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Posted at 2:00 PM ET, 11/29/2010

The genius of Amazon Prime

By Ezra Klein

Business Week explains:

Amazon Prime may be the most ingenious and effective customer loyalty program in all of e-commerce, if not retail in general. It converts casual shoppers like Tinsley, who gorge on the gratification of having purchases reliably appear two days after they order, into Amazon addicts. Analysts describe Prime as one of the main factors driving Amazon's stock price -- up 296 percent in the past two years -- and the main reason Amazon's sales grew 30 percent during the recession while other retailers flailed. At the same time, Prime has proven exceedingly difficult for rivals to copy: It allows Amazon to exploit its wide selection, low prices, network of third-party merchants, and finely tuned distribution system, while also keying off that faintly irrational human need to maximize the benefits of a club you have already paid to join. ...

The company declines to disclose specifics about the program, though analysts estimate it has more than 4 million members in the U.S., a small slice of Amazon's 121 million active buyers worldwide. Analysts say Prime members increase their purchases on the site by about 150 percent after they join and may be responsible for as much as 20 percent of Amazon's overall sales in the U.S.

By Ezra Klein  | November 29, 2010; 2:00 PM ET
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Yeah, once I decided to get Prime I stopped shopping anywhere else online. But then, I *already did* shop there pretty much all the time... that's why I thought it was worth getting Prime! Regardless, it's a pretty genius business strategy.

Posted by: JWHamner | November 29, 2010 2:50 PM | Report abuse

Given the profitability, I wonder why Amazon doesn't set the Prime price point lower or otherwise find a way to leverage more than 3 percent of its customers into this program.

The program definitely had the effect mentioned on me. But I am fairly ambivalent about re-upping at the current price point. In fact, I think they may have lost me this year.

Posted by: danny15 | November 29, 2010 2:54 PM | Report abuse

I'm a member of Amazon Prime, and my experience is that it's bait and switch. They promised two-day shipping, but more often than not, my shipments arrive MORE THAN two days after placing the order.

In fact, using Amazon Prime two-day shipping, we just ordered a camera for a Christmas Gift. This camera is sold by Amazon directly, not a third-party vendor. Estimated arrival date? Four days later.

We still save money on shipping expenses, but the two-day promise that we paid for appears to be a hoax.

Posted by: cjo30080 | November 29, 2010 3:01 PM | Report abuse

If it's so great, they can pay sales tax. The stuff gets delivered over roads paid for by the state, and they benefit from any number of other tax expenditures. This continuing unfair advantage is a joke.

Posted by: drinkof_more | November 29, 2010 3:03 PM | Report abuse

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