
Amazon Prime members buy twice as much, don't compare on price - bproper
http://www.lukew.com/ff/entry.asp?1508
======
ShabbyDoo
"82% of Prime members buy on Amazon even if the item is less expensive
somewhere else"

The supposed "source" referenced another study (sans link), so I can't get the
answer to the obvious question: Was "less expensive" computed using the
marginal cost to the customer of this particular purchase? Meaning, do other
sites offer the widget for a few dollars less but charge a lot for 2nd day
shipping?

I'm a Prime customer, and I've mostly given up on comparison shopping for
small items. Amazon's prices are usually good enough that, especially coupled
with the free 2nd day shipping, my effective "wage" for comparison is too low
to make it worth it. Nevermind the "it just works" feature of Amazon's system
(not just website -- the entire process by which a widget comes to my house).

My wife and I have forced ourselves to change our shopping behaviors and ask
ourselves before thinking about leaving the house, "Do I really need this
thing now, or can it wait a day?" $4 for overnight shipping is a bargain
compared to wasted time, gas, etc. Stores are harder and harder to justify.
That my wife finds ordering a bunch of clothing, trying stuff on at home, and
returning what she doesn't want to be much more efficient makes me wonder what
the future of retail clothing becomes. She sometimes even regards the "home
try-on" process as superior because she can see how a new item of clothing
looks with other, previously purchased garments.

~~~
Lewisham
I think the other thing that's missing from this is that Amazon's customer
service is really very good. I'll spend the extra dollars buying something
from Amazon than, say, one of their third-party merchants, because I know
Amazon will take care of me if anything bad happens.

~~~
georgemcbay
Yet another thing missing (which is huge for me personally) is predictability
of shipping.

If I buy something on Amazon via Prime (which means Amazon themselves will be
fulfilling it), I know that if I order it 2 day shipping it will arrive in 2
days. If I bump it up to next day shipping (within the clearly marked and
real-time updated window of shipping) it will arrive tomorrow.

Amazon and Newegg are the only two web retailers that I trust to predictably
get my items on a set time-table. It is all too common for other online sites
to gladly accept orders for next day shipping or two day shipping at
ridiculous markup and then actually use those shipping methods but only after
sitting on the order for days before actually shipping it out... not exactly
what I had in mind, guys.

~~~
nfriedly
Agreed completely. I don't think a lone up-vote fully conveys how big of a
deal this is to me. I've had horrible experiences with other sites not being
able to give me a delivery date, or even worse, giving me one and not making
it. I called pcrush.com a while back to confirm that ordering with 2-day
shipping would get the item to me by that Friday. When it hadn't arrived by
Saturday, I called back and learned that they had just shipped it that
morning!

I don't think Amazon has ever been late in the two years I've had prime.

------
ben1040
Amazon Prime has definitely lowered my "impulse shopping" threshold.

One Friday morning last summer, I decided to do some work around the house
that weekend, but I didn't have a big enough ladder. A couple clicks later, I
have a 22 foot extension ladder being delivered to me on a Saturday.

Even with Saturday overnight delivery it was $2 cheaper than Home Depot, and I
didn't have to try to figure out how to cram the ladder into my econobox car
to bring it home.

~~~
MBCook
I've done that kind of thing a few times.

But unless I really want something, I find I still fall into the old habit of
"I'm ordering from Amazon, I might as well get a few things to make up for
shipping." If I can't find enough things to make it "worthwhile", I often
won't buy it.

I've been a prime member for years. Shipping is free. But my mind is still
usually stuck in the old ways (even if I'm only 28). I have to fight my
instinct to tell myself "It's OK to order just one small thing."

~~~
Lewisham
I find one-click is very helpful for this. Know what you want, find it, one-
click, leave.

~~~
MBCook
That's probably true. I have it turned off because I'm pretty sure I'd end up
buying far too much.

