Amazon Prime Day 2018: Is Amazon Prime good value?
The fourth Amazon Prime Day is this year on the 16th July. Last year, in one day Amazon made $1billion in sales.
Prime Day is Amazon’s attempt to create a day of celebration of themselves, with huge promotions and excitement in the build up. The concept may sound odd, but it not a new idea, but is in fact an attempt to replicate the phenomenal success that eCommerce giant Alibaba has achieved in China since 2009 with Single’s Day.
To promote sales in the quiet period before Chinese New Year, Alibaba appropriated an anti-valentine’s day to establish an online shopping festival, complete with live musical performances by global superstars, and the countdown on a stage to the beginning of the sales by the Founder and Chairman Jack Ma. In 2016 the anticipation for the start was so strong that once the promotions began it took only 5 minutes to generate $1 billion in sales. It is like a combination of Glastonbury, Black Friday, the Superbowl half-time adverts, and Cyber Monday. The event is incredibly successful; in 2017 Singles Day sales generated sales of $25.3 billion in just 24 hours.
Jeff Bezos’ version for Amazon is about to enter its fourth year. Amazon are ramping up the festival element to replicate more of Alibaba’s Singles’ Day success, by also hosting a live music event with tickets on sale exclusively to Prime members and streaming the event live online.
Prime day is a huge event in online shopping. Part of the genius of the day of promotions is that it is only open to Amazon Prime members. Therefore the benefits for Amazon are not just about how many estimated $1-2 billion in sales generated in the 36 hour time period, but the amount of new people who sign-up to Amazon Prime membership to access the products on sale. Promotional pushes like this have led to Jeff Bezos’ recent announcement in his letter to shareholders, that Amazon Prime has passed the 100 million members milestone.
The Amazon Prime membership package now costs £79 per year, linking several Amazon services together under one subscription cost. In all the excitement in the lead up to Prime Day to promote Amazon Prime membership, the question to answer is; is Amazon Prime worth it?
Amazon has consistently added new features to Prime Membership, to compete with the world's largest companies in multiple areas. However the key to their success has been not necessarily through competing individually to be the best in each specialisation. Instead the crucial aspect is linking all the services together into an Amazon ecosystem, and selling the access to it all through subscription to Prime.
Unlimited free two-day delivery
The flagship value offering from Amazon Prime is free two-day delivery. Made possible by the hyper-organised Fulfilment By Amazon service. In selected postcodes, free same-day delivery is possible. Warehouses strategically located all over the country hold stock owned by: Amazon themselves, established brands, and third party sellers. As soon as an order is received, the closest warehouse dispatches the item to the Prime member’s address.
Amazon Video streaming service
22,971 films and TV series available to stream on any device free to Prime members.
The general consensus is that the offerings of TV series on rival video streaming service Netflix is superior to Amazon. However Netflix have surrendered in the race to offer the greatest selection and the most recently released films, acknowledging that if a film fan is passionate about a film, they have already seen it by the time it is available on Netflix.
There are two aspects in Amazon Video’s favour in its rivalry with Netflix: The first is that Amazon is cheaper, costing £7.99 per month, compared with Netflix full premium package costing £9.99 per month. The Amazon Prime Video cost is included in the same Prime membership that allows free two day delivery, so is immediately great value if the customer also buys physical products on Amazon. If the potential Prime member is not interested in any other element of Prime membership except the video streaming, then the cost is reduced to £5.99 per month.
The other key strength is the ability for non-members to buy or rent single films or episodes. As well as being a revenue stream as part of the eCommerce Amazon website, this enables prospective Prime members to see the available content that they could be accessing, effectively teasing them into realising the value of unlimited views for a monthly fee. In contrast to this, Netflix does not let non-members past the log-in page.
A recently announced win for Amazon Video was securing the broadcast rights for 20 Premier League football matches from the 2019/2020 season, a live event previously only available on established subscription television channels.
Unlimited secure photo storage
The rapid proliferation of smartphones has led to an exponential increase in the number of photos being taken. 1.2 trillion photos were taken in 2017. With limited space on the smartphone that all of these photos were taken on, they have to be stored somewhere. Amazon offering unlimited photo storage to Prime members at no extra cost is a real threat to the other data storage companies like Dropbox who charge £7 a month to securely store customer data.
Early access to lightening deals
Flash sales on the Amazon website can be offered by brands promoting their products or wanting to convert a large volume of sales to increase their rankings on Amazon search algorithm. Prime members are able to access the deals 30 minutes before the rest of the online shoppers.
