Amazon Unveils Loyalty Shipping Program

Hours before Amazon.com(AMZN Quote) was slated to post its fourth-quarter earnings Wednesday, its CEO Jeff Bezos sent a clear signal to investors that the online retail giant would continue to take aggressive measures to keep sales growing at the expense of near-term profit.

Visitors to Amazon's site Wednesday were greeted with a note from Bezos unfurling his next big risk: Amazon Prime, which for $79 a year gives loyal buyers free two-day shipping, and overnight deliveries for $3.99. "We normally charge $9.48 for two-day shipping on a single book and $16.48 for overnight," Bezos noted in his letter. In other words, serial book buyers will start to get free delivery after their ninth purchase using two-day delivery.

The strategy is clearly aimed at building customer loyalty as Amazon faces rising competition from companies like Overstock.com(OSTK Quote) and major retailers like Target(TGT Quote). Less frequent buyers will not be penalized because Amazon is keeping its free five- to nine-day shipping for orders over $25, a feature that other sites are starting to match.

Amazon Prime will apply to more than a million books, DVDs, CDs and electronic goods as well as products in its kitchen, tool and personal care stores. It also positions it to easily offer a viable business model to take on Netflix(NFLX Quote) and Blockbuster(BBI Quote) should it decide to move into DVD rentals. Amazon already has thousands of customer reviews of DVDs on its site, allowing it to create a formidable challenge to Netflix overnight if it wanted.

Bezos made no bones that the strategy could hamper the company's growth in coming quaters. "We expect Amazon Prime to be expensive for Amazon.com in the short term," his letter read. "In the long term, we hope to earn even more of your business, which will make it good for us too."

Amazon's stock was trading down 19 cents, or 0.5%, at 42.29 Wednesday.