Can Amazon Prime stay prime?

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Jeff Bezos is basically playing a game of risk. And this is the last region that Jeff needs not only to take the entire continent of Asia, but also Europe, Africa, and North America with them.

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Welcome to pricing page teardown, where the profitWell Crew breaks down strategies and insights on how subscription companies from all corners of the market can win with monetization.

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Welcome to Pricing page teardown. I'm Patrick Campbell, I'm Rob Literst. And this week we are talking about probably the greatest subscription in the history of humankind. It's, it's one of those things that not everyone thought of as a great subscription and now it's turned into basically the business case study of business case studies. And of course we are talking about Amazon Prime, but what's beautiful about this is they're doing some things really, really well with it and a couple of things that they probably could be doing better at, but I wouldn't bet against them. No. And we're gonna wrap up all of these learnings, all the data that we collected, and ultimately put it into a nice little case study of what you can learn for your business to take back and make sure your monetization strategy stays on the right track.

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The internet brings us closer and closer than ever. Not only can we speak to anyone or learn anything at the touch of a button, we can also buy anything and everything from equestrian supplies to furry jumpsuits, to hanging out with friends. And one company made this possible. Amazon founded in 1994 by Jeff Bezos. Amazon started out as a Bezos bet that the internet would spread rapidly and give us a future of everything at our fingertips. So he quit his finance job and moved to Seattle to launch. Initially the world's largest bookstore. Building the infrastructure and website was expensive, but within two months of launching, they were pushing $20,000 in books every week. And by 1998 they added music and other media before constantly expanding their product line to over 12 million in endless categories. Everything from A to Z Amazon ran into a problem, though reach was one thing, but speed was another.

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Why would I wanna buy something and have to wait two weeks for it when I could get it now even if it was a little more expensive? So Amazon's second pillar of success was shipping as many products as possible as quickly as humanly possible. The approach was successful as they found those who got their items quicker would buy more. Yet shipping was expensive, so it was hard to know if they could guarantee speed because of all the costs. This is when Charlie Ward an engineer at the time and now VP of Technology suggested wouldn't be great if customers just gave us a chunk of change at the beginning of the year and we calculated zero for their shipping charges the rest of the year. Everyone questioned if this was crazy, but it was the birth of Amazon Prime, then code named Futurama, which morphed into a service you paid $79 per year, now $149 per year for two day free shipping on all prime items.

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You also got discounted one day shipping, grocery delivery with a Whole Foods acquisition. Amazon's streaming service, Amazon book deals, and a whole host of other benefits. Amazon Prime success hinged on attacking the first principles of Mass market e-commerce. I need to know I can find whatever I need at the best price at the quickest shipping time. Amazon centered on all of these things and then created a needed lock-in with Amazon Prime, then implicitly committed users to wanting to get the most out of their purchase of the membership. This Supreme focus on the first principles has led Amazon to nearly 300 billion in annual revenue. A market cap in the top five of all companies and over 120 million different Amazon Prime members. But with all the success comes a lot of competition. Amazon isn't the only one selling things online and when you look globally, they've been challenged by Alibaba, Walmart, and even Shopify who claim they're arming the rebels of every small business selling online against Amazon.

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The Amazon Prime membership has also lost some of its touch when these competitors can easily deliver with a reasonable window with some critics arguing that at some point the difference between same day shipping and two hour shipping doesn't really matter. Other critics point out that the hodgepodge of features in Amazon Prime aren't conducive to ensuring international audiences and even the shifting culture will guide consumers to other services. The question remains though, how can Amazon use Prime to expand share of wallet with consumers to keep their reign as the monarch in the e-commerce wars? Can Amazon use Prime to save off their competitors and figure out how to internationalize without losing that which made them, it seems this market is Amazon's to lose. But we're gonna answer these questions and more by collecting data from current and prospective Amazon Prime customers and we'll reveal all the data and answers to these questions coming up next.

