Amazon to Raise the Price of Prime; Rumors Fly on POS Offering
It was a busy week of Amazon news as rumors swirled that the retailer's expected foray into mobile POS may debut as soon as the summer and CFO Tom Szkutak announced the online giant's plan to increase the cost of its wildly popular Prime subscription service.
The Wall Street Journal reported last week that Amazon plans to enter the brick-and-mortar environment for the first time with a Kindle-based mobile POS system. The offering could be a potential data gold mine for the e-tailer, as it would be able to track shopper brick-and-mortar shopping habits as well as their online behaviors.
Amazon faces an uphill battle in the POS space competing against well-established players and fighting for acceptance among retailers that would likely shun the service just because it comes from Amazon. The online retailer has been eating most brick-and-mortar retailers' lunch the past few years and the competition seems unlikely to invite them into their stores and hand over mountains of customer data without huge incentives.
Currently Prime costs members $79 a year — according to Szkutak, Amazon is considering an increase of $20 or $40 a year to offset rising shipping costs. If the e-tailer raises the cost of the service by $40 it would signify an almost 50% increase in subscription costs — a bump that could significantly alter the service's subscription base. The service grants members free two-day shipping on over 19 million items, admission to Kindle's lending library, and access to free streaming video content.
Amazon is universally regarded as the pricing leader in many categories — a title it is able to maintain through thin margins and economy of scale. When Prime was introduced nine years ago, Amazon was essentially agreeing to deliver selected items to its subscriber base at a loss in an attempt to build loyalty and increase overall shopping on the site. The strategy worked, but as more people signed up for the service (Amazon has repeated declined to attach a specific number to its Prime subscription base, only placing the number of users in the tens of millions) and shipping costs soared, the losses apparently became too great to sustain.
"We haven't had any price increase [in nine years]," Szkutak said. "Customer usage, on a per customer basis, has gone up pretty dramatically, given the selection and the convenience of the service. Of course during this nine year period, shipping cost have gone up a lot, fuel cost have gone up a lot."
Amazon reported revenue growth of 22% for the 2013 fiscal year, topping out at $74.45 billion. While the total revenue number was impressive, 4Q results, and 1Q 2014 projections, fell short of analysts' expectations and the stock endured a $57 (and counting) reduction in share price.
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The Wall Street Journal reported last week that Amazon plans to enter the brick-and-mortar environment for the first time with a Kindle-based mobile POS system. The offering could be a potential data gold mine for the e-tailer, as it would be able to track shopper brick-and-mortar shopping habits as well as their online behaviors.
Amazon faces an uphill battle in the POS space competing against well-established players and fighting for acceptance among retailers that would likely shun the service just because it comes from Amazon. The online retailer has been eating most brick-and-mortar retailers' lunch the past few years and the competition seems unlikely to invite them into their stores and hand over mountains of customer data without huge incentives.
Currently Prime costs members $79 a year — according to Szkutak, Amazon is considering an increase of $20 or $40 a year to offset rising shipping costs. If the e-tailer raises the cost of the service by $40 it would signify an almost 50% increase in subscription costs — a bump that could significantly alter the service's subscription base. The service grants members free two-day shipping on over 19 million items, admission to Kindle's lending library, and access to free streaming video content.
Amazon is universally regarded as the pricing leader in many categories — a title it is able to maintain through thin margins and economy of scale. When Prime was introduced nine years ago, Amazon was essentially agreeing to deliver selected items to its subscriber base at a loss in an attempt to build loyalty and increase overall shopping on the site. The strategy worked, but as more people signed up for the service (Amazon has repeated declined to attach a specific number to its Prime subscription base, only placing the number of users in the tens of millions) and shipping costs soared, the losses apparently became too great to sustain.
"We haven't had any price increase [in nine years]," Szkutak said. "Customer usage, on a per customer basis, has gone up pretty dramatically, given the selection and the convenience of the service. Of course during this nine year period, shipping cost have gone up a lot, fuel cost have gone up a lot."
Amazon reported revenue growth of 22% for the 2013 fiscal year, topping out at $74.45 billion. While the total revenue number was impressive, 4Q results, and 1Q 2014 projections, fell short of analysts' expectations and the stock endured a $57 (and counting) reduction in share price.
For related content:
Amazon Can Read Your Mind
Why Apple, Walmart, Amazon, Macy’s and Target Matter
Best Buy Tops Amazon in Delivery Speed
Interaction to Revenue: Building a mobile enterprise