Has Amazon Prime Reached Its Peak?

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Has Amazon Prime Reached Its Peak?

By Randy Hofbauer - 12/21/2017

While a new report claims growth in adoption of Amazon’s Prime subscription service appears to be slowing down, some experts believe the opposite is true, and that it has yet to reach its full potential.

Based on a survey of 1,000 U.S. adults in quarter three of 2017, Morgan Stanley claimed that 40 percent of Americans are Prime members, the same number seen in quarter four of 2016, CNBC reported. The slowdown supposedly comes partly because membership in the Seattle-based company's program is nearing saturation among higher-income households, suggesting that Amazon must expand the two-day-delivery program to lower-income and older households, which typically have had lower Prime penetration rates.

But despite the report, some believe Prime isn’t actually stagnating. Data from Magid’s "Retail Pulse" study indicate that Prime is still in its early-adoption cycle, with 58 percent of older Millennials being members, compared with 31 percent of Boomers. As such, Prime’s growth isn't anticipated to slow until these penetration rates are equal across age demographics, claimed Matt Sargent, SVP of retail at the Minneapolis-based research consultancy.

Moreover, some experts might see the lower penetration among young Millennials (47 percent) as a trend away from Prime, but Sargent doesn't believe this to be true. Older Millennials are at the ideal point in life – with children, careers and more – where Prime is beneficial, compared with younger Millennials, who typically aren't dealing with the same life factors.

“Amazon continues to be the go-to place for shoppers, regardless of age or income: Nearly nine in 10 consumers have purchased from Amazon in the past 12 months, with nearly half being Prime members,” Sargent told Progressive Grocer. “Consumers are driven to Amazon thanks to free shipping and competitive pricing, along with the wide selection of products available.

He continues: “Because most of these consumers are already Prime members, the expectation of free two-day shipping is an expectation among consumers that retailers must deliver on. If they cannot provide this service, consumers will continue to flock to Amazon, [which] might get those that have not yet signed up to join the service.”

Sargent said that he expects penetration rates across all segments to even out within the next five years, though, and that the groups lagging in adoption already are frequently shopping Amazon. So the more these people use it, the more they will want to receive the added benefits that come from Prime membership.

Although there's certainly a barrier for equal penetration rates, given the fact that drop-offs among age groups will occur, Sargent believes consumers will become comfortable enough to sign up for Prime regardless of life stage.

“Currently, overall Amazon usage ranges from 89 percent with older Millennials to 79 percent with Boomers. The fact that all age groups currently use Amazon, whether it is through Prime or not, suggests there is a big enough market among consumers. While the overall-market Amazon users have likely topped out, Prime membership (and increased engagement with Amazon) is likely to continue to grow. Consumers will be willing to pay the $99 yearly fee because they are already using the site frequently enough, so it will pay off in the end.”