- Free Two-Day Shipping on over a million in-stock items
- Overnight Shipping for only $3.99 per item�order as late as 6:30 PM ET
This is a beautiful example of what a company can do when they’ve componentized their business to a degree where shipping stops being a cost center and becomes instead a competitive differentiator.
Since Amazon already offers free second day shipping for all orders over $25, the main value of this change is that you, the customer, don’t have a minimum requirement if you opt to pay the $79 annual fee of Amazon Prime. If you’re an eager buyer, $3.99 per item overnight is probably a good deal too, but buy two CDs, a DVD and a book, and your overnight fee is $15.96, probably not much different from the current price.
What I find fascinating about this experiment from Amazon is that they’re leveraging what us MBA types call the future value of money. Let’s face it, if you join Amazon Prime, you’re going to make sure that you get maximal value by buying all your books, CDs, DVDs, and other goods through them. But further, recognize that in 12 months that $79 will actually be worth more to Amazon because it accrues value over time. That’s the FVM magic: $79 today is worth more in the future to whomever holds it.
But let’s do a quick calculation anyway, because the $79 is an interesting figure and I’m curious how they arrived at it. Let’s say that you order something from Amazon roughly every three weeks each year. Half the time it’s more than $25 and you get free shipping. Joining Amazon Prime, then, gains you a break on shipping for every other order, or approximately nine orders each year. Divide it out and you’re looking at prepaying shipping at $8.78 per order. That suddenly doesn’t seem like such a fabulous deal, does it? For $8.78 maybe you can just slip a second item into your orders and break the $25 limit instead? Or just order every four weeks and make sure you always qualify for free shipping.
So my take: Amazon Prime isn’t a good deal for any but the most rabid and devoted consumers, the buying addicts that just love Amazon and have boxes arriving every day.
Amazon gets it, though. By allowing customers to pre-pay for shipping, they’re just opening up their bank account and saying “let it all flow in, baby.” Smart.