The encyclopedia · Marketing & Brand · Marketing decision · 2005–2007
Amazon's $79 a year made shipping a subscription.
Amazon Prime charged a flat fee for unlimited two-day shipping, turning freight from a cost into a habit.
Amazon
the move
Before Prime, Amazon charged a fee per order and required a minimum for free shipping, so a shopper at checkout was faced with the cost and the wait, and this close to the sale was where carts were abandoned.
In February 2005 Amazon launched Prime at $79 a year for unlimited two-day shipping and overnight shipping for a small extra fee, with no minimum order, so the buyer no longer paid per shipment.
Removing the shipping fee from the decision meant members shopped more often and across more categories, and Amazon used the membership fee to fund the faster, cheaper delivery the whole network would grow to need.
why it works
- A flat annual fee removes a variable cost from every single checkout.
- Members order more often, so the fixed membership cost is spread over more sales.
- The fee funds delivery promises that pull more catalogue and more customers in.
- Once a shopper has paid, the shipping is sunk, so the decision to add items is easy
what transfers
Charge for the service once and remove it from the checkout, and the barrier to each purchase disappears.
what came after
Prime became one of the most valuable memberships anywhere and grew from shipping to video, music and more, and it pushed e-commerce toward free, fast delivery as the baseline. Amazon kept the price flat for years despite rising shipping volume.
references
- Amazon hopes new membership feature will keep customers from wandering
- Amazon to stick with consumer strategy
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