Amazon promises its Prime Day 2018 will be its most “epic”, but it is also crucial to its long-term growth, writes Howard Lake.

Amazon’s annual mid-year shopping festival is upon us yet again. This year’s Amazon Prime Day UK (and a half) begins at midday on July 16 and ends at midnight on July 17.

During the 36 hours, British shoppers will, we are assured, be able to access a plethora of deals across everything from fashion to groceries to furniture.

Of course, not just anyone can join in the fun – deals are only on offer to those signed up to the etailer’s subscription service, Prime.

Special events will be staged to raise awareness. Amazon is shipping giant ‘Smile boxes’ to selected cities – New York, Los Angeles, Milan, Tokyo and London – that will host “entertainment extravaganzas” ahead of the day itself.

In the UK, this means a concert headlined by Take That. Other markets are being treated to more sophisticated offerings. In India, for example, “virtual reality outlets” will pop up at 11 malls nationwide.

So what can we expect from this year’s event?

One thing is certain, Amazon Prime Day 2018 will be the biggest, most “epic” (in Amazon’s words), shopping extravaganza in its four-year history.

Records, we can rest assured, will be broken; transaction rates will exceed all previous levels, and the amount of goods shipped will approximate to several Wembley stadia, or some other familiar dimensional metric.

This can be asserted with confidence, because this year’s Prime Day is on a greater scale than ever. Shoppers in seventeen markets worldwide will be urged to take advantage of the “exciting” discount opportunities.

“Prime shoppers spend significantly more (on average twice as much as non-members), are more loyal, and are central to the ‘flywheel’ theory of ecommerce”

However, there is a more prosaic reason behind this globalisation of Prime Day than merely Jeff Bezos wanting to share the joys of shopping. When Prime prospers, so does Amazon.

A recent study from market research firm RBC Capital Markets has offered evidence of what many have long believed: that US Prime growth may have reached a plateau.

While 55% of US online shoppers are Prime subscribers, the figure is unchanged from 2017, marking the first year Prime penetration has not grown.

In his annual shareholder letter in April, Jeff Bezos disclosed Prime membership numbers for the first time, claiming 100 million subscribers worldwide. Most analysts estimate that US shoppers represent about 80-85% of that total.

Amazon total 2017 revenue came in at $177.9bn (£138.1bn), with roughly $10bn coming directly from subscription services, including Prime membership fees.

While this may not constitute a vast chunk of overall earnings, Prime is critical to sustaining Amazon’s ecosystem.

Prime shoppers spend significantly more (on average twice as much as non-members), are more loyal, and are central to the ‘flywheel’ theory of ecommerce.

The theory goes that lower prices lead to more customer visits; more customers mean greater sales volumes, which attracts more sellers to the site; this allows Amazon to make greater efficiencies, which enables it to lower prices further.

If Prime uptake slows, the thinking goes, then the flywheel loses momentum. Therefore, sustaining and building membership becomes essential.

Taking the offer worldwide

Given that Prime has long been available in major markets like the UK, Germany and Japan, the relatively low proportion of subscribers outside North America will be a long-term concern for Amazon.

Like the US, these countries have ageing populations, so it is not surprising that it is in developing markets with large youthful demographics such as Mexico and India that it is looking to establish Prime, despite those countries having lower addressable populations wealthy enough to buy into the service.

“The etailer is looking to younger shoppers to maintain Prime as a force, with video, music and fashion the hook to capture millennials and Gen Z consumers”

Amazon knows it needs to massively lessen its dependence on its home market. This is why it is redoubling its efforts to drive Prime internationally, and its latest Prime Day is an opportunity to tempt shoppers wherever they can be reached.

The etailer is looking to younger shoppers to maintain Prime as a force, with video, music and fashion the hook to capture millennials and Gen Z consumers.

This strategy also applies in emerging markets, especially among younger professional demographics.

However, this does not mean Amazon is lessening its focus on the UK. This remains its third-largest market with total 2017 sales of £8.8bn, of which £6.8bn is estimated to have come through the Amazon.co.uk platform.

As a mature market, Prime expansion here matters and helps it develop offerings such as its grocery ecommerce business and boost sales of its own products, such as Amazon Echo.

Selling own-brand

A notable shift in focus for Prime Day 2018 is the emphasis on Amazon’s own brands. It now boasts over 80 private-label lines in the US, double the number this time last year.

Few have made it to UK shores yet, but those that have crossed the Atlantic are being given starring roles in the Prime Day deals at Amazon.co.uk, with 20-30% discounts prominently featured.

Successfully driving uptake of grocery brands such as Solimo and Wickedly Prime, fashion labels like Find, Iris & Lilly and Meraki, or Mama Bear baby wipes – along with the ever-expanding Amazon Basics range – will go some way to easing bottom-line pressures caused by rising fulfilment costs.

“While the etailer is pulling out all the stops to introduce Prime in new markets, its mature market strategy appears more focused on nurturing the existing subscriber base”

Longer term, maintaining an upward own-brand sales arc is one way Amazon can achieve consistent profitability with pleasingly wide margins. Having your own high-performing lines also comes in handy when negotiating costs with suppliers.

Also, many of Amazon’s exclusive labels are only available to Prime members, adding a further layer of positive reinforcement for subscribers.

And it seems that this notion of exclusivity is likely to figure strongly in UK Prime development in the near future.

While the etailer is pulling out all the stops to introduce Prime in new markets, its mature market strategy appears more focused on nurturing the existing subscriber base.

Hard-to-resist bait such as Premiership football may swell Prime’s ranks from 2019, but ensuring those converts to Prime remain loyal is just as important as pure numbers.

That means a greater focus on those services that enhance Prime membership’s consumer-friendliness, like Prime Now’s free two-hour delivery, video and music exclusives and all the other perks and privileges that make shoppers feel special.

In Amazon’s worldview, Prime subscribers are its family. It wants to grow that family and is prepared to do whatever it takes to keep them happy. Because, for Amazon, a happy family is a very profitable family indeed.