Home » Amazon » Amazon’s Free-Shipping Price Increase Is Pure Genius

Amazon’s Free-Shipping Price Increase Is Pure Genius

7 March 2016

From The Motley Fool:

E-commerce powerhouse Amazon.com has created a business empire by turning convention on its head.

Though the number of examples seemingly grows with each passing year, one of the most noteworthy, and divisive, e-commerce innovations ushered in by the Seattle-based e-tail giant is its Amazon Prime, which includes free two-day shipping, access to Prime Video and Prime Music, and more.

Viewing Prime as crucial to its long-term success, Amazon continues to find new conversion points to funnel users into Prime, which is precisely how tech investors everywhere should interpret one recent move from the company most likely to dominate the future of online commerce.

. . . .

Amazon recently increased the order amount non-Prime members must pay to qualify for free shipping, setting the bar at $49 per order to receive free shipping, a 40% increase from the $35 level the company established in 2013.

Amazon kept its non-Prime free shipping threshold at $25 per order for the better part of a decade before beginning to raise the level for a minimum qualifying order in 2013. The move likely reflects the growing costs required to operate Amazon’s increasingly complex global network of fulfillment centers. Amazon’s 2014 decision to increase annual Prime subscription prices from $79 to $99 in part also speaks to this trend. However, make no mistake, Amazon’s increasing free shipping minimums should be interpreted, first and foremost, as an attempt to drive more users to become Prime subscribers.

. . . .

As a general proposition, though, the fact that the notoriously data-centric Amazon clearly wants to funnel as many consumers toward Prime suggests the service is indeed quite important for the company’s long-term trajectory, which certainly makes sense.

Taking a longer-term view, Prime and its free two-day shipping serves as a valuable tool to give Amazon users incentive to direct as much of their online shopping as possible through the e-commerce giant. This speaks to the titanic growth runway that Amazon’s business enjoys given the relative nascence of global e-commerce that I feel so often gets overlooked in discussing Amazon’s multidecade investment thesis.

. . . .

In terms of Prime’s place in this discussion, the service helps give as much incentive as possible to shop through Amazon. In this sense, Prime serves as fantastic tool to help fuel Amazon’s market share growth.

Link to the rest at The Motley Fool

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31 Comments to “Amazon’s Free-Shipping Price Increase Is Pure Genius”

  1. the Other Diana

    “However, make no mistake, Amazon’s increasing free shipping minimums should be interpreted, first and foremost, as an attempt to drive more users to become Prime subscribers.”

    This is what I suspected also. Still not signing up for prime. I guess that means I will save money by buying ebooks. Better yet, by borrowing them via KU…

    I’m surprised by how some people throw money away with subscription services and then whine that they have no money. We watch our pennies like hawks, but maybe that’s why we have pennies to watch in the first place.

    • It really depends on your usage.
      I went without Prime for years, always careful to hold back on ordering until I could package a big enough order to get the free shipping. But after a while my Amazon usage got big enough to easily justify Prime, especially since I have my sister sharing the benefits and we both order stuff for my mother regularly.

      The digital perks are nice but timeliness is also part of the package. Some things really can’t wait until you can bundle them up and if they’re not available locally…

      I suspect that if you map out Prime subscribers you’ll find the distribution density maps inversely proportional to the population of the region. People in major metro areas have less need of online shopping that residents in small and mid-size areas. Not sure how much of a swing the correlation might make for Amazon but much of the appeal of online (and before it, mail order) is due to making available products local vendors don’t or can’t carry.

      (Both Sears and WalMart built their empires the same way, appealing to small and midsized communities.)

      • @ Felix

        “I suspect that if you map out Prime subscribers you’ll find the distribution density maps inversely proportional to the population of the region.”

        Ya think Amazon just might possibly be collecting this kind of data? And just might possibly be figuring out how to interpret and use such data?

        Just wondering… 🙂

        • Wouldn’t surprise me if Bezos had used that kind of sales pitch to round up his early investors.

    • I’m surprised by how some people throw money away with subscription services and then whine that they have no money.

