Amazon’s recent price hike for its Prime program could send customers to Walmart, which has left the price of its premium loyalty program unchanged.
There was a time that Amazon could take the loyalty of its Prime program shoppers for granted. A decade ago, Amazon pioneered this program to lure shoppers away from brick-and-mortar retailers, who couldn’t match the online giant’s prices and expedient delivery services.
Meanwhile, the proliferation of tablets, smartphones, and other electronic devices helped turn traditional retailers into storefronts on Amazon and brick-and-mortar stores from an asset to a liability.
But things have changed since then. Brick-and-mortar retailers invested heavily to expand their E-commerce scale and scope to match Amazon’s pricing and convenience. They hired software developers, bought up online retailers, and launched loyalty programs. For instance, Walmart launched the Walmart+ program, which matches Amazon’s Prime program at a much lower annual subscription price.
In addition, Walmart has capitalized on its extensive neighborhood store presence to expedite online shopping by shipping from local stores rather than from distant warehouses, as has been the case with Amazon’s model.
Meanwhile, the retail giant has afforded shoppers the choice to order online and pick up merchandise at neighborhood stores, saving time and avoiding shipping fees. Other brick-and-mortar retailers have turned their stores into same-day pickup points.
Shoppers espoused this new trend. For example, an Elastic Path report published a couple of years ago revealed that 75% of consumers expect all brands to offer same-day delivery. Another 72% expect curbside pickup over the same period.
Simply put, traditional retailers changed the rules of retailing by merging E-commerce with conventional commerce, making the market more competitive.
In this new business environment, the last thing a company should do is to raise prices, as such a policy will send customers to the competition.
But Amazon did just that last week by announcing a $20 price hike for its Prime program.
Apparently, the E-commerce giant feels confident that the price hikes won’t significantly affect its Prime membership base. “Amazon Prime’s new $139 Prime price isn’t surprising after the past year of inflation and labor shortages,” said Tom Caporaso, CEO of loyalty provider Clarus Commerce. “While it’s inevitable that some shoppers could discontinue their memberships with a price rise, I’d expect most Prime members to stay enrolled.”
Why? “In our past research, 75% of consumers said faster, free shipping was the top reason for joining Prime, and it was also the top reason for renewing Prime,” explained Caporaso. “Not to mention, users ranked Amazon’s streaming service as the second-best perk for their enrollment, so it’s unlikely that consumers would be willing to part with that perk any time soon – especially as the pandemic continues.”
Meanwhile, Caporaso pointed to other loyalty programs in the retail space that come at a higher price tag, like Best Buy’s TotalTech, which sits at almost $200 a year for exclusive perks and tech support but many shoppers find it worth the price.
Still, he is concerned about the growing gap between Amazon’s Prime plan and Walmart’s Walmart+ plan, which could lure shoppers away from the E-commerce giant.
“Prime’s convenience and fast shipping will still outweigh the new price, but all eyes may now be on Walmart+, which still stands at $98,” added Caporaso. “Now that Walmart’s program is becoming a bigger competitor for fast grocery delivery, Amazon will need to be mindful about shoppers’ options and the possibility of making the switch. However, Walmart+ may eventually have to raise prices as well for similar shortages, but only time will tell.”
Meanwhile, Wall Street will be watching as investors try to pick up winners in the new retailing landscape.
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