27 Comments

Summary:

Thanks to bigger selection, convenient return policy and addition of digital goods, Amazon is quickly sucking up more of our spending dollars. No it is not just me talking — data shows a sharp jump in per account spending and it is only the beginning. Bezos FTW!

business girl with shopping bags

I am one of those strange people who think that Amazon Prime is perhaps the greatest thing since, well, Amazon.com itself. Pay a flat fee, and you can pretty much order anything you want from the big online merchant and get it delivered to your front door in 48 hours. In many ways, the convenience of going to one location to buy most of my stuff and not worry about shipping charges is why Amazon has started to take a bigger share of my household spend.

So unless it is a big brand product or a luxury item, Amazon has my shopping vote. And if that was not enough, when I do end up in a retail location, I do a price match with Amazon using its iPhone app – before making a purchase.

In a recent survey of smartphone users conducted by Google, nearly 79 percent of respondents used their smartphones for shopping, and three out of four smartphone users made purchases either in-store or online using their phones. Apparently seven out of 10 smartphone users turn to their phones while shopping in a store, which shows the phone is often in use from the time research begins until the moment a purchase is made.

But beyond the mobile shopping, what is helping Amazon transform into a one-stop shop is bigger inventory, convenient return policy and good service endears the company to many of us.

The ramifications of this behavior are going to be pretty profound, and in case of Amazon, for the better. The signs of a better future are already here for all to see. Ben Schachter, Internet analyst for Macquarie Securities in a research report estimated that Amazon’s revenue per active account on a trailing twelve-month basis has grown 121 percent since 2003 and 63 percent since 2006.

On an average, an Amazon customer spends about $245 every year across all its sites. In comparison, Amazon customers were spending about $111 per year in early 2003 and about $138 in early 2006. I am of the first belief that this number is going to go up even higher as Amazon has started to add a whole different slew of services.

Many of us underscore the importance of digital goods. Many of us buy digital version of music, movies and books with a casualness that adds to our monthly spending. (I have 11 unread books already on my Kindle app.) For instance, during the first quarter of 2011, Amazon saw a big jump in units sold, thanks to the growing demand for e-Books, a trend that is likely to continue according to Schachter. And that is only going to help increase the average spending on Amazon.

What does your Amazon spending behavior look like?

  1. Amazon is really good spot to make online purchase, mostly the due to the offers we get , which we dont get at other store. Personally I also prefer Amazon for online shopping.

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  2. Including electronics, ebooks, paper books (yes I still buy those) and household appliances etc my spend is well over 1000$ a yr on Amazon, closer to 2.

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    1. You are big spending geek. I always knew that about you. But is your spending because of Amazon prime?

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  3. I used to be one of those “only spend $250 or so a year” people, until this year. Thanks to Seattle’s Amazon Fresh and Amazon Now services, I do all my grocery shopping through their sites. Amazon now lets me do free deliveries of thousands of regular Amazon items through Amazon Fresh deliveries, and I’ve had the item in my hands (yes, including paper books) in as little as 4 hours. I now spend around $250 a month, and overall it’s been a huge time and cost saver.

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    1. I wish we had Amazon Fresh option here in SF :-)

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  4. I am an Amazon Prime whore. I will even pay more for something if I know I’ll get it in 48hrs. I easily spend $200 a month from them be it books, diapers, printer ink or light bulbs even. I just bought underwear (Very nice patagonia underwear) from them. Prime is a drug and I actually bail on buying things from Amazon that do not have the free shipping. It is the best non-loyalty loyalty program in the world

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    1. Second that Dan. I was just talking to my dad about how I know for a fact I spend more on amazon than anywhere else only because of prime. Combined with one-click it’s a potent combination. I’ve made 4 separate orders in a day before all because of these two on items I know I would not have normally purchased if 1) it wasn’t going to arrive in a day or two, and 2) I can buy it with one click. The “best non-loyalty loyalty program” is exactly what it is.

