Only a company as sprawling and powerful as Amazon could take a popular service, make it more expensive, and still reasonably expect that competitors will cringe at the move. Yet Netflix as well as retailers online and off all have reason to fret over Amazon’s recent decision to offer shoppers the option of paying $7.99 per month for Amazon Prime rather than a single $79 annual fee.
To briefly recap: Amazon Prime offers subscribers free two-day shipping as well as access to its online streaming video library and Kindle lending library. As Amazon points out right on the signup screen for Prime, you save more than 20 percent when you choose the annual option, or about $17 per year.
Yet many of us would opt for the monthly plan anyway. Either our monthly budgets can’t absorb the higher one-time outlay, or $7.99 instead of $79 just feels cheaper, even though we know from basic arithmetic that it’s not. This is a basic trope of behavioral economics: We tend to place less value on delayed gratification, even if the reward in the end is greater.
Beyond that basic human tendency, Amazon is also counting on us to notice that $7.99 is the monthly price of a Netflix streaming video-only plan. While Amazon Prime’s streaming video selection is uneven, Prime for the same price is offering you video plus e-books plus free shipping just as the holiday shopping season gets under way.
Of course, in terms of sheer dollars saved, Amazon Prime is much more a shipping service with video and books as perks rather than the other way around. In that sense, the monthly pricing plan takes much more focused aim at its real competitors, retailers. From a marketing standpoint, here’s what Amazon is telling shoppers: You could buy online from someone else — or, for the price of a monthly Netflix subscription, you can get nearly everything on your gift list shipped to you for free in two days.
It also appears that the monthly plan is truly month-to-month, not an annual plan paid in installments. (We’ve reached out to Amazon to confirm, though there’s nothing to suggest when you sign up for the monthly plan that this isn’t the case.) If the plan is truly month-to-month, this means that you could sign up now, do all your holiday shopping in under a month, and cancel before your credit card is charged again. Total cost of shipping on all your gifts: $7.99.
If you’re a retailer going up against Amazon this Christmas, that math might make you feel a little bit like Ralphie (Amazon is Santa):
Amazon Taunts Retailers, Netflix With $8-Per-Month Prime Plan
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Amazon Taunts Retailers, Netflix With $8-Per-Month Prime Plan
