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Opinion CX Execution

Amazon 'Gets It' When It Come To Customer Centric Pricing

Amazon is finally talking about raising the price of Prime — its combo loyalty and membership program.

A lot has been written about Prime and how it has grown to include a ‘Netflix’ style streaming service and other features. Now the big debate is about how it should proceed with its pricing plan in the face of higher shipping costs (primarily driven by fuel prices).

A deeper strategy

We’re not inside Amazon, but we’’ll can speculate about their strategy / thinking as knowledgeable observers and customers ourselves.

The thing that you’ll notice about deeply customer centric companies is that their approach transcends tactical moves to also include more broad and far reach strategic initiatives to build / extend the alignment with the customer.

Amazon is no exception (and is in fact a leader) in that approach. A lot of what they do seems to not only be related to selling specific products but creating an internal culture focused on customer experience.

A Big Question: What Do You Want to Be To Your Customers?

It’s fairly clear that Amazon wants to be the ‘go to place’ where people look at and order products. Dig a little deeper and it gets more interesting.

Their ideal scenario with a customer is that every a customer sees a specific product or a even product type, they immediately use Amazon to scope out the options, the pricing and the availability.

A lot of what Amazon does points to this strategy. They show used versions sold by third parties right next to their new version (presumably the new version holds higher margin for them but their highest goal is to be the ‘go-to’ place. They have a new feature for smartphones called ‘Flow’ which allow a customer to take a picture of anything and Amazon will identify it and put buying options in front of them.

Shipping is a ‘friction point’

If you talk to UX guys, reducing friction is a big factor in their efforts. Anything that kills the momentum of a customer buying journey is a focal point for UX designers. But there’s not a lot a designer can do about variable (and sometimes shocking) shipping costs and delivery times. It stops the momentum of an almost certain completed sale.

Amazon figured out early that shipping cost and timing was a key factor that got in the way of the consistent quick sale to repeat customers. ‘Instant gratification’ wasn’t possible when shipping was a variable. So they figured out a way to attack the problem head on — Prime.

Prime has worked brilliantly for them — it more than doubles the average annual spend by a customer from around $500 to the $1200 range. Once you start to think about how much marketing and customer acquisition costs factor into profits, it’s not hard to see the importance of that figure.

So now the big question — raising the price of Prime

The ‘gurus’ have been interviewed and the customers have been surveyed — and the general consensus is that a price hike above $100 for Prime membership (from the current $79 per year) would be met with significant attrition from the program.

Our take: we doubt it. Sure some customers may protest and even let their Prime membership expire. But a few days without that ‘frictionless’ buying process with the joy of receiving that neat brown cardboard box from Amazon after 48 hours — then watch them come back in droves.

Of course there will be some attrition as there always is with a pricing increase. But we’re just not seeing the catastrophic attrition that others are predicting.

Reasons why even a big price increase won’t put a big dent in Prime:

1. It’s annual and still a ridiculously good deal (especially when you include streaming video)

2. It’s simple — customers will pay for simplicity. Want and item, see its price, buy it, it’s there in 2 days. No variable shipping costs, no decisions about is it worth it to pay for tracking or faster shipping.

Feb 16, 2014 | Original Link
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