Amazon Prime Has an Image Problem

Source: Amazon

For heavy (NASDAQ: AMZN) shoppers, Amazon Prime service has a strong value proposition. At an annual cost of $99, the service's free two-day shipping feature generally pays for itself if you simply order a video game, beauty item, or article of clothing each month. And the service has proven to be wildly popular; although Amazon doesn't release specific numbers, in the last annual report the company mentions that Prime has "tens of millions of customers worldwide."

Alas, Amazon Prime has an image problem. When the service first launched, the company promoted its free two-day shipping feature so well that shipping became its entire value proposition. But in reality, Amazon Prime is a bundle of services of which free shipping is one feature -- the service also comes with its Amazon Prime Video, its streaming-music offering, and its Kindle Lending Library.

As Amazon seeks to compete with disparate rivals in each business -- Netflix in streaming video, Pandora and Spotify in streaming music, and various tablet makers trying to differentiate on specs, features, and ecosystems -- Amazon has to also fight the perception problem of its own service ironically of its own making.

Amazon's new commercial is a startMore recently, Amazon has sought to change consumer perception. The company's new commercial, "Movies, Music, and More," points out Amazon Prime's total value to consumers. The 30-second spot plays up Amazon's huge streaming content library of tens of thousands of movies and TV shows and over "a million songs and ad-free playlists." It's a smart move to remind consumers of Prime's added features.

On the streaming video side, the company has gone further than just airing content -- joining market leader Netflix in actually producing content with its Amazon Originals host of series. Right now the service lists nine projects on its Amazon Studios website. While no series has the amount of buzz that many Netflix Originals have -- House of Cards and Orange is the New Black, to name two -- Amazon's Transparent series won a Golden Globe award for best comedy, edging outOITNB and HBO's Girls in the process.

A way to reduce churnFor Amazon, pointing out these other features is a low-cost attempt to reduce churn, also known as customer attrition. Considering Amazon Prime is a subscription-based business model, keeping current customers happy is as important (and usually cheaper) as adding new customers. Amazon's commercial is brilliant in the fact that not only is the information effective in selling the service to new customers, the commercial also reminds current subscribers that Amazon has these features available for no added costs.

And that makes sense for Amazon -- the more interaction Prime subscribers have with the service the harder it is to drop the product. While a consumer might not buy enough items to justify a $99 annual price tag, once combined with free streaming movies, music, and free books through its Kindle owners library the service becomes harder to cancel. Meanwhile, the company's core marketplace and retail business could be bolstered by increased interaction as well.

In its annual report, Amazon doubled down on Amazon Prime by stating they have many ideas for how to make Amazon Prime better. Personally, I think the company made a good decision to point out its value outside of free two-day shipping.

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Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends, Netflix, and Pandora Media. The Motley Fool owns shares of, Netflix, and Pandora Media. 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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