By Katherine NoyesWhen Amazon increased the yearly cost of Prime membership in the UK from £49 to £79 a few weeks ago, there were already rumors that a similar hike may be in store for US subscribers as well.Sure enough, that’s just what Amazon announced last Thursday.”Even as fuel and transportation costs have increased, the price of Prime has remained the same for nine years,” read the company’s email to customers explaining the $20 increase to $99 per year.There’s no denying that nine years is a pretty significant length of time without a price increase; at the same time, price hikes always carry some risk, as few customers tend to get excited about them. (Check out our Pricing Psychology & Tactics Toolkit for more on that.)Reactions in the press have spanned the spectrum from calling the move “crazy brilliant” — largely for the additional hundreds of millions in annual revenue it could bring in (an opinion Wall Street seems to share) — to warning that it’s a risky move.Consumers, not surprisingly, have been vocal in their endorsement of the latter viewpoint, expressing reactions some have called a “frenzy” of dissatisfaction.A new survey conducted over the weekend by market researcher Brand Keys echoes this stance. In fact, focusing on brand engagement and customer loyalty, the survey reportedly found that Amazon’s rating fell from 93 percent to 83 percent following the price increase, knocking it out of its longstanding spot as the No. 1 retailer in Brand Keys’ Customer Loyalty Engagement Index down to No. 3.”They may have underestimated the negative effects of the increase,” Robert Passikoff, founder and president of Brand Keys, told CNBC. “Consumer expectations are always on the increase, and when it comes to online retail, they operate in a ‘what-have-you-done-for-me-recently?’ paradigm. Price increases weren’t what Prime Members were expecting.”Online rival ShopRunner.com, meanwhile, has reportedly smelled blood in all this and is offering to waive its own $79 annual fee for those unhappy with Amazon’s move.Of course, simple math dictates that even if 10% of Amazon’s current Prime members drop out of the service, the $20 increase could still result in higher revenue for Amazon. (Our Price Testing Webinar has more on this.)Then, too, there’s the fact that when a price starts with a 7 (e.g., $7, $70 or $700), consumers are almost always willing to pay $9, $90 or $900, as our Pricing Toolkit notes. So, it may not actually be that risky an increase.How will it play out? Only time will tell, but it’s pretty certain the lesson will be instructive for us all.
|Customer Retention 2020:
5 Trends That Will Change Your Subscription Business
Change is coming for the subscription industry. Customer retention is a top priority while competition grows and customer expectations shift. Register now to understand the trends and discuss what companies should do to ensure success in 2020. This free webinar is April 2nd at 1 PM Eastern.