When Is Amazon Prime’s Price Too Pricey?
In a 2019 survey, 20 percent of the Amazon Prime members that responded said they shopped several times a week while 7 percent said daily.
Where are we going? To the impact of price on Prime membership.
Amazon Prime Price Hikes
During February 2005, Amazon offered us Prime. Before, we were charged an extra $9.48 for two day delivery. After, if we paid the $79.00 annual Prime fee, we got Amazon’s 2-day delivery promise.
Amazon waited until March, 2014 to hike Prime from $79.00 to $99.00. After checking the BLS Inflation Calculator, I discovered the increase was pretty much equal to where it had been. That 2005 $79.00 fee was the same as $97.33 in 2014.
Then, in 2018, again the price went up. During May, new subscribers paid $119 as did the people who renewed in June and after. This time, accounting for inflation, Prime became more expensive. Had a $79.00 2005 price retained the same purchasing power, it should have been $103.63, not $119.00. Amazon explained that its costs and services were up.
Still, at more than 150 million, people in the U.S. stuck with the higher annual fee:
In its April 15 shareholder letter, Amazon said that globally it had 200 million prime members, up 50 million from January 2020.
However, if, as in 2014 and 2018, in 2022 they again raise the Prime price, will the numbers continue going up?
Our Bottom Line: Inelasticity
An economist would cite price inelasticity as the reason for Prime loyalty.
Elasticity is the demand phenomenon that looks at how much a price change affects the quantity we are willing and able to buy. If our response to a price change is considerable–if it stretches up or down a lot–then we say our demand is elastic. However, when we pretty much ignore the price change, then we are in the inelastic range. Typically for necessities like medication and items with no substitutes, our demand is inelastic. Also though, one item can have an inelastic and elastic range. The inelastic range for gasoline could be up to $4.00 or more but soon, maybe beyond $5.00, we become elastic and drive much less. According to Consumer Intelligence Research Partners, at the current price, 98 percent of Amazon’s Prime members continue renewing.
Will a new price increase nudge members into their elastic range?
Our featured image is from CNN Business.
Originally published at https://econlife.com on January 17, 2022.