Amazon Prime is an ongoing service. Are we thinking of revisiting the pricing now? Do we have any specific goal in mind like customer acquisition?

Assuming an yes to both the answers..

Amazon Prime is a service offered by Amazon for OTT video streaming and additional benefits while ordering anything on Amazon.

Competitors:

OTT – Netflix and Hotstar+Disney(assuming India location)

Current scenario:

Segment 1(mostly millenials): Subscribing to multiple platforms,going after trending web series ( the web series gen). Happy to spend for good content but has budget constraints and follow sharing approach while using a platform.

Segment 2( Seniors professionals): The more matured ones,financially.  Willing  to spend mostly on quality content. The end consumers might be of a younger age as well.

Segment 3: The ones who are mostly interested in the free delivery service on amazon and is seeing the OTT service as a bonus. Not yet into the OTT world much.

Segmented Price Approach:

Prime Pool: shared usage approach for students with a limit to the number of users in a group

Additional benefits for sole Prime users/existing users..like prime preview of releases for them and a little delayed release for the others

Pocket prime for users switching between platforms for limited usage or for the people aspiring to be a prime user with limited fund. However with this approach Prime can have better reach.

Value based Pricing:

Reference price set by competitors:higher than Prime

Positives: Quality content at a lesser price, additonal services benefit which others do not have.

Negatives due to positives of competitors:

Like brand value of Disney associated with Hotsar

Ref price + positives – negatives shall give us the price

Prime can either go for entirely value based pricing, without any segmented approach. Otherwise, Prime can combine both and set the premium price based on this equation and tweak with the prices for other segments.

With the goal of customer acquisition, second option is better.

Now: price is X ( for say 100 customers but without a count of how many are actually viewing the content)

With the recommended approach:

Price will be (X+D) for say, 50 sole  customers

And, (X-d) for an extra 50 customers

Revenue increases and actual customer count too

Here is how I would approach this problem:

1. Ask clarifying questions: What geography are we talking about here?

Here, I am assuming that we are talking about India.

2. What is the product? The product, here, is Amazon Prime. It is a service that gives its users access to online content along with some extra facilities on the Amazon e-commerce platform. Some of the content is created by Amazon itself while most of it is being taken from other production houses.

3. What are the different pricing models? Pricing can be mainly done in three ways: Cost-based, Value-based and competitor-based.

• Cost-based pricing model: For running this type of service, Amazon will require some content creators, developers, charges levied by other production houses, etc. Based on these costs, one can estimate the total cost incurred by Amazon in running this platform.
• Value-based pricing model: The customer segment for the Amazon Prime would be middle-aged Indians belonging to middle-income or high-income classes. Some primary or secondary research can be conducted to gauge the willingness to pay for these customers.
• Competitor-based pricing model: The main competitors for Amazon Prime would be Netflix and hotstar. Although Prime has an edge over them since it also provides e-commerce services along with OTT services. The prices charged by these competitors can be looked into to calculate our charges.

I will start with clarifying questions:

Any particular geography are we focusing on here for this decision. – Yes, India

Product description: 

Amazon prime is a bundled service that offers multiple benefits:

• Amazon Prime Shipping Benefits & Prime Deals and offers
• Primate Video
• Prime Music
• Credit card rewards
• Prime Reading

In addition to that some recently introduced benefits like

• Prime Gaming
• Amazon Family

I would like to use three different pricing models to triangulate on a good reasonable price and then tweak it slightly with controlled market experiments.

Value-based Pricing with competitive pricing-based estimation:

How much clear and direct value is created for customers in terms of time/money saved from the above-mentioned benefits?

Estimation of value for each service:

Cost-based pricing:

To provide the above services, Amazon will incur costs like shipping costs, original content creation, the cost of buying the media from other production houses, etc.

Against those costs, Amazon gets higher loyalty from the customers which increases CLTV in the long term.

So, the cost can be estimated for the above services to decide what proportion of the value created for customers to charge.

Recommendation:

Considering the cost-conscious Indian customers in the given segment and expanding the user base will bring down the fixed cost of services, 1/3rd of the total value of benefits = Rs.1500 can be charged for Amazon Prime subscription.