      Others like take great pride in the way they have saved money by using Prime, and brag about having more money available for other things.

      I am among the braggarts. My savings in shipping alone easily cover the cost of Prime. And the Amazon Video brings programming I would otherwise have to pay for with a subscription to a pay cable channel.

      I wouldn’t be surprised if Amazon announced that Prime members may now use KU at no incremental cost.

      Prime members live in hope of brighter days to come.

  2. Now if only they would stop shipping me boxes that are 90% full of air. 🙂

    • Not to worry, the air is 100% recyclable.

      • Yeh, but filling the back of the UPS truck with mostly air wastes a lot of gas, for example.

        They send me far too many tiny, unbreakable things in huge boxes that would have been better shipped in a padded envelope made of recycled cardboard.

        • You and I wonder about wasted space and cardboard, but we have to remember who we’re dealing with.

          Amazon.

          That company that has pissed off a lot of other companies by getting products to the consumers better than anyone else has bothered to — and cheaper.

          They have all the numbers and we’ve seen them ‘testing’ things over the years.

          Maybe there’s a greater chance of UPS ‘losing’ a box under a certain size — or there is less theft of packages from doorsteps if it looks like all you did was order some TP.

          Or maybe Amazon found it cheaper to have just a few sizes of outgoing boxes and they use the best fit.

          There’s madness, logic, and waste. I’d think Amazon wouldn’t be doing as well as they are if they were using the wrong one of the three … 😉

        • Martin L. Shoemaker

          It turns out that, from a business perspective, shipping air is a lot cheaper than taking the time to find the right-sized container for a given item. The cost of waiting for the right box is more than the cost of using the wrong box. And the cost of fuel to move a mostly empty box is closer than you might think to the cost of moving a smaller, fuller box, since fuel costs are based more on weight than on volume.

          I’m not saying you don’t have some point, I’m just saying it’s a pretty complicated relationship, and I’ll bet Amazon’s algorithms get pretty close to an optimal answer. After all, wasting fuel on free shipping costs them money, so they have an incentive to minimize fuel costs.

    • I wonder if the box size is so robots and machines can more easily deal with them?

  3. Considering I had to order a new bed for my son, Prime comes in rather handy. 🙂

    • I still take great delight in the Prime shipping of a 65-pound kettlebell. That’s used like a dumbbell, but is a solid iron cannonball with an iron handle welded to it.

  4. Barbara Morgenroth

    I watch pennies and that’s why I rely so heavily upon Amazon and Prime. I can do a good bit a shopping without driving 2 hours, saving money, aggravation and freeing time to get things done besides sitting in the car.

  5. “I went without Prime for years, always careful to hold back on ordering until I could package a big enough order to get the free shipping.”

    YMMV as always. None of my purchases are “gotta have it now,” so I’m happy to wait. Put it on the wish list and when I build up enough steam, fire.

    There’s nothing “pure genius” about it, as the Motley Fool says; it’s simple economics. That Andrew Tonner tries to pass it off as such doesn’t say much for the MF.

    • Sometimes simply accepting the simple economics is a sign of pure genius.

    • Felix J. Torres

      The timeliness aspect isn’t just “gotta have it now”, there is also “I need to buy it anyway”.

      One example: my mother’s phone battery was on its last legs. It barely lasted an hour on a charge. Local replacement? $20 at the phone store. Amazon? $3. My mother doesn’t go out often enough and long enough that she couldn’t wait a few weeks for some other need to pop up. But that order was going to happen, Prime or no Prime. It didn’t have to be right then but it sure didn’t hurt.

      Tally it up as either $3.99 or $17-plus tax, but Prime saved me a chunk there. And the problem was solved faster.
      (Shrug)
      Different folks, different needs.
      Not so easy to generalize.

  6. I do most of my online shopping on Amazon. I don’t own a car, so that’s a lot of shopping. All the increase has done is make me even more careful that what I buy is fulfilled by Amazon. At one time, I thought Prime might be worthwhile, but Bezos and company cut me off at the pass. For some reason, a debit card is good enough to buy several hundred dollars worth of merchandise a year, but not good enough to sign up for Prime. Maybe that’s another smart move: try to get debit card users to sign up for an Amazon credit card. No thanks.

