Amazon.com Inc. AMZN Prime membership is getting bigger and better in the U.S. as the latest city to get the one-hour delivery service is Dallas.
Why Dallas?
Dallas is the largest city to get Amazon Prime Now. Also, it is the fourth city added to the company’s Prime Now list after Miami and Baltimore, which it added last week and New York City where it was launched in Dec 2014. Dallas is an important addition to the list as it is not only the fourth-largest city in the U.S. but also has a population of over 6 million.
As of now, Prime Now is being introduced in select Dallas-area zip codes but will soon be expanded to include other nearby areas. Prime Now is available from 8 a.m. to 10 p.m., seven days a week. Two-hour delivery is free while one-hour deliveries are charged $7.99 in most zip codes.
Amazon Prime Now
In Dec 2014, Amazon rolled out this one-hour delivery to a very small zone in Manhattan. In February, it made the service available throughout Manhattan.
Amazon Prime Now gives customers the option to have books, batteries, shampoo and other household items delivered within 60 minutes. Prime Now offers this convenient service for free for two-hour deliveries from 6 am to 12 am, with one-hour deliveries available for an extra $7.99. All Prime Now items can be browsed and purchased through a dedicated app.
What exactly does Amazon do if it fails to deliver items within the promised timeframe is still vague.
Paying $7.99 for getting household items delivered to your doorstep can be a little expensive, especially if you just order a few household items. However, we must remember that Amazon gives substantial discounts on such items and customers are likely to recoup a portion of the delivery cost by paying less for the delivered items. Also, there is a convenience cost that comes into play.
The Prime Now app can be downloaded by all Prime members on both Apple’s AAPL iOS and Google’s GOOGL Android devices. Through the app they will get the notification when the service is available in their local area.
Benefits
Prime members clearly benefit from such services. In the last reported quarter, Amazon reported a profit of 45 cents per share, surpassing the Zacks Consensus Estimate of 24 cents. Shares soared more than 12% in extended trading following the report. Amazon gave credit to Amazon’s delivery service, Prime.
It’s important to understand the nature of Amazon’s core business. Amazon is mainly an online retailer. This kind of business has a very low barrier to entry. It is cheaper to set up and thus attracts a lot of competition.
There is no limit to the number of competing businesses that are waiting to snatch share away from the existing players. eBay EBAY and Alibaba are all part of this industry. Online retailers also face competition from brick and mortar stores like Walmart, Google and even Uber, all of which are working on similar services.
Therefore, carving a niche in this business requires a lot of marketing, an excellent customer service model and a rational pricing strategy. Dealing with all three and getting it right in order to maximize profits is definitely a lot of hard work.
To be a formidable player in this space, Amazon must constantly provide excellent services.
Prime Now will be part of an enhanced delivery strategy — an important part of Amazon's growth.
So, as the perks of Prime members increase, subscription will increase too. This in turn will increase the operating margins of the company.
Amazon has a Zacks Rank #4 (Sell).
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