Prime Day 2016: The 5 most important lessons from Amazon's 'biggest day ever'
Amazon’s second Prime Day sales event is now history, but its impact will reverberate across the retail landscape for some time to come. Here’s what it all means.
Amazon Prime Day 2016 has come and gone. Roughly a year after Amazon first created a new retail holiday out of thin air, Prime Day returned Tuesday to shake up the sleepy summertime shopping season, promising Prime members a barrage of bargains on everything from chocolate fountains to Cheesecake Factory gift cards.
Apparently consumers really like chocolate and cheesecake. After Prime Day 2016 was over, Amazon called it the single biggest day in company history, with global merchandise sales eclipsing the first Prime Day event by more than 60% worldwide and more than 50% in the U.S. It was also the biggest day ever for Amazon devices globally. In all, Prime members across the globe saved more than double on deals over Prime Day 2015, the online retailer said.
Prime Day 2016 highlights include a 2.5x increase in Amazon Fire TV devices compared to a year ago, along with sales of hundreds of thousands of Kindle e-readers. Shoppers also purchased more than 2 million toys, more than a million pairs of shoes and upwards of 90,000 TVs. Prime member orders on the Amazon mobile application outpaced Prime Day 2015 app orders by more than 2x, and more than a million consumers accessed the app for the first time ever.
But Prime Day is about far more than Prime numbers: It’s also a window into Amazon’s fascinatingly complex and ambitious strategy for total world domination. Here are five lessons drawn from the summer's biggest shopping event, the role it plays in Amazon’s ever-evolving business and the threat it poses to the retail establishment.
1. A bigger Prime Day was a better Prime Day
Social media snarkery notwithstanding, Prime Day 2015 was a big deal. According to Carbonview Research, consumers ordered 34.4 million items on the first Prime Day, an average of 398 items per second, exceeding Black Friday 2014 sales by 18% and trumping Cyber Monday 2014 by 20%. In all, the inaugural event earned Amazon an additional $400 million in revenue, JP Morgan estimates.
But Prime Day 2016 was so much bigger—massive sales increases, of course, but also higher-quality merchandise, better bargains, countdown deals, expanded shipping options, etc. That's because the first Prime Day made Amazon itself so much bigger. It’s not just that about three in 10 U.S. internet users participated in Prime Day 2015: It’s that about one in 10 internet users joined Amazon Prime on Prime Day 2015, helping expand the ranks of Prime membership to 52% of all American shoppers, according to recent Consumer Intelligence Research Partners data.
And boosting Prime subscriber totals is why Prime Day exists. Shoppers must join the $99 annual Prime program to access Prime Day deals, and once they sign up, they’re hooked: 91% of first-year paid subscribers renew for a second year, and 96% of second-year paid subscribers renew for a third year, CIRP reported last month.
Prime customers aren’t just loyal, however. They’re also lucrative. While Prime subscribers still make up less than 20% of Amazon’s total customer base, their annual spending accounts for close to 60% of the company’s gross merchandise value, according to a recent Deutsche Bank note. Prime subscribers spend an estimated $1,200 per year, versus $500 annually for non-Prime members, CIRP notes. A mid-2015 study from Millward Brown Digital adds that more than 70% of U.S. households with annual incomes topping $112,000 have a Prime membership, and 75% of Prime members convert when visiting Amazon’s website, compared to just 13% of non-Prime members.
Prime Day isn’t just about attracting new customers. It’s also about increasing the size of Amazon’s Marketplace third-party seller program. Last Prime Day, Prime members purchased more than 14 million items from Marketplace sellers and small businesses, and this time around, the number of participating vendors more than doubled, with Marketplace sellers offering over 30% of all Lightning Deals worldwide.
Citing strong international growth, Amazon reported a 30% year-over-year increase in the number of items sold by Marketplace sellers and small businesses on Prime Day 2016. “Prime Day is great for customers and sellers,” Peter Faricy, vice president for Amazon Marketplace, said in a recent press release, explaining that customers have the opportunity to support small businesses by purchasing unique items at bargain prices, while sellers can generate feedback and more customer reviews on their marquee products.
Don't sleep on Marketplace's growing impact on Amazon’s financials. Third-party sellers account for 9-12% of Amazon's total annual revenue, according to analyst projections. “Amazon already built the store and they already have the customers. That 9% share is pure profit, because all the expenses of this business are borne by the first-party side,” said Scot Wingo, co-founder and executive chairman of e-commerce solutions provider ChannelAdvisor, at this year’s Internet Retailer Conference + Expo. An influx of new Marketplace partners also allows Amazon to hike the number of available Prime Day deals without dramatically increasing its own exposure to inventory. So while Prime Day may be great for customers and sellers, make no mistake: It’s even better for Amazon.
2. Prime Day is about popularizing Amazon’s same-day shipping services
“We want Prime to be such a good value, you’d be irresponsible not to be a member,” Amazon founder and CEO Jeff Bezos wrote this spring in his annual letter to shareholders.