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I've been using Amazon Prime, I feel like since college, like for a long time. I have a pretty simple use case I'd say. Sure. Um, as simple as it can be, but still the value's absolutely incredible. I think the problem here is there's so many things in Amazon Prime. Yeah, I don't know what I use and don't use. It's Amazon Prime related <laugh>. Like I definitely look at prime video every so often, like it's just kind of on the list and looking for something to watch. And I'm sure there's a bunch of other things that I'm using and I just don't even know. But this is kind of the beauty of I think Amazon Prime. Yeah. Which is unlike a Costco membership, which is basically like just your, your ticket to get in the door, right? Mm-hmm. <affirmative>, Amazon Prime's entire objective, which is beautifully outlaid.

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And basically Amazon's entire objective is to get you using Amazon for as many things as humanly possible that then lead to purchases. Totally. I'm gonna use it for buying anything retail and I'm probably not gonna price compare that much, right? If at all. Right. Unless it's like a specialty product. When I look at something like Prime Video, I don't exactly know how that necessarily leads to basically, you know, going out and buying more, you know, toilet paper or something like that. Yeah. But I'm in Amazon, I'm associating the brand with Amazon and so maybe that's not a direct play, but it's at least an indirect play and it makes me value the Prime membership even further. Right. So I think that the thing you gotta think about and the big takeaway for most businesses is that they're going after a mission metric and their mission metric is basically average order value as well as the number of orders.

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Mm-hmm. <affirmative>. And they found pretty consistently that prime members are basically doing double the amount of orders per month, the non-prime members. And the average order value is I think like two to $5 higher. Right. That proves the thesis that it's amazing. And then there's also a bunch of other things that are happening when it comes to, you know, Amazon and you buying more stuff and and basically getting washed over with the brand. And this is why having that mission metric of what you're trying to optimize for your customers, but also being ruthless about all of the things that get in the way. Mm-hmm. <affirmative>, Amazon has basically become a logistics company. Yeah. They become a pricing company. They are always after the low prices, they become an infrastructure company and that's spun off AWS because they were like, why are we spending this money that we then have to pass on to our customers with the retail product?

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Tackling hard problems gives you leverage. Insane. And Amazon has so much leverage right now because they've tackled some of the hardest challenges there are. Well, I think that leverage, they use it. Although I think people would maybe disagree with this given some of the work worker stuff and the, the warehouses and stuff like that. Mm-hmm. <affirmative>, I think they use it fairly benevolently. Yeah. Benevolently. I mean when you think about it, they're all about lower, lower prices. Right? So the reason I don't really price shop is because Amazon, they made that commitment and they've won that enough. There's probably some things that I'm paying more for than if I went to Walmart or some other place. Right. But I don't even know cause I'm just like not even worth my time. Right. Yeah. And we saw this especially this year with Covid where they basically said, Hey, that 4 billion of profit, we're gonna reinvest that basically all into creating the cleanest, most secure virus free logistics network.

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Which is something that's not only gonna help them, you know, obviously in in the kind of mirror of Covid mm-hmm. <affirmative>, but it's also gonna help them into the future. Cuz now all of a sudden it's like, oh, the products I'm gonna get are clean. Right. Like, oh, I don't have to worry about it. Right. And it's just like, buy more, buy more, buy more. And I'm already gonna buy this stuff so I might as well buy it from from one place. That makes it easy. Makes it cheap. Exactly. All right, let's take a look at their pricing page and then dig into some of the data from their current customers and see what we can find. Yeah, definitely. And we're gonna basically look at what Amazon is doing really, really well at and what are some optimizations and kind of bundle this all into a nice little case study of how you can take away these lessons to make sure that your monetization strategy is getting on the right track or getting even better.

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First up, don't be afraid to over bundle. What's kind of insane about Amazon one? This is not a very nice looking pricing page. It's not No, it's not amazingly designed. It's super simple and that's kind of what Amazon is known for. It's not the most beautiful thing in the world, but it's kind of to the point and it basically is, you know, good for logistics, if that makes sense. Utilitarian. Yeah. And what you're seeing here, it's like free delivery, award-winning movies and shows, you know, a bunch of songs, 2 million songs. These are the main things. But I think that there is an insane amount of things in Amazon Prime. Um, when we go to this particular list, I'm not even gonna be able to count the bullets in in a short enough amount of time. But there are so many different things that I don't think most people are aware of.

