Today, I would like to talk about how a subscription, which issuch as Prime, brings huge profitability to Amazon. Subscription isSubscriptions were considered a little riskrisky for Amazon, because they cancould lose their existedexisting customers and also needneeded to offer cost benefits to subscribing customers.

Then, why is Amazon is using this subscription strategy? Let’s look at this chart about the expenditure onof expenditures of Amazon.com purchases in the past 90 days. This chart shows a clear trend that athe proportion of Prime members is increasing, as the expenditure bucket is increasing, while non-Prime customers are not.

However, there is a more interesting pattern if you look at the slope of each bucket. Even though Non-Prime customersthe non-Prime customer slope is not too steep, we can see that the slope of Prime customers is increasing exponentially.

This is the magic of the subscription. One timeA one-time payment for the subscription is a sunk cost, absolutely, but people do not think like that. After getting the membership, they are more likely to buy products aton Amazon, not only to get their stuff early by using two-daythe free two-day shipping service, but they also they want to get reimbursed by using Amazon’s service more frequently.