Amazon raising the price of Prime is a huge bet on itself

  • Amazon has increased the price of a yearly subscription of Prime in the United States by $20, to $119.
  • Any price increase carries the risk of alienating customers, but reputation experts say the company likely has nothing to worry about as long as it keeps up its high level service.

Raising prices is always risky — especially if it's for something customers love.

Amazon announced it will be increasing the price of a yearly subscription of Prime by $20 in the US, to $119.

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Cities most eager to lure Amazon HQ2
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Cities most eager to lure Amazon HQ2

Washington D.C.

14% of respondents are willing to pay more in taxes to lure Amazon to their city.

Austin, Texas: 

14% of respondents are willing to pay more in taxes to lure Amazon to their city.

Denver, Colorado: 

14% of respondents are willing to pay more in taxes to lure Amazon to their city.

Pittsburgh, Pennsylvania:

15% of respondents are willing to pay more in taxes to lure Amazon to their city.

Philadelphia, Pennsylvania: 

15% of respondents are willing to pay more in taxes to lure Amazon to their city.

New York City:

16% of respondents are willing to pay more in taxes to lure Amazon to their city.

Chicago, Illinois:

16% of respondents are willing to pay more in taxes to lure Amazon to their city.

Los Angeles, California:

17% of respondents are willing to pay more in taxes to lure Amazon to their city.

Boston, Massachusetts:

18% of respondents are willing to pay more in taxes to lure Amazon to their city. 

Columbus, Ohio:

19% of respondents are willing to pay more in taxes to lure Amazon to their city.

Atlanta, Georgia: 

19% of respondents are willing to pay more in taxes to lure Amazon to their city.

Raleigh, North Carolina:

20% of respondents are willing to pay more in taxes to lure Amazon to their city.

Dallas, Texas:

21% of respondents are willing to pay more in taxes to lure Amazon to their city.

Miami, Florida:

21% of respondents are willing to pay more in taxes to lure Amazon to their city.

Nashville, Tennessee:

23% of respondents are willing to pay more in taxes to lure Amazon to their city.

Indianapolis, Indiana: 

26% of respondents are willing to pay more in taxes to lure Amazon to their city.

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CFO Brian Olsavsky disclosed the price increase on an earnings call discussing the company's latest financial results last week, saying the change would take effect May 11 for new members and affect Prime membership renewals after June 16.

"We still feel it's the best deal in retail," Olsavsky told analysts on the call.

Olsavsky pointed to the benefits of Prime — including the tens of millions of additional items that are eligible for Prime shipping — and the increased costs of fulfilling orders for customers as justification for the price hike.

Amazon increased the price of its monthly Prime membership in January, to $12.99 from $10.99. Consumer Intelligence Research Partners estimated last year that only about 19% of Prime members paid the monthly rate.

But could passing off the price increases to consumers alienate loyal shoppers?

"People are sensitive to losses, and price increases count as losses psychologically," Ryan Hamilton, a professor of marketing at Emory University, told the Washington Post. "The broader perspective, though, is that people tend to be willing to pay for what they perceive as value."

People who use Prime tend to be very pleased with the service, which gives Amazon lots of wiggle room here. In his latest letter to shareholders, Amazon CEO Jeff Bezos disclosed for the first time how many Prime members Amazon has, saying it has more than 100 million paid subscribers globally

"You're not gonna see any Mad Max-style boycotts, that's for sure," Eric Schiffer, chairman of Reputation Management Consultants, told Business Insider. "People love Prime, and they already feel like they're in the money by hundreds of dollars because of the savings, so no one feels bashed in the teeth."

Prime has created an "emotional relationship" between Amazon and its customers, Schiffer says, which makes them feel like they're part of an elite club. 

But that relationship could be a double-edged sword if members start to feel that Amazon is not fulfilling their end of the bargain for whatever reason.

"Trust is still the bedrock," Schiffer said. "You can have an emotional connection, and then feel betrayed, and that emotional connection will get severed pretty fast."

With the price increase, Amazon is essentially betting on itself and how much customers love its Prime service. And currently, they like it a whole lot.

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SEE ALSO: Jeff Bezos finally revealed how many people pay for Amazon Prime

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