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There's first reads, there's Prime reading when it comes to reading Amazon Elements, primarily access deals and discounts, compliments of Amazon Family, personal shopper by Prime Wardrobe, Amazon Prime Store. There's so many things, I'm not gonna read the rest of them. I've already read enough of them. It's not about, hey, does the amount of money that we're getting from the prime subscription equal the amount of things in the subscription? It's not that shortsighted and how Amazon thinks it's, hey, maybe we cover the cost, probably not, but maybe we cover the cost with the Amazon and then all the other purchases that revenue and that profit is gravy. If you have a membership, which I, I suggest most businesses should have it on some level and some point, make sure you're unblocking those things or at least encouraging the activity that you're looking for. And in this case it's Amazon wants you to buy more stuff and here's a bunch of reasons why you should buy stuff or a bunch of barriers that are torn down in order for you to buy more stuff.

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Yeah. They make it so easy. So I think one takeaway from their pricing page is your pricing page doesn't need to be beautifully designed, right? Mm-hmm. <affirmative>, it doesn't need to look like some Apple product or something like that. The Amazon pricing page, you touched on it earlier, it's super utilitarian. It tells you what you're getting, shows you the value propositions. It makes it super clear and simple. It's a lot like we talked about hey.com a little while back. Yeah. And it's the Basecamp guys, their Basecamp pricing page is also very similarly super simple. That's not necessarily the thing that makes people convert. It's just like, hey, you get these things, why wouldn't you want these things? Right? Right. They handle the objections, they handle the value. And I think that's what, even if you don't have a beautifully designed page that you know is gonna win some awards, you have to focus on that simplicity because there's plenty of those beautifully designed pages. Oh totally. That you're just like, I don't understand what I'm getting you ready to get some data. Let's jump in. All right, let's do it.

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So where does our data come from Here at ProfitWell, our Price Intelligently product combines proprietary algorithms and methodologies with a team of pricing experts who think about this stuff more than anyone else, to help companies optimize their monetization strategy. We do this by going out into the market and collecting data from current and prospective customers. Having the ability to collect data from everyone from a soccer mom or dad in the middle of Kansas all the way to a Fortune 500 CIO in South Africa. We then take that data and run it through our algorithms and analyze it in every direction to determine a company's ideal customer profiles, as well as which segments value which features and which segments are willing to pay more. All in the spirit of determining how a company can use monetization for growth.

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I think this is something that we've talked a lot about, um, both in this episode and some other episodes, but there's this whole concept of a mission metric and it's really what are your customers needing? What's the performance they're going after? And then making sure that your membership model or just your whole pricing strategy pushes for more mission metric. And we can see this with Amazon with all of the different features that they include. And we're looking at what's called a value matrix.

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You're about to see something called a value matrix here. We collected data from the group comparing feature preferences and plotted those on the horizontal axis, more valued features on the right, less valued on the left. We then collected willingness to pay for the overall product and plotted that based on their number one feature preference on the y axis. Analyzing data in this manner allows us to determine which features are differential add-ons, poor or commoditize for each segment.

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What's kind of fascinating is there's not one thing that just kind of knocks this out of the park. Um, yes there are some features that obviously are more valued than others. Things like prime video free, same day delivery, um, free two-day shipping. But the differential in terms of willingness to pay isn't huge. There's not one thing that all of a sudden is like, wow, this is a picture perfect add-on. Right? Or this is something that they should differentiate. They're all kind of within this band and it's kind of this plus or minus like 10, 20% when you're looking at this type of data. When you're looking at the willingness to pay the why access. And when I see this, it's an argument depending on what you're trying to do. If you're a B2B product, I would say yes you should still differentiate and do add-ons, but if you're a membership model, just throw those things in there, throw it all in there, just get 'em in there.

