insights!-Episode #47: Prime success formula: how you can benefit from Amazon's strategies

Joubin Rahimi:

Brilliant and warm welcome to a new episode of insights. My name is Joubin Rahimi and today it's about customer loyalty, and specifically: what does Amazon do differently and better than other companies?

Amazon ties in many of its customers – personally I don't like the word "ties". Because it's not just a constraint, Amazon does something quite special with it. Amazon has the "Prime" model, and Prime is really Amazon's customer loyalty instrument, and that's really the special thing about it. It costs money too, but Amazon itself says: this loyalty instrument must be so valuable that customers are happy to use it. And ideally, every single day.

Amazon does three things really well with it.

The first point is the customer loyalty instrument. The Prime feature has such high value that customers genuinely want to use it. It makes a real, valuable contribution to the customer's buying experience. Unlike, for example, classic customer instruments such as loyalty cards. That's the first point.

The second point is: Prime, with all its values, is anchored in marketing costs. It isn't simply factored into product, mark-ups and so on. No, it's a marketing instrument, even though it does cost a corresponding amount of money.

The third point is: Prime is bundled together with, among other things, Prime Video and Audible and other features, additional functions that accompany me daily throughout the entire customer journey. And that's a fundamental difference to other customer loyalty instruments out there.

There are surveys on this too. And if you ask: would you rather buy at Amazon or another retailer, over 50% of the population in the US say I buy at Amazon or I tend to buy at Amazon. That's still over 30%. So over 80% of respondents say their tendency to buy at Amazon is significantly higher than on other e-commerce sites.

And now a point deeper into the topic of value creation. One point is: I have all the additional add-ons, let's say the videos, Amazon Video. I have many programmes, great films, which then specifically buy in certain series and seasons that, among other things, attract families with children, where the children say I want to watch certain things, and that in turn keeps you locked into the subscription. That's the one thing.

The second thing, getting an Audible credit every month, leads to me using Audible. That I also listen to audiobooks and keep going back into this app - that's another touchpoint with Amazon.

Last but not least, the core idea with Prime right at the start was: I pay an amount and get free one-day and next-day delivery in return. If I placed an order, back then it was €79. Not worth mentioning. So I keep buying, more and more often, and even small items and small orders I buy through it, because I know I get the whole thing delivered to my home free of charge and can also send it back free of charge, or get a full refund accordingly.

This interests two types of people. On one hand those who are risk-averse, say I'd like to try something out, but don't want to lose money if I send it back again. Tick the box, postage costs, shipping costs I don't pay. So it's also nothing that can be deducted. The second are precisely the people who say, I then calculate the costs up fictionally in my head and see, the more I buy, the better. So it's no surprise that a statistic from America says: I have eight times as many daily buyers and three times as many buyers on the Amazon platform on the Amazon Prime account who buy multiple times weekly than someone who has a Prime account and searches on Amazon, buys 90% of the time on Amazon. What a conversion rate. And we've now looked at the value of Amazon Prime on one side.

Now, let's move over to the customer journey. I'm a Prime customer. I get things delivered accordingly quickly, so I have a good experience with that. Point 1. Point 2. Amazon Prime Video gets watched at home. I keep having a touchpoint and keep seeing what it doesn't cost me. Point 3, I redeem the credit to then buy corresponding books, Kindle books, audiobooks, and have another touchpoint there. That means this card, or rather this function, 'Amazon Prime', means that I go through Amazon with positive experiences much more often across the entire customer journey.

Now let's compare that with classic loyalty instruments. Newsletter, discount campaign or a loyalty card where I collect points on the back. Hey, what do the customer points actually get me? I can buy a bit more, get a certain discount, get 2, 3% back. That's not a high experience. Customer experience joy and expectations are far greater than that. That's exactly where we see a clear difference at this customer loyalty level, and now always on top of that.

The thing is, with Amazon Prime, even though it's a marketing tool, Amazon manages to increase a recurring revenue bundle too. It costs money. Prices have also been raised again recently. There were also noticeably fewer customers who declined it, and few customers who declined it, so Amazon was able to reduce its marketing costs. But it remains strongly active within this recurring revenue bundle and can therefore place all its additional offerings alongside it. You pay for some films. I've read more books than I have credit for. I still use Amazon for other things too, and so this whole ecosystem becomes a genuine perpetual motion machine for Amazon in terms of customer retention.

But what all this mean now for you? Maybe you don't have chance, first step, offer Amazon Prime in that form. But think about entire customer journey. What do you have? You have website, maybe also offline presence, store, you have sales, field rep, you have PR, but maybe also content nuggets. You have social media channels accordingly, you have portal, you have after service, have call centre and many, many of these touchpoints and surely you have many more values dormant, which, if you look at entire journey, need to be brought together. And that's surely exactly interesting point, how you bring these together to generate value. But that's content of next episode. Comment here your experiences with Prime and what we just said, how you do it. We like discussion and are pleased as always that you followed us today.