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How Amazon Is Making Prime Irresistible

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Apr. 30 2019, Published 2:54 p.m. ET

Amazon is working on making one-day delivery a standard

A key takeaway from Amazon’s (AMZN) first-quarter earnings call is that the e-commerce giant is spending ~$800 million in the second quarter to make one-day free shipping a standard for Prime members. The company said that it plans to improve its logistics network to make this quick delivery possible. It has been building fulfillment centers around the country equipped with robotic systems. Amazon, which hiked up its annual US Prime membership rate from $99 to $119 last year, has been ramping up its membership benefits to retain members.

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Amazon aims to roll out one-day delivery to Prime members in the United States, where the company already offers very quick delivery on some items, including two-hour delivery. None of its e-commerce rivals have the resources needed to offer something similar.

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How Amazon is able to offer so many benefits to Prime members

Amazon operates its core e-commerce business at razor-thin margins to differentiate itself from its competition. It has this luxury due to its fast-growing cloud and digital ad businesses. In the first quarter, Amazon Web Services contributed over 50% of the company’s total operating profits.

At $119 annually, Amazon Prime is a compelling deal that many Americans can’t resist. The company’s subscription service revenue, which mostly comprises Prime subscriptions, has been growing very quickly, as the graph above shows.

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