Amazon prime and 2-day shipping----do they actually make a profit?

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Posted 11/26/2012 by angievp in NSBR Board
 

angievp
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Posted: 11/26/2012 9:57:36 PM
I'm looking at my online orders in the past 30 days. I've placed 17 orders---ranging from garden twine to movies to office paper (wausau brights for 8 bucks!). Now, I'm looking at the carrier: UPS, Federal Express, Lasership, USPS.

The Prime Membership has cost 79 dollars ever since I can remember, so is Amazon really making a profit charging me 80 bucks? Is the gravy train going to stop soon? That's my concern (not a huge concern in the scheme of things, but I think somewhere along the line Amazon is going to raise prices).

What do you think? What is the maximum you would pay for a Prime membership if amazon decided to increase it?

revirdsuba
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Posted: 11/26/2012 10:12:55 PM
One would think that in time they will raise the price, although they are building more distribution centers in new locations, including NJ if it has not already been built. I don't have Prime but I do make sure I have at least the $25 for free shipping.

ETA: They cover some costs just by the amount they sell.

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Posted: 11/26/2012 10:16:06 PM
I'm sure prices will go up eventually. I mean, that's how it goes. But the volume p business they do with the delivery companies allows them to negotiate lower prices than we could ever dream of. Also, even though some of us use out prime accounts frequently, I'm sure the vast majority of prime members don't. And even if they lose a little on shipping, having your loyalty as a repeat customer is likely valuable enough to be worth it.
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BucketHead

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Posted: 11/26/2012 10:23:58 PM
They make up what they lose on you with what they gain on someone else. I am sure that there are many Amazon Prime members who only use the free shipping a couple of times, or the purchases would qualify under some other "promotion."

When I started my membership I calculated what the break even point would be based just on borrowing books on my Kindle. I have come out far ahead when I add in the free shipping. Especially since I did almost all my Christmas shopping at Amazon

I also believe that they can make up the cost because people choose to buy more through Amazon as opposed to other retailers because of the free shipping. I have paid a few extra dollars for the "price" of an item a Amazon then I could have at another online retailer, but that retailer had a shipping charge that would have increased my total amount.

Prime is just one piece of the entire picture.

To answer your question about how much I would pay, I would try to calculate my break even point, based on prior usage. For me, when the cost exceeds the value I receive (or perceive) is when I would no longer pay for the service.


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Posted: 11/26/2012 10:47:30 PM
something tells me they make more money on infrequent shoppers than they ever will on those that have prime.

Besides, they have negotiated shipping rates based on volume to all merchants...they are doing just fine.

snugglebutter
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Posted: 11/26/2012 10:55:36 PM
I'm sure they do profit as a whole. I also think many people increase their spending with Prime because of the convenience.

When the Kindle Fire first came out, it was sold at a $2 loss to the company. (not sure about the newer version) That obviously didn't hurt them either.



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Posted: 11/26/2012 11:00:30 PM
It works out in their favor in the end, I think. I am a heavy user of Prime and while I cost them far more than $79 for shipping, I also buy a lot of things there that I wouldn't without Prime. I mean, geez, I even have toilet paper on a subscription there. I definitely wouldn't be buying that there without Prime. Sure, they are not getting rich off our TP, but that's just one example of many that add up to probably thousands if dollars of extra spend there each year that we probably would not make there without Prime shipping benefits.


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(Julie)
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Posted: 11/26/2012 11:09:25 PM
I have also wondered this as well. This past year I've ordered a heavy child carseat, a lawnmower, some small appliances. It's been a deal for me.

If you google "Amazon Prime business model" you find all kinds of interesting perspectives on how they do it. I for one also understood that they directed more of your purchases away from other retailers and that increased their revenue. I so rarely go to Target these days - I am a heavy user of prime for convenience. For example my dog chewed up her dog collar one day and we just went out for 2 days waiting for the $5 one I ordered from Amazon.

However I found the comment below on
this link interesting, not in a good way if it's true! Don't know if it's true or not but may be worth checking out


I find it disturbing that Prime members don't have equivalent access to Amazon's site. For example, Prime members are redirected away from certain, usually cheaper, items to more expensive similar ones. Non-Prime members are not redirected in this way. The difference is subtle but can be observed if you establish a non-Prime membership and then compare operation when ordering. I must assume this is intentional since it's been going on since at least summer 2011, and has been reported to Amazon numerous times, but remains problematic.

cmpeter
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Posted: 11/26/2012 11:12:00 PM
I am sure they also get smoking good shipping rates due to their volume. I know at work I can send a package UPS next day for a fraction of the cost of the retail rate and we don't ship near as much as Amazon.


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Posted: 11/26/2012 11:48:53 PM
As this is considered keep in mind a prime membership can have four additional people/family members on it. I am on my MIL's account as is SIL and a BIL.


