If you're an Amazon Prime member—and research says that's likely—you received an email announcing that it will cost $20 more when your subscription renews. This probably wasn't a surprise even if you only casually follow retail news, but it may have given you pause nonetheless.
Amazon doesn't tend to make big reveals in its shareholder letters and earnings calls, but last month the company did finally confirm that it has over 100 million Prime members worldwide and that it would be increasing its annual subscription price 20% to $119 due to the rising costs of shipping and digital benefits.
We expect the number of Amazon Prime households in the US will total 56.4 million this year, or 45.5% of all households. When looking at Amazon Prime users (those who aren't necessarily the account holder), the number will reach 105.2 million. We estimate the number of Prime households will increase by 7.8% in 2019, though these figures were calculated in February, before the announced price hike.
As the middle- and upper-income subscribers reach saturation, Amazon is counting on lower-income shoppers to pick up the slack. A Q1 2018 KeyBanc Capital Markets survey found that 63% of US households were Prime members, up from 52% in Q1 2017. But the number of Prime subscribers in the middle- and higher-income brackets declined during that time period, while membership among lower-income respondents grew.
Amazon has been courting lower-income shoppers with a $5.99 per month subscription. In 2017, it extended this to consumers with an EBT card and this year to those on Medicaid. Students also qualify for a discounted version of Prime. "We do feel it's still the best deal in retail," Amazon CFO Brian Olsavsky said during the Q1 2018 earnings call when asked how the price hike will affect lower-income shoppers.
The bigger question is whether subscribers of all income strata will flee. When Prime fees were last raised from $79 to $99 in 2014, though, Amazon did not experience a mass exodus.
There have been multiple polls indicating that roughly half of Amazon Prime members will cut ties after the membership increase. According to Yahoo Finance, 45% of Prime members it surveyed said they would not renew after the price increase, while 20% said they were unsure. Reasons cited for not renewing were not shopping on Amazon enough and not using perks like video often enough to justify the cost. Nearly half of DealNews readers (49%) said they would not pay $119 for Prime, while 32% were unsure. And Atherton Research reported that 59% of Prime subscribers it surveyed said they would let their membership lapse.
But actions might speak louder than words.
According to October 2017 Consumer Intelligence Research Partners (CIRP) data, Amazon Prime members spent nearly twice as much on the platform compared with nonsubscribers, $700 vs. $1,300 per year. And a Feedvisor survey from that same month found Amazon Prime members made far more purchases than nonsubscribers; 22% of Prime members bought something on Amazon every week vs. 9% of non-Prime members.
Given that Prime members shop more and spend more on Amazon than nonmembers, it's unlikely that an extra $20 will be a major hindrance. In fact, it might even lead to higher frequency since subscribers will want to get their money's worth.