Sunday, November 28th, 2010

The Price of Shipping

Amazon may have just pulled off the most astonishing feat in retail: to get its customers to pay for the privilege of buying more. Amazon’s Prime service, which offers customers free two-day delivery for an annual fee of $79, has succeeded in converting casual Amazon shoppers into addicts of the shopping service. The scheme thrives from a standard human foible: people try to maximize the benefit of club memberships they have paid for. Casual shoppers become assiduous Amazon loyalists upon joining the service. Amazon Prime accounts for only a small sliver of buyers on Amazon, yet they might be responsible for about a fifth of its sales in the United States.

An interesting question is what Amazon should charge for this. It is experimenting with giving away free Prime trials to students and parents. Maybe it should give the whole thing away for free? I doubt it. People who join Prime buy more from Amazon precisely because they want to spread its cost over a large number of purchases. But perhaps it could be cheaper. The trick is to reduce the price as much as possible to increase Prime membership without cheapening it to the point that it no longer works as an incentive to buy.

I thank Marginal Revolution for the pointer.

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2 Responses to The Price of Shipping

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