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Exactly. You're gonna have a bunch of entry points for these folks discovering, oh I didn't know I get that with Prime. I should sign up for Prime. And then also there are a bunch of prime members like you or I who are like, oh, I'm gonna look at that list cuz there's probably some things I'm not using that would be valuable. And then all of a sudden we're spending more money with Amazon, which makes Jeff Bezos happy. Um, and the shareholders and all that kind of fun stuff, which totally, really interesting. So the big thing to kind of take away with is you gotta understand what are those features or what are those bundles that you can put together that are going to help the mission metric? And then you want to be careful about do I want to differentiate these into different higher end tiers or do I wanna bundle these together cuz they're gonna get me more mission metric, which is ultimately what I'm going for and ultimately what my revenue is Al is going to be based on.

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The craziest takeaway here to me is the difference in willingness to pay between free two day and free one day or free same day. I mean, yeah, if you looked like five years ago, free two day shipping would be such a value driver. Maybe even an add-on. I think it's expected at this point. Oh totally. Car it's all, it's all prime. Prime is completely conditioned to us. A hundred percent any business that has um, a distance or a time effect. So think about Zipcar, right? So Zipcar, one of the biggest things that they discovered is that the higher the density of cars, the more likely to use Zipcar. You are right. Right. Uber discovered this, Lyft discovered this and so all of a sudden it was a game to get as many cars as possible. Right. Similarly, like the sooner you get stuff, the more stuff you're going to buy.

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Right. Right. Because if it's like, oh, I get that today. I remember like a couple weeks ago I was looking for some cables and I at Amazon it was one day delivery. I was like, cool. But there was one that wasn't one day delivery and I went to Best Buy. And I think that as Bezos closes that gap in Amazon, obviously it's a lot of people working at this point and this is where it gets into just sending you stuff before you think you need it. Right. Which gets really creepy and probably will backfire in some way, but like there's a world where that's gonna start happening. Yeah. All of a sudden it's like, okay, cool. Like all of a sudden I'm gonna start buying more stuff. Especially when you send me stuff to try on or stuff to look at without even like charging my credit card.

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Right. Which I think is a really, really fascinating world. As long as you can get over the uh, let's just say creepiness factor. Yeah. Yeah. That's like truly living in the Jetsons when you're starting to get Totally stuff. That's I think the last episode of Parks and Rec made fun of this as well. Yeah. From the the local company. So one area that they could definitely do a little bit better, better and optimize niche down when you have a fragmented market and focus on high value segments. Yeah. Right. A hundred percent. So we talked about on the value matrix that everybody kind of has this willingness to pay that fluctuates like a little bit above the medium, but nothing crazy. They do have some segments that have much higher willingness to pay. You can see here like fashion focused. There's definitely an opportunity to go deeper there.

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Yeah. Um, foodies, I think family is one that's like re especially family and children. Like that's just absolutely, absolutely a no-brainer. Get diapers going, get totally get baby food going. Um, and business I think is pretty intuitive, which they do actually have a separate prime bundle for. Yeah. I think they try to do this with like Prime Pantry and some of these other features. Yeah. One thing I think Amazon could do really, really well is some sort of like discounted all-in bundle for the first year of your child's life. The final thing here, which I think is a little bit aspirational where Amazon could do better, is going up the value chain as an advantage and solve what I like to call the single storefront problem. Mm-hmm. <affirmative>, when you think about both Shopify and Amazon, Shopify has handled the storefront right. For all of those consumers.

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They're lagging on the logistics because they're not gonna have a logistics engine like Amazon mm-hmm. <affirmative> at least anytime soon. And they're also a, they're trying though, right? They're also lagging on all of the different aspects of selling. And so what's kind of fascinating is Amazon could close the loop here by basically offering up some sort of storefront so that basically any e-commerce brand could have their own branding, could have their own look and feel, but everything on the backend, Amazon payments, Amazon logistics, Amazon shipping, right. Um, you know, fulfillment even fulfilling like finding the product right. In wherever warehouse that needs to happen because that's what they've done with, you know, ripping off Allbirds and things like that. Right. Totally. And it's funny because I feel like the opposite of that is what Shopify got so much pushback for on the shop app. Yeah.

