Jeff Bezos, Amazon's CEO, has been the in news in the last few weeks, largely for his purchase and foray into daily print media. This is a company clearly on the rise, with sales that exceed $1 billion annually, but with slim margins.
Service and loyalty are part of what Bezos contributes to the company's success. And by service, Amazon largely means the ability to buy anything online, for a better price than anyone, and have it delivered quickly. The introduction of 1-click ordering on the company's mobile app is a great start (and perfect for impulse buying!). Decreasing fulfillment time is another. Amazon already boasts a record 2.5 hours from customer's purchase click to shipping, but aims to get that down to 20 minutes.
Amazon also has a membership program, called Prime which, for $79 annually, members receive discount off delivery amongst other perks including free streaming of movies and Kindle titles. What's remarkable about this program is the result being generated. The average spend of a prime member is $1,224 a year - which is $700 more than a regular customer of Amazon's. As they are 10 million strong, Prime purchases and member fees generate a whopping one third of the US divisions profit (it should be noted that at this point, the company continues to reinvest much of its margin back into the company).
"Once you become a Prime member, your human nature takes over. You want to leverage your $79 as much as possible. Not only do you buy more, but you buy in a broader set of categories."
-Robbie Schwietzer, VP of Prime
With the rollout of Fresh, Amazon's grocery concept, Amazon is also testing a Fresh Prime membership at $299 annually, which will additionally allow free delivery of groceries for orders over $35. Within 30 deliveries, members already have the fee covered. The added membership is expected to compliment Fresh's rollout - increasing the average spend in the grocery category. And grocery will increase Amazon's average customer purchase frequency - groceries, at minimum, are a weekly visit. And, if you are to believe Schweitzer's truth about human nature, all Fresh Prime members will want the most of their membership and do their weekly grocery shop at Amazon - taking that business from $0 to thousands per customer annually.
SPEED is the FUTURE
From McCorvey's article for Fast Company, "In the old world, you could make a living by hoping that your customer didn't know whether your price was actually competitive. That's a very"--Bezos pauses for a second to rummage for the least insulting word--"tenuous strategy in the new world. [Now] you can't convince people you have the low price; you actually have to have the low price. You can't persuade people that your delivery speeds are fast; you actually have to have fast delivery speeds!"