Guest Blog: 4 Customer Experience Lessons from Amazon’s Prime Membership

This week on our Friends on Friday guest blog post, my colleague Adam Toporek describes 4 customer service experience lessons he learned from Amazon Prime.  Anytime anyone talks about Amazon, I listen. – Shep Hyken 

4 Customer Experience Lessons from Amazon’s Prime Membership

In 2005, Amazon launched a groundbreaking membership program called Prime. Prime was centered around the idea of customers paying a single annual membership fee of $79.00 and receiving free two-day shipping on eligible items.

Historically, one of the advantages brick-and-mortar retailers maintained over online retailers was immediacy. Brick-and-mortar stores could simply get the product into the customer’s hand faster. While expedited shipping options were always available, in most cases, the extra cost negated the price advantage of shopping online.

Prime was designed to destroy this dynamic and to incentivize repeat purchases within the Amazon ecosystem.

For me, I was taken by the idea of Prime when it was released but found that so few of the items I was interested in were eligible for the two-day free shipping that I could not justify the fee. Eventually, Amazon improved its Prime offerings by continuing to increase the number of items eligible for Prime shipping, and I joined the program in 2011.

My fondness for Amazon’s Prime program is not just personal, however; it is steeped in an appreciation of how Amazon has improved the program to something that is more profitable for the company while still being more valuable to the customer. Amazon’s handling and development of the Prime program offers a number of customer experience lessons for all customer-experience professionals.

#1: Know the Difference Between a Bad Idea and Bad Execution

Prime was a brilliant idea, but it got off to a rocky start. While year-over-year data about Amazon’s Prime subscriber base is not readily available, it seems that many of the early challenges that concerned me concerned others as well. By 2009, Amazon only had around 2 million subscribers, compared to the estimated 20 million it has now.

The leadership at Amazon was able to tell the difference between a bad idea and bad execution. It understood the potential of Prime and stuck with the program to make it better.

#2: Consumers Want It Easy and Now

Prime caters to many current trends in consumer purchasing, but more than anything, it fills the incredible desire consumers have for ease of use and immediacy of results. Consumers want quick gratification, but they also do not want to put forth much effort. Prime satisfies both desires.

The future of customer experience is quick and easy. Those who continue to make their customers jump through hoops and make them wait will be at a competitive disadvantage to those who do not. While some consumers will always put price above everything, the most economically valuable consumers tend to place a high value on their time and the absence of hassle.

#3 Continue to Add Value and Price Won’t Matter

With Prime, I have gone from a sideline observer to a skeptical participant to a raving fan. Why? Because Amazon continues to add massive additional amounts of value to the Prime membership. From a huge number of products eligible for two-day shipping to Kindle rentals, from streaming movies and television to over a million streaming songs, Amazon keeps giving more.

Amazon raised its Prime membership price from $79.00 to $99.00 earlier this year. It was the first price increase since Amazon started the program in 2005 and, of course, some naysayers predicted a wave of cancellations. It seems that the cancellations did not materialize. Amazon has added so much value to the program that the price hike did not seem to register.

As Warren Buffet once said, “Price is what you pay. Value is what you get.” If your customer experience can provide enough value, you will have a lot more flexibility with pricing.

#4 Understand the True Value of a Customer

Amazon understands an important dynamic about its Prime members – they are worth much more than the $99 membership fee. In fact, one analysis indicates that Amazon was actually losing money on the membership fee itself when the price was $79.00. However, even when Amazon was net negative on the fee, the actual value of Prime customers was far greater, and it is even more so today.

Prime customers now spend $1,224 on Amazon compared to $504 for non-Prime customers. With roughly a 92% retention rate, these numbers add up. In addition, members tend both to shop at Amazon first and to check Amazon when considering a purchase from another online retailer.

Amazon understands that the true value of a customer lies in his or her customer lifetime value. Amazon knows that customers are worth more than a single transaction but are worth the entire value of all transactions completed over the customer’s lifetime with the organization.

Amazon Prime is not for everyone. If you do not buy much online or stream television or music, the benefits of Prime may not live up to the current $99.00 annual price tag. However, the lessons of Amazon’s Prime program can be useful to any customer-facing professional. Observing how Amazon has used value enhancement to create pricing flexibility and increase loyalty among its most valuable customers is worthy of study.

Adam Toporek is a Customer Experience Strategist, franchise developer, and small business owner who runs the popular blog Customers That Stick. His consultancy, CTS Service Solutions, offers customer experience and customer service workshops. He is the author of a forthcoming book on frontline customer service (AMACOM, Spring 2015).

For more articles from Shep Hyken and his guest contributors, go to customerserviceblog.com