Analysts predict that Amazon could increase the price of the Prime subscription
Analysts predict that Amazon could raise the price of its Prime membership when it reports fourth-quarter earnings.
Several analysts spoke with Reuters explaining why they believe that if the shipping giant were to raise prices, it could reasonably justify the move.
Experts cite higher worker salaries and the signing bonuses the company has had to pay to attract new employees as a potential motivator for raising Prime prices.
Analysts estimate that Amazon’s operating profit will be around $2.5 billion, but they believe that even if that’s the case, a price increase could be on the way.
It wouldn’t be the first time the company has raised the cost of Prime; four years ago, the cost of subscription went from $99 to $119. Four years ago, the cost was only $79.
Wedbush Securities’ Michael Pachter said it was “about time” for the price to rise. “Shipping costs have gone up, period.”
Shipping prices have gone up, fuel is more expensive, trucking prices have gone up, and products are more expensive than before.
Prime has 200 million subscribers worldwide, including most US households. Analysts believe that many of these subscribers would continue to pay Prime even after a price increase to retain access to fast delivery without additional shipping costs.
Amazon has not publicly stated whether or not it is considering a price hike. However, in October Chief Financial Officer Brian Olsavsky said the company had no plans to announce a price hike. He said “we still consider that” as an option.
Amazon must weigh the benefits of a price increase against the potential loss of customers caused by a price increase. Prime is particularly profitable not because of the subscription fees it charges, but because it brings customers into its ecosystem; customers are more likely to buy from Amazon if they have Prime. If customers are leaving Prime due to rising costs, they are also less likely to shop on Amazon.
Even though Amazon has decided that the risk of losing Prime customers is worth a price hike, one major factor facing the shipping industry could prevent Amazon from increasing subscription costs in the near future; supply line delays.
Due to supply line disruptions caused in part by the coronavirus pandemic, shipping times have increased and some products — especially groceries — are hard to find.
Until delivery times and product availability are more reliable, Amazon may delay raising prices to avoid frustrating customers to pay more for less consistent service.
“Given all of the delivery challenges in the fourth quarter, raising the price of Prime doesn’t seem appropriate,” said Scott Jacobson, former senior Amazon executive. Reuters.
Mr. Pachter agreed that Amazon would be wise to wait until supply lines are more consistent before considering a price increase.
“To raise my price when I literally ordered hot sauce and it took about nine days to get here would be a slap in the eye,” he said.