: A sale the will crush Black Friday deals. In addition to the obvious influx of income from a massive sale, there is a bigger money maker that will make Amazon money in the long run.
In order to get access to any of the Prime Day sales, customers will have to be members of Amazon Prime (which costs $99/year and include free two-day shipping, access to Amazon Music, Amazon Instant Video, Amazon Photo, and the Kindle Lending Library). Since Amazon Prime is the ticket that gets you into the sale, Amazon is expecting a large influx of Prime memberships leading up to and on Prime day. There are some additional strategic benefits that will happen for Amazon due to this Prime member only sale:
- Renewal date: Prime memberships are automatically renewed one year after you sign up. This is perfect for an annual sale that takes place around the same day each year. Just at the time you would cancel your membership, it will be time for the next sale.
- Amazon Prime members purchase more through Amazon than non-Prime members. According to a survey of consumers who made purchases at Amazon from October to December 2014, Prime members say they spend an average of about $1,500 at the site annually, versus $625 for non-members.
- Amazon has been releasing new benefits to their Prime membership such as Amazon Music and Amazon Photo. These benefits are increasing the switching costs to services such as Apple Music or Google Cloud Drive. Consumers are not willing to pay for additional services when they are already receiving those services through Amazon.
- With the Christmas holiday quickly approaching, Amazon is trying to corner the market in the online shopping space. The influx in Prime memberships will encourage people to do their Christmas shopping from their comfort of their own home.
It will be interesting to see how Prime Day turns out in terms of actual deals, but the benefits for Amazon are much bigger than just one day of increased sales.