Amazon wants more people to use Prime, its paid membership program that gives access to free delivery and a bunch of streaming content.
But as fast as it’s grown, Prime is believed to be heavily concentrated in upper-income households, essentially saturating that market.
In order to keep its growth, Amazon needs to target lower-income households, which largely remains untapped so far.
And according to Amazon CFO Brian Olsavsky, it’s one of the reasons why it recently launched a pay-by-the-month program for Prime, which was previously only available for an upfront $99 annual fee.
“That’s one of the thoughts behind our monthly plan. We want to create flexibility for consumers to try Prime in a low-cost way,” Olsavsky said during Amazon’s earnings call on Thursday, when asked if the new pricing plan was aimed at focusing on lower-income households. “There’s a hesitancy to put up a full year’s payment for a year of Prime.”
Amazon launched a standalone monthly Prime program earlier this month. It costs $10.99 a month, which comes out to $131.88 per year, significantly higher than the original $99 fee for the annual membership.
Olsavsky says the goal is to hook new users to try Prime on a monthly basis and make them realise all the great benefits that come with the membership.
“Annual is still going to be a better deal but we know that customers may try it more frequently if it’s a monthly plan. And that’s what we’re looking for: we know once the customers try it, generally they will really like it,” Olsavsky said.
Wall Street seems to agree with this approach. Ben Schachter of Macquarie Research wrote in a recent note that Prime is “somewhat saturated” among above-average-income households in the U.S., and that the new monthly program should help find growth elsewhere.
“We view the full launch of a monthly option as Amazon pushing to attract new lower-income Prime members…It could prove more attractive for those who cannot afford (or want) a $99 up-front membership or don’t want to commit for a full year,” Schachter wrote.
There may be other benefits too. Amazon was criticised recently following a Bloomberg report that pointed out Amazon’s same-day delivery excluded a predominantly black and low-income neighbourhood from its service area. Amazon explained that the exclusion was largely due to cost, simply because it didn’t make sense to provide the service where there weren’t enough Prime members.
In any case, Prime keeps seeing robust growth, and Amazon is continuing to make its offerings better by making more investments in free content. All this will only expand Prime’s footprint.
“Principally what we’re trying to do now is make the Prime experience as strong as possible for our consumers,” Olsavsky said.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.
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