What's Your Relationship With Amazon: Loyalty or Convenience?

Amazon had yet another great earnings call, wowing the market with their growth. But these earnings have nothing to do with e-commerce, as MarketWatch explained:

“E-commerce giant Amazon.com Inc.’s earnings surge in the first quarter was largely due to major acceleration in its Amazon Web Services business, which is powering the bulk of Amazon profits just as it powers most of the devices and services we all depend on.”

Who cares, right?

If you are an Amazon Prime member and big user like I am, you’d be happy to have someone else pay for your service—and, yes by the way, my discounts too. Marketwatch continued:

“Consumers who sign up for Prime, and avoid paying hundreds or even thousands of dollars in shipping with this service, have AWS, in part, to thank, for Amazon’s continued ability to offer it. Its Prime member free-shipping program creates great customer service and goodwill, but Amazon’s costs associated with fulfillment continue to climb each quarter. In the first quarter, Amazon’s fulfillment costs, the costs Amazon incurs to deliver packages, soared to $7.8 billion, up from $4.7 billion a year ago.”

Needless to say, Amazon stock jumped roughly 7 percent in after-hours trading based on 1st Qtr results, as the market wow turned to market action. CNBC reported the results:

“In a prepared statement, Amazon CEO Jeff Bezos highlighted the massive success of AWS. ‘AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down,’ said Bezos. ‘As a result, the AWS services are by far the most evolved and most functionality-rich.’ Amazon's ‘other’ revenue, which primarily comes from its advertising business, saw a whopping 139 percent increase from last year, generating $2.03 billion in sales.”

Yet it seems that the analyst community had not expected results like these as represented by just one of many comments below:

“‘At first glance, we are quite frankly flabbergasted by Amazon's 1Q 2018 results,’ Anthony Chukumba of Loop Capital wrote in a note after the earnings.”

Not being an analyst, I wasn’t surprised. I felt the results were obvious, certainly based on conversations I have and hear. AWS is killing it out there…and despite some clients cutting back as they worry that Amazon is not completely transparent about their mining and usage of data, despite their protestations to the contrary, it’s pretty clear that they are dominating.

No—what surprised me, not as fact, but in the lack of analyst or market pushback, was Amazon’s almost throwaway announcement that they were raising the price of Prime Service. CNBC also noted:

“Separately, Amazon also announced it would raise the price of Prime membership by 20 percent to $119 a year.”

Separately? On a big earnings day?

It didn’t surprise me because I have been predicting this from the day they launched the service. Come on, folks! This is big news, and comes on the heels of other increases. In a separate article, CNBC clarified:

“New users will have to pay $119 for Prime starting on May 11, though existing Prime members will have until June 16 to renew their membership at the current $99 price-point. The move comes only a few months after Amazon raised Prime's monthly membership 18 percent, from $10.99 per month to $12.99 per month.”

Clearly all that “free” stuff costs money:

“Here's what Amazon's chief financial officer Brian Olsavsky said about Prime's new price on the earnings call:

‘The value of Prime to customers has never been greater. And the cost is also high, as we pointed out especially with shipping options and digital benefits, we continue to see rises in costs. So effective May 11, we're going to increase the price of our U.S. annual plan from $99 to $119 for new members. The new price will apply to renewals starting on June 16. Prime provides a unique combination of benefits, and we continue to invest in making this Prime program even more valuable for our members. As a reminder, we haven't increased the U.S. annual price Prime since our single increase, which was in March of 2014.’"

Good thing I knew about the monthly increase…and yet somehow, the entire move is not Bezos:

“While Olsavsky cites rising costs, he doesn't provide information on exactly how much Prime costs the company per user, though Bezos has famously said that Amazon is a company that always tries to figure out how to charge people less, not more.”

First of all, the price raise is an indication of the strong relationship Amazon has created with us the consumer. They are confident that we are hooked… and frankly, it’s still a real good deal.

I do urge you, though, to watch the shipping screen as you order. Based on my spontaneous focus groups of one ambush at a time, I have found that many—even most—folks think that Amazon Prime ships quicker for free than they actually do. And most were surprised to notice the options they were being offered also as “free.” See for yourself, and I will wait for your comments.

Prices, on some goods, though still bargains, are also creeping up. Because why not? You’d pay more for the convenience even at parity…and maybe a smidge above.

And I’m not the only one. Bloomberg published along similar lines this week as well.

But what was most astounding to me was that most articles were written by the tech beat. I get AWS being reported about in the tech section with a tech slant, as it is the bulk of the Amazon’s profit. But the fame and global interest are in retail. Prime is a retail promotion, created by cataloguers two centuries ago, not a tech or digital innovation.

And there you have it. We seem to live in a Digital First world…to the extent that many believe that nothing existed before digital. So it goes.

As I have written before, Bezos gets it. We think of him as tech; we assume it’s all about tech; we assume it’s all in the code. Yet as he has said, he “follows the consumer” and creates loyalty, not just convenience.

Listen:

“Anyone can sell product by dropping their prices, but it does not breed loyalty.”

- Simon Sinek

Bottom line?

I’m off to re-up at the old price…and by the way, I placed five separate orders today. Loyalty…or is it?

What do you think?