Amazon Raises Free Shipping Minimum, Hoping to Drive Prime Memberships

Retail

Published: February 22, 2016 12:05 pm

Last Updated: January 13, 2020 12:53 pm

If you are not a member of Amazon.com Inc.’s (NASDAQ: AMZN) Prime club, you are going to start paying more for shipping costs on non-book goods ordered from the online marketplace. Without so much as a whisper in anyone’s ear, the company has raised its free-shipping threshold from $35 to $49 for non-Prime customers.

Amazon did give a break to book buyers: the minimum order size in order to qualify for free book shipping is still $25. And if you order $25 worth of books as part of a total order, the whole order ships free.

Not too much of surprise here. The company’s fulfillment costs jumped by nearly 23% year over year in the fourth quarter of 2015, and rather than make a change to its Prime subscription fee, which Amazon raised from $79 to $99 effective in April 2014, the company has decided to make non-Prime members eat the loss.

That serves two purposes: it increases the value of Prime to its existing subscribers and, Amazon hopes, it helps drive Prime memberships. Unlimited free two-day shipping is Prime’s whole reason for existence, although a mountain of free stuff has been added (like instant video and streaming music). Amazon is testing the point at which it takes in more revenue from higher shipping minimums and lower Prime membership costs.

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When Amazon raised its free-shipping minimum from $25 to $35 late in 2013, competitors like Target Corp. (NYSE: TGT) and Wal-Mart Stores Inc. (NYSE: WMT) rushed to either meet or beat that figure. Target still offers free shipping on orders of at least $25, but Wal-Mart has raised its minimum back up to $50 for free “value” shipping.

A $15 rise in the minimum order means that a Prime membership could be paid for with just under seven orders a year, all other things remaining equal. Plus Prime gives subscribers plenty of other benefits. There are likely to be plenty of new Prime subscribers over the next several months.

Amazon stock traded up about 4.3% just before the noon hour Monday, at $558.11 in a 52-week range of $365.65 to $696.44. The consensus price target is $741.97.

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