Amazon just made Prime even harder to cancel
Getty/Helen H. Richardson
- Amazon announced during an earnings call on Thursday that it is transitioning its two-day Prime shipping guarantee to be a one-day guarantee.
- The change ups the ante for every retailer that competes with Amazon.
- Experts say Amazon is making the move to put more distance between itself and these competitors and to shore up its valuable Prime membership.
- Visit Business Insider's homepage for more stories.
Amazon is setting the standard for online shopping - again.
The e-commerce giant announced during an earnings call on Thursday that it is transitioning its two-day Prime shipping guarantee to be a one-day guarantee.
Over the next year it aims to make more packages eligible for Prime one-day shipping than are currently available for two-day, which right now is over 100 million.
The move ups the ante for every retailer that competes with Amazon, and it is both ambitious and costly. Amazon said it factored in $800 million in additional expenses in its guidance for next quarter to make it a reality.
Translation: Amazon is throwing down, and it's a challenge to every other retailer it competes with, which, at this point, is pretty much everybody.
Why do this? Because two-day shipping has essentially become table stakes, and the offering is quickly becoming less of a draw to Amazon's important Prime subscription program.
"Amazon's move to offer Prime members free, one-day shipping is a signal that the investments traditional retailers have made in improving their customer experience and supply chain to offer Prime-like shipping with no cost or membership is impacting Amazon's business," Frank Poore, CEO and founder of CommerceHub, said to Business Insider in an email.
Amazon needs to keep customers in the Prime program, as it is the fuel for the company's future success. Prime customers spend more and buy more often from the website, and they are more likely to use other Amazon services.
Amazon is likely expecting that the one-day offering will make customers both more likely to convert to Prime members and stay members once they do.
"We believe the move is consistent with Amazon's long-standing goal of convenience and selection, but also likely reflects the increasingly competitive retail environment," JP Morgan analysts told investors in a note, as reported by CNBC.
Amazon is now investing in keeping this member base from wandering over to Walmart's free two-day shipping offering - available on any order over $35 - or to Target's similar offering. Some recent data may indicate that Amazon Prime growth is slowing in the US.
But cutting shipping down by an entire 24 hours is an expensive task. Amazon can likely manage it because Amazon Web Services, its cloud computing platform, is still printing money at a much higher margin than its retail business.
"The cost difference in providing one-day vs two-day shipping is massive and likely being funded by AWS and marketplace sellers," Poore said.
Other retailers will find one-day shipping hard to match given the costs involved. The real battleground may be same-day delivery, however, where brick-and-mortar stores like Walmart and Target have an advantage in their extensive store network.
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