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.