------
firemanx
The thing about the buying on Amazon vs. anywhere else, even if its more
expensive:

In the vast, vast majority of cases that I've price shopped elsewhere, Amazon
is almost always the cheaper option. And if they're more expensive, it's
generally by only a dollar or two (also depending on how their pricing
algorithm is working that day - I've had times where I've checked in the
morning, then come back to buy in the afternoon and there's a whole $5
difference). This leads to the phenomenon of, if you shop on Amazon a fair bit
(which Prime's obviously do, but I bet a lot of other "non-Primes" do too),
you will probably reach a point where you just quit spending the extra time to
price-shop and just buy the thing you're looking for. You end up saving even
more that way because you now have more time for other things.

All that to say - I think just identifying Prime members with this behavior is
a little narrow in focus. My guess is that there are a whole lot of other
customers who fit this pattern, but don't have Prime, and I bet there would be
some value in pursuing that analysis deeper!

~~~
goostavos
On the subject of the pricing algorithm, one thing that blew me away (and has
made me a pretty loyal customer) was purchasing something in the morning,
getting an email in the afternoon saying the price had gone down, and finally
one last email in the evening informing me that the difference has been
refunded to my card.

The price change added up to only 1 or 2 dollars, but from a customer service
perspective, it was super classy. I'm yet to see any other company do this.

------
ericdykstra
Amazon Prime and Amazon "subscribe and save" are two _excellent_ products. I
love reducing trips out to crowded stores and time thinking about shopping
choices. I don't have to worry about customer service, returning defective
products (relatively, way easier on Amazon), etc. I think Jason Calacanis'
article about the "Cult of Amazon Prime" hits on a lot of what has made it so
successful, and what will make it successful going forward:
<http://www.launch.is/blog/the-cult-of-amazon-prime.html>

~~~
jasonmcalacanis
I've started using the bar coder in the iphone app to snap the bar codes of
the things in our house we use regularly and putting them on auto order or
buying them in bulk.

The $22 hair gel my wife bought was three for $24 at Amazon. I don't have much
hair left, so I think those three bottles i just bought will last for two
years.... and I never have to search it out again in my life.

We did the same thing with bulk bottles of mouth wash, which we now transfer
into small desktop size containers. I laugh when the bottle arrive in the
mail.... the only issue is what do i do with all these boxes?!

We've been giving them to our two year old to paint and build things out
of.... seems to work well. :-)

( very kind of you to include a link! )

------
rdl
Amazon Prime is wonderful -- I'll price-compare for many purchases (at least
as far as googling the name, and if it's a huge purchase, eBay, although eBay
is basically useless at this point and has been for several years). It also
drives me to buy from Amazon.com LLC vs. Amazon marketplace sellers, or at
least to stick to marketplace sellers who themselves offer Prime shipping.

The only problem with Amazon Prime is that I sometimes annoy my officemates by
ordering lots of random small items (thus, the UPS/FedEx guy ends up coming
every day, sometimes multiple times, and covers my desk with small boxes...)
Road flares, dish detergent, whipped cream chargers, ... lots of ORM-D stuff.
Plus anything electronic or kitchen appliance.

------
ShabbyDoo
"Amazon spends more than $90 a year for each Prime customer, losing $11
annually for each subscriber."

"Losing"? If the other stat of purchase volume increasing from $400 to $900 is
true, Amazon is buying volume business for just a 1% discount. I wonder how
the profit margins skew between average purchases and those which only
happened because a customer had signed-up for prime? I recently ordered some
collar stays and had them overnighted for $4. Their cost was $20 for what
amounted to some little pieces of stainless steel (exactly what I wanted). The
margin on these has to be much better than a DVD player.

~~~
jrockway
Yeah, the article is very poorly written. What they meant to say was that
Amazon invests $11 in each customer, and the result is a doubling of
purchases. I am sure Amazon makes more than $11 out of every $900 in sales,
which makes this a good deal for them.

~~~
beagle3
The amazon profit margin is something like 3%, which some people consider
unsustainable; 3% over the god-knows-how-many billions that flow through them
is excellent business. The potential sustainability problem comes from having
no margin for error or non-trivial change in structural costs. I don't know
enough about it to have an opinion.

