Prime Day is an inflection point: We can now measure the impact Amazon's having in the Australian market

Supplied.The Amazon Australia retailers conference in Sydney last year.

Amazon talked about its Australian launch as being the “most successful international launch ever”, but so far there has been a more muted reaction among consumers.

Many people were left feeling disappointed by the limited selection and the impact on the Australian retail sector has been minimal to date.

Starcom researchSource: Starcom Mini-Poll. Amazon.com.au site visitors. Dec-17: (n=96), Jun-18 (n=149)

But six months on, the online retailer is gaining momentum with Australian consumers.

A week after Amazon launched in Australia, Starcom research identified a large Expectation Gap on key pillars: pricing, product range, and delivery costs. By June this year, Amazon had narrowed the gap significantly in these areas.

People are responding to Amazon’s tangible improvements on:

  • Pricing: First Party stock is 17% cheaper on average relative to retailers
  • Product: An initial offering of 22 million products has rapidly expanded to 60 million
  • Distribution: Delivery in two business days is available to nearly 90% of Australians

Importantly, we also see directional improvement on the Inspiration and Excitement that Amazon provides. Based on Starcom Media Futures research, we know these are two of the most critical human desires for brands to satisfy, in order to create the very positive experiences that drive brand growth.

Starcom believes that Amazon Prime will be the true accelerant to growth for Amazon in Australia, because it is one of the most exciting things about the company’s product offering.

Prime is important to Amazon’s growth. Its members:

  • Spend 4.6 times more than non-Prime customers
  • Buy 3 times more frequently than non-Prime customers
  • Feel more connected: 79% “trust Amazon to treat me like a valued customer” vs. 66% of non-Prime customers
  • Give Amazon a lead on Voice Commerce: Echo Dot was the biggest selling item to members on Prime Day in 2017 and voice shopping was recently predicted to grow from $2 billion to $40 billion+ by 2022

We know that Australians are interested in Prime:

  • 52% of Amazon.com.au site visitors say they are likely to join Prime
  • Online search for Amazon Prime was 3 times higher than for Ebay Plus when both launched in the same week, despite Ebay site visits being 1.5 times higher in May 2018.
  • Following Prime’s launch, Amazon’s app went from 9th to 6th most downloaded shopping app in Australia.

The critical question is how quickly will Australians buy into Amazon Prime membership.

To explore this, we built a linear regression model designed to uncover the driving forces behind Amazon Prime’s growth in the U.K. over the last four years. We used an historical “Amazon Prime” Google Search Index as a proxy for interest, and factored in pricing, content inclusions, broader Amazon.co.uk website activity, promotional media spend and key promotional or seasonal events.

The outcome is a highly robust model (for those wondering, it has an adjusted r square of 87.12% out a possible 100%, which shows the data explains almost all of the variability in the results). With this we’ve been able to gain a very strong sense of the most important drivers of consumer interest in Prime.

Starcom research

Across the entire time period, we were surprised to see that changes in membership pricing did not drive a change in interest in Amazon Prime. There was no fluctuation in interest when annual pricing transitioned from £49 to £79 nor due to the introduction of monthly pricing at £7.99. Although Amazon has set a relatively low annual price of $59 at launch in Australia and we believe this will increase as new services are added to Prime membership. Amazon is almost certainly aware of the capacity to increase price without hurting demand.

Likewise, interest in Prime was not heavily influenced by advertising designed to promote Prime. This is likely due to it already being well established in the U.K. over the modelled period. For Australia, this indicates that once awareness of Prime has built to a substantial level, additional messaging around Prime will have limited impact.

Overall, Amazon’s website is a strong driver of Prime interest. As people land on Amazon’s home page, promotion of Prime drives them to investigate further. However, with Amazon.com.au attracting 2.6M unique visitors in May 2018 according to Nielsen Digital Ratings, relying on this alone would mean a relatively slow build in Prime Membership. Even with additional traffic expected following the closure of Amazon.com to Australians.

The most illuminating findings came when we isolated specific time periods and found key drivers of Prime interest within the relevant time periods to be:

  • Promotional and Seasonal Events: Prime Day, Black Friday and Christmas
  • New Content Inclusions: Prime Photo and Prime Music

We also found a strong correlation between online search and volume of social buzz. This, combined with findings from our modelling exercise, leads us to believe that membership take-up will be driven by factors that most excite people about Prime.

It is our belief that Amazon’s free and fast delivery proposition is core and essential for long term Prime membership, but it is the little bursts of excitement, whether from access to amazing deals or favourite photos and music, that inspire people to take action and actually sign up.

Based on our initial analysis and knowing that in the U.S. more new customers joined Prime on Prime Day 2017 than on any single day in Amazon history, we believe Amazon Prime Day on July 16th will be a critical factor in boosting membership numbers in Australia.

Prime Day coincides with the 30-day free trial membership offer available in Australia. So barriers to sign-up will be low. And we know that 73% of free trial sign-ups continue their Prime membership after the end of the trial period , so it will have impact beyond the initial bump.

Before, during and after Prime Day we’ll be collecting Australian and international market data to build into our model, in order to be able to put a timeline against Amazon impact in Australia.

We’ll be aiming to see whether Amazon Prime can match Netflix and excite Australians enough to reach 30% HH penetration 24 months post-launch, giving retailers until May 2020 to brace for impact.

Toby Barbour is chief executive and Nicole Conroy is head of research at leading media agency Starcom Australia, part of Publicis Media.

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