Amazon Prime Day: The Logic Behind a Retailer’s Made-up Holiday

 
 
The company is celebrating its 20th birthday with a sale—a shopping event for its 40 million Prime customers. Sunil Gupta explains what's driving the creation of a Black Friday out of nowhere.
 
 
by Christian Camerota

Amazon.com is taking an interesting approach to its birthday this year. The company is throwing itself a party where all its Prime customers get the gifts.

Amazon Prime Day is slated for July 15th, "a one-day shopping event with more deals than Black Friday," held ostensibly to celebrate the company's success over its 20-year existence. But Sunil Gupta, an expert on marketing and digital technology who wrote a recent case on Amazon, sees deeper motives behind the company creating its own Christmas in July.

"I think it's a great play," Gupta said in a recent interview. "These peak events are a way to generate excitement, especially for a well-established player like Amazon. It's a means of creating news and buzz by coming up with your very own Black Friday out of nowhere."

Gupta pointed out how important Prime has become for Amazon, despite initial skepticism about how the company would ever sustain charging such low prices, paired with free shipping. That early experiment has proven a huge success, as there are reported to be 40 million current Amazon Prime subscribers. Each subscriber pays a $99 yearly fee, which represents $4 billion alone in revenue for Amazon, in addition to the additional value the online retailing giant gets from the loyalty customers feel once they are enrolled.

"THERE IS NO QUESTION THAT PRIME MEMBERS ARE EXTREMELY IMPORTANT FOR AMAZON, AND IT GIVES THEM HUGE MOTIVATION TO TRY SOMETHING LIKE THIS"

"Studies show that Prime members spend almost double the money of other customers," Gupta said. "And the conversion from search to purchase for those customers is something like four to five times higher. There is no question that Prime members are extremely important for Amazon, and it gives them huge motivation to try something like this."

Amazon is not the first to try launching its own shopping holiday. Chinese e-commerce behemoth Alibaba manufactured its own event in 2009 with "Singles Day," which takes place on November 11 (11/11), and this past year posted more than $9 billion in revenue during the 24-hour sale. Another e-tailing competitor, India's Flipkart, hosted its own "Big Billion Day Sale" in October of 2014 and managed to attract 1.5 million shoppers and top $100 million in sales in just 10 hours. The sale was so popular that Flipkart ran out of merchandise and had trouble fulfilling many orders.

Gupta said the main goal for Amazon in hosting Prime Day will clearly be customer acquisition, whether by attracting brand new customers through the sale's buzz, or by getting occasional shoppers to make the leap to a Prime subscription. Not to be forgotten, current Prime subscribers will benefit from large savings on big ticket items. But the company may have other motives in mind, as well, such as fending off up-and-coming online retail competition. Many other companies (Walmart among them) have begun their own membership clubs that mimic Amazon's low costs and reduced shipping rates. In these cases, however, Gupta believes Amazon has and can exploit a distinct advantage.

"Amazon offers a lot more benefits, like their streaming music and movie services," Gupta said. "If you think about it, all of those are zero additional cost to Amazon, but represent huge value to the customer. It's a real differentiator for them because most of their competitors won't be able to offer those perks, and certainly not in the same place all at once."

"[PERKS LIKE STREAMING MUSIC AND MOVIE SERVICES ARE] A REAL DIFFERENTIATOR FOR AMAZON BECAUSE MOST OF THEIR COMPETITORS WON'T BE ABLE TO OFFER THEM"

Even if Amazon isn't able to ultimately convert new or occasional visitors into full-time Prime subscribers, the event could still yield huge returns on the back end. Through the 30-day trials for non-members, Amazon is able to collect hundreds of terabytes of data on the shoppers. Given that the company already makes close to $1 billion in advertising, that is information the company can then quickly turn around and sell to advertisers for an even greater profit.

Of course, Prime Day will not be without its challenges. Gupta said Amazon will have to carefully plan for a huge surge in demand, and the supply chain logistics that come along with that, though he believes they are well-equipped to do so given their robust technological infrastructure and prowess with cloud computing.

And as for whether people will trade a few hours of sun bathing for bargain hunting?

"Whether July 15 is the right day or not, I don't know," Gupta said. "But I think it's a good idea to keep it well away from Black Friday, which generates all its own sales and revenues. Having it in July could actually be a good way of boosting sales in a time that is usually a in bit of a lull."

About the Author

Christian Camerota is assistant director of communications at Harvard Business School.

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    • Andrew
    • CEO
    As someone who's been a loyal Amazon customer for 18 years, and a Prime member for 5 year, I went on to the site expecting what Amazon promised.

    After trawling through the 'offers' I left without making a single purchase. I am convinced that this is a poorly executed offer, with very few agreements with manufacturers and suppliers, so that what we, the customers, are left with is all of the rubbish that Amazon wants to clear it's warehouses of.

    In case some algorithm was at work to prevent loyal existing customers from finding offers destined for new accounts, I even cleared all cookies, used a different IP, and went back as a 'new' Prime prospect. Same result. Just old rubbish.

    I have regularly spent about $400 per month on Amazon over the Prime years. This increased with 'subscribe and save' but then decreased to zero when Amazon was unable to remain consistent with my orders.

    Although I have a 'Fire Stick' I still only tend to use Amazon for goods, preferring Netflix and my Apple TV. Thus, the new $99 Prime fee hike left me wondering whether it was better just to use the free 5 day delivery option for Amazon, and cancel Prime.

    This new over-hyped Amazon day has left me feeling let down as a consumer. Even if there had been one single offering out of the thousands of products I could and would buy, I think I'd have been left feeling satisfied enough to keep Prime.

    There were no good offers, thus I've canceled Prime as of next week. I'll still use the slower service, but will shop around a bit more now, and use BB&B/Costco etc for comparison, rather than pressing the 'buy' button on Prime.

    I suppose Amazon will collect enough new members that people like me don't really matter. Fair enough. But I can't abide such bullshitting as Amazon has clearly facilitated with this 'offer.'
    • Jillian
    I found lots of bargains and started Christmas shopping. I thought it was awesome!
    • Kapil Kumar Sopory
    • Company Secretary, SMEC (India) Private Limited
    Such strategic offers by a company the value of whose stock has accelerated 24000% in 20 years should attract more prime customers after the event. I will keep a track to learn of the company's future growth.
    I am not an Amazon regular customer save a few books I got many years back. But I learn its progress is fantastic.
    While most will be happy, there could be some disgruntled ones may be for somewhat genuine complaints about the quality of some of the goods they came across , lax customer service at times, etc. But, the majority seems to be otherwise.
    Our best wishes to the Amazon management for more such and other innovative moves in future.
    • Harry
    • HR
    I couldn't find anything worth a dime - I though it was the 99cent store. If the point was to disappoint diehard customers with a snake oil display like this Jeff Bezos succeeded. What's the world coming to?
    • Will Mateiuc
    • Orbet
    I think it's a great tactic to get people to buy obviously, but also get them to "try" Prime... and end up keeping it. Especially for the people that forget to cancel the trial and then they charge them for it!