Regardless, 3% of $400 == $12, so with these numbers, Amazon breaks even on a
new $400/year client, and makes money on any client that spends more than
that.

~~~
polshaw
As a point of comparison, Tesco, one of the UK's largest companies, also has a
3% profit margin. They do take £1 in every 7 spent in the UK high street, so
it obviously works quite nicely for them. So at volume, it is very
sustainable.

------
subaruWRX55
"$35 comes from acquiring digital video content"

The digital content should not be considered in Prime membership cost. People
buy into Prime membership for the free shipping, not the digital content.
Rather, free digital content is meant to give people's foot into the door of
Amazon streaming platform.

The digital content is more of a market development cost for the fledgling
platform Amazon is creating.

------
ryandvm
Amazon Prime was a brilliant move. Get people to pay what is probably less
then the average user's shipping costs for a year and then they'll refuse to
buy products from anyone but you. And now it turns out they'll even go as far
as ignoring pricing to quell cognitive dissonance. Nice.

~~~
sliverstorm
IMO It's hardly about cognitive dissonance; rather, people don't like to shop
around on every damn thing they buy.

So, once you position yourself in customer's minds as reliably having
competitive pricing (not always the #1 cheapest, but always close) they feel
comfortable ordering from you without shopping around.

~~~
jrockway
I buy Amazon because of the certainty. Item doesn't arrive? "Very sorry, we've
overnighted another one." Item is wrong? "Sorry, here's your money back, and
keep the item." Item doesn't fit? "Here's a mailing label to send it back."

And so on. The consistency of service is why Amazon is good to buy from. You
order something and you know you'll have it in 2 days or less.

------
gacba
The question every entrepreneur should be asking themselves here is, "How can
I create the same kind of fervor that Amazon did by introducing Prime?"

Amazon generates 130% more business per subscriber just by losing a mere
$11/subscriber. Those are numbers that anyone could salivate at.

~~~
onemoreact
Considering $35 comes from acquiring digital video content. Prime was making
money until Amazon did that bizarre video play.

~~~
swalsh
On the other hand, Amazons free digital content was the last point I needed
before I decided to purchase a Google TV. For a while I was only consuming the
free content, but now i'm about 70/30, where about 70% of what I consume
digitally is paid content.

------
tomkarlo
"Amazon spends more than $90 a year for each Prime customer, losing $11
annually for each subscriber"

Narrow thinking like this is why other retailers don't offer Prime. If you can
turn a $400 customer into a $900 customer, you're probably more than covering
that "loss" and it should be considered a marketing expense if anything. Put
another way, what company wouldn't spend $11 to bring in $500 of customer
purchases?

The right price point for Prime should be one where the customer benefits by
saving on shipping and other costs ("this loss") but Amazon benefits by
increasing their overall annual spend -- mostly by moving their spending over
from other online and offline merchants. Seems like they're right in that
sweet spot.

------
daeken
I've had Prime for almost a year and a half now, and I've spent well into the
5 figures on Amazon as a result. I'm not sure I've always saved money, but the
fact that I can get damn near everything in no more than a day has just been
great. I've bought desks, chairs, monitors, computers, etc and had them all
the next day for $4. There's just no way to beat that, in my mind.

~~~
jm4
I bought a generator from them and got the free 2 day shipping. That thing was
like 200lbs. A guy delivered it in an 18-wheeler and had to drive that thing
through a little traffic circle in my neighborhood. I felt a little bad about
that one.

I've spent an obscene amount of money in the 3 years I've had prime. I've
definitely saved money on the necessities, but it's easy to one-click the
impulse stuff. The subscribe and save stuff is great too. In my opinion,
Amazon Prime is the best deal in online shopping.

I routinely find items priced lower someplace else online, but the difference
is usually less than the cost of shipping. I go out to stores much less than I
used to, and when I do I compare everything to Amazon. It's not uncommon for
me to purchase several items from my phone and walk out empty handed. It's
getting to the point where I mostly only go to stores for food and things that
can't wait a day.

