Amazon Commerce

How Amazon Normalized Subscription Retail

Amazon Normalizes Subscription Retail

Amazon Prime might have been a good little idea, the naysayers nay-said, but once shoppers have to start shelling out higher fees for the privilege of faster shipping, those "loyal" customers would run into the waiting arms of the retailers they'd left behind.

Well, the Amazon Prime fee hike is nearly two years come and gone, and how has customer retention fared? According to a new study, Amazon is soaring higher than any Blue Origin rocket.

Consumer Intelligence Research Partners (CIRP) took a look at how Prime membership totals have fluctuated since the $20 annual fee hike that was instituted back in early 2014, and the results were so promising that "fluctuated" might be too harsh a word. While there were slight dips to retention rates just after the fee increase was announced, CIRP found that, as of Q1 2016, 73 percent of consumers on 30-day free trial plans converted to fully paid memberships once their sample periods were up.

What's even more striking, though, is that Prime members paying for one-year subscriptions decide to renew 91 percent of the time.

For two-year paid members? That figure creeps up to a near-total 96 percent.

Amazon's retention rate for 30-day trial users has still yet to recover its pre-fee hike numbers, but it's blown past that benchmark by multiple percentage points among its one- and two-year subscribers. Josh Lowitz, partner and cofounder of CIRP, noted that while findings that confirm Amazon has its head on straight shouldn't be wholly surprising — after all, Amazon keeps adding more value onto its Prime subscriptions to keep the pot sweetened enough for the ficklest of shoppers —the retention rate among Amazon's longer consumer compatriots should raise some eyebrows.

“Once Amazon Prime members renew for a second year, Amazon appears to have attracted them for the long haul,” Lowitz said in a statement. "After a second year, renewal rates are over 95 percent and have improved gradually in the past two years.”

Already at plus-90 percent and trending upwards, Amazon might be an outlier among retailers, but it's the outlier that consumers have chosen, which means that, just like the Amazon-induced frenzy for express shipping, all signs point to subscription retail as the new normal in commerce.

While consumers are clearly responding favorably to subscription retail as a product, evidence of its ongoing entrenchment as a regular part of the retailer's toolkit goes far beyond retention rates. Amazon has been trigger-happy over the last calendar year with adding more and more subscribable offerings to its list of wares. In some cases, these can be niche programs for new products that get comic book geeks and other consumer subpopulations under the Amazon banner, or they can be programs to automatically restock common household items for the busy homemaker.

In other cases, though, Amazon has been more than willing to split its year-long subscriptions into chopped-up, compartmentalized versions — like the decision to offer Prime Video memberships on a monthly basis rather than as an added value to a year-long subscription. A clear shot across similar services, like Netflix and Hulu, these bite-sized subscriptions are being wielded not just as static products but as positioned tools to lure consumers away from other competitors. Sure, a monthly Prime membership might not be able to stand toe-to-toe with Netflix's library, but it at least gives shoppers on the fence a chance to test the waters without committing themselves completely financially.

And when they test Amazon's waters, a near-total percentage of those shoppers stick with Amazon. No wonder the retailer is pushing subscriptions in all forms of retail. If becoming a member is the new normal, it's an almost unanimous opinion among their customers that Amazon is the place to spend their money.



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