Amazon initiates price increases and opens the door for other platforms to replicate their response to inflation

Amazon the annual rate of his service will increase by 38.6% Prime from next september, its first increase in four years. A decision that makes the company the first major digital platform to raise prices using as argument the impact that high levels of inflation have on their costs.

The question now is whether the rest of the major platforms present in the Spanish market will follow in Amazon’s footsteps and also apply an increase in their prices. And it is that the role played by the tech giant opens the door to other companies replicate this measure to deal with the current context of sharp price increases.

Juan Morlanes, EY Business Consulting Partner, explains that Amazon has been “a benchmark” as an online platform in recent years. Thus, he points out, he has revolutionized the market and made online commerce a fundamental pillar for “the survival of all large companies in practically all sectors”.

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“Given this reference position, it is foreseeable that it will create a replica effect in the sector and that the rest of the platforms will follow in its footsteps to a greater or lesser extent,” Morlanes says in statements to EL ESPAÑOL-Invertia. However, he adds that it remains to be seen whether these increases will be accompanied by more services, which is popularly known as “more for more”, or not.

