To judge by Amazon's recent financial results, the Amazon Prime gamble seems to have paid off. How many more businesses should try something similar?
For those of you who don't know, Amazon Prime is, in its way, the simplest form of loyalty programme imaginable.
It works like this: you divvy up an annual fee to Amazon of forty-nine quid (or seventy-nine dollars if you're a Yank) and in return most of what you buy from Amazon comes with free next-day delivery (two-day delivery in the US). The free delivery applies whether your purchases are delivered to your home or someone else's.
In its way, it is a near relative of the mobile-phone package, the newspaper subscription or the all-you-can-eat buffet (or, come to think of it, marriage). It serves to intensify a relationship through a form of mutual commitment.
It also works because it exploits some very simple human psychology. Your best customers enjoy the pleasant, repetitive sensation of profiting from every purchase while your business still nets more money - either from the customer's greater loyalty, or simply because the revised pricing causes them to spend more on your services overall.
In Amazon's case, I imagine the business will particularly benefit from greater gift buying, and greater impulse purchases - not allowing for those (in my experience surprisingly numerous) people who join even though the package does not make strict financial sense, merely because they like the simplicity.
My only regret is that they did not also offer me a special 80-quid prime membership tailor-made for heterosexual males whereby all gift wrapping would be free as well. Having said that, by doing this they would run the risk of narcissists like me gift wrapping everything - my 1MB SD cards would arrive beautifully labelled "To Rory, with much love and devotion from Rory." Or something. Never mind - it's great as it stands.
These schemes are simply a means of reframing the cost-benefit equation for your customers. I suspect this advantage is very pronounced in Amazon's case, where people may wince far more at a pound of postal cost than a pound of purchase price - in the way that some people find it more painful to pay a tenner for a taxi ride than to spend thousands buying a car.
Neverthess I believe this kind of pricing arrangement will continue to grow in many other sectors. (I have been advocating it for some time to clients such as Ocado). So where else might it work?
Low-cost airlines could use this mechanism to create very simple loyalty programmes: by paying an annual fee you could enjoy free lounge access, priority boarding or priority booking.
The railways need to adopt this idea more, too. In Germany a BahnCard 50 costs a few hundred pounds a year but gives you 50% off every rail journey. Often employers pay for this. Here you have nothing between the full season ticket and the family railcard - this is silly. Especially as - when you think about it - what is needed to combat car use is something which mirrors the cost-structure of car-ownership, with high upfront costs and a low cost of incremental usage.
It could be very potent for businesses which have highly perishable product. Travelodge, for instance. Pay X and you can book any room for half-price less than 24 hours beforehand.
Or - and here's a radical suggestion - Royal Mail. Pay X a year and all packages to/from your home are delivered free.
Any more suggestions? I'll buy a year's Amazon Prime membership for the person who submits the best idea.
