While Amazon.com (NASDAQ: AMZN) offers Prime members a lot of benefits for the $119 per-year fee, including access to movies, music, books, groceries, and more, the primary reason consumers sign up for the program is to get the free shipping.
The promise of two-day shipping, then one-day, and now even same-day and one-hour shipping has proved too great of a lure for many not to sign up. Even for those who don't order a lot online, the quick-ship benefit is powerful when you add in the other benefits offered.
But what about during this pandemic? As the COVID-19 outbreak intensified, Amazon prioritized shipments of essential products and pushed back delivery times for other goods, sometimes for as long as two weeks or more.
That raises the question of whether a consumer should keep their Prime membership while Amazon is not keeping its promise, even if it is a temporary situation?
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A force for change
Amazon Prime was a revolutionary concept when it began, promoting two-day delivery guarantees. It helped accelerate the e-commerce giant's growth, and it became the industry standard followed by Walmart (NYSE: WMT) and Target (NYSE: TGT).
The service has even helped Amazon build out its third-party platform by allowing even small businesses to compete against the largest rivals by participating in the Fulfilled by Amazon program. The program has businesses ship their goods to Amazon's warehouses where they are shipped to customers when an order is placed.
Yet even that got sidelined by the coronavirus pandemic as Amazon placed such orders on the back burner so it could ensure shipments of N95 masks, respirators, hand sanitizer, and more made it to customers quickly.
But a costly one
The number of paid members surged to 150 million worldwide at the end of 2019, an incredible 50% increase over the year before. Although probably a number of new accounts signed up simply to take advantage of the fast shipping over the holidays and intended to cancel at the end of the trial program, it's still a massive number of people.
But Prime isn't cheap for Amazon. The company spent $38 billion on shipping alone last year, up 37% from the prior year, and its costs soared 43% in the fourth quarter. Even if all 150 million members were paying $120 a year – which they're not, since there are discounted memberships for students and the elderly, and others might pay monthly – it would generate just $18 billion in revenue for Amazon, suggesting that the membership program could raise its annual membership fee again.
So unless you're buying an essential item, should you keep your Amazon Prime membership?
If you're using Prime's other services, such as watching Prime Video regularly, listening to Prime Music, or storing photos on Prime Photo, keeping your subscription is an easy decision. JPMorgan Chase estimates the value of all of Prime's services is actually worth $784, making the $119 fee a bargain.
For everyone else, it's a conundrum.
Can't always get what you want
Amazon is not abiding by its end of the agreement, and while the reasons are entirely understandable, Amazon isn't a charity. A friend of mine decided it was an easy call: He canceled his Prime membership.
Even though he loves what Amazon does and has Echo speakers sprinkled throughout his house, which seemingly runs completely on Alexa's virtual assistance capabilities, he doesn't watch Amazon Video, doesn't listen to its music channels, and isn't reading books on a Kindle. He's a Prime member for the fast delivery and he's not getting it, and he says two-week delivery is available from any fly-by-night operation.
When he called to cancel, however, the Amazon representative recommended he pause his membership, since he intends on restarting when quick shipping begins again (Amazon actually credited six months of service back to his bank account). For others only using Prime for free shipping, they might also want to cancel their service.
Although Amazon has done a lot of good in changing how we shop, consumers don't have to remain loyal when a company isn't delivering for us, literally and figuratively. We ought to take our business elsewhere – or at least put it on hiatus until the online retailer comes through for us once more.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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