Is Amazon Prime Worth $99 a Year?
It's easy to see why Amazon (NASDAQ: AMZN) wants people to sign up for its $99-a-year Prime program. Prime members in the United States are estimated to spend on average about $1,200 per year, compared to about $600 per year for non-members, according to data from Consumer Intelligence Research Partners (CIRP). That makes the 65 million U.S. Prime members CIRP estimated the online retailer having in November 2016 worth the perks the company doles out to get people to join.
But is the core offer of free two-day shipping still a good value? Especially considering items like movies and music are now delivered electronically, so you don't have to wait for them anyway. While Amazon has sweetened the pot with add-ons like free streaming music and video services, it's worth considering whether those actually add any value for most consumers.
Amazon uses a mix of robots and people to fill orders. Image source: Amazon.
A look at Amazon's shipping
Shipping prices for non-Prime members vary based on the size of the item being shipped and where it's being sent to. Amazon also offers free standard shipping, which takes five to eight days, on orders over $50 and on book orders over $25.
Using an account that does not have a Prime membership, Amazon recently showed me a $5.52 charge for standard shipping on an order of 64 Bigelow tea bags. That order, placed later in the day on a Thursday, was estimated to arrive a full six days later while a Prime member would have received it on Sunday if they were in a location that gets Sunday Amazon delivery. There was also an optionfor the non-Prime account to ship the order via two-day delivery for $10.68 and a one-day shipping option priced at $22.68.
To look at another option, the paperback version of Stephen King's It (a rather hefty tome), shipped to the same address as used in the above non-Prime example, would cost $4.98 for standard shipping and was estimated to arrive six days later. For the book, $12.98 would have bought two-day delivery and $19.98 (more than the cost of the book) would have it arrive in one day.
Image source: Getty Images.
The numbers vary based on what you buy, but even if you assume an average of $5 per order in shipping costs, it only takes 20 orders to make Amazon Prime a good deal on shipping costs alone. Add in the fact that the service comes with guaranteed two-day delivery and the value grows compared to either paying more or waiting to build up $50 orders, then waiting out the longer shipping times.
What about the rest of the perks?
In addition to offering free two-day shipping, Prime also gives customers a number of other perks, most notably Amazon's streaming music and video services. Both of those are arguably worth something, but less than the top-tier providers like Netflix (NASDAQ: NFLX) in video and Spotify (among others) in music.
In music, Amazon has created a pretty good service with more than a millions songs and thousands of playlists. The service is certainly not all-inclusive, but most major artists are represented, and there's plenty to listen to (albeit not always the specific song you want).
With the online retailer's video service, the difference between it and Netflix remains large, but it has shrunk. Amazon now offers some award-winning, highly regarded shows like Transparent and Man in the High Castle as well as The Grand Tour, a much-anticipated show from the people behind Top Gear.
Netflix clearly wins when it comes to volume -- both in originals and catalogue -- but Amazon has closed the gap. If you had to pick one service to pay $9.99 a month for (Netflix's basic price) it would be the streaming leader, but as part of a broader service, Amazon Prime Video clearly offers value.
Is Amazon Prime worth $99 a year?
It's worth noting that Amazon sells Prime for a once-a-year $99 payment or for $10.99 a month ($131.88 a year). The company also sells access to its video service only for $8.99 a month (which seems like a lousy deal).
Basically, whether Amazon Prime is worth the price comes down to whether you ship at least a couple of orders each month that fall below the $50 threshold that gets you free (slower) shipping. Given the depth and breadth of what the online retailer sells and the pricing value it offers, it's hard to see many consumers for whom a $99 Prime membership would not be a good value.
Frequent Amazon shoppes can also further enhance their Prime savings by getting the Amazon Rewards Visa. That credit card gives users a 5% credit -- redeemable on Amazon.com -- for any purchases they make at the online retailer. In addition, the card offers 2% back at restaurants, gas stations, and drugstores, and 1% back on every other purchase, all available as Amazon spending credits.
In most cases, the free two-day shipping alone should pay back the membership charges, and disciplined consumers should be able to well exceed that value simply by regularly ordering a few household staples from Amazon each month instead of lugging them home from a generally more expensive store. On top of that, the music and video services, as well as the long list of lesser perks Amazon Prime offers, make it a good deal for most American consumers.
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Daniel Kline has no position in any stocks mentioned. He would sooner get rid of cable than Amazon Prime. The Motley Fool owns shares of and recommends Amazon.com, Netflix, and Visa. The Motley Fool has a disclosure policy.