Amazon Prime, the company’s membership program that costs $US99 a year, comes with a lot of great perks.
Prime members get free two-day shipping, and access to thousands of video, music, and books, as well as unlimited cloud storage for photos.
Why would Amazon want to give all these benefits for a mere $US99 annual membership fee?
According to RBC Capital, the reason is quite simple: increased customer loyalty.
In a note published on Monday, RBC shared survey results from last month that showed the growing size of Prime members, and how they are continuing to increase their spending on Amazon.
“…the two ‘killer’ data points, in our view, are that Amazon is building up significant loyalty amongst Prime members and that the longer Amazon Prime members stay around, the more they engage/spend with Amazon,” the report said.
Some of the key takeaways from the survey include:
- Prime adoption is growing: 40% of Amazon customers in the US are Prime members versus 25% in 2013. Globally, Prime members are estimated to be around 60 million to 80 million users.
- Prime members are coming back more frequently: 74% of Prime members said they used Amazon more today than when they first joined Prime. Also, 73% of Prime customers said they shop at Amazon at least 2 to 3 times a month, while only 22% of non-Prime customers said they did.
- Prime members spend more: 49% of Prime members spend over $US800 annually, while only 16% of non-Prime users do so.
- T he longer they have been a Prime member, the more they spend: 41% of year 1 Prime members spend over $US800 a year versus 68% of year 4+ Prime members who do.
“More than 10 years after its launch, Amazon’s Prime “free shipping” program is becoming a material driver of AMZN retail revenue growth,” the report added.
Amazon doesn’t disclose the number of its Prime subscribers, but has made it clear that it’s where it anticipates growth to come from. During its last earnings call, Amazon CFO Brian Olsavsky said, “We are getting very good top-line growth. A lot of that is fuelled by Prime adoption and we are dropping a lot of it to the bottom line with many of the efficiency projects.”
Amazon reports its next quarterly earnings this Thursday. Wall Street expects a loss of $US0.13 per share and $US24.9 billion in revenue.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.
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