Amazon Prime Grows Due to Increased Retention

Amazon Prime has become a huge part of the company's plan to increase its sales and grow customer loyalty.

That has been made clearly evident in the retailer's recent efforts to make the $99 membership more than just a way for people to get free two-day shipping. Prime now offers members fairly compelling streaming video and music services, as well as photo storage and a number of other included add-ons. It also just finished Prime Day, a sort of Black Friday in July shopping event that offered exclusive deals to members.

The good news for the company is that its efforts to grow Prime are working, according to new data from Consumer Intelligence Research Partners.

How is Prime doing?Amazon now has about 44 million Prime members in the United States, according to CIRP, as of the end of June. That's roughly 47% of all U.S. Amazon customers, which is a strong positive for the company because Prime members spend on average about $1,200 per year, compared to about $700 per year for nonmembers, the researcher reported.

"U.S. Amazon Prime membership has grown significantly since we first started measuring it in 2012," said CIRP partner and co-founder Josh Lowitz said. "It has more than doubled in a little more than two years. Amazon adds millions of 30-day free trial members in the holiday shopping period. It then needs to convert these trial members topaid annual members, and then persuade those members to renew for subsequent years."

Source: CIRP

Is Prime converting?The increasing number of Prime members has come largely because the company has been able to persuade people who sign up for the free trial period to spend the $99 to stay members. Amazon added 3 million members in the second quarter of 2015, which CIRP said happened because the company has improved its long-term retention rates.

"We ascribe much of this growth to better retention of members at the one-year mark. The conversion rate from 30-day members remains steady at about 70% through the most recent quarter, but Amazon improved its paid member retention with an increased renewal rate for one year members," said CIRP partner/co-founderMike Levin.

During the quarter, the company improved its renewal rate for Prime from 90% in the previous two quarters to about 95%. That's a staggeringly high number that suggests users are finding value in the service.

"Amazon's efforts to make the Amazon Prime membership more valuable and further integrated into customers' lives, with enhanced video and music offerings, as well as additional shipping benefits, appears to have paid off," Levin said.

It's all good for AmazonLooking at this data, it's hard to see it as anything but a massive positive for Amazon. Prime members spend more, and once the company signs someone up for a free trial, way more than half of them stick around not just for a year but for multiple years.

The online retailer has invested heavily in Prime and that spending appears to be paying off. Gaining members helps, but keeping them for the long term dramatically impacts the company's bottom line. It's hard to see how the numbers can get any better, but if Amazon can continue to put up 95% renewal rates then it should steadily see its sales increase moving forward.

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Daniel Kline has no position in any stocks mentioned. He has been a Prime member for many years. The Motley Fool recommends The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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