Shipping is part and parcel (literally and figuratively) of Bezos’ quest to make Prime membership a staple of everyday life: The Prime shipping program and the complementary Fulfilled by Amazon third-party seller delivery service are the engines driving Prime customer adoption, Piper Jaffray analyst Gene Munster said last month at an Amazon-themed workshop ahead of the annual Internet Retailer Conference + Exposition.
“Prime Now [free two-hour delivery] is currently available in 37 cities, and Same-Day Delivery is now is 28 cities,” Munster said. “Amazon is trying to take away the advantage of brick-and-mortar, which is instant gratification.”
Amazon boosted Prime Now’s visibility in the week leading up to Prime Day 2016 by offering subscribers who placed their first Prime Now order a $10 discount off that purchase as well as a $10 credit toward a future Prime Now order. Research suggests that Prime Now could become a significant differentiator for Amazon moving forward: A study published in May by same-day delivery services provider Dropoff notes that while the median consumer expectation for retail delivery is two days, 40% of respondents would prefer same-day arrival. In addition, 97% of respondents said speed is at least somewhat important in determining whether or not they will purchase a product, and 40% proclaimed it very important.
“[What] Amazon is doing right is hooking customers on the value of being a ‘member,’ something that so many retailers have not been able to achieve,” said Robin Copland, vice president of retail for the Americas at consulting firm Thoughtworks Retail, in a statement emailed to Retail Dive. “We believe that retailers should replace their ‘old loyalty guard’ and instead focus on being serial innovators of personalized value. As customers, we find personal value in spending $100 a month to get free shipping and free media streaming, because those activities are now woven into our daily lives. True value-based loyalty, as Amazon as pioneered, creates the kind of service and engagement that has been nearly wiped off the map, but is waiting to be reborn today."
3. Prime Day helps drive Amazon’s emerging technologies into the mainstream
Artificial intelligence is shaping up as a significant component of Amazon's future. "It's hard to overstate how big of an impact [AI is] going to have on society over the next 20 years,” Bezos stated at the recent Code Conference, noting that Amazon has dedicated roughly 1,000 staffers to its Alexa voice-powered virtual assistant platform and the company spent four years developing the technology before bringing it to market.
It’s no surprise that Alexa played a major role on Prime Day. Amazon spotlighted Alexa—which powers the company’s popular Echo, Echo Dot and Amazon Tap devices—in exclusive deals leading up to Prime Day, offering Prime members $10 off their first purchase on many transactions over $20 when they accessed Alexa and completed their order by talking to "her." Amazon also introduced an “Alexa, what are your Prime Day deals?” feature, including offers promoting other Amazon innovations: For example, saying “Alexa, order an Amazon Tap” last Friday allowed shoppers to score the portable streaming speaker at a price of $79, down from its usual $130.
Amazon devices including the Echo, Tap, Fire TV streaming video stick and Kindle Fire tablet were subsequently discounted on Prime Day. As of 12:15 pm ET Tuesday, Amazon-branded products accounted for nine of the top 10 best-selling electronics available on the site, with a Prime Day-discounted Samsung 55-inch 4K Ultra HD television the lone exception. In all, Amazon device sales were up over 3x compared to Prime Day last year, the company announced.
Amazon additionally capitalized on the Prime Day frenzy to promote its Dash buttons. The Wi-Fi-enabled devices allow customers to replenish common household and office goods with a simple button push: On Prime Day, shoppers could purchase a Dash button for 99 cents (down from the usual $4.99) and receive a $4.99 credit after their first press.
While devices like the Echo and Tap have enjoyed strong sales apart from Prime Day, Dash stands to benefit most from the exposure the retail holiday affords. Fewer than half of Amazon customers who’ve purchased a Dash button since the initiative’s spring 2015 launch are still using it to re-order merchandise, and among those that do use it, they push the button only once every couple of months, for laundry detergent and other items that are regularly used but too unpredictable for subscription orders.
Piper Jaffray’s Munster is bullish on Dash’s potential. He envisions the technology expanding far beyond Amazon’s buttons and existing integrations (e.g., water filters, printers and soap dispensers) to power a range of Internet of Things products including smart lighting, water softeners and refrigerators—even connected paper towel and toilet paper dispensers that track usage and automatically place new orders as supplies run low.
“[Dash is] the next step in commerce,” Munster proclaimed last month at IRCE. “Dash will allow consumers to focus less on buying things you don’t really get excited to buy. That ability to free us from thinking about those things is something Amazon is trying to do.”
4. Rival retailers aren’t going to roll over and play dead
Prime Day 2015 drove 179 million shoppers to the desktop and mobile sites of the top 25 U.S. retailers, according to digital analytics firm SimilarWeb. Those numbers not only compare favorably to known-quantity retail holidays like Thanksgiving (216 million last year), Black Friday (248 million) and Cyber Monday (219 million), but they’re even more impressive for a new event occurring in mid-July—the doldrums of the shopping calendar.
