What Amazon Prime Teaches About Rewards
There are various methods to implement a reward system, but the general idea is that customers are given points and in return for these points, they receive certain benefits such as: Gifts as loyalty rewards Discount in exchange for purchase made by a customer Other services instead of discount. For instance, the cost of free shipment in exchange for purchasing beyond a certain limit is a system of rewarding a customer.
A perfect example in this regard is Amazon Company. Amazon has announced that for a little over 100 dollars a year, it won’t ask for any shipping fee from customer or the cost will be greatly reduced. In addition, other benefits are provided to the customers. Such action has significantly influenced sales because shipping fee is exceptionally high and it has a massive impact on prices.
The interesting thing is that Amazon loses 1 to 2 billion dollars per year because of Prime Amazon system but they have still kept this system. Why? Because the average purchase made by a member of Prime Amazon is worth 1500 dollars per year while an ordinary member annually makes purchases for 625 dollars. in fact, due to benefits of Prime membership, a member of Prime Amazon makes purchases which are almost 130% more than of an ordinary member.
Indeed, because the reward system is very enticing, members of Amazon customer club make purchases 130% more than what other people do. This system is designed in a way that customers make all their purchases from Amazon so they can use benefits and services such as free shipping. Amazon owns many warehouses all over the world and these places are connected to the central sales unit.
This company constantly observes bestselling products in different cities all around the world and sends these products where they are demanded more than anywhere else and goods remain in the storage facilities for the shortest period. Therefore, little amount will be expended on storage of those products. Since the storage costs are reduced, the company can save money and use it the saved amount on providing discounts, free shipment, gifts or any other model of customer reward to their loyal customers.
Emphasizing on customer orientation is one of the reasons Amazon has gained success. Companies like Amazon understand there will be changes in future and make effort to predict likely changes in the next ten years. They also design their plans according to the envisaged changes. Many of the plans these companies use today were designed years ago and they are being implemented in the present time.