Amazon cuts Prime to draw in poor

Amazon.com became dominant in retail by drawing middle- and higher-income shoppers into its membership-based Prime program, which charges customers a yearly or monthly fee in exchange for perks like free shipping and unlimited video streaming.

The e-commerce giant now is taking aim at lower-income shoppers who have been more challenging to convert, and who represent a key customer base for Wal-Mart Stores Inc.

Amazon is offering a discount on its subscription-based service to U.S. residents who are receiving government assistance. The program will reduce the cost of a Prime subscription -- currently offered for $99 a year or $10.99 a month -- to $5.99 a month for up to a year with the ability to cancel membership at any time.

Consumers who have an Electronic Benefits Transfer card qualify for the membership. Those cards are used to distribute funds for government assistance like the Supplemental Nutrition Assistance Program, the Temporary Assistance for Needy Families and Women, Infants and Children programs.

Amazon said it plans to add other ways for customers participating in programs that do not utilize Electronic Benefits Transfer cards to qualify. Eligible consumers will have to requalify every year for up to four years.

"We designed this membership option for customers receiving government assistance to make our everyday selection and savings more accessible, including the many conveniences and benefits of Prime," Greg Greeley, vice president of Amazon Prime, said in a statement.

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Ken Perkins, president of research firm Retail Metrics LLC, believes the announcement is another piece of Amazon's strategy to insert itself into every element of retail.

He added that nobody is exempt from competition, but he believes the initiative also is, in part, a response to Wal-Mart's aggressive move to close the gap with Amazon since the $3.3 billion acquisition of Jet.com last summer.

"The gloves are off for both parties," Perkins said. "There's an intense competition going on."

New Wal-Mart U.S. e-commerce chief Marc Lore has introduced online initiatives like two-day free shipping on orders of $35 or more, which was a direct shot at Amazon's Prime program. The retailer also recently unveiled a pickup discount, which offers a discount on items purchased online if customers collect them at a store. Wal-Mart acquired online retailers ShoeBuy, Moosejaw and ModCloth and boosted its online assortment to more than 50 million items as well.

Part of Wal-Mart's goal is to broaden its base of customers, and executives believe it is working after online sales in the U.S. increased 63 percent in the first quarter. But lower-income shoppers remain a key component to its success.

The Supplemental Nutrition Assistance Program provided nearly $67 billion for about 44 million Americans last year. Wal-Mart was one of the largest beneficiaries, generating about $13 billion in sales from shoppers who used the program, according to The Wall Street Journal. The newspaper also reported those sales accounted for about 18 percent of the money spent through the program.

"It's definitely Wal-Mart's core customer," Brian Yarbrough, a retail analyst with Edward Jones, said of the segment Amazon is targeting in its latest plan. "So they're going right after Wal-Mart."

Retail analysts aren't convinced Amazon's latest initiative will be successful despite the company's disruptive history.

Yarbrough said low-income consumers who are receiving assistance typically purchase items like milk, eggs and meat from grocers. They may not be willing to order those products online from Amazon and wait two or three days to have them delivered to their doorsteps.

There are other hurdles as well, according to Yarbrough. Some lower-income consumers don't have bank accounts or credit cards, which would impact their ability to order products online.

Perkins added consumers relying on government assistance still might not be able to spend $5.99 a month for the service, either. But the perks that come with a Prime membership are attractive.

"If it was just the purchases and delivery, that might be one thing," Perkins said. "But that consumer might be interested in streaming music and watching Amazon's video offerings on their phone. That's going to be the kicker. Is that the type of thing that diverts more business to them?"

No one is ignoring Amazon's efforts to attract lower-income shoppers, though, and the impact it could have on Wal-Mart or other discount retailers and grocers like Dollar General and Aldi.

"Today I wouldn't be as worried about it," Yarbrough said. "But I also don't think Wal-Mart can just sit back with their heads in the sand and say this is no big deal. They're not going to be able to tap that customer. I think they have to continue to look for ways to keep that customer satisfied."

Business on 06/07/2017

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