    • I use a low balance debit card for all Amazon transactions. Every two years, I go back to the bank, cancel the card, and get a new one. I have no trouble setting up the new debit card on Amazon.

    • Perhaps I’m grandfathered in, but I use a debit card for Prime. It does have a credit card logo on it, though. I only use credit unions and not banks whenever I have a choice, and they’ve always issued debit/credit cards to anyone with a checking account.

      I never knew the cards could come just as debit only. Check with your bank again; they might offer the combo now if they didn’t before.

    • In my experience, debit cards work just fine for the Prime subscription as long as they’re branded with with a Visa or MasterCard logo.

      • Maybe that’s changed since I tried it. Had a Visa card, so it couldn’t have been lack of a legitimate card. Mine is debit only, so maybe that’s the critical issue.

    • Martin L. Shoemaker

      Another here getting Prime on my Visa debit card. At least three years now, maybe four or more.

  7. I’m another who went without Prime for years. The video and music streaming are useless for me. However, a couple of years ago I capitulated, thinking the 2-day shipping would be worthwhile – it wasn’t. I stopped the Prime membership because out of every order there would be something that didn’t actually arrive in 2 days. Occasionally something would take a week or 10 days. I’m back to grouping orders to meet the minimum for free shipping without Prime. It’s not that big a burden.

    • I’ve never had anything that was prime eligible fail to come within 2 days. Are you sure those items were prime eligible? Not everything is.

  8. I’ve been a prime member since it came out and I love it. I don’t know that I’ve gotten my shipping prices out of it every single year since I tend to make big orders and would have gotten it free anyway, but since Music and TV and all the rest came out, I’m loving it even more.

    My Alexa finds me music that I’ve already paid for with my subscription, my “victory” playlist is now almost entirely prime music save for a stubborn few. TV shows I missed are binged upon like a bag of chips when I have a bad book sales day, without paying a cent. True, it’s not Netflix yet, but it’s still pretty good.

    I’m just waiting for them to add a Hulu-like service to it. I can feel it coming.

    I love Prime. Love it.

  9. Here in Germany, Amazon ships for free if a book is part of the order, the cap is at € 29, if there isn’t. Shipping usually is only € 3 anyway, and I happily paid it the other day when I wanted a new “purse” backpack.

    I have thought about Prime which is available here, but since I don’t watch any series, it’s really not that attractive. KU might be more interesting.

  10. Laura Montgomery

    For some reason, whenever I read about Amazon’s implementation of its plans I think of the Howard Families and the Long Range Foundation.

  11. http://www.amazon.com/gp/help/customer/display.html?nodeId=527692

    Order with Free Shipping by Amazon

    Orders including $25 or more of eligible books qualify for FREE Shipping. All orders of $49 or more of eligible items across any product category also qualify for FREE Shipping. With free shipping, your order will be delivered 5-8 business days after all of your items are available to ship, including pre-order items.
    To place an order online, do the following:

    Add at least $25 of books (in which case all other eligible items in the order also ship free), or at least $49 of all other eligible items to your Shopping Cart. Any item with “FREE Shipping” messaging on the product detail page, that is fulfilled and shipped by Amazon, is eligible and contributes to your free shipping order minimum.
    Do one of the following:
    To place the order using the shopping cart:
    Proceed to checkout.
    Ship your items to a single U.S. address in one of the 50 states.
    Select Group my items into as few shipments as possible as your shipping preference.
    Select FREE Shipping as your shipping speed.
    To place an order using 1-Click®:
    Click Review or edit your 1-Click orders on the 1-Click® confirmation page.
    Click Change next to Shipping Speed.
    Select FREE Shipping as your shipping speed.

    For more information on how to qualify, go to About Free Shipping by Amazon. You can get unlimited FREE Two-Day Shipping on eligible items with Amazon Prime. No minimum spend is required to qualify.

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