Prime is the subscription service that changed online shopping. Prime membership in the US hit 103 million as of March 2019. Per some estimates, 70% of Americans with an income of $150,000 or more who shop online have Amazon Prime memberships. And Prime users spend 2.3x more than non-prime users. It’s a loyalty program like no other. Amazon has bypassed Google and become the starting point for online shopping. Bill Gurley calls this reversal of funnel.
A question that often comes up is – if it works so well, why haven’t other companies done this? To figure that out, let’s start first why Prime is so successful.
- Comprehensiveness. Consumers have near unlimited options on Amazon. Between their 1P and 3P businesses, Amazon has most products consumers need. They may not have carry a specific brand, but they have alternatives good enough to meet most consumer needs. Recommendations, price comparison and reviews make the experience better, easier
- Shopping experience. While Amazon’s search capabilities has a lot to desire, they have made the buying experience relatively simple with features like 1-click checkout and payment options. This extends beyond the core buying experience. Amazon’s speed and efficiency of delivery has made this the best complete shopping experience. Most products get to my door in under two days, and many make it on the same day.
- Control. Amazon controls the entire experience. Amazon already manages their own warehouses (for all 1P and some 3P products) and have been increasingly controlling/improving the last mile delivery too with programs to grow delivery network, introduce autonomous vehicles and compete directly with FedEx and UPS.
- Trust. As a direct result of controlling the entire experience, Amazon can consistently deliver products ahead of/on time, offer better return options, free shipping on returns, and process quick refunds quicker – making consumers trust Amazon.
Each of these extend the sustainable, long term moat Amazon has build and competitors can’t replicate easily, quickly or without massive investments of their own.
Who else could come close to mimicking this?
The closest I’ve seen anyone come is DoorDash with DashPass. DoorDash doesn’t have all restaurants, but they have enough in every cuisine/city to be relevant for most consumer searches. The consumer experience is superior to calling restaurants directly or starting on Google or Yelp. This program has helped DoorDash slingshot past Grubhub, Uber and others in market share. My personal usage and trust in DoorDash is growing, wouldn’t surprise me if consumers start staying loyal to the service (this is critical for DoorDash since 21% of DoorDash users also used Grubhub and Uber Eats). But DoorDash doesn’t control the entire experience since they are rely on restaurants to cook and package food.
Not surprisingly Uber Eats is also planning to introduce a similar program. Uber can do one better and actually better control a larger part of the experience with ghost kitchens.
DoorDash and Uber are likely seeing the benefits of funnel reversal already with their loyal customers. And this puts DoorDash and Uber in a much better position to dominate the winner-take-most delivery marketplace.
This post wouldn’t be complete without mentioning Walmart. While Walmart does have a good enough set of choices and low prices (which consumers love), they don’t control the entire experience. They are trying to address delivery speed, in store shopping and returns experience, but have a very long way to go.
I can’t think of many other businesses who can come close to creating a program like Prime and driving consumer loyalty. Would love to hear if there are others.