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  5. Nice, more income…

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  6. Andrew Macdonald Saturday, May 21, 2011

    I must admit, I fell in love with Amazon a few years ago, and am also a loyal subscriber to their Prime service.

    I estimate I spend a good £1500 a year on Amazon, which in US is close to $3000 I believe. It’s the first place I go to look for items I need, I buy a lot of electronics and technology from the site, which is what mainly accounts for my large spend with them.

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  7. Amazon Prime is far worse than what you’ve written because it teaches you to expect your purchases in 1-2 days for very little. When Amazon doesn’t have something, you feel very irritable because it means you’re either a) waiting a lot longer than usual or b) end up buying the same item in a store for much more.

    It’s also a logistical marvel that they can ship things to you in one business day for only $4 more. Whoever came up with Amazon Prime is a genius.

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  8. I thought Amazon Prime was a bad move for Amazon when I could purchase a $12 replacement piece for a Weber grill and have it show up 2 days later in a huge box with no shipping charges.

    I thought Amazon would realize their mistake, then discontinue the program.

    Online retailing. One more thing I don’t know much about.

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    1. The logic behind Prime is that more often than not, shoppers won’t “eat up” all the costs because they’re not shopping as much as those who take full advantage. This, coupled with great negotiated rates with shipping carriers allows Amazon to continue offering the service.

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      1. Pamela

        What a wonderful, succinct reasoning behind Amazon Prime and its success.

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  9. Unfortunately, buying everything from Amazon.com doesn’t feed as much into the communities as shopping more independent stores. Aside from Amazon.com you could also shop other online stores that utilize Amazon Checkout.

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  10. For people who love the convenience and range of shopping from Amazon, you can still make big savings by purchasing products at the best price at the right time.

    Our startup http://www.happybuy.com/ tracks thousands of Amazon prices and can tell you when is the best time to buy, along with emailing you of price drops on interested products.

    Its amazing that simply waiting a day or two many Amazon customers regularly save more than 30% due to the constantly fluctuating prices and vendor competition.

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  11. It seems to me, it’s possible that Prime is perhaps the single greatest loyalty program ever. It causes us all to buy more from Amazon, to tolerate slightly higher prices from Amazon than we might from another merchant, to seek out Amazon just to find out if they carry the goods we are after.

    I cannot imagine ever shopping online again in a Prime-free world. I am assuming they make good money from me even if they are no longer making money from me on shipping.

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  12. Om, what are your thoughts about buying online compared to buying local?

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    1. Stephen

      I buy a lot of things local – food and other perishables which are actually grown locally. It is big part of my daily spending. Personally, I cannot make myself to shop for clothing online mostly because I think there is something tactile and organic about clothes that one needs to experience with all senses.

      Call me old fashioned in that sense.

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  13. om,
    i enjoy reading most of your columns.

    but this is a sad one. i think what you’re referring to is what some people call ‘the Wal-Mart’ effect.

    everything’s cheaper and available in one place – and if we skip ahead a few steps, then all that’s available is what Amazon or Wal-Mart sells.

    and for those of us who sell items to Amazon, it’s become a very bleak proposition. because of how you describe the situation. Amazon loves to trot out similar responses and use them to hit people over the head with regard to selling terms.

    and don’t even get me started on sales tax. want your roads fixed, more police officers, maybe a public school in your neighborhood. don’t live in a state that has cut a deal with Amazon so they don’t have to pay sales tax on items they’ve sold. but all those retailers where you go to look at stuff and then end up buying it on Amazon – they collect sales tax in the community they’re located in.

    you’re a smart guy. think a little more about what you’re giving up for ‘your convenience.’

    cheers!

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    1. Tom

      I think you make fair points and I wouldn’t argue on that. I am not sure if I really have an opinion on taxes — i pay mine and I assume that is what pays for most civic services, and not just the sales tax. As for Amazon squeezing its suppliers, that is unfortunate and short term thinking on their part.

      By the way, I do support a lot of local businesses by buying local.

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  14. $245 a year? 85% of the things we own came from Amazon. We probably are around the $3-5K a year range.