Amazon Music On demand ad-free music streaming
Music streaming is an area that has faced criticism for not matching the standard of market-leader Spotify. For Prime members Amazon Music only offers 2 million songs, compared to 20 million on Spotify. The full Unlimited Music streaming service (with a superior 30 million available songs) is sold separately for £9.99 with only a £2 discount available for existing Prime members.
Amazon Fresh is the eCommerce giant’s foray into the lucrative grocery market (predicted to have a value of £15 billion in the UK by 2020), bringing them directly in competition with online grocer Ocado, as well as the growing digital focus of established retail giants such as Tesco, iceland and Sainsbury’s.
Prime members have to pay an additional £3.99 per month to gain access to Amazon Fresh. A minimum spend of £40 is required and there is a delivery charge of £3.99.
This is the same minimum spend and very similar delivery costs as both tesco and Ocado. However neither of the two established grocery delivery services require a monthly subscription payment. In this case there is no clear benefit for using Amazon Fresh instead of the larger grocery retailers.
Convenience shopping of heavy items such as multi-packs. Shoppers can select items they wish to purchase that are too heavy for regular Prime delivery, and group them together into “boxes”. This benefits Amazon in that it encourages add-on purchases, as customers want to use all of the available space in their digital box.
There is no additional subscription fee to access Amazon Pantry, but there is a minimum order of £40 to complete an order, and only qualifying products are available to be placed in the “digital boxes”. The delivery cost for the first box in the order is £2.99. Any additional boxes cost £0.99 each.
This service is initially aimed at convenience for large and busy households, however also has very useful applications in replacing traditional wholesale supply channels for small business owners.
A rapid delivery service promising delivery to the customer’s doorstep in less than two hours. Only available to Prime members, but with no additional subscription cost. Available on a selected items only and only in selected cities and limited postcodes. The same £40 minimum spend as Amazon Pantry and Amazon Fresh is required.
Prime Now is still rolling out to more geographical locations. It is the closest that Amazon have got so far to their vision of ultimate immediate convenience for customers. They have been the ones to set the benchmark for customer expectations, that the major retailers have struggled to contend with. However improvements in product range and the available areas will be slow. There is a phenomenal amount of logistical infrastructure required to enable guaranteed two hour delivery times to the whole country.
The secret to Amazon Prime’s success is the link of access to all of the different Amazon services in one subscription package. The clear answer to whether Amazon Prime is worth the £7.99 per month or £79 per year, is that if you use more than one of Amazon’s services then the subscription cost will save money. Jeff Bezos has created an ecosystem which customers all over the world can pay a subscription fee to join. Each new person who joins Amazon Prime on Prime Day to access the promotions will become part of the whole Amazon ecosystem. This opens up all of the other parts of the package. Even if each offering can be beaten elsewhere, when combined with the other aspects of the package, the value is not comparable because the Prime subscription saves the customer money in other areas of their lives.
The true genius in Amazon Prime membership is that the value increases the more the customer uses Amazon services. By providing escalating value as a reward for higher use, Amazon manages to integrate itself into the lives of the engaged Prime members, which creates a stable fan base who will have very high rate of re-subscription. Whether it is the video streaming or the free-deliveries or the grocery shopping that initially attracts a new Prime member, the individual service acts like a gateway-drug. The other included features or the reduced price add-ons seem like a natural evolution of their Prime membership.
When looked at individually, the different sections of Amazon’s services are not as far ahead of the competition as you might expect for a company with its resources and talent for market disruption. Whereas Ocado is praised for innovation in using AI and air-traffic control software to run an automated warehouse to meet increasing demands, Amazon is criticised for treating warehouse staff like robots by several undercover reporters.
If someone is only interested in entertainment, then there is not enough of a difference between Amazon Video and Netflix to make a definitive decision on which to subscribe to. However if someone is consuming their entertainment through online streaming, it is highly likely that they are digitally savvy enough to be also shopping online for at least some of their purchases. Since the Amazon Prime Video service is part of the same subscription that offers free delivery, then that becomes an attractive perk that the competition cannot compete with.
The deepening levels of value for further subscription to each level, makes Amazon Prime almost cult like. For people who are open to the Amazon ecosystem permeating their whole lives through: visual, audio and literary entertainment to grocery, convenience and all other shopping, and storing all of their photos and files, Amazon Prime saves them a lot of money, for they have no reason to ever spend any money anywhere else.
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