Given the numbers of Prime Day 2015 shoppers who spilled over to competitor websites to compare prices and products, it’s no surprise that many of those same retailers unveiled their own branded sales events this summer. J.C. Penney mounted “Penney Palooza,” a 48-hour sale kicking off July 11, a day ahead of Prime Day, while electronics retailer Newegg responded with “Fantastech.” In addition, Kohl’s is running daily deals from Sunday through Thursday of this week, both in-store and on the web, Internet Retailer notes.
Then there’s Wal-Mart. The retail behemoth’s “Dare to Compare” sale offers bargains on electronics, baby/kids products and apparel—the tentpoles of Prime Day’s product assortment. Wal-Mart also is offering free shipping with no minimum purchase on all online orders during the week of July 11 alongside 30-day free trials of ShippingPass, its fledgling two-day shipping service that rolled nationwide in late June at a price of $49 per year, half the cost of Amazon Prime.
ShippingPass sign-ups more than quadrupled in the week leading up to the Dare to Compare sale over the previous week, although Wal-Mart didn’t disclose how many customers have actually signed up. And while Prime Day deals are available exclusively to Prime subscribers, Wal-Mart is imposing no such restrictions related to ShippingPass membership. “We believe saving money every day is better than just one, and that all customers should save, not only some,” Wal-Mart said in a statement.
But there’s a massive difference between playing in Amazon’s sandbox and kicking dirt in its face. Amazon alone has all the pieces in place to make an event like Prime Day work—the cutthroat pricing, the merchandise selection, the Marketplace partners, the shipping and fulfillment options, even the kamikaze-like willingness to lose money on the whole Prime endeavor. Legacy retailers simply haven’t shown they have the skills or flexibility to compete, let alone beat Amazon at its own game.
But Amazon isn’t just eclipsing its competitors on Prime Day—it’s eating their lunch the other 364 days of the year as well. Experts already believe Amazon will leapfrog Macy’s to become the number one U.S. apparel retailer by 2017, and Deutsche Bank anticipates that Amazon will soon unseat Best Buy atop the list of America’s top consumer electronics retailers. Prime Day knockoffs like Dare to Compare and Penney Palooza underline the fundamental problems facing Wal-Mart, J.C. Penney and other brands across the retail landscape: Amazon is innovating, and everyone else is imitating.
5. Prime Day still isn’t quite ready for primetime
But let’s not anoint Amazon just yet. Sure, the Prime Day data is eye-popping, but the numbers could have been even better. Don’t forget that Prime Day 2016 got off to a rocky start when shoppers struggled to navigate the digital checkout process, with many Prime subscribers taking to Twitter to complain about “add to cart fail” messages generated when they attempted to purchase sale-priced items. Some added the hashtag “#PrimeDayFail” to their tweets. (Amazon acknowledged the complaints on its own Twitter feed, and confirmed resolution of the problem in an email sent to news outlets a few hours later.)
Mike Azevedo, CEO of database company Clustrix, compared Prime Day’s shopping cart issues to similar problems faced by Target last Cyber Monday when overwhelming customer traffic crashed its website. “Target gated how many people actually got into the e-commerce store. People were waiting in line,” Azevedo told Retail Dive. “It doesn’t sound like Amazon did that. It sounds like Amazon opened the floodgates and let everybody in at the same time.”
That kind of shopper deluge can slow page view load times and overwhelm database systems, Azevedo added. Still, given Amazon’s vaunted technology prowess, Azevedo said he is “very surprised” the company suffered hiccups, especially in light of Prime Day’s importance to its image and bottom line, and questioned whether its databases require an upgrade or overhaul to handle Prime Day-level customer traffic.
Even with the shopping cart hiccups, Prime Day social sentiment data collected by Adobe Digital Insights suggests the consumer cognoscenti responded far more favorably this year than last. Based on comments aggregated from blogs, Twitter, Instagram, WordPress, Reddit and other sources, Adobe found that “social sadness” declined 26% and “joy” surged 43% compared to Prime Day 2015 activity, with this year’s gloom-and-doom directly connected to checkout struggles, not the absence of blockbuster deals that shaped last year’s conversation. (Retail Dive’s own, far more unscientific Twitter tracking also suggests greater overall Prime Day positivity than a year ago.)
In light of all that went right on Prime Day 2016, it’s no surprise that Amazon has already pledged Wednesday to bring back the event in 2017... and likely beyond. “We want to thank our tens of millions of members around the world for making this the biggest day in the history of Amazon," said Amazon Prime Vice President Greg Greeley in a press release. "After yesterday’s results, we’ll definitely be doing this again.”
That gives Amazon 12 months to iron out the glitches, bulk up its existing products and services, introduce new innovations and roll out an even bigger, better Prime Day in summer 2017. It also gives rival retailers 12 months to respond to the challenge.
The clock is ticking.
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