The real reason behind Amazon Prime day

Watch what I do, not what I say.
Watch what I do, not what I say.
Image: AP/Ted S. Warren
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Amazon is playing the long game.

The e-commerce giant’s mega-sale Wednesday (July 15) to celebrate its 20th anniversary may seem like a ploy for sales—its “Prime Day” promotion has already attracted competitors like Walmart to launch their own Black-Friday-like sales. But the joke is on the other retailers offering profit-biting discounts just to keep up.

Sure, Amazon might pick up some extra revenue to help it through the summer selling doldrums (before back-to-school and holiday sales rev up), but Amazon’s real motivation behind the discount day is to entice more people to join its Amazon Prime membership program.

The move highlights how the online behemoth has evolved from an e-commerce retailer into online warehouse club that’s less like the “Everything Store” that Walmart once was and more akin to Costco, the membership club which makes almost all of its profits on its $55 to $110 yearly fees.

Amazon perks such as free delivery, downloadable movies and media, and bulk delivery service work to reinforce the upsides of its prime membership and attract more loyal customers.

Amazon’s strategy comes down to three factors:

1. Amazon Prime members buy almost twice as much as non-members, according to Consumer Intelligence Research Partners.

2. Amazon Prime members also shop almost twice as often as non-members.

3. Amazon Prime membership has stalled: Even though Amazon boasted 10 million new Amazon Prime members during last year’s holiday season, only about 70% of customers purchase a $99 full-year membership after the 30-day free trial, according to CIRP.  By the 13th month, the drop-off rate goes up to 41%, CIRP data show.