The Art of Raising Prices: Lessons from Amazon Prime

Boxes...With the economy on the upswing, most companies are contemplating increasing prices.
Amazon recently hiked the price of its Prime service, which includes two-day shipping, Kindle book loans, and streaming video. Raising Prime’s price is especially risky as it’s a key marketing conduit that draws in and engenders loyalty from customers. With a P/E ratio exceeding 550, Wall Street is expecting Amazon to continue dazzling investors with eye-popping annual revenue increases.

Amazon clearly noted that it has not raised Prime’s price since its inception nine years ago.
Don’t Cave to Simple Market Research. UBS conducted a survey indicating a $20 price increase would put 42% of current Prime customers at risk of ditching the service. This led the Swiss-based financial services company to downgrade Amazon’s stock from a “buy” to “neutral. Equally important, survey respondents were probably not exposed to Amazon’s reasoning on why it is increasing prices. This spin is critical in how customers evaluate a price increase.
Since Prime is so critical to growth, it needs a lower price point entry version to attract new customers.

Raising prices is an angst-inducing ritual for all companies. The art of raising prices involves a clear yet sensitive dialogue with customers to justify the lift. As Amazon demonstrated, even a 25% price increase can be palatable if pitched correctly.

via http://blogs.hbr.org/2014/04/the-art-of-raising-prices-lessons-from-amazon-prime/

About Michael Stuart

Mike's experience in the technology industry is quite extensive, serving both as a designer of complex enterprise applications and as a corporate executive. In his previous life, Mike was founder and CEO of AssetWorks Inc. the industry leader in facility management solutions. Currently living on the Texas coast helping with digital strategies using Amplified Content Marketing.