Being Too Nice Can Backfire

Give members as many benefits as you can afford to give, but no more.

 
 

It’s an amazing service. You’re low on toothpaste or toilet paper or maybe you need some batteries. You go online and order it, and it’s delivered to your home within two days – for free.

Amazon’s Prime service, which requires a $79 annual membership fee, aims to reward its most loyal customers, encouraging more purchases and therefore more business for the online retailer. It does do that, but at quite a cost. Amazon has learned lately that perhaps it’s been a little too generous with its delivery services.

Amazon Prime is now a drain on the company’s balance sheet. The company does not breakout financial statistics of its Prime service, but analysts estimate that the Prime membership, created in 2005, costs the company $11 per Prime member each year, with losses increasing as package delivery service prices increase.

Amazon seems to realize it’s made a few too many concessions to lure members – it recently pulled back it’s Moms discount on diapers and wipes from 30% to 20% – but it’s still banking on this Prime delivery service to lock members into buying from Amazon. The company says its believes that losing money on Prime may be worth it in the long run as it fosters loyalty in members.

But is this service sustainable? Amazon’s Prime members have grown from 2 million in 2009 to 10 million in 2011. What happens when Amazon has grown its loyal following to a point where its Prime members are costing it too much to continue the offer?

Credit unions can learn a lesson from Amazon’s member-friendly Prime service. While credit unions purpose is to serve their members, credit unions must be aware that going overboard with generosity may be detrimental in the long-run. So give as many low rates and fee waivers and delinquency forgiveness as you can to members, but make sure it’s within your means.

 
 

March 21, 2012


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