#7: Prime - the other engine of the flywheel

If logistics are necessary for the flywheel of Amazon, Prime is the lever spinning the flywheel. Launched in 2005, with an annual fee of $79, Prime has become essential for Amazon.

Prime's importance is not so much about the revenue, even though it did generate a whopping $34 billion in revenues in the last 12 months.

This is revenue paid in advance for the company with no exact products connected to it. Customers pay for the privilege of being allowed to become loyal to Amazon.

Loyalty is an essential part of the genius of Prime. Some surveys, such as the one conducted by Feedvisor, indicate that Prime customers buy more often and thus spend more with Amazon.

The image above shows how an average Prime customer spends weekly or every few weeks with Amazon. On the other hand, a regular Amazon customer buys every few weeks or monthly.

The sheer growth in the number of Prime members illustrates the value of Prime for the customer. Since 2012 the amount of Prime members has grown from an estimated seven million to an estimated 200 million globally.

And this is with two price increases from $79 to $129. Talk about a strong value proposition.

According to the Feedvisor survey, the most critical part of Prime, which customers pay for, is the free delivery enabled by the program.

The importance of Prime is illustrated with the flywheel image. Prime increases the number of orders from the customer, increasing the number of deliveries for Amazon. That, on the other hand, increases the need for fulfilment services. This enables the marketplace to become a more lucrative partner for sellers. More sellers mean a more extensive assortment, which then attracts more customers.

Prime customers are also often more affluent and attractive to sellers and advertisers. That, on the other hand, leads to more revenues for the advertising arm of Amazon.

The advertising business is the topic for the next post.

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