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beachgurl
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Posted: 11/26/2012 11:55:55 PM
I am certain that with their huge volume of sales per item, they can negotiate great wholesale pricing as well. So some of the extras that get added on because someone has prime, means that they make a better mark-up on each thing sold too. In the big picture that can help offset their shipping costs too.




Zella
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Posted: 11/27/2012 1:33:58 AM
I believe they do lose money on Prime. But it doesn't matter, because it leads to a huge increase in sales volume. I think all of us who have Prime will say that we buy more from Amazon because of Prime.

The Amazon way, in a nutshell: low prices, high volume.

And that is fantastic for customers.

I fully believe Amazon is going to take over the world.


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Posted: 11/27/2012 5:51:42 AM
One word: VOLUME.

They have special & very discounted rates with carriers because they ship so much, so they really aren't on the short end at all. Take aloof sometime at "prime" cost of an item & one that isn't. You may see that it is pennies more than the same item shipping from a merchant charging shipping. These pennies make all the difference. Also if they ship thousands of items per day, they are making profit from them due to sheer numbers.

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Posted: 11/27/2012 6:08:37 AM
They don't have to maintain retail stores. Do you know how much money they save that way? That alone could pay for shipping, if you combine it with their volume buying power!


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lovetodigi
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Posted: 11/27/2012 6:59:24 AM
I don't have Prime, but I placed two orders on Amazon yesterday morning, that came with free shipping. They are now out for delivery and will be in my hands shortly. My last order a couple of weeks ago was also free delivery and arrived two days after the order was placed. Since I get free shipping on most orders and still get them really fast, I would think that if I had Prime, it would just be extra money in the bucket for Amazon.




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Posted: 11/27/2012 7:04:23 AM
Guaranteed they make a profit. They're a business and can do math.

In addition to the volume of their shipping, Prime also works by making Amazon someone's 'preferred vendor,' where if you're a member, you will go there first to look to purchase things, for many people at the expense of shopping around. Plus, once someone is "in the store," they are more likely purchase other, additional things instead of the one thing they went for. Additional items bring up profit and down cost.

Anecdotes don't mean anything, so don't say "Yeah, but the last 3 orders I bought there I only went and got that exact item." Amazon knows what they are doing. Prime is a genius business model, built on being able to negotiate great deals with shipping companies.

melanell
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Posted: 11/27/2012 7:39:34 AM
I think you have to look past the shipping fees itself and think about the very fact that you chose to do so much shopping with them as opposed to someone else, kwim?

Part of the beauty of Amazon Prime for them is that it encourages people to buy what they want from Amazon instead of any other online source, simply because of the free shipping.

chelsea_bug
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Posted: 11/27/2012 7:46:15 AM
I spend way more money at Amazon than I did prior to having prime. I place at least one order a week.


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Posted: 11/27/2012 8:14:55 AM
My Xs wife and I were talking Christmas and birthday gifts for DS last week. We try to talk like this every couple of months to go over things like pants sizes and book suggestions. Both of us had 90% of our shopping done. Aside from a handful of specialized stocking stuffer, my stuff came from Lego or Amazon. XW put it nicely "if it's not on Amazon, it's not worth my time". She's even convinced X to change the brand of bike tube because she can order them off Amazon.

I cloth diaper. There are recommended laundry detergents, diaper cremes and liners. All of our choice of products were made based on their Amazin availability. I know I pay a little more for my laundry detergent and diaper rash stuff, but I can order 1 item at a time (always a bonus when you have ADD) and I can have it in my hands in 3 days. I'm pretty sure my smaller frequent orders make Amazon money just in volume.

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angievp
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Posted: 11/27/2012 8:59:44 AM

Guaranteed they make a profit. They're a business and can do math.




I understand that they can do math, but I wonder how sustainable the business model is in the long-run. For example, this year, they started to restrict some items as "add-on items" not eligible for prime shipping, whereas these items were eligible for shipping on their own at the beginning of the year.

busypea
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Posted: 11/27/2012 10:14:53 AM
Guaranteed they make a profit. They're a business and can do math.
******

Actually, the are a pretty minimally profitable company, but they are playing the (very) long game and hopefully will be more profitable in the future. If they stay at the same kind of margins they have now, it would be trouble in the future. Still, though, I don't think that stems from Prime. They just have their fingers in soooo many pies.


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Posted: 11/27/2012 10:17:47 AM

It works out in their favor in the end, I think. I am a heavy user of Prime and while I cost them far more than $79 for shipping, I also buy a lot of things there that I wouldn't without Prime. I mean, geez, I even have toilet paper on a subscription there. I definitely wouldn't be buying that there without Prime. Sure, they are not getting rich off our TP, but that's just one example of many that add up to probably thousands if dollars of extra spend there each year that we probably would not make there without Prime shipping benefits.


