Sunday, November 20, 2005


Amazon Prime

Doctor Awesome posts his thoughts about the Amazon Prime mechanics and targets. For those who haven't heard about the Amazon Prime, it is a US-only membership program. You pay $80 in a year and get all the order shipped fast and cheap, even free for the "two-day shipping".
Anyway, while checking out, something about my history and information triggered the Amazon system to offer me four free months of Amazon Prime (normally, it's $79 a year for free two-day shipping). A bit of Google blog searching seems to indicate that some people, but not all people are getting this offer. I theorize I got the offer for two reasons. First, I'm a fairly frequent user of Amazon, so they probably see me as somebody might get hooked on Amazon Prime. Second, I bet my location in the Bay Area (I have most of my packages sent to the Googleplex) is probably rather cheap to ship to, as I bet there's a distribution center nearby. This makes providing the Amazon Prime service much cheaper for them than if I was living in northern Wisconsin, so they'll make more money off of me. Geography has a lot to do in this business. Barnes and Noble still does the same-day delivery in Manhattan. Distribution centers are like Akamai for real stuff.

In Amazon's case, Amazon Prime is a way to "sink" the shipping costs for the consumer up front. I'm sure they believe this should increase the amount Prime customers end up purchasing--it encourages loyalty. Even if you abuse the system and order massive amounts of stuff, it's still doesn't hurt Amazon very much--that's all business they wouldn't have gotten others. Additionally, it makes all the prices on Amazon that much more attractive as compared to other merchants, as shipping costs (though paid) are zero for every additional item you buy (the marginal shipping cost to the consumer is zero, and the average cost keeps on dropping).

Amazon is smart to do this. For me, it now makes Amazon more convenient than Target (consider the additional time and opportunity costs involved with driving to Target, parking, shopping, checking out, and driving back home). I'm not sure if I'll be paying the $79 in four months, but, of course, I haven't made a decision, and Amazon's doing this to try to change my mind.

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