The psychology behind why you spend so much money on Amazon Prime

How Amazon Prime turned Amazon into a $1.6 trillion empire
How Amazon Prime turned Amazon into a $1.6 trillion empire

Love Amazon or hate it, you have to admit: The company is really effective at getting people to buy things.

In recent decades, the e-commerce giant has ridden an easy-to-use platform, flashy deals and deeply discounted products to a $1.6 trillion dollar valuation. And Amazon Prime, which originally launched in 2005, plays a large role.

Prime's monthly fee of $12.99 promises two-day and same-day shipping on most of its products, giving it a competitive edge over other online retailers like Walmart and Target. And it's hugely popular: The platform has an estimated 200 million subscribers, including 150 million in the U.S., according to market research firm Consumer Intelligence Research Partners.

"It's just so quick and easy to have access to and purchase your products and goods," Shannese Charles, 24, a freelance journalist who uses Amazon Prime frequently, tells CNBC Make It. "I'm trying to contain myself from being on Amazon Prime daily, but I would say that [at the height of] the pandemic, I was on it daily for sure."

If Amazon's strategies were easy, everyone would be using them — so what's the secret sauce behind Prime's success? Here are the psychological reasons it's hard to resist the platform:

A bang-for-your-buck mentality

Once you start paying for Amazon Prime, you want to make the most from your subscription — which usually means ordering more than you otherwise would.

"You don't want to be that foolish person who is paying money for the membership you're not using," says Josh Lowitz, a partner at Consumer Intelligence Research Partners and principal of Chicago-based business advisory firm J. Lowitz Company. "So they decide, I'm going to make sure I get my money's worth. And that decision to get your money's worth then drives significantly more shopping."

If you try to quit Amazon Prime's 30-day free trial, Amazon will sometimes extend your trial for an additional seven days — or sometimes, even 30 more days — to eventually make you a paying subscriber. The extra incentive gives you more time to get hooked, and over time, you might finally give into paying for the service.

For Amazon, giving away an extra month is well worth signing you up for a year. Or, the company hopes, a lifetime.

Speedy shipping that's 'almost a drug'

Amazon has long prioritized fast shipping, under the concept that convenience matters just as much as — or more than — price.

"You can get so many products quickly delivered to you that it's almost a drug," says James Thomson, a former business head of the company's Selling on Amazon department. "By having so many selections and creating a high-quality experience that was in many ways focused around making as many products as possible prime eligible, you create a situation where customers naturally want to shop on Amazon."

During last year's fourth quarter, the company invested nearly $1.5 billion to expand its same-day delivery service. The move made same-day shipping the norm for consumers overnight, setting the standard for other retailers to do the same — or lose out on the competition.

But even when other retailers offer same-day shipping, Amazon's experience still incentivizes you to stay. The company delivers products straight to your doorstep or a nearby delivery locker, and constantly updates your mobile app with your package's location. When it arrives, you receive a picture of the box at your doorstep.

In short, it's both convenient and reliable. And Amazon's true goal: to make other delivery services simply fall short by comparison.

The creation of a new shopping holiday

When Amazon introduced Prime Day in July 2015, the company didn't just offer a limited-time set of discounts. It launched a brand-new shopping holiday.

According to Amazon, sales from that first Prime Day surpassed the company's figures from the previous year's Black Friday — and the annual event has steadily brought in even more revenue for Amazon each year, the company says.

Now, it's almost a tradition for shoppers to do their early Black Friday, Thanksgiving and Christmas shopping in the middle of summer. Why? Because Prime Day, which recently expanded to a 48-hour window annually, can trigger your sense of urgency to get what you need in a limited amount of time.

Maurie Backman, a personal finance writer at the Motley Fool, calls this the "pumpkin spice latte phenomenon."

"You know how during this limited window from like early September through late October, everything is pumpkin flavored and everyone is rushing to get it?" Backman says. "I think Amazon is really good [at adding to that] pressure point in consumers' brains ... That's a big reason so many people go crazy on Amazon."

The 'buy now' button's instant gratification

The "buy now" button in Amazon's mobile app fuels a feeling of instant gratification: No arduous checkout process, just click the button and all the work is done for you.

"Don't have me stand in line and do checkout," Thomson says. "Just start sending me stuff that I've already selected. That's a very powerful technology."

Amazon saves your default shipping address, billing address, delivery preferences and even credit card information to create a largely frictionless one-click buying experience. And the technology enabling the "buy now" button was patented by Amazon, getting more people to use its platform, says Thomson.

By reducing the number of steps from selection to checkout, Amazon makes it that much easier for you to get what you want without even thinking about it — causing you to spend and shop even more on the platform.

Very targeted advertising

All of this wouldn't be possible without Amazon's massive datasets on customers. The company's algorithms try to recommend the right products to the right customers by tracking your behaviors on its platform, like what you've recently bought or viewed.

"Amazon looks at what you look at and what you buy, and they are able to really figure out what your patterns are," Lowitz says. "And their data set is so huge and their team is so dedicated that they push you to the places that you're naturally inclined to go."

Amazon's targeted ads, lightning deals and Prime Day sales, can also easily encourage impulse buying. Backman says Amazon makes it "really easy" to buy items without putting much thought into it.

Last year, Backman wrote that she spent $1,000 on Prime Day alone — and didn't regret a cent of it. Still, she advises, you need a solid game plan before deciding to spend money on Amazon.

"I think you still really need to take a step back and ask yourself, well, if this item, if it weren't going on sale, would I be buying it?" Backman says. "And if the answer is no, then I think you may need to reconsider."

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