REPORTER: Amazon delivering a price hike to its Prime customers - up 20 bucks to $99 a year. It's the first increase since it started the two-day shipping program back in 2005. How it will impact its customers though is up for debate. Morningstar's R.J. Hottovy says it could create a virtuous cycle.
R.J. HOTTOVY, DIRECTOR, MORNINGSTAR: "Once you are paying the membership fee you almost feel obligated and inclined to keep shopping with Amazon. We've done analysis that show that if you are a Prime member you make the majority of your online purchases on Amazon, and generally spend between 2 and 3 times as much as a non-Prime member. And so I think that, you know, just by introducing this slight uptick in the membership fee, it could even make it more captive and give consumers a lot less reason to shop elsewhere."
REPORTER: But that's for the customers who stick around. Amazon's Prime move could backfire. A recent UBS survey showed that while virtually all of Amazon's Prime customers were likely to renew at $79. Hike that price by $20 and it goes down to just 58%. Amazon does not say how many of its customers are Prime but a report from the Consumer Intelligence Research Partners puts it at about 27 million. Amazon has been under pressure to show bottom-line growth. For years, Amazon has focused on revenue growth at the expense of profits. Investors liked the move. Shares of Amazon rose on the news. Prime is also more than just the fees it collects. It's part of an Amazon ecosystem. Customers get free book downloads, and film and television streams as part of the service. That helps drive its presence on mobile devices like Kindles. Amazon will likely add new features to keep its Prime members hooked.
R.J. HOTTOVY, DIRECTOR, MORNINGSTAR: "You know, things the company is talking about adding a TV top box where you will be able to stream your Prime videos through. I could see that becoming part of the Prime program. The company has also been investing a lot in video games and video game development and though there are questions whether or not that could some day become a part of an Amazon Prime membership as well."
REPORTER: The price hike does not take effect for a week, so members that join before then can get the current price for their first year.
1. Hike, increase, and uptick are all words used to refer to an upward movement in price.
2. Buck is an informal word a for 'dollar'.
3. Prime time is the period at which a television or radio audience is expected to be greatest, typically the hours between 8 and 11 p.m., so there's a play on words in the title of this report.
4. Although "impact" has taken root in the business world as a verb, as in Cutting prices will impact our revenue, many people maintain that "impact" is only proper as a noun. They believe the verb "impact" only means "to hit," and any other use is just irritating jargon. (Source: Grammar Girl)