Why Prime Day Is a Win for Amazon Even if Sales Disappoint
"We want Prime to be such a good value, you'd be irresponsible not to be a member," Jeff Bezos wrote in this year's Amazon (AMZN) - Get Reportshareholder letter.
Perhaps even more than giving existing Prime subscribers another incentive to renew, the annual shopping phenomenon known as Prime Day aims to make those not signed up for Amazon's two-day shipping and digital media service feel more irresponsible for not doing so.
Central to this effort is Prime Day's emergence -- fueled in no small part by the rapid growth of Amazon's Prime subscriber base -- as a cultural phenomenon embraced by mass media. TV news shows discuss it, major newspapers cover it, dozens of major websites (including this one) breathlessly go over the best deals and of course, Facebook and Twitter feeds become filled to the brim with Prime Day-related articles and comments.
Not all of the publicity ends up being positive -- Twitter once more contains plenty of posts expressing disappointment with the quality of Prime Day deals, and this year there have been issues with adding certain kinds of deals to customers' shopping carts -- but that comes with the territory. What matters to Amazon is that those not signed up for Prime feel as if they're missing out on something big. And in that respect, Prime Day is set to be a major success even if -- as suggested by early sales data provided by e-commerce services firm ChannelAdvisor --- sales don't meet gaudy expectations.
The timing of Prime Day fits with Amazon's goal of getting as much publicity as possible. Prime Day occurs nearly five months before Black Friday, at a time when Christmas shopping is the last thing on most consumers' minds. By making Prime Day so detached from the holiday season, Amazon adds to the perception it's single-handedly creating a big shopping event -- a shopping event that only it has the resources to pull off.
Prime Day, of course, isn't the only thing Amazon is doing to make non-Prime customers feel "irresponsible" for not signing up. Amazon has been rapidly growing the number of Prime-eligible items available for free same-day or 2-hour delivery, investing heavily in its Prime Video and Prime Music content libraries, and partnering with local restaurants to provide free 1-hour delivery on qualifying orders. It has also rolled out an $10.95/month Prime subscription option to go with its existing $99/year option.
On the flip side, the company is five months removed from hiking its free shipping minimum for non-Prime customers by $14 to $49, and has begun making certain items available only via Prime. Clearly, Amazon is willing to sacrifice some sales for the sake of growing Prime subscriptions.
Research firm CIRP estimates Amazon had 63 million U.S. Prime subs as of the second quarter, up from 44 million a year earlier. Tens of millions of others can be found overseas. At $99/year, 63 million subscribers equals over $6.2 billion in annual revenue.
Meanwhile, Prime's popularity helped Amazon's North American division sales, which excludes Amazon Web Services, rise 27% annually in the first quarter to $17 billion, easily outpacing the U.S. e-commerce market's growth. International division sales rose 24% to $9.6 billion.
Given all of this, as well as Amazon's recent moves and Jeff Bezos' remarks, odds are Amazon will gauge Prime Day's success more by how much the event boosts Prime subscriptions and renewals than by the day's sales tally.