Sooner or later brick and mortar retailers are going to experience massive
fallout from Prime.

~~~
bostonvaulter2
This effect is even more dramatic in Hawaii because you always get screwed for
shipping and things that say free shipping (such as newegg) almost always
don't include Hawaii.

------
thereallurch
This is interesting. I am surprised that amazon spends only $55 extra a year
on shipping per prime user. This past month alone I've received ~30 packages,
all 2 day free shipping from amazon prime. This included some very large
objects like a rowing machine, and some small items like a ream of paper. Last
year I had a 3'x3'x2' next day aired for 4 dollars in time for Christmas. If I
were to try shipping these items the cost would be in the $300-$400 dollar
range (for one month).

It's easy to think of something I need, hit amazon, select prime eligible, and
buy in a matter of 3 clicks...No worry about cost or when it will be at my
door.

Amazon must have a pretty good deal going with UPS (& FedEx for next day air).

~~~
JunkDNA
Actual shipping costs (not shipping and handling which is what you often get
charged by merchants) are pretty inexpensive when operating at the scale
Amazon does. My family had a small factory so I got a good sense of what the
shipping cost was vs. the handling. It was very inexpensive years ago befor
oil prices went up, but I suspect there is still generous slop in the shipping
charges for most merchants.

------
ssharp
I buy a lot of stuff from Amazon without bothering to price compare. This
consists mostly of items in the $100 or under range. The reasons are simple:
huge selection, "free" 2-day shipping under Prime, and a near-frictionless
ordering process -- I don't need to enter my shipping information and credit
card information every time I make an order. And with subscriptions, I don't
even need to place the order.

Prime has completely changed the way I shop for a lot of everyday items and
for someone who lives in a rural area and is a 20 minute, 15 mile drive to the
nearest Wal Mart, it's really made my life more convenient.

------
ShabbyDoo
I have been surprised that Amazon has not vertically integrated into delivery
and distribution. Imagine if they had bought DHL. They would have turned what
must today be a huge variable cost into a largely fixed one. I don't have time
to write about all the interesting innovations in distribution which could
result from combining warehousing and delivery. Perhaps fears of antitrust
lawsuits and hardball tactics from UPS/FedEx keep Amazon from doing what I
consider an obvious next step?

~~~
dot
but then they'd have a local presence in the states they ship to and would
have to charge sales tax. they'd lose their ~10% price advantage.

~~~
MBCook
If they could save at least 10% on shipping, they would still be in the
positive on the transaction. That seems like it would be possible since the
shipping part wouldn't have to be a profit center, just break even.

That would be a bit too vertical for my taste. I'm not sure massive hassle of
trying to staff & run their own to-the-door shipping empire would beat the UPS
service I get now.

~~~
underwater
10% of shipping costs is much less than 10% of the sale price.

------
boldt
I had an Amazon Mom membership which is basically free Amazon Prime for those
who qualify, (think buying baby strollers, etc.) It was a great service and I
did buy much more frequently. Recently they downgraded the Amazon Mom perks
and as such I now think twice about purchasing from Amazon due to the shipping
prices and lag time. Had they not changed their TOS I probably would end up
giving them much more of my money in the long run.

------
tlrobinson
I believe it. I always dread buying things on other sites. With Amazon Prime:

* Guaranteed to arrive within 2 days. Other sites it not even ship it within 2 days.

* Easy to return items in case something goes wrong.

* They already have my billing and shipping information, and I trust them to securely store it.

* I can see all my orders in one place.

Factoring in all of those things, plus the time I don't waste comparison
shopping to save a dollar here and there, I'm pretty sure it's the better deal
in most cases.

------
27182818284
Once given Amazon Prime as a gift, I noticed the free shipping started me
buying a lot more from Amazon, even if the price ended up slightly more than
non-Prime items + their shipping costs. I definitely compare price, but more
often than not the difference is so small I convince myself just to go with
Amazon Prime versions for like a $1.99 more. Basically it means that for a
small dollar or two more I get items quickly.

------
beagle3
I enjoy Amazon Prime very much as a customer; had it for free before, and when
the free period ended, I gladly paid the $80 membership because it does save
me quite a bit in the end (I buy a lot more at amazon, although I spend less
overall -- mostly at the expense of overpriced local stores, somewhat at the
expense of other reasonably priced online stores).

Recently though, I've started making a habit of converting people to use
ShopRunner, and letting everyone I know to get on ShopRunner when the
promotion is free. The experience I've had with ShopRunner is not as good as
Amazon Prime, but it is close. And I fear the Amazon monoculture more than I
enjoy Prime.

Don't expect Prime to be as good when they don't actually have to compete on
merit. Promote the competition, even if it costs you a little now - it's an
investment for the future.

(Re: shoprunner, every couple of weeks they used to have a "get in free today"
deal; Now it's $1/year once every few weeks. Set up an alert on dealnews.com
to be notified the next time this happens)

------
mckilljoy
The last time I moved apartments, I bought something from Amazon for $1 just
to make sure my new address was routing correctly.

------
joedev
I will only shop on Amazon Prime, and only buy Prime eligible items.

Compared to online alternatives: * Even if less elsewhere online I stick with
Amazon because the Amazon experience is known and reliable.

Compared to a local shop:

* Customer reviews are much better, broader, and more in depth than getting input from a local shop owner. * Selection much larger.

------
Duff
My sister gave me a $25 BestBuy gift card last Christmas. I went to BestBuy,
and found that for each of the 3 different things that I needed, I would spend
less by buying it on Amazon, even with the gift card. Tax software, for
instance, was $49.99 at BestBuy, $16.99 on Amazon.

