Will Amazon Prime Price Hike Drive Mass Exodus?

The e-commerce giant is boosting the price of its Amazon Prime membership service from $79 to $99 a year. In an e-mail to its customers, Amazon blamed the price increase on rising fuel and transportation costs, adding that the price of Prime has remained the same for nine years despite those soaring costs.

Customers who sign up for the Prime service get free two-day shipping, unlimited instant streaming of thousands of movies and TV shows with Prime Instant Video, and they can read free Kindle books each month.

Trying to head off any objections to its pricing decision, Amazon pointed out how much better Prime is now than when it was launched in 2005. "The number of items eligible for unlimited, free two-day shipping has grown from one million to over 20 million. We also added unlimited access to over 40,000 movies and TV episodes with Prime Instant Video and a selection of over 500,000 books to borrow from the Kindle Owners' Lending Library,EU according to the e-mail.

Justifying the Price Hike

We caught up with Greg Sterling, principal analyst at Sterling Market Intelligence, to get his feedback on Amazon raising its Prime membership rates. He told us Prime has been a strategic loyalty program for Amazon.

In fact, he called out the fact that Amazon has more than 20 million Prime members. That means the membership service is generating about $1.5 billion in annual revenue for the e-commerce giant.

EUThere are also likely tiers of Prime members -- those who use the service more and less extensively,EU Sterling said. EUIn its e-mail to users notifying them of the price increase, Amazon attempts to justify it with benefits beyond free two-day shipping, such as free movies and Kindle lending.EU

Mass Exodus Coming?

Will Amazon see a mass exodus from its Prime service? That remains to be...

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