The growing popularity of Amazon’s membership program, Amazon Prime, has sent shockwaves among rival retailers since debuting a few years ago. For $79 a year, Prime members receive unlimited 2-day free shipping on eligible Amazon purchases (with no minimum order size), as well as access to Amazon’s video-on-demand service, Amazon Instant.
The rate of adoption of Amazon Prime, coupled with the growing reach of Amazon.com, has caused rivals to scramble to offer alternative programs and initiatives to stay competitive, fearing that Prime dramatically lowers members’ shopping activity on non-Amazon websites.
What can we learn from the shopping behavior of Prime members, both on and off of Amazon.com, and how do their online shopping patterns differ from that of non-Prime members?
In terms of demographics, Prime members skew younger and are more likely to be upper middle class than non-Prime shoppers on Amazon.com. For example, 22% of Prime members earn less than $30,000 per year, compared to 27% of all Amazon shoppers. Prime appears to be resonating among the same key consumer segment drawn to club stores such as Costco and Sam’s Club.
Compared to other shoppers on Amazon.com, Prime members return to the site 3 times as often and spend nearly two hours on the site each month, albeit some of this time is spent watching videos. In addition, Prime members’ purchase propensity (or likelihood to purchase on Amazon in a month) is 78%, compared to just 18% among non Prime visitors to the site.
One might expect that the ease by which Prime members quality for free two-day shipping would dissuade them from building “baskets” on Amazon, in favor of making purpose-driven, one-off purchases. While the total value of Prime members’ Amazon orders are indeed 17% lower, Prime members actually purchase 11% more items per order than non-Prime shoppers. They are also still willing to pay for shipping, and do so on 39% of their Amazon orders, as a result of purchasing items that do not qualify for free shipping (sold by other sellers), or their opting for expedited shipping.
Despite Prime members’ $79 investment and associated heightened activity on Amazon, there is yet hope for rival retailers worried that these shoppers are now exclusively shopping Amazon for all their needs. In general, Prime members do not show a significant difference in their propensity to shop on rival websites, compared to the average person online. For example, 19% of people online in January visited Target.com, compared to the 20% of Prime members who visited the site.
When actually shopping, however, Prime members’ consideration of rival retailers considerably exceeds that of non-Prime members. Note that 31% of Prime members shopped on both Amazon.com and Walmart.com in January, compared to 24% of non-Prime members on Amazon. While Amazon Prime has attracted value-conscious shoppers, their membership in the program does not make them Amazon loyalists.
Amazon Prime generates an enviable stream of subscription revenue and sales for Amazon. It also enables Amazon to trumpet higher usage stats for its Amazon Instant service, but what it doesn’t appear to be doing is building a wall around Prime members. For rival retailers, Prime members are up for grabs and are in fact coursing through their virtual aisles in an attempt to find the best deal.
Key Questions for Retailers and Brands:
- How can retailers better convert Prime members shopping on their sites?
- How does membership in Prime impact brand consideration and loyalty?
- What are Prime members’ path to purchase across various product categories?
- How can rival retailers learn from the shopping behavior of Prime members to develop their own loyalty programs?
As VP of Retail and Consumer Products at Compete, Matt Pace is responsible for leading a team of client services professionals who deliver digital intelligence and insights to clients in the retail and consumer packaged good industries. Before Matt joined the Compete Team he was a CPA and senior auditor with Deloitte & Touche. Follow Matt on Twitter @mattpace.