That, exactly. Yesterday, charcoal coffee filters and winter tights arrived here. I get so much stuff there with my Prime membership.

scrapper100
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Posted: 11/27/2012 10:26:09 AM
I have been wondering the same thing. I am still in the free trial period of Prime and am pretty sure I will keep it. I bought so many lightening deals last week and I wouldn't have been able to take advantage of most of them without Prime. I saved a ton. Most of my items were less than $10 and of course they weren't at the same time so I wouldn't have been able to combine them. I also really love the fast shipping vs the super savers which were ok but this is so nice. Then you add in the movies/tv show and then a book loan on kindle - I think it is going to be worth it for me. I have wondered though if it will hurt them though but it doesn't seem like they are going anywhere.

Like others have said I now look at Amazon prices first before looking elsewhere - then I look at Target and ToyRUs - usually Amazon has the better deal.


Patti

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Posted: 11/27/2012 10:28:35 AM
We really use our prime subscription. I got a Kindle last Christmas just to be able to use the Prime/Kindle Owner's Library. We stream the free videos and we shop form Amazon a TON.

I think it tends to even out, though. Yeah, we buy a lot and get a lot of free shipping, but we make a choice/effort to shop there. They're making a profit on everything they sell. At Christmas, I buy at least 75% of of my items from them. And that doesn't count the rest of the year.


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Posted: 11/27/2012 10:52:47 AM

I find it disturbing that Prime members don't have equivalent access to Amazon's site. For example, Prime members are redirected away from certain, usually cheaper, items to more expensive similar ones. Non-Prime members are not redirected in this way. The difference is subtle but can be observed if you establish a non-Prime membership and then compare operation when ordering. I must assume this is intentional since it's been going on since at least summer 2011, and has been reported to Amazon numerous times, but remains problematic.

This doesn't surprise me. I don't have prime right now but I did sign up for the free month last year and I did a lot of my Christmas shopping with prime shipping. However, I found that if I looked around on Amazon or other places, many of the items I wanted to buy were more expensive if I chose to purchase using an option where I could use my prime shipping. Many times, I could choose another Amazon seller or go off of Amazon, purchase the exact same item and pay for shipping and come out cheaper. There were other purchases where it didn't matter or Amazon had an item on sale, etc. but many were more expensive.





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Posted: 11/27/2012 11:28:26 AM
I love prime I think it's worth every dollar

Did 98% of Xmas shopping on amazon

Looking forward to the leading library with my 2 daughters kindles

Plus I love not having to meet the 25 dollar limit an shipping is super fast

Would highly recommend


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Posted: 11/27/2012 11:33:04 AM
They have started the "add-on" program so they are less willing to race to my house with a $4.99 item.

I admit I struggle with the $79 at renewal time but it's paid off for us. This spring they delivered two air conditioners to my door and a large closet organizer.

Cost of Prime: $79 annually

Not Wrestling Bulky Items Into My Vehicle: Priceless.

I think cutting out impulse buys, being able to find unique items, and feeling safe with a known seller make Amazon my go-to site.

If I had to pay shipping or bundle purchases and wait longer I would be far less likely to shop online. As evidenced by my reluctance to use other sites.



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Posted: 11/27/2012 12:46:38 PM
I check the difference in price between prime and non-prime and it is worth it to me to have my item in 2 days and free shipping. Sometimes the prime item is more expensive, but I happily pay it instead of the $12 shipping for some small item.

I buy more from amazon because of Prime and mine was cheaper because of amazon student prime.


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Posted: 11/27/2012 1:40:45 PM
I used the free shipping with $25 for ink. They are being sent separately by fedex and was thinking the same thing.

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Posted: 11/27/2012 3:02:21 PM
I just want to know more about busypea's toilet paper subscription



busypea
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Posted: 11/27/2012 3:08:16 PM

I just want to know more about busypea's toilet paper subscription

Hahaha!

We have a "subscribe & save" for a 12 pack of Cottonelle double rolls to arrive at our doorstep every 3 weeks for $5.70, which is cheaper than at our grocery stores.

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Posted: 11/27/2012 3:12:23 PM

I just want to know more about busypea's toilet paper subscription
and does that come with a magazine sub too


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Posted: 11/27/2012 3:46:35 PM
On a number of items lately I have had to do 25 to get free shipping, even with Prime.

I am guessing it is good for them one way or the other or they would cease the program.



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Posted: 11/27/2012 4:15:52 PM
Seriously considering a toilet paper subscription ...




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Posted: 11/27/2012 4:31:24 PM
I love amazon prime. I have a hard time with the $79 at christmas time but it's worth every penny.

I've saved so much gas and time by not having to drive around town searching for what we need. And I usually purchase everything a lot cheaper than what I would in a local store.

We never spend for shipping anymore. If it's not prime, we don't buy it.


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