Saturday, 27 November 2010

The price of Amazon Prime

An article in BusinessWeek about the success of Amazon Prime contains this interesting revelation:
One challenge was selecting the annual fee for the service; there were no clear financial models because no one knew how many customers would join or how it would affect their purchasing habits. The team ultimately went with $79 mainly because it's a prime number.
We see this problem a lot with our clients - new product or service launches are one of the main occasions when people hire us for pricing advice. But I have never yet seen anyone argue for a price level because of whether it factorises!

Other interesting points: Amazon Prime in the UK costs £49 (not a prime number) and is one of the few items that is cheaper in the UK than the US. It also provides next-working-day delivery in most cases, rather than the two-day US service. But then, the UK is a smaller place and perhaps delivery services are cheaper in general here.

Finally, a funny quote from, of all people, a professor of psychology and marketing:
"I don't think it's a bargain at all," says Kit Yarrow, a professor of psychology and marketing at Golden Gate University who recently got a free Prime trial and cancelled it after a month. "Really what people are paying for is immediate gratification."
I don't agree. What I think people are paying for is the pleasure of not having to think about, or calculate, the varying utility of different shipping speeds. And, as Dan Ariely hints in a different context this week, the ability to get fast shipping without feeling guilty about it.


Hen said...

Agreed - for me it's primarily about not having to waste effort getting to $25 for free shipping. Pays for itself during Black Friday sales week as well; I can grab a time-limited $1.99 DVD without worrying about shipping costs.

Anonymous said...

Regular post in the US can take 5-7 days, so reducing to a guarantee of 2 days is a large improvement whereas in the UK regular post can be expected within one or two days, so 'fast' delivery would have to be one day or there would be no perceived benefit.