Prime Day: Amazon’s Most Authentic Growth and Retention Catalyst

Only Amazon could make up its own holiday and get away with it.

On Amazon’s second annual Prime Day, held July 12, worldwide orders surpassed last year’s Prime Day tally by 60 percent. Some 46 million American Prime members made a purchase on Prime Day, according to Internet Retailer, and Amazon says that includes, among other things, 24,000 double hammocks, 23,000 robot vacuums, 14,000 laptops, and 215,000 pressure cookers.

This week we take a look at how Prime and Prime Day excel at delivering short- and long-term revenue, and how Prime is changing the nature of transactions and consumer psychology.

Brilliant Strategy + Perfect Timing = Customer Retention and Growth

Prime’s paid membership and its focus on free shipping make it easy to overlook the fact that Prime is essentially a super-effective loyalty program. According to Consumer Intelligence Research Partners (CIRP), 52% of Amazon’s customers are signed up for Prime, and on average, those members spend $1,200 a year. That’s compared to $500 a year spent by non-Prime members. Once Prime members have paid for their memberships, they’re more likely to shop with Amazon—that way they feel like they’re getting the most out of the money they’ve already spent on Prime.

Prime Day’s timing, in the middle of the summer, bumps sales during what is typically a slow time for retailers. But think about this: Those who signed up for a 30-day trial membership on Prime Day typically convert to full membership in mid-August, giving the company new Prime members just in time for back-to-school shopping and into the holiday season. Competitors that held same-day sales online, such as Macy’s “Black Friday in July,” sale, are missing the mark. The real goal of Prime Day is not selling stuff; it’s acquiring new Prime members.

Even before this year’s Prime Day, Prime had about 63 million members, a 43% bump from the year before. Money reports that last year’s Prime Day was the biggest day ever for new Prime member sign-ups, and there’s no reason to think this year’s performance was any less impressive. MarketWatch, citing research firm Benchmark, estimates Prime membership could reach 110 million worldwide by the end of 2017.

A Long-Term Outlook

Amazon pioneered one-click shopping in 1999. Six years later it created Prime, combining one-click’s friction-free transactions with free two-day shipping. With Prime Now’s two-hour shipping trialing in select markets, shopping on Amazon moves even closer to an on-demand model. Bit by bit, Amazon is using its all-digital process to remove the very notion of a transaction from consumer psychology—at least among Prime members.

While Prime can be a great deal for some shoppers, there’s no doubt that, for Amazon, it’s pretty expensive. There are customer acquisition costs, and, of course, two-day shipping costs money. Recouping that spending, and reaching profitability on Prime, probably takes years for any individual shopper. Still, it seems that Amazon’s investment in Prime is paying off.  This spring, the company reported quarterly profits of $513 million, a departure from the losses and barely-there profits that have characterized the company since its start. If there’s anyone who illustrates the benefits of always playing the long game, it’s got to be Amazon.