calculate the price elasticity
Amazon Raises Prime Subscription Price To $99 A Year; Move Represents First Increase in the Shipping and Video-Streaming Service’s Nine-Year History
Amazon.com Inc. said it will raise the annual price of its Prime shipping and streaming-video service by $20 to $99, the first increase in its nine-year history.
The Seattle retailer said the 25% increase was needed to offset rising delivery and content-acquisition costs. The $99 price takes effect for new members on March 20. Existing Prime members will pay the higher rate when they renew.
Shipping costs have been a particular concern for Amazon as it builds more warehouses closer to urban centers and expands its same-day delivery options. Shipping expenses jumped 29% last year, to $6.6 billion, while revenue from shipping services rose 36%, to $3.1 billion.
In January, Amazon said it was considering raising Prime fees by $20 to $40 per year. Analysts said Amazon likely chose the lower end of the range so as to upset the fewest users. A spokeswoman declined to comment beyond the announcement, which was emailed to customers and posted to the Amazon.com homepage.
Investors applauded, as Amazon shares eked out a small gain on a day when stock indexes fell.
Analysts said they expect fewer than 10% of the more than 20 million Prime members to drop their accounts. Including additional spending by Prime members, the change could generate between $150 million and $300 million in operating income annually, analysts predicted.
“We see little likelihood of meaningful churn from the price increase,” said Colin Sebastian, a Baird Equity Research analyst.
Prime is valuable for Amazon not just because of the annual fees but because members tend to spend significantly more on the site. Market-research firm Consumer Intelligence Research Partners last year estimated Prime members spend more than twice as much–$1,340 per year–than non-Prime members using Amazon.
Mr. Sebastian and other analysts said similar recent price increases had prompted few cancellations. Netflix Inc. has boosted its membership rolls since dividing pricing plans for its DVD-by-mail and streaming services in 2011, which resulted in a price increase for some customers.
The price increase means Prime will cost 26 cents more per month than Netflix’s streaming service–but include free two-day shipping on many Amazon purchases.
Amazon has been adding benefits to the Prime program in the U.S., including an e-book lending library and an expanded video catalog, including exclusive shows. This week, Amazon chose four new television series it will produce in-house that will be available exclusively to Prime members.
Amazon is in discussions with about 10 retailers that don’t otherwise sell goods on Amazon.com to list their wares on the site with Prime shipping, people familiar with the talks said last month. It is also considering a streaming music service connected to Prime, people briefed on those discussions told The Wall Street Journal this week. And it is close to releasing its long-rumored set-top box, which may offer benefits to Prime members.
At least one rival jumped on the news of the Prime price increase. ShopRunner Inc., which guarantees two-day delivery from several dozen retailers like Timberland and Nine West, offered to waive its $79 annual fee to Prime members “disgruntled” by Amazon’s decision. The promotion will last for “a limited time,” the company said, declining to be more specific.
New Prime members can lock in a $79 rate for the first year by signing up before March 20, according to Amazon. The company posted a clock on its site showing the remaining time.
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