Amazon Prime Price Increases, U.S. Market Saturation Points To Shifting Strategy

April 26th, 2018

Amazon Prime Package.png
Amazon is likely hitting the long tail of its U.S. member base. Expect more services. Incremental price increases going forward.
— Luke Bujarski

Strategy Summary

The cost of Amazon’s annual Prime membership will increase to $119 for new subscribers, up from $99 as of May 11. The new fee will apply to current Prime members starting with renewals in June of this year. 2014 was the last Prime annual rate hike. Thirteen years into the program and signs point to a steady plateauing in growth of Amazon's member base in the U.S. Going forward, the company will continue to focus on creating additional services and better digital content for these subscribers, with incremental rate hikes. Prime has also expanded internationally. Roughly 30% of members reside outside of the U.S. 50% of Amazon's total web visits come from outside the U.S. By 2021, Prime will likely surpass 220,000 global members. Digital content (via Prime) is Amazon's launch pad into newer markets. Expedited delivery for more Prime eligible items and commitment to physical infrastructure and fulfillment drive additional member growth in markets with higher consumer purchasing power.


On a recent call, CFO Brian Olsavsky stated that the cost of servicing the growing Prime member base, which recently exceeded 100 million, partially warrants the price increase. This is likely true considering thin margins on its retail business. We also believe that U.S. membership growth has likely begun to plateau. 

If we consider the total number of households in the United States, approximately 120 million, it makes intuitive sense that Amazon could be hitting the long tail of its U.S. membership prospects. An analysis from Morgan Stanley in December of 2017 also pointed to saturation. Over 50% of Amazon's total web traffic now comes from outside the Amazon.com domain (see figure 1). Our estimates currently put the U.S. Prime base at roughly 65 million (see figure 2).

Web Visits: Desktop & Mobile Web, In The Last 6 Months (billions)

 Source: Similarweb

Source: Similarweb

This latest price increase, combined with recent revelations confirming the size of Amazon's Prime member base, offers signals to Amazon's strategy and trajectory going forward.

Additional services coupled with incremental price hikes for mature markets with higher consumer purchasing power. Lower Prime price point, higher margin services e.g. video and music in less mature markets with lower consumer purchasing power. Building out fulfillment capabilities was noted as the main reason why the company’s international business operated at a loss in 2017 (see figure). We also affirm our previous assessment of Amazon’s wildly successful approach to customer loyalty and how the company will now need to walk an even finer line between value creation and customer retention.

Global Member Base And Forecast Revenues Through 2020

 Source:  LUFT estimates Notes: Member base calculations assume end of year. Calculated median Prime cost of membership for non-U.S. share US$47.39; U.S. maximum member base 126M equivalent to total number of households. U.S. Prime market has hit saturation point. Amazon Prime is now available in the U.S., Austria, Benelux, Canada, China, France, Germany, India, Italy, Japan, Mexico, Spain, U.K.

Source:  LUFT estimates
Notes: Member base calculations assume end of year. Calculated median Prime cost of membership for non-U.S. share US$47.39; U.S. maximum member base 126M equivalent to total number of households. U.S. Prime market has hit saturation point. Amazon Prime is now available in the U.S., Austria, Benelux, Canada, China, France, Germany, India, Italy, Japan, Mexico, Spain, U.K.

Amazon Business Units + Estimated Prime Subscription Revenues (USD millions)

Revenue.png

This also underscores the longer-run strategy and why Amazon has steadily pushed Prime out internationally. Since 2007 the company has expanded into Australia, Benelux, Canada, China, France, Germany, India, Italy, Japan, Mexico, Spain, and the UK. In certain countries, Amazon only offers select services such as video and music, clearly at a lower price point but also at a lower cost base then its operations in the United States, Germany, the UK and other markets, where discounted shipping has been made available. We estimate that just under 70% of the company’s Prime base is currently in the U.S. By 2020, we could see Amazon's Prime membership revenue surpassing US$22 billion.


LUFT is a research-driven consultancy delivering market and business intelligence on the travel industry. This article is part of our deeper coverage of Amazon's push into the space. Explore our services and insights.