This article has been written by our friends over at Channel Reply.
Amazon announced on June 6 that it would begin offering discounted Prime membership to consumers with EBT cards (food stamps).
The discount is nothing to sneer at—five dollars off the normally $10.99 monthly fee. It will put Prime within reach of many who previously could not afford it.
This is great news for low-income consumers and bad for Amazon’s competitors. But how will it affect third-party sellers?
Amazon is known for its high-income customer base. On average, Amazon’s buyers are better educated than eBay’s. A study by Piper Jaffray has also revealed that the likelihood of Prime membership increases with household income. While 52% of those making $41,000 or less per year have Prime, an incredible 82% of those earning $112,000+ hold memberships.
This might change dramatically. To qualify for an EBT card and Amazon’s new Prime discount, a household must meet the requirements for the SNAP (Supplemental Nutrition Assistance Program) or a similar program. The SNAP requires a net income at or below the poverty line—$11,880 a year for an individual or $28,440 for a family of five.
People who qualify for the SNAP have little disposable income. However, Amazon Prime’s free shipping makes it a practical way to hunt bargains and save gas on shopping trips. And Amazon will be part of the USDA’s pilot program for redeeming food stamps for online purchases.
A surge of low-income buyers therefore seems certain. If it happens, it will reshape Amazon’s demographics in ways few sellers will be able to ignore.
Greater Demand—for FBA Sellers
The most obvious effect will be an increase in the number of Amazon buyers. However, this won’t affect every seller.
The new buyers will be highly motivated to purchase only Prime-eligible items. Merchants who fulfill their own orders may see little change in their sales volumes, while those using FBA and merchant-fulfilled Prime will likely see an increase.
In other words, Amazon has just created yet another reason to enroll in FBA. It’s time for self-fulfilled merchants to reconsider.
Transitions in Buyer Behavior
Low-income consumers tend to ignore sales and instead save money by going for the cheapest brands available. If you want to tap into this market, expand your inventory of generic goods rather than dropping your prices to rock bottom on Prime Day.
Also, to buyers for whom five dollars a month off Amazon Prime makes all the difference, every dollar counts. They have to work more hours to pay for the same item as someone in a higher income bracket. Getting what they were promised will therefore matter much more to them.
Even for FBA sellers, customer service will need to be at its absolute best and product descriptions as accurate as possible to prevent a spike in returns and negative reviews. Self-fulfilled merchants should make sure their return policy is up to snuff as well.
Walmart has proven that the low-income bracket can be highly profitable. Now, Amazon sellers can get a larger piece of that pie. Amazon’s strategy of targeting this demographic has a strong chance of winning over Walmart and eBay buyers, as well as complete strangers to the world of ecommerce.
Don’t ignore this change. Embrace your new customers by providing Prime-eligible listings, offering inexpensive brands, and sharpening your customer service, and they will embrace you in return.