(2022-08-29) Chin Amazon Prime Burn To Grow

Cedric Chin case AmazonPrime - Burn to Grow. Amazon’s growth story hit an unexpected snag in Q3 of 2004. Its online retail store was still growing, but at a slower pace compared to Q3 of the previous year

By now, Amazon knew that their model worked.

we need to dramatically improve the customer experience around shipping. We need a shipping membership program. Let’s build and launch it by the end of the year.

So the question became, was it possible for Amazon to offer free and fast delivery? In early 2004, Bezos considered offering it on pricier items

Bezos continued to suggest other ideas every few weeks or so in 2004

Around the same time as Bezos’s mid-October email, Amazon engineer Charlie Ward made a proposal

If Super Saver Shipping catered to price-conscious customers who were not time sensitive, why not create a service for the opposite type of customer? That is: a speedy shipping club

During the development of Prime, there was a surprising lack of data-driven decision making at an otherwise supremely data-driven company. There was no financial modelling to calculate the optimal price point for Prime, for instance. But this was also because no data existed on how customers might change their purchasing habits after joining.

The Futurama team had their own doubts about Prime.

I’m really scared. I think it’s going to take down the company (emphasis added). Are you sure the math works on this program?

Bezos held firm. The time to debate was over; the team was expected to disagree and commit.

Amazon’s leadership team kept a close eye on three metrics in particular: number of orders per year, number of items per order, and number of items per year.

early data rang alarm bells. Prime’s first subscribers were hardcore Amazon customers who paid extra for two-day shipping before Prime’s existence

But Bezos didn’t panic.

In the short term, Prime developed into an exceptional growth engine, even as it burned through more dollars. Bezos’s predicted consumer behaviour change would come slowly. A year later, though, Prime led to an unexpected opportunity

In 2006, Amazon launched Fulfilment by Amazon (FBA)

*By that point in time, Prime two-day shipping was such a compelling value proposition that merchants wanted to get in on it. Operations director Berg Wegner said:

That is when it really hit home, we had built such a good service that people [merchants] were willing to pay us to use it.*

By 2007, two years after launch, internal data finally showed that on average, customers who joined Prime doubled their spending on the site.

In 2021, there are now more than 200 million Prime members globally.