~~~
gmichnikov
In some stores you can spend your Best Buy gift card on an Amazon gift card.

~~~
ja27
I'll have to look for that. My in-laws give me a Best Buy card every year for
Christmas and half the time I use it to buy their Christmas gift the next
year. Amazon gift cards get spent right away.

~~~
bostonvaulter2
Also if you ever get a prepaid credit card as a gift you should just spend it
on an Amazon gift card. That way you don't need to worry about expiry or going
over the credit card's "limit"

------
philip1209
I started buying things like crazy on Prime while living in a dorm without a
car. Getting things like shampoo and snacks delivered to my door was
incredibly efficient.

I still buy most things on Amazon - it's a better deal than driving to Target
or even the grocery store sometimes.

------
Jem
My partner did the Amazon Prime trial last year and forgot to cancel it. He
decided instead of contacting Amazon and sorting it out that we'd try it... we
did about 95% of our Christmas shopping through Amazon which saved both time
and money overall. It more than paid for itself & we plan on renewing this
year. (The fact that we can both use the same Prime membership plan rocks my
world!)

Interesting though - so many of you are talking about 2 day shipping... is
that an American thing? Prime in the UK is next day delivery.

------
Lost_BiomedE
When I shop prime, I usually compare to local price and hassle. Sometimes
finding a specific brand or niche product locally will take hours, and
sometimes span multiple days to fit my schedule. The items I would have bought
on amazon pre-prime, I still compare on price, but these have become the
minority of orders for me.

My shopping now is the grocery store, dollar store, clearance clothes from big
box stores, and amazon. The exception to this is hobby stuff that occurs at
shows.

------
bobbles
After living in the UK for six months with Amazon Prime.. its painful to be
back in Australia where you can only get fast shipping from certain specific
stores.

Well not _painful_ , but being able to order something at 10PM and having it
arrive at lunchtime at work the next day was such a better shopping experience
than I normally get here.

I really hope amazon has aspirations of opening an AU store sometime soon.

------
felipemnoa
If things keep getting as good as this my gut feeling is that some states will
start suing Amazon to get a list of the customers from their state along with
all their purchase history. Then they will send a bill to those people for
taxes owed along with late charges and interest.

I'd be surprised if some states have not even considered this. Does anybody
know if it would even be allowed by law?

------
mehuln
Check out the Amazon's revenue growth curve image here:
[http://static.seekingalpha.com/uploads/2012/1/1128818_132745...](http://static.seekingalpha.com/uploads/2012/1/1128818_13274556445953_1.png)

Now guess when Prime launched. Yes, 2005, the beginning of the hockey stick
growth.

