How would you decide on the price of Amazon Prime?

I would like to use three different pricing models to triangulate on a good reasonable price and then tweak it slightly with controlled market experiments.

Value-based Pricing with competitive pricing-based estimation:

How much clear and direct value is created for customers in terms of time/money saved from the above-mentioned benefits?

Estimation of value for each service:

Service	Competitive pricing-based estimation	Value for the customer
Amazon Prime Shipping Benefits & Prime Deals and offers	let's say normal Prime user orders avg. 1 order/ month which costs ~Rs.50 shipping charge per delivery. so annual avg. saving= 12 orders per annum * Rs.50 shipping charge	Rs.600
Prime Video	Other OTT service providers like Netflix and Disney-Hotstar is the main competitors. Disney-Hotstar is charging Rs.900 per annum for a Super pack	Rs.900
Prime Music	It can substitute for the Spotify premium subscription costing around Rs. 1189 per annum.	~Rs.1100
Prime Readings	Let’s avg. user reads 5 books from prime readings which can cost avg. Rs.100 if bought separately.	Rs. 500
Credit card rewards	Amazon pay + ICICI card offers 5% cash back on every purchase on amazon and 1-2% on outsize amazon purchases. On avg. customers with the card is annually spend Rs.20,000 on amazon and Rs.10,000 on external services.	Rs.20,0005% +Rs.10,0001.5% = Rs. 1150
Other offerings like gaming, family, etc	In-app purchase is given free to gamers if they log in with amazon.	Rs.150
Total Value of benefits		Rs.4500/-

Cost-based pricing:

To provide the above services, Amazon will incur costs like shipping costs, original content creation, the cost of buying the media from other production houses, etc.

Against those costs, Amazon gets higher loyalty from the customers which increases CLTV in the long term.

So, the cost can be estimated for the above services to decide what proportion of the value created for customers to charge.

Recommendation:

Considering the cost-conscious Indian customers in the given segment and expanding the user base will bring down the fixed cost of services, 1/3rd of the total value of benefits = Rs.1500 can be charged for Amazon Prime subscription.

misri · Answer 2 · 2020-05-16T13:12:32+0000

Amazon Prime is an ongoing service. Are we thinking of revisiting the pricing now? Do we have any specific goal in mind like customer acquisition?

Assuming an yes to both the answers..

Amazon Prime is a service offered by Amazon for OTT video streaming and additional benefits while ordering anything on Amazon.

Competitors:

OTT - Netflix and Hotstar+Disney(assuming India location)

Current scenario:

Segment 1(mostly millenials): Subscribing to multiple platforms,going after trending web series ( the web series gen). Happy to spend for good content but has budget constraints and follow sharing approach while using a platform.

Segment 2( Seniors professionals): The more matured ones,financially. Willing to spend mostly on quality content. The end consumers might be of a younger age as well.

Segment 3: The ones who are mostly interested in the free delivery service on amazon and is seeing the OTT service as a bonus. Not yet into the OTT world much.

Segmented Price Approach:

Prime Pool: shared usage approach for students with a limit to the number of users in a group

Additional benefits for sole Prime users/existing users..like prime preview of releases for them and a little delayed release for the others

Pocket prime for users switching between platforms for limited usage or for the people aspiring to be a prime user with limited fund. However with this approach Prime can have better reach.

Value based Pricing:

Reference price set by competitors:higher than Prime

Positives: Quality content at a lesser price, additonal services benefit which others do not have.

Negatives due to positives of competitors:

Like brand value of Disney associated with Hotsar

Ref price + positives - negatives shall give us the price

Prime can either go for entirely value based pricing, without any segmented approach. Otherwise, Prime can combine both and set the premium price based on this equation and tweak with the prices for other segments.

With the goal of customer acquisition, second option is better.

Now: price is X ( for say 100 customers but without a count of how many are actually viewing the content)

With the recommended approach:

Price will be (X+D) for say, 50 sole customers

And, (X-d) for an extra 50 customers

Revenue increases and actual customer count too

yogesh247 · Answer 3 · 2019-12-23T13:07:43+0000

Here is how I would approach this problem:

1. Ask clarifying questions: What geography are we talking about here?

Here, I am assuming that we are talking about India.

2. What is the product? The product, here, is Amazon Prime. It is a service that gives its users access to online content along with some extra facilities on the Amazon e-commerce platform. Some of the content is created by Amazon itself while most of it is being taken from other production houses.

3. What are the different pricing models? Pricing can be mainly done in three ways: Cost-based, Value-based and competitor-based.

Cost-based pricing model: For running this type of service, Amazon will require some content creators, developers, charges levied by other production houses, etc. Based on these costs, one can estimate the total cost incurred by Amazon in running this platform.
Value-based pricing model: The customer segment for the Amazon Prime would be middle-aged Indians belonging to middle-income or high-income classes. Some primary or secondary research can be conducted to gauge the willingness to pay for these customers.
Competitor-based pricing model: The main competitors for Amazon Prime would be Netflix and hotstar. Although Prime has an edge over them since it also provides e-commerce services along with OTT services. The prices charged by these competitors can be looked into to calculate our charges.

4. Give your recommendations: I would suggest that Amazon Prime should go through the pricing models of its competitors and then add some premium over it because of the extra e-commerce services.

Chaitanya Gaur · Answer 4 · 2020-10-30T19:07:13+0000

Amazon must have calculated the minimum no of orders required to be Amazon Prime no. Lets just say X no of orders. cost of one order includes

1) order fulfilment which includes packing, labeling, turn over rate etc.

2) Shipping cost - 2 day shipping

Lets just say both of them avg it to be $y.

So the Amazon prime price = minium no. of orders per amazon prime customer * price of one order to fulfil and ship.

= X * $y.

=$XY

talkhuda · Answer 5 · 2020-07-07T12:34:55+0000

Amazon prime is a subscription based service that provides cheaper and faster delivery in a membership format and it offers online movie and TV content. So there are two services here. Let’s look at porters five forces: Power of buyers: who is our targeted customer base? Are we in a speficic geography? Are they already users of amazon? How much do they order per year? What is their average basket value per order? What is their user profile? What is their affordability? What are they buying used?What is their content watching habits /how long, etc? What type of content do they watch and do we meet the profile? Power of suppliers: what is the cost of shipping and fulfilling in that geographic region? What is the cost of labor? What is the cost of the other production houses content? or outsourcing that amazon uses for used material? Competitive rivalry: what are other different deliveries in the area? What are their prices? Do they deliver similar things or are they unique? How about online stores such as ebay, etsy, etc do they deliver that in that area? What are their prices? What is our market share?Are people watching Netflix? What are the prices of that there?Threat of subsititues: Is delivery growing in that area or are physical stores growing and what customers want? Are customers still watching normal TV? Threat of new entrants: what is our competitive edge? How easy is it for another company to replicate the infrastructure that we have? What other growing online content companies are there and are they close to opening in that geographic area? Since this is a web /mobile based platform, I would look at metrics / user behavior and cost to bring them down the funnel (ie acquisition, awareness, retention, referral, etc) such as web and mobile usage, customer LTV, retention (if amazon exists there already or in comparable market), engagement, and any competitive results hereI would then look at learnings from other regions and if we can do comparables if we are in similar regions or learnings from the US that we can model.Given, we get the answers above. We would look at all costs, and then calculate estimated demand, and come up with a demand vs supply curve taking in consideration value and competitive based pricing. I would also look at this per service and how adding each service impacts the bottom line taking in consideration LTV of customer unless the decision is already made to have both services.