Yahoo Finance Amazon’s Prime Day discounts on the Echo and Fire TV are meant to keep you a customer for life
Amazon’s (AMZN) annual celebration of consumerism, Prime Day, is nearly here. Running from June 21 to June 22, the shopping event, which will feature concerts by Billie Eilish, H.E.R., and Kid Cudi, is certain to offer plenty of sales, and rake in billions for the e-commerce giant.
During last year’s Prime Day, which was pushed to October due to the pandemic, sales by third-party sellers surpassed $3.5 billion. Amazon didn’t release total sales numbers for the event, but research firm Digital Commerce 360 estimates Amazon sold $10.4 billion in products. This year, Adobe expects the company to sell as much as $11 billion worth of goods.
And some of the best selling products during the sale were Amazon’s own. In fact, the Echo Dot, which was on sale for $19 from $40, was the top selling product globally during last year’s event. And, as you can guess, Amazon is already pointing consumers to sales for its products ahead of this year’s Prime Day.
The reason? To keep you hooked on Prime.
See, while Amazon makes some impressive products like the Echo, Echo Buds, and Fire TV, it doesn’t make a ton of cash on them like, say, Apple does with the iPhone. Many of Amazon’s products sell for surprisingly low prices. But that’s all part of the company’s strategy of making you a customer of its $119-a-year Prime service for life.
And that’s important for Amazon, because according to a 2020 report from the House Subcommittee on Antitrust, Commercial, and Administrative Law, Prime customers typically purchase more through the company’s e-commerce platform than non-Prime customers.
“Once Prime members pay the upfront annual membership fee, they are likely to concentrate their online purchases with Amazon. According to a recent survey, Prime members spend an average of $1,400 annually on Amazon, versus $600 for non-members,” the report read.
What’s more, Prime’s retention rate is incredibly high, with a 2021 report by Consumer Intelligence Research Partners pegging it at about 93% for those who’ve been members for at least one year, and 98% for those who have been members for two years. In other words, once people sign up, they usually don't cancel their subscriptions.
Amazon knows this, too. That’s why it works to entice people to sign up for the service using events like Prime Day. It’s also why it sells its hardware at such low prices. See, if you purchase an Echo or Fire TV, Amazon’s Prime benefits are on full display at all times. The Fire TV interface puts Amazon Prime Video shows front and center, while the Echo lets you listen to Prime Music without ads and provides Prime members with exclusive sales.
Amazon does this to ensure that if you happen to purchase its products during Prime Day via a trial or you receive an Echo or Fire TV as a gift, you’ll sign up for a full Prime subscription on your own.
It’s not just about getting you to sign up for Prime with those gadgets, though. According to a 2016 NPD study, Prime subscribers who own an Echo spend at least 10% more on Amazon than they did prior to purchasing the smart speaker. And if Amazon can get more people to buy Echos during Prime Day, it’s setting itself up for increased sales down the line.
It’s all an incredibly intricate and calculated plan, and part of the reason the Amazon retail machine works so well. Entice people with a big sale, make sure they need to be members to take advantage of the sale, get people to buy your gadgets — and just like that, they’re a member for life.
It’s not just Amazon branded products, either. The company’s Ring doorbells, which have exploded in popularity, are also on sale during Prime Day. And if you buy a Ring product, why wouldn’t you also sign up for the company’s Ring Protect service, which costs $30 a year for the Basic plan or $100 a year for the Plus version.
And if you’re a Prime member, you’ll also gain access to deals at Amazon-owned Whole Foods, ensuring you continue to stick around.
Of course, Amazon has created its own competition with Prime Day. Retailers like Walmart (WMT) and Target (TGT) have set up shop around Amazon’s annual event as well in an attempt to steal sales from the e-commerce giant. But they’re not playing the long game the same way Amazon is.
Amazon isn’t unique in this kind of ecosystem lock-in, either. Apple (AAPL) and Google (GOOG, GOOGL) use a similar strategy by making sure apps you purchase through their app stores only work on their products. It’s also why your Apple Watch or AirPods work best with your iPhone. It’s all about keeping you as an Apple user for life.
So remember before you click that buy button next week: It’s all a part of Amazon’s plan.
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Got a tip? Email Daniel Howley at dhowley@yahoofinance.com over via encrypted mail at danielphowley@protonmail.com, and follow him on Twitter at @DanielHowley.
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