Prime has been a huge success for Amazon - more like a stroke of genius.

Thanks, Mehul

------
graeme
I live in Canada. Amazon.com (vs. amazon.ca) and Amazon prime almost make me
want to move to America.

Amazon.ca is still pretty much just books.

~~~
msg
There are legal reasons:

[http://en.wikipedia.org/wiki/Amazon.com_controversies#Canadi...](http://en.wikipedia.org/wiki/Amazon.com_controversies#Canadian_site)

~~~
graeme
That covers books. But amazon.ca also lacks the non-book products that are so
plentiful on amazon.com

I had assumed it was for import/distribution reasons, but I'd be interested to
find out the real reason.

The Canadian site now tends to have all the books the US site has.

~~~
msg
Sorry for the lameness of this reference, but I think it covers the essential.
If Amazon wanted to open a physical business in Canada, it would require
Canadian partners that it might not have or want.

"The bottom line: If you are a non-Canadian who wants to open a business in
Canada, you will have to immigrate to Canada or find one or more Canadians to
team up with."

[http://sbinfocanada.about.com/od/startup/f/Non-Canadians-
How...](http://sbinfocanada.about.com/od/startup/f/Non-Canadians-How-to-Open-
a-Business-in-Canada.htm)

~~~
int3rnaut
Yep, it has to do with Canadian law and the desire to retain a Canadian
Cultural identity (thus we protect our Cultural industries). I don't think
that applies any more though--or at least since 2010 when Amazon was permitted
to open up a local shipping distribution center by essentially buying out our
cultural protection laws with a couple tens of million (I think it was 20
mil).

Books were the first step, and if you notice other departments have started to
be available on our .ca-- I assume it's just a logistics issue before they
establish a near identical system.

In some ways it's kind of sad, because I do think it will hurt the Canadian
arts in the same way Canadian film and television has become second-rate
American entertainment-- but the damage is done and with the way things are
set up and have been established over the last 20 years, it's inescapable.

------
jwallaceparker
Amazon Prime is simply the best deal on the Internet for consumers.

I've been a Prime member since its inception and am always amazed at how much
time and money I save by not having to leave the house to shop.

Books, electronics, cleaning supplies, toothpaste - anything I can get through
Amazon, I get through Amazon.

Bonus - now the Prime membership includes Amazon Instant Video.

------
EGreg
It sounds like Amazon is losing $11 per year on Prime customers, so why do
they continue this promotion?

~~~
mbrubeck
"Losing" was the wrong word there. They are _spending_ $11 to acquire $500 of
increased business. Even with a 3% profit margin, that's a net gain.

~~~
EGreg
Where did you see the extra $500 ?

~~~
mbrubeck
From the very first bullet point, on average Amazon prime members _"increase
their purchases on Amazon from $400 a year to $900 a year."_

------
xbryanx
I regularly buy one sub $15 item via Amazon Prime, rather than schelp down to
the store. I would have never done this before Prime. Actually Amazon Prime
makes not owning a car in a midwest city quite a bit more realistic, for me.

------
FrankGruber5
I can definitely attest to buying more for sure. I think price is still
important though. But if it comes down to price vs. timely free shipping I may
pay more just to get it in 2 days. So I guess it might be right.

------
WalterBright
Amazon Prime enables me to never leave my basement.

------
lhnn
•Represent 4% of Amazon's customer base

•Spend 130% more than regular Amazon customers. (source)

•May be responsible for as much as 20% of Amazon's overall sales in the U.S.

Eh... those numbers don't line up.

~~~
Lost_BiomedE
It depends how they are calculating the sales numbers. All prime shipments are
sold by amazon or through their warehouse holding third party goods. Non-prime
sales are likely to have a majority of third party listings not supplied via
amazon's warehouse.

Also, the "U.S." qualification can skew things a bit.

------
gcb
Just like his usability articles, Estimates.

Luke has some good stuff out there, but it's all guts. Very little to none
formal work.

