Amazon Loyalty

The Evolution Of The Amazon Prime Ecosystem

The world was a very different place in February 2005 when Amazon first introduced its loyalty program: Prime.

There was no such thing as an iPhone; that was two years away. The dominant — and pretty much only — name in the smartphone market was Blackberry, and it was mostly for the uptight professional who could only be truly happy when reading their work emails. The App Store and Android Market (Google Play’s previous iteration) were both three years away, and Siri was seven years away. Alexa made its first appearance almost a full decade after Amazon introduced the world to Prime, in November 2014 (nine years and nine months, for the sticklers at home).

Though people early in Prime’s lifetime realized that it — and voice-activated artificial intelligence (AI) in general — could be a massive game changer, Prime was more of sleeper agent in the world of eCommerce. That’s because, of course, in 2005, Amazon was a much different company than the mega-player and segment breaker we know and love today.

If told in 2005 that Amazon was going to be rewriting almost every aspect of retail 15 years hence, and that Prime would be one of the main tools by which this was accomplished, the average customer would have likely been more confused than incredulous. A 2005 customer would be excused for thinking this meant that people would read a lot more in the future because, at the time, Amazon was still known best as the internet’s most reliable bookstore.

The Prime offering — $79 for guaranteed, free two-day shipping, regardless of order size — was a nice perk, but Amazon had already rolled out Free Super Savers shipping by the time Prime made its first appearance. Though it was a nice perk, it was not a game changer, or perhaps it is better to say it didn’t look like one just yet.

Of course, looks can be deceiving (there’s a reason there are so many children’s stories and parables on that subject). Swans really do have funny looking goslings and mustard seeds start out at a millimeter in size, growing to about six to seven feet tall and 20 feet wide. For some things, big and impressive is an endpoint more than a starter, and it’s easy to be fooled by inauspicious beginnings belied by complex intentions.

In Amazon’s case, it was to build an ecosystem with attractions that would essentially be irresistible for any sane consumers. As Amazon Founder and CEO Jeff Bezos put it bluntly: “Our goal with Amazon Prime, make no mistake, is to make sure that if you are not a Prime member, you are being irresponsible.”

The Early “Quiet” Period

In write-ups of the history of Amazon Prime, many noted that the early years between 2005 and 2011 were mostly dormant for the service. That makes sense, since Amazon neither changed the price or the service level during that six-year time period. However, Amazon itself changed a lot over that time — as it demonstrated rather strongly that it was serious about moving beyond simply being a buyer and seller of books.

In 2006, Amazon moved to actively grow its marketplace for third-party sellers with the rollout of fulfillment services, which gave them access to Amazon’s own order fulfillment and customer service infrastructure. In 2007, the company launched its Amazon Fresh grocery delivery service, rolled out Amazon Music and launched its first-ever device — the Kindle eReader.

In 2009, it bought the online show giant bought Zappos for around $800 million. In November 2010, Amazon purchased Quidsi from Marc Lore, the owner of Soap.com and Diapers.com, for $545 million.

All of those items were much easier to search and price, even while one was standing in a physical retailer, because the age of the smartphone and the camera as a barcode scanner was upon us. The era of showrooming began as customers started looking at their small screens, considering if it was worth it to pay a little less on Amazon and — if they were already a Prime member — wait a day or two for the item to arrive.

Even though Prime wasn’t changing, it was still making good on that offer for two-day delivery of goods for members — and the number and types of those goods dramatically expanded between 2005 and 2011. Prime stayed much the same during that half decade or so, but Amazon grew up into the everything store.

Prime’s Prime Time

In 2011, Prime started to grow as a service. The Amazon Instant video service underwent a minor rebranding and picked up a new purpose, offering about free 5,000 movies for Prime members to stream at their leisure. Contemporary observers noted that it was an interesting perk, but not much of a move to compete with the already more-established Netflix. Prime users were there for the free shipping, but they would certainly enjoy the additional free content.

In 2014, the Amazon Prime ecosystem added a lot of features, which was probably a good idea, because the service also initiated its first price increase in nine years, with consumers seeing the cost go up to $99 annually. However, for the extra $20 a year, they did get a lot of stuff.

For example, Amazon added Prime Pantry, allowing members to order non-perishable items, such as dish soap and paper towels, in one box for a flat fee of $5.99 (the price has since increased to $7.99). It also added Prime Music, with complimentary commercial-free streaming of 2 million songs and stations. In addition, Amazon added Prime Photos, which gives members free unlimited photo storage on the photo app.

