Tuesday, March 18, 2008

Amazon Prime; The Competitive Edge.

While eBay continues to battle the negative "buying experience" of high S&H charges on their platform, Amazon has that problem covered -- it's called Amazon Prime.

In addition to their very successful Super-Saver program, Amazon has seen tremendous growth in Amazon Prime memberships. The company is tight-lipped about its Prime membership numbers, but they wouldn't be expanding internationally if the program were not successful. During the second half of 2007, Amazon rolled out Prime to 3 international marketplaces (Japan, UK and Germany)

According to a research note by Jeetil Patel of Deutsche Bank "Over the past year, services such as Amazon Prime have helped to shift consumer behavior, fuel cross-category shopping and consolidate wallet share into the hands of Amazon.com. This strategy has helped to accelerate user growth, purchase frequency and unit growth at the company in the past year, while the e-commerce market has deteriorated. Once again, we think Amazon Prime should fuel growth in 1Q 2008, based on shifting consumer behavior."

I've seen this growth first hand. I use Amazon's FBA program to fulfill my Amazon orders, which makes my items eligible for Super-Saver shipping and Prime members. In the 4th quarter of 07, 14% of my shipments were for Amazon Prime customers. So far in the first quarter of this year, 19% of my orders are going to Prime customers. Those are sales I would not be getting if I was self-fulfilling my orders.

For the $79 a year Prime membership fee, Amazon customers get the following benefits:
  • Free Two-Day shipping on over a million in-stock items sold by Amazon.com. $3.99 overnight shipping if you order by 6:30PM ET.
  • There's no need to group items to save on shipping. Order what you want, when you want.
  • Share one membership with up to four additional accounts in the same household and get even more value.

On eBay, sellers must ship product themselves, use a drop-shipper or outside fulfillment house and their actual shipping costs can vary widely depending on the volume in their business. eBay encourages sellers to offer Free Shipping but that becomes a huge financial burden to their bottom line and I certainly can't see any 3P sellers on eBay offering 2-Day shipping for free. But with Amazon's FBA program, 3P sellers like myself can participate in Amazon's Prime program and get access to a customer base that is growing and as Mr. Patel says in his note "This strategy has helped to accelerate user growth, purchase frequency and unit growth at the company in the past year, while the e-commerce market has deteriorated."

IMO, Amazon Prime will continue to grow and become a larger % of Amazon orders. I can't see any reason why today's 3P sellers wouldn't want to have access to that business.

Just my 12%

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