Amazon Prime

From Time:

Even more interesting than the growing Prime ranks is what Prime seems to do to subscribers. A 2010 Businessweek story stated that Amazon Prime broke even within three months of launching, not the two years predicted by its creators. That’s because customers spent as much as 150% more at Amazon after they became Prime members. Subscribers not only ordered more often, but after paying the $79 fee, they started buying things at Amazon that they probably wouldn’t have in the past. Since shipping was always speedy and free, members saved themselves a trip to the store for things like batteries and coffee beans. “In all my years here, I don’t remember anything that has been as successful at getting customers to shop in new product lines,” Robbie Schwietzer, vice president of Amazon Prime, told Businessweek.

The net result of Prime membership — and the thing that has to scare the bejesus out of Amazon’s competition — is that it tends to cause subscribers to stop shopping anywhere else. It’s assumed that Amazon’s prices are competitive. With Prime, shipping costs become a total nonissue. Subscribers automatically defer to shopping at Amazon first because they know shipping is free. And when they spot something they like at another retailer’s site or in a store (yes, it still happens), Prime members are likely to see if Amazon also sells the item. Chances are, Amazon does, the price is about the same or better, and two-day shipping is, of course, thrown in for free.