As 2014 rode into the sunset, Amazon launched Prime Now services in New York City — offering members free same-day, two-hour delivery for some items, and one-hour delivery for $7.99. As of today, that service is now in 32 cities and is tied directly to Amazon’s Whole Foods grocery platform.

In May of 2015, Amazon rolled out free same-day and one-day Prime Delivery for orders over $35. Today, that has spread to 8,000 cities and towns. That year also brought the inaugural run of Prime Day, a shopping event for Prime members, which has essentially developed into the summer’s answer to Black Friday. By 2016, its second year in existence, orders were up 60 percent year on year. By the third Prime Day in 2017, revenue surpassed both Black Friday and Cyber Monday. As of 2018, Prime Day revenue was up 89 percent over 2017.

In 2016, Amazon also opened up the option of a monthly Prime membership for $10.99 a month, though that price when up to $12.99 a month earlier this year. In Prime’s latest annual price increase, membership climbed to $119 a year in 2018 from $99.

Early in 2017, in partnership with Chase, Amazon launched the Amazon Prime Rewards Visa Signature Card. The card is only available to Prime members and gets cardholders 5 percent back on all Amazon purchases, as well as on purchases at Whole Foods. The year also saw Amazon roll out Prime Wardrobe, which lets Prime members try on clothing and accessories before buying them.

In case it is too inconvenient — or unsafe due to porch pirates — to have clothes, groceries, electronics or books (if one is feeling retro) delivered to one’s home, then good news. Since April 2018, Amazon has begun delivering packages directly to the car trunks of Prime members — if one happens to live in one of the 37 cities where the program is live.

The Prime Ecosystem

Once upon a time (13 years ago), Prime was a loyalty program that rewarded the dedicated with free two-day shipping. As of 2018, the fastest way to enrage a customer ordering online is to, first, ask them to pay for shipping and, second, tell them they must wait more than two days.

That’s because now, with 100 million Prime members on the planet (by Amazon’s officially released count earlier this year), two-day shipping isn’t considered a perk for most online shoppers anymore — it’s an expectation. The power of Prime is — with its move to become Whole Foods’ loyalty program earlier this year — no longer an online-only phenomenon. If Amazon is to be believed, it is having a big effect in Whole Foods stores.

“Prime members have adopted this benefit; it’s one of the fastest rates we’ve ever seen for a Prime benefit,” noted Amazon CFO Brian Olsavsky on Amazon’s last earnings call, according to a FactSet transcript. “We think it’s a big milestone this quarter to launch Prime benefits with Whole Foods, and we’ll keep going, we’ll see how that develops.”

He added that Amazon expects big things.

As it turns out, though it might not have seemed so at first glance nearly a decade and a half ago, “expect big things” might have been the proper slogan for the Prime program — and the customer ecosystem that developed around it.

In 2018, Prime customers represent a distinct consumer group. On average, they are more affluent than typical consumers — about 70 percent of customers, who make more than $150,000 a year and shop online, have Amazon Prime accounts. And yes, and a lot of that extra wealth is spent on Amazon. According to data from Feedvisor, 46 percent of Amazon Prime subscribers buy something online, using the benefits of their subscription, at least once a week. In contrast, only 13 percent of non-Prime Amazon shoppers make weekly purchases.

As of today, Amazon’s Prime’s membership growth is slowing some of the double-digit surges that have become common over the last five years or so. However, those spend figures from Prime members continue to rise. Of course, Amazon keeps finding new ways to push up those spend numbers by finding new ways to move those loyal, affluent and high-spending Prime customers around the massive Amazon consumer ecosystem.

This month, Amazon — having already made Prime into Whole Food’s loyalty program and having added free grocery delivery to 32 markets for Prime members — decided it could still do more. It is experimenting with curbside pickup in two markets: Sacramento and Virginia Beach. Given how fast Amazon’s other Prime-related experiments at Whole Foods have moved, we expect this new show to be going on the road soon.

That’s just with Whole Foods. There is also the burgeoning Alexa Ecosystem now tied to Prime, making it even easier for those enthused Prime customers to shop with friction-free ease. This means that, though we’ve already seen quite a lot, we suspect we have only begun to see the kinds of things Amazon can do with its Prime Ecosystem.

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