Here’s what Amazon gets out of Prime Day


It’s the second annual Amazon Prime Day, the shopping event that allows Prime members to experience rapid-fire, deep discounts on an array of goods.

Non-Prime members can get in on the action by signing up for a free 30-day trial membership. With Prime, members get to enjoy ongoing discounts on goods, access to Amazon’s services, and free two-day shipping on many items.

So, what’s the catch? Can’t you just pull the plug on the membership after the trial period is over? Of course you can.

But Amazon (AMZN) is betting on the likelihood that you get hooked on the benefits of membership, which extend far beyond discounted goods.

“In addition to the tailwind Prime Day gives to Amazon’s retail business, we note Prime Day 2015 was used to cross-sell retail shoppers with Prime memberships and non-retail services,” Piper Jaffray’s Gene Munster observed. “Non-retail services, including Amazon Home Services (service provider bookings), Kindle Unlimited (book subscriptions), Amazon Music, and Amazon Web Services consumer features, are growth opportunities and offer much higher margin structures than retail. Prime Day 2016 will likely serve as another opportunity to remind users of these services.”

In other words, Prime Day lures consumers with discounts but enables Amazon to expose consumers to offerings that are unique to the company. All of this is critical as Amazon’s disruptive online retail business model has been somewhere between unprofitable to breakeven for years.

You see, any retailer can match a discount or compete with free shipping deals. But few can tie those deals to other things like books, music, and movies.

This is about much more than the sales of goods. In fact, you could argue that by offering these discounts, you’re just booking sales that would’ve occurred later.

“We believe Prime Day pulls forward demand during an otherwise quiet retail period and serves as a critical peak-day test for Amazon’s fulfillment and distribution operations ahead of the holiday season,” JPMorgan’s Doug Anmuth said. “Prime Day ’15 added ~$400 million in revenue and ~200 basis points of growth, and we expect a bigger impact in ’16 based on increased awareness, more compelling deals, and higher in-stock levels.”

“While the single-day numbers are likely to be impressive, we believe the true benefits of Prime Day are much farther reaching,” Anmuth continued. “We believe Prime Day: 1) allows AMZN to better gauge customer demand for 2H16; 2) acts as a critical peak-day test to ready its fulfillment centers and other systems for the holiday period (recall 4Q15 issues)—it’s almost like Black Friday in July; 3) adds a big event during the typically slower summer period, likely pulling forward some back-to-school sales; 4) provides more incentive for 3P sellers to join the platform; 5) brings in new Prime members well ahead of the holidays; & 6) drives AMZN device sales. ”

So, be mindful as you’re scouring Amazon’s deals in your attempt to beat the system. Amazon is selling you more than just discounted goods.

Sam Ro is managing editor at Yahoo Finance.

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