Amazon Prime: the machine to turn customers into loyal subscribers

by bold-lichterman

The subscription economy is devouring the world: from music (Spotify) to beauty (Birchbox) to food (HelloFresh), the customer experience through a subscription is affecting more and more industries. If one company particularly embodies this evolution of the economy, it is Amazon, with its Prime offer launched in 2005 in the United States.

The Prime revolution

Amazon Prime is a real commercial revolution, because at first glance it appears to be economic nonsense: why offer a subscription for 49 euros (in France) when the cost of the associated benefits (free delivery in 2 days, music and video streaming? , exclusive promotions…) is valued at nearly 670 euros?

Prime actually illustrates a key principle of the network economy: what matters is establishing a lasting connection with the customer. And invest in the payroll relationship: Prime subscribers spend $ 1,400 per year on Amazon (and the older they are, the more they spend), compared to $ 600 per year for non-members. And after one year, 94% of members renew their subscription.

Prime is therefore a very effective lever for building loyalty among Amazon users. On the one hand, the advantages of delivery or low prices of course encourage purchases. On the other hand, the more detailed knowledge of customers acquired with the use of the various services offered and their more numerous orders, allows Amazon to improve the quality of its recommendations in real time.

But what’s even more important is that Prime strengthens Amazon’s value loop, for all of its customers. The more numerous and active these are, the more sellers have an interest in joining the Amazon marketplace, which increases the range of products offered, which attracts new customers or additional expenses from existing ones, and so on. . And the more non-member customers spend their budget on Amazon, the more the Prime membership becomes a no-brainer.

In the end, will there be only one left?

As one of the pioneers in the digital subscription economy (over 100 million Prime subscribers worldwide), Amazon has paved a path that other GAFAs have since tried to follow (in B2C):

  • Google launched in 2012 paid versions of Google Drive (to benefit from large storage capacities), then in 2014 of YouTube Premium, which notably offers exclusive content and a music streaming service.
  • Apple launched its Apple Music streaming service in 2015, as well as the iPhone Upgrade Program, which allows new versions of the iPhone year after year. This focus on recurring paid services has been accentuated recently, with the announcement of Apple News + (information), Apple Arcade (video games) and Apple TV + (films and series).
  • Facebook launched in 2018 Subscription Groups (access to groups with exclusive content) and in 2019 Fan Subscriptions (support for creators).

These various launches, in addition to the many startups and unicorns whose model is solely based on that of recurring income, raise the question of the limits of growth in the subscription economy. A consumer can subscribe to several video services, but probably not to several cosmetic or music streaming subscriptions (since the catalogs are almost identical from one platform to another).

From this perspective, Amazon Prime is much more than an extremely effective growth lever: it is a life insurance policy, a formidable defense against its current or future competitors. Because every time Amazon adds new services to its flagship offer, and increases the price (in 2018, from $ 99 to $ 119 in the United States), without the retention of its subscribers declining, it is the portion of the portfolio left to competition that is reduced accordingly.

The contributor:

Biography of Tom Morisse, Research Manager, Fabernovel Tom is a Research Manager within the FABERNOVEL group, responsible for leading the research strategy of the entire Group and leading studies. Previously, he held the role of Analyst for FABERNOVEL, with missions to analyze external growth opportunities, support the definition of the Group’s strategy and monitor the portfolio of participations in start-ups.

Before joining FABERNOVEL in 2014, Tom accumulated experiences in start-up acceleration (NUMA Sprint, ex-Le Camping), M&A (Aforge Finance) and in private equity (Bridgepoint Development Capital). A graduate of Sciences Po Paris, Tom followed a Masters in Finance & Strategy there after a one-year exchange at the University of Pennsylvania.