The papers have repeatedly splashed Amazon TV’s triumphant signing of “star turns” Clarkson, Hammond and May in a rumoured £160 million Top Gear deal. The obvious reason for doing this is the motoring show’s been one of the world’s most commercially successful brands, and Amazon hopes people will sign up to its service to watch it.
Yet dig beneath Amazon’s business model and this is about far more than just TV. It’s a much more interesting and commercial move than it first appears.
It’s all about Amazon Prime
In the UK, US and elsewhere, the main route to watch Amazon TV is by joining its Amazon Prime £79-a-year service – which also includes a ‘free’ next-day delivery service on Amazon-bought goods. While you can get a TV-only subscription, it’s only a fraction cheaper and is nowhere near as heavily marketed.
Amazon uses a free month-long trial to draw people into Prime. This is a proven technique across many industries that plays on what’s called the ‘inertia dividend’, which means people are naturally predisposed to not liking to lose something they already have (see my The real reason firms do free trials blog for more on that).
PS: If you’ve paid for a trial and never used it, our Amazon Prime refund story shows how to get your £79 back.
However, to really see why this all works, let’s take a step deeper…
Prime’s secret isn’t the fee, it’s the fact it locks you in to buying from Amazon
Research on the US market by Millward Brown Digital shows that Prime members tend to stick with Amazon. Fewer than 1% of Prime members are likely to consider another retailer during the same shopping session – whereas a non-Prime member shopping at Amazon is eight times more likely to shop elsewhere in a session.
Research from Consumer Intelligence Research Partners also shows that the average US Prime member spends $500 more annually with Amazon than non-members.
It’s therefore likely that Prime would be profitable for Amazon even if you ignore the subscription fee, just because it engenders so much more customer stickiness.
Yet this wouldn’t work without the subscription fee, as I suspect perversely the fact it charges works to Amazon’s benefit as people have an “I’ve paid for it, so I should use it” feeling, which keeps them entrenched within the Amazon empire.
That’s the genius of the business structure; the firm gets £79 and then because it’s charging, generates more sales.
So if the new Top Gear works, it should pay for itself many times over
Therefore if the new motoring show can increase subscribers to Prime, it’s likely Amazon not only gains revenue from the TV fee alone, it increases its domination in the retail space with a huge host of more consumers who feel locked into its marketplace and spend.
I’d love your views. Are you a Prime member? If so, do you think you shop there more because of it? Please let me know below.