If you grew up with a frequently empty-ish refrigerator, Amazon Prime is a godsend. As an adult: you wake up, look at your refrigerator, your memories drive an irrational response, and you needlessly open an app to fill the empty spaces in your pantry or cold storage. Within two hours, the problem is solved and your shelves no longer trigger thoughts of food insecurity. Amazon gets the business, the delivery fees, and the data. Costco be damned. I can’t be the only person who routinely does this.
The market for this consumer behavior is due to grow. Amazon Prime, which typically comes with a $139 annual fee, has a cheaper option for those in need and you’re going to hear more about it. Prime Access, while available since 2017, was recently pushed by Amazon (Amazon expanded upon this program in October 2022). Likely as a solution for a two-pronged problem:
- remaining inflationary effects (4.9%)
- the fall in retail membership revenues
Soon enough, the app may reflect grocery options that may be more economical. More on that in a moment.
Amazon has often been at the forefront of eCommerce evolution, from its origin as a digital bookstore to its current status as a colossal multi-industry conglomerate. Its April 2023 evangelism of Prime Access (a six year old program) and one designed to democratize Amazon Prime for lower-income users, is another testament to the company’s need to adjust to retail’s evolution.
Prime Access is Amazon’s discounted membership program for qualifying government programs. Eligible customers in the U.S. who sign up receive all of the privileges of Amazon Prime at around 50% off of the typical membership.
Prime Access could significantly impact Amazon’s potential growth against the backdrop of declining industry-wide membership revenue growth. According to membership startup Inveterate who powers the following companies’ membership loyalty programs: Liquid IV, Fresh Clean Tees, Lashify, Fly by Jing, Flamingo Estate, and a number of others:
A study by Deloitte found that 67% of consumers would join a paid loyalty program if it offered significant benefits (compared to just 33% who said the same for free points-based programs).
Amazon is hoping to capture, or even improve, the remaining growth by appealing to a larger audience who may be interested in paid loyalty programs. As it stands, Amazon Prime remains the highest-rated loyalty program according to an October 2022 survey by Activate. This includes CostCo, Sam’s Club, Walmart+, and Instacart+. But growth has predictably slowed.
Traditionally, Amazon Prime has been perceived as a luxury-adjacent good, predominantly catering to higher-income households. However, this new initiative represents a significant expansion of Amazon’s target market. By leveraging a range of government programs, Amazon is making its premium services accessible to a broader demographic, thereby widening its potential user base and revenue streams. This move demonstrates the power of membership-driven, app-based eCommerce: by lowering the barrier to entry, Amazon can tap into a lesser-served (but growing) market, boosting its growth potential. This could be the antidote.
The power of simplicity in commerce, especially in the context of one-click, repeat purchases in app-based marketplaces like Amazon Prime, cannot be overstated (here is a recent deep dive on that topic). The Amazon model has excelled by offering a seamless, frictionless shopping experience. The fewer the steps a consumer has to take to complete a purchase, the higher the likelihood of conversion. By making the purchasing process as simple as possible, Amazon encourages users to make repeat purchases, fostering customer loyalty and driving sales. In the context of democratizing commerce, I believe that there is a cause for concern.
In line with the principle of simplicity, Prime Access also serves to democratize eCommerce. According to Amazon, you can provide proof of eligibility or participation from the following programs:
- SNAP EBT
- Woman, Infants, and Children Program (WIC)
- Supplemental Security Income (SSI)
- Direct Express Debit Card (DE)
- Temporary Assistance for Needy Families (TANF)
- National School Lunch Program (NSLP)
- Low Income Home Energy Assistance Program (LIHEAP)
- Tribal Assistance Eligibility Letter (TTANF)
- Nutrition Assistance Program (NAP)
Traditionally, online shopping has been skewed towards those with higher disposable incomes and access to credit cards. By allowing access to Prime benefits through participation in various government assistance programs, Amazon is broadening the scope of the online retail market. This move democratizes the market for commerce by offering the same conveniences and advantages of online shopping to a demographic that has only recently become the focus of enterprise retailers:
Consider it the new direct-to-consumer retail. Shipping orders directly from their origin factories keeps prices low. Shein, the Chinese ultra-fast-fashion giant, has taken the world by storm and continues to grow in magnitude, dwarfing the SKU counts and volume of sales of competitors like Zara, H&M and Boohoo. The clothes are cheap, disposable, and addicting. Temu could fulfill a similar desire for “cheap yet good-enough” products – especially as America’s historic run of inflation continues to tilt consumer prices upward.
Chinese-owned, cross-border commerce companies like Shein and Temu are laser-focused on this demographic but few can reach them like Amazon. It’s the ease of purchase, the product availability, the pricing transparency, and the proximity to consumer. Relevant to this conversation, there’s rumor that Amazon may acquire 500 locations that Albertsons and Kroger plan to divest. These stores would enable Amazon to grow its Amazon Fresh option, a more economical source of goods than what’s commonly found at Whole Foods. In short, Whole Foods can only scale so much.
In a letter to shareholders in early April, Amazon CEO Andy Jassy said the grocery business, which has struggled to get off the ground, needs to be a focal point of the company’s strategy. Back in 2017 Amazon paid $13.7 billion for the Whole Foods chain, but that has come with bumps and bruises. Amazon also has been forced to close Amazon Go and Amazon Fresh locations, and has laid off thousands of workers. Amazon announced in February it was pausing the rollout of its Amazon Fresh stores while it re-evaluated the concept’s economics.
The awareness of this program and the further democratization to follow is not without its potential downsides. One such concern lies in the implications of Amazon enabling impulse purchases, during periods of great economic uncertainty, for essentials such as groceries and in-home needs with a credit card. With the convenience of one-click purchases and the temptation of a vast array of products, consumers may find themselves spending beyond their means, which could lead to increased levels of debt.
While this is a potential risk, it’s important to note that the convenience of online shopping, particularly for essentials, can also serve as a financial planning tool. For example, the ability to compare prices and products can help shoppers make more informed decisions, potentially saving money in the long run. Additionally, the convenience of home delivery can save on transportation costs, especially for those living in food deserts or areas with limited access to stores.
Amazon’s evangelism of Prime Access underscores the transformative power of membership-driven, app-based eCommerce in grocery and household goods. By advertising democratized access to its Prime services, Amazon is not only expanding its potential growth but also paving the way for more inclusive commerce. At the same time, this development highlights the need for consumer education to mitigate the potential for increased debt. As the eCommerce market continues to evolve, it’s crucial that advancements in convenience and accessibility are balanced with measures to promote responsible spending.
By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams