A few weeks ago Amazon raised the price of an Amazon Prime membership from $79/year to $99/year. If you read the news or followed Twitter, you would have thought they raised it to $99/month judging by the reactions. Read a few of the comments on this Lifehacker post and you’ll get a feel for how upset the majority of people were.
Personally the reaction has been a bit perplexing. If you get $99 of value out of it, keep it. If you don’t, ditch it. It’s pretty easy to look through your history and figure out how much you potentially saved in both money and time. I saved much more than $99 and also use the included Prime Instant Video as well as the Kindle Lending Library, so for me it was an easy decision to stick with it. You also have the option of adding up to 4 family members (or friends). Split it 4 ways and you’re down to $25/year for guaranteed 2 day delivery on the largest selection of goods online. Seems like a pretty good deal to me.
As an e-commerce business owner, there were two huge takeaways for me:
- Taking things away from your customers is always painful.
- Shipping charges are normalizing. Even Amazon can’t subsidize everything.
Let’s look at each of these a bit closer.
Taking Things Away From Your Customers Is Painful
I suspect that this is the reason why so many people were upset. Rationally, I think most people understand why the price is rising, and I’d suspect that the difference between $79 and $99 doesn’t change the math for the majority of consumers. I mean, it’s hard to argue with Amazon’s reasoning. The email sent to me said, in part:
Even as fuel and transportation costs have increased, the price of Prime has remained the same for nine years. Since 2005, the number of items eligible for unlimited free Two-Day Shipping has grown from one million to over 20 million. We also added unlimited access to over 40,000 movies and TV episodes with Prime Instant Video and a selection of over 500,000 books to borrow from the Kindle Owners’ Lending Library.
Another angle: Gizmodo explains that, with inflation, $79 in 2005 dollars is really $95 in 2014 money. This really isn’t about the money, it’s about the pain of losing something that was once given to you. Consumers don’t like getting a worse deal today than they did yesterday, even if there’s logic behind it. As a consumer I can sympathize with that, and as a business owner I take note of how painful it can be to take permanent everyday deals away from your customers.
Shipping Charges Are Normalizing
This is long overdue in my opinion. When e-commerce first began, it was normal to pay shipping (and gasp, even handling sometimes) on your order. Just as it was with mail order catalogs dating back over a century. After all, you have the convenience of shopping from home. You don’t have to interrupt your day, wait in line, or put miles on your car. It’s completely fair to pay the cost to ship the package to your door.
Eventually competitiveness kicked in and it became more and more common for retailers to offer free shipping. This was great for both consumers and retailers. It was a differentiator.
Somewhere along the lines though, we took it too far. It became a consumer expectation to always get free shipping on anything they ordered online. I can’t tell you how many e-commerce advice articles I’ve stumbled upon in the past few years that claimed you HAD TO offer free shipping to be competitive online. Often times these articles, written by supposed experts, would suggest that it was business suicide to sell products online and charge for shipping.
No one bothered to ask – can retailers actually afford to offer free shipping?
In most cases, unless you have unusually high margins, the answer is no…at least not universally. I suspect that many retailers, especially new retailers, didn’t bother to do even a little math. Shipping is expensive, really expensive. Offering free shipping blindly can be the end of a once profitable venture. Sure, you can send a towel in an envelope with the USPS for a few bucks with no insurance or delivery confirmation. But if you want to ship in any volume, if your products weigh more than a pound or two, and if you want the speed & reliability of a FedEx or UPS, shipping gets expensive fast.
In most industries you cannot, absolutely cannot, afford to have the lowest prices, offer coupon codes, pay out affiliate fees, etc AND offer free shipping on everything. Amazon couldn’t even do it with a $79/year fee and they negotiate the very best shipping rates and have the very best shipping operations. Many suspect that even at $99 they’re still losing money. They’ve also quietly rolled out Add-on Items, items that can only be purchased when you spend $25 as a Prime Member or $35 as a normal user. Turns out not even Amazon can pay $10 to ship you a tube of toothpaste and still turn a profit.
I subscribe to the theory that this is good. As consumers, we need to be brought back down to reality a bit. Shipping a physical good across the country is an amazing feat that takes a vast array of resources to make happen efficiently. It’s not free. It’s not magic.
I suspect that other retailers will follow suit, if they haven’t already. It seems to me like less and less big retailers are offering free shipping with no limits. Generally there’s a min spend attached. Obviously this is just anecdotal, but I think that’s the direction all online retail is heading and I think it’s for the better. We have to be realistic if we want the sites we love to still be around in 10 years.
What About Us?
Our shipping journey began back in 2009 when we did our first exhaustive shipping study. Since then we’ve continued to analyze our shipping numbers and take calculated risks, the most notable being our DI Ship & Save coupons in 2012 where we offer free shipping over $149 and $4.99 shipping over $49. We’ve recently unveiled a few new shipping “innovations” that I’ll discuss in my next post. As usual, they are data driven, very calculated offerings that we spent a long time planning, years in some cases. That’s the only way to offer great shipping deals AND run a profitable business.