Sunday, August 20, 2006

Is Amazon Prime for you?

If you're considering Amazon Prime's promise of great prices delivered even faster, consider reading this simple analysis. Prime membership costs $80 a year, can be shared with 4 household members (spanning 4 generations, no less), and gives you an upgrade from standard free shipping (but with no minimums) to overnight for $3.99 and two-day at no extra cost.

Tuesday will be the three-month anniversary of my free trial and I'm evaluating whether I should cancel it before it automatically renews. The factors I'm considering include whether my use of the service during the trial justifies the cost, how much accelerated shipping means to me now and in the future and, unfortunately, how much I want Amazon's strategy to succeed.

You're probably thinking, that last part should definitely be struck from the thought process. Don't make this an emotional decision. Ok, you're right, I shouldn't think that way. Limiting myself to either cancelling now or letting it renew is also irrational, since I could easily subscribe the next time I need it (if ever).

Cost/Savings

I made a total of six orders on Amazon.com using the free two-day shipping each time. While this would've cost me about $75 without the Amazon Prime, I only benefitted (even marginally) from the expedited shipping half the time. This leaves me about $30 in savings since the priority items were books/music.

If I extrapolate my spending over the course of a year, I'd have probably spent $120 on two-day. Subtracting $80 for membership, I would save $40 each year on shipping, or $2 per item.

Alternatives

It's not actually fair to only consider expedited shipping or standard shipping. Say for example, I really wanted to hear an album before a long trip. I could simply purchase the music on iTunes and burn it onto a CD. Or, I could run to the store and pay a couple extra dollars. So, actual savings is the savings on shipping in excess of the bricks and mortar premium. To tip the scales against the favor of Amazon Prime, to actually get the convenience of a local retail store, next-day would cost an additional $4, effectively nullifying the savings.

So, for a casual consumer of books and music (two items or less per month), Amazon Prime is not for you.

The need for speed

A former co-worker (the only Amazon Prime subscriber I know) says the overnight is useful during the holidays. This is especially valuable for procrastinators, especially if you amortize the cost over the rest of your casual purchases.

It's important to ask whether the savings increases my spending. This might be the case for my Amazon spending, but not really for spending in general. That would, of course, explain why it can still be worthwhile for Amazon.

Conclusion

I guess this doesn't conclude much for most people, but if you enjoy finding packages at your doorstep or enjoy shipping them to other people and know a couple of household members who are the same (you can share the membership with 4 others), this might be a good investment. If you're looking for tangible savings, nothing's cheaper than the existing free shipping. Remember that Amazon isn't always cheapest (I always check Buy.com and BarnesandNoble.com), but when it is at least twice a month for you, you'll probably get your money's worth. Just do it for the right reason.

Reference: Amazon's shipping rates schedule

2 comments:

Anonymous said...

They cancelled the Citi Divident Platinum rewards!!!

Those bastards!

Will said...

If it makes you feel better, I discovered my American Express Blue Cash card is something of a similar scam as the HSBC Cash back, just favoring higher spenders.

Only the money spent in excess of 6500 accrues cash back at 1.5 and 5 percents. I thought that once the threshold was met, all of that money would retroactively accrue. Oh well. I need to rack up at least 10,000 on my credit card or switch to HSBC... I probably won't decide very soon.

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