Dive Brief:

• Amazon.com Inc. on Thursday sent its Prime customers a notice that their membership fee would be going up by $20, to $99 per year. The service offers free shipping on select items and a streaming entertainment service.

• The e-retailer last month had announced it was considering a hike of between $20 to $40 because of rising fuel and transportation expenses.

• Analysts estimate that Prime members spend 150% more at Amazon than non-prime members. 

Dive Insight:

Last month when Amazon floated the idea of raising its Prime annual fee, something it hadn’t done since its launch in 2005, speculation immediately went wild: Would they, should they, how much could they? Amazon keeps information about Prime pretty close to the vest, but research a couple of years ago found that Amazon loses $11 per year on each Prime member. Amazon has taught its customers to expect the cheapest price on pretty much any product available, and Prime members get free two-day delivery even on the tiniest of orders because there’s no minimum. They get all that on top of an entertainment streaming service rivaling Netflix. If anything, the price hike is needed just to keep Amazon Prime possible. 

The online retailer has been under pressure to finally turn a profit, so this seems like a very practical move, and not a drastic one. Maybe that’s why the reaction, judging by Twitter so far at least, has been fairly tame. Some observers wonder what effect the increase will have on new members, worrying that it would undermine Prime membership’s role in driving so many people to shop, while others maintained that the fee is still cheap at the new price. Most likely, new Prime membership signups and some renewals will ease up, just a little, but most will stick around. What members might expect after the increase is that more items will become eligible for Prime.