Nudging with Amazon Prime

From Times on how Amazon uses its Amazon Prime ($99-a-year free two-day shipping and a host of free music, video, TV shows, and books) subscription service, which is estimated to grow by 10 m to 40 m by end of this year, to nudge shoppers,

Growth in Prime subscriptions matters because Prime alters the psychology of shopping. Once you’ve prepaid for shipping, you tend to start more of your shopping excursions at Amazon. According to some estimates, people spend three or four times as much with Amazon after they sign up to Prime...

But this “Prime effect” is key to Amazon’s long-term profitability. Analysts at Morgan Stanley reported recently that “retail gross profit dollars per customer” — a fancy way of measuring how much Amazon makes from each shopper — has accelerated in each of the last four quarters, in part because of Prime. Amazon keeps winning “a larger share of customers’ wallets,” the firm said, eventually “leading to a period of sustained, rising profitability.

The article lays out how Amazon has slowly built up a massive retail logistics infrastructure, apparently insurmountable for competitors, that appears to be now paying off and which positions the company comfortably to dominate the market for many years. It has built more than 100 (and growing) warehouses to store, package, and ship goods, which lowers logistics costs and allows the company to pass on benefits to customers by way of lower prices. And, Jeff Bezos has been patient,

What has been key to this rise, and missing from many of his competitors’ efforts, is patience. In a very old-fashioned manner, one that is far out of step with a corporate world in which milestones are measured every three months, Amazon has been willing to build its empire methodically and at great cost over almost two decades, despite skepticism from many sectors of the business world.

And Bezos has the deep pockets of its rollicking cloud computing service arm, Amazon Web Services (AWS), which has similarly built out massive computer storage infrastructure and rents out server space, to expand the Amazon's e-commerce business even more.

What could be a disruption? Amazon relies on stocking and selling its own products. But in many countries, including China and India, the e-commerce sites mainly connect buyers and sellers, taking a cut on each transaction. This model has proved successful because it enables the large numbers of legacy small retailers (and even small manufacturers) to directly sell to the end-users, thereby eliminating their transaction costs. But Amazon could as well do the same in these markets, as is happening, and use its other offerings to create a better shopping experience and induce a stickiness among them.