Amazon.com may be finally facing a worthy adversary in the retail arena: itself. The online giant recently announced its intent to increase the $79 annual fee on its popular Prime membership by $20 to $40, but our consumer insights suggest that its shoppers aren’t buying into plan, signaling what could be a dangerous move in an already hyper-competitive retail environment where loyalty is hard to win and easy to lose.
Among current Amazon Prime members, the majority (63%) indicate that the current $79 fee is their ceiling for the yearly service, which includes free two-day shipping as well as complimentary access to a selection of eBooks as well as its Instant Video service. Three in ten current members (29%) would be willing to pay an additional $10 to $20, while a very limited percentage (8%) would accept a rate hike of $30 or more.
Naturally, it’s the cream of Amazon’s customer crop that indicates it’s amenable to a membership fee of $109 or more. This particular group of shoppers tends to be male (65%), younger (75% are under the age of 45), and maintain average household incomes of nearly six figures. This is a dream segment of customers for a retailer to capture, and Amazon has their attention. In the highly competitive electronics category, for instance, Amazon (21%) ranks first among these shoppers in customer preference share, while Best Buy follows (19%). This is a huge coup for Amazon; among adults in general, Best Buy (35%) remains the retailer shopped most often, followed by Walmart (17%) – Amazon lags in third position (12%). Further, this segment is made up of heavy spenders, budgeting 150% more for major electronics per year compared to the average adult. The problem for Amazon, though, is that these Prime members represent the extreme minority.
So here’s the quandary for Amazon regarding the majority of its Prime membership base: how does the retailer raise its Prime rate without alienating shoppers? Shoppers maintaining a $79 limit for Prime already demonstrate less tenable ties to Amazon compared to those willing to fork over $109+ per annum; preference for Amazon among these shoppers in the aforementioned electronics category falls behind Best Buy, while in one of Amazon’s other sweet spot categories – shoes – the online retailer is still trumped by Payless, DSW, Kohl’s, and Walmart. So, while these Prime buyers tend to have a higher preference for Amazon compared to the average consumer, complete loyalty to Amazon isn’t a guarantee.
Maybe it’s time for Amazon to introduce Prime membership levels: a base level for free shipping alone and an upgrade for access to Amazon’s digital media content. Or perhaps they should incentivize a higher Prime rate with a rewards system, such as a percentage earned back on purchases à la Costco’s Executive Membership. Ramped up Prime benefits may take the sting out of a higher fee for some as well, because, let’s face it, while Amazon Instant Video is nice, it’s no Netflix – yet. Sure, Bezos & Co. is planning original content for its video streaming service, but will this alone be worth an increased membership rate for shoppers?
For Amazon’s competitors, a Prime rate hike signals a time to strike.
This article originally appeared on Forbes.com.