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Bloomberg Business Week has a piece about Amazon Prime, the service that provides guaranteed two-day delivery of products for an annual fee of $79, in essence making delivery charges increasingly cheaper the more you order from Amazon.

“Amazon Prime may be the most ingenious and effective customer loyalty program in all of e-commerce, if not retail in general,” the magazine writes. “It converts casual shoppers ... who gorge on the gratification of having purchases reliably appear two days after they order, into Amazon addicts.

“Analysts describe Prime as one of the main factors driving Amazon's stock price - up 296 percent in the last two years - and the main reason Amazon's sales grew 30 percent during the recession while other retailers flailed. At the same time, Prime has proven exceedingly difficult for rivals to copy: It allows Amazon to exploit its wide selection, low prices, network of third-party merchants, and finely tuned distribution system, while also keying off that faintly irrational human need to maximize the benefits of a club you have already paid to join.”

The story goes on: “The company declines to disclose specifics about the program, though analysts estimate it has more than 4 million members in the U.S., a small slice of Amazon's 121 million active buyers worldwide. Analysts say Prime members increase their purchases on the site by about 150 percent after they join and may be responsible for as much as 20 percent of Amazon's overall sales in the U.S.”

“Now six years after the program's creation, rivals, both online and off, have sensed the increasing threat posed by Prime and are rushing to try to respond. Wal-Mart Stores, Best Buy, Target, and J.C. Penney have recently unveiled free shipping promotions for the holidays, turning the fall shopping season into a race to see who can go furthest in lowering shipping costs. In August, eBay announced its first rewards program, eBay Bucks, which gives shoppers 2 percent back on items purchased on the auction site using PayPal. Last month a consortium of more than 20 retailers, including Barnes & Noble, Sports Authority, and Toys 'R' Us, banded together with their own copycat $79, two-day shipping program, ShopRunner, which applies to products across their Web sites.”
KC's View:
As a dedicated Amazon Prime customer, I have to admit that I found the following paragraph from the Bloomberg Business Week story to be intriguing:

Another debate among Amazon analysts and customers is whether Prime is actually worth the money. Many members swear by the service and evangelize about it ... Others question whether Prime is really a good deal, since Amazon usually offers free shipping when customers buy more than $25 worth of items at a single time. The company now reliably ships to certain parts of the country such as New York and San Francisco within a few days and at no extra charge.

Have I been duped into spending $79 a year for the past six years for a service I really didn’t need? Could I be that gullible, that addicted to instant gratification?

Maybe. But ultimately, I’m okay with that.

There actually have been plenty of times over the past few years that I’ve ordered products for less than $25 - a book here, a DVD there (and even, back in ancient times, CDs) - and gotten them in two days ... or had them delivered to someone else in two days, which is good when one tends to be a last minute shopper for presents.

The broader lesson here, and the one that other retailers need to learn regardless of whether they exist in the virtual or physical world, is how much Amazon knows about its customers, and how it converts that information into sales. I’ve always argued that more than anything else, Amazon is the most effective frequent shopper program ever invented, and Prime simply brings that to the next level. (So does Amazon’s Subscribe & Save initiative, which I’ve talked about here numerous times.)

One other lesson - Amazon keeps raising the bar. Which is why it is no surprise that Bloomberg Business Week reports that Amazon is considering making one-day delivery its Prime incentive.