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  15. “But beyond the mobile shopping, what is helping Amazon transform into a one-stop shop is bigger inventory, convenient return policy and good service endears the company to many of us.”

    Another key reason is also the site’s recommendation engine, which has to be the gold standard. I’ve lost count of how many times I’ve bought things on Amazon because of its recommendation engine – things I would not have bought otherwise and which I felt were in line with my interests, i.e, no buyer’s remorse. This is one of those features that’s good for both the customers and the company.

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  16. I’m glad you are all smiling about your Amazon deals.

    Right now we are in a liquidation mentality. However, if goods sell at 50% – 90% of their value, do you think manufactures will rush to produce those goods again? By the time the glut of inventory is flushed out of the market, retailers and manufactures will have evaporated into thin air. Those that remain will offer a much narrower range of choices and they will have to raise prices to stay alive.

    We have closed the doors of our store and don’t even have the funds to update our website. My expertise is with items rare and authentic; items that must be touched and seen to be understood. I am trying to work from home now. I am virtual now and struggling to recreate what we once had. I am brokenhearted – yet I too, like a deal. I understand the public’s motivation.

    I still believe in beautiful destinations but the little guy is at a huge disadvantage. Independent businesses have been left dead or dying. Small profit driven retailers don’t have the resources to react and invest to the constantly changing technology. You need calm seas to navigate a boat.

    Our business had a thirty year history, three employees and we provided a unique service. How will I do that from home? (Impossible to duplicate online.)

    If you have the resources it can be done, but businesses like mine will not return. I want to open another store but I see no hope of surviving with the added burden of escalating taxes, rent (Chicago) and expenses. If I do reopen I will not be offering full medical benefits again ( a well-intentioned but a contributing factor to our demise.)

    Sound business plans (and science) are based on extrapolating trends and using those to make predictions. You can’t make predictions when the curve is chaotic. We are just one in a sea of failed businesses that have been hit hard by the internet. Worse things can happen -just look at the world) Me? I’m still scratching my head. Check out my blog at Lisa Linen Lady. I have plenty to say there.

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    1. I understand your frustrations, with your store closing and the rapidly changing retail climate. However, how can you say you are “just one in a sea of failed businesses that have been hit hard by the internet”, and in the same discourse say your unique business is “Impossible to duplicate online”? You just can’t have that both ways.

      Perhaps the failure was due to another cause? Like maybe your store’s uniqueness failed to draw a large enough market? That’s a large and common problem when serving a niche. Sometimes the niche is too small. Or.. maybe with some creativity you could in fact continue your business online and reach a larger market?

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  17. “So unless it is a big brand product or a luxury item, Amazon has my shopping vote. And if that was not enough, when I do end up in a retail location, I do a price match with Amazon using its iPhone app – before making a purchase”

    Exactly. Especially now that the iPhone app has the barcode scanner. I have stood inside a store, done the hands-on evaluation of a product, and placed the order on Amazon using my iPhone with a simple scan. Plus I think I checkout faster than it would take to go through the checkout line. Bonus, even though the free Prime shipping is 2-day, I’ve found that many times I get it the next day. Amazing!

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  18. I rarely comment on article I read but I can really relate to this article. I have been using Amazon.com for several years and have bought many little items (pens and laundry detergent) to big ticket items (tv, lawn mower and printer). My wife makes fun of me for how addicted I am to that site. They offer a terrifically competitive price and with the Prime option I generally will get it faster then the time it would have taken for me to go to the store. I have had to return items and was not given any issues. We recently had a baby and did our gift registry through them. I cannot praise Amazon enough. It is a great site that keep expanding and improving. I have even purchased amazon branded products (ethernet and HDMI cables) that work well. There was even a story out today that reported that Amazon was going to manufacture their own Android tablet.

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  19. My purchasing on Amazon is way down. They used to have the best prices on tools and kitchen stuff, but now they’re pricier than my local stores. Same goes for electronics.

    I used to also buy my Macs on Amazon, but they don’t even sell the new ipad!

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