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Because their entire business has been built on kind of hiding in the background and really emphasizing their their stores and and their merchants. Totally. And when shop kind of brings their brand forward, it doesn't really make sense. But Amazon could do this the other way. Totally. I think, you know, there are probably some skeptics out there that are like, well look at what Amazon did with their marketplace. They started to copy the trends and start releasing some of the products. But this gets you goodwill. Right, exactly. This is Shopify is already doing that. They're just not getting into the retail game. They're certainly doing it the different software products that are on the marketplace. And so I think what gets really kind of fascinating for Amazon is I don't think they care about amazon.com as a brand. If I'm buying these shoes mm-hmm. <affirmative>, I think they're totally fine taking a cut Oh yeah.

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On some level and someone else has put their heart and soul into designing them and all these other things and being a partner, right. For your business, it's really thinking about, again, what is that mission metric you're trying to go for and not getting ahead of yourself in terms of branding or partnerships or these types of things. If a big behemoth of a brand wants to offer you a white labeled partnership, uh, take it, right? Because that's distribution and maybe they don't know it's you. And yes, you're giving up a little bit for that, but ultimately that gets that distribution and gets people using it. Um, and it's one of those things that like you want to find these places that you can use your leverage to make sure that you're pushing basically your product into the people you're trying to get. So you can get more of that mission metric.

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First up, membership models push for more of a mission metric. Mm-hmm. <affirmative>. So you saw this with Costco obviously. Yep. You see this with Sam's Club. We've seen this time and time again and Amazon is kind of the, the champion of this at this point. Point. Totally. Yeah. They've really mastered this. I think next up, um, niche down when you have a fragmented market and focus on high value segments, we talked about it at length, but Amazon's prime bundle right now is really just kind of broadly for everybody. Yeah. There're definitely some high value segments in there that they could really double down on. We talked about business, which they're already doing, but talking about kind of leading up to the wedding, maybe the first year of the baby. Like there's some really high value segments of customers that they could bun make a a new kind of niche bundle around.

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The final piece here is going up the value chain as an advantage. And in the case of Amazon, they're solving the single storefront problem. I think for most businesses it's just thinking through that mission metric I'm trying to get to or that mission metric we're trying to optimize what are the things that I can do, even if they're not in the core of my product to push for that, right? Mm-hmm. <affirmative>. So profit wealth's, free metrics, that's what that's for, right? We want to get to this outcome when we need this data to feed the algorithms that we have. We can do an exchange for the value and then provide like very transparent value, um, you know, for the products that we're offering. So totally, it's a really, really, really big thing to kind of keep in mind. And ultimately it's something that I think a lot of brands need to kind of think about is like, what are the things outside the box that I should be doing in order to push my mission metric forward?

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Well, that's all for this week. If you got some value from this, if you learn something, if you had a chuckle, if you were entertained, please, please, please share this episode on a social media channel of your choice. Um, Twitter, LinkedIn, Facebook, whatever you're using. We wanna make sure we get this knowledge in front of as many people as humanly possible. So more and more people can be on a pricing journey just like you. And of course, if you're not subscribed, make sure you get a pricing page, chair down.com, make sure you're signed up. And if you want any help, if you want some data for your business, you got some questions that you just want answered, we'll get some feedback on what your pricing strategy looks like. Don't be afraid to hit me up@patrickprofitwell.com or rob@profitable.com here. We'll make sure we'll get your questions answered and get you some really, really good pricing feedback.

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So what's up next week? Next week we have a nice little aspirational episode. Ooh. And we're gonna be talking about the man, the myth, the legend or the infamous legend depending on how you look at him. Okay. We're talking about Joe Rogan. Alright. And what would a Joe Rogan podcast subscription look like? J e let's go. Some of the other folks, I think he's technically in the dark web, but he's kind of like on the border depending on who you ask. But I think there's a lot we can learn from what he's doing really, really well with his content base, but also like what someone like that can actually do similar to some of the other subscription podcasts and Patreon type products, um, that have been on the market. Totally. So we're gonna explore that all in the context of the Spotify acquisition or maybe exclusivity deal we should call it. Um, and we're gonna wrap up all those learnings, what you know would really, really work for him and what he should avoid so that you can have a nice little case study and what you should be doing in your business to make sure your monetization stays on the right track. He has some super fans. I cannot wait to see that willingness to pay. All right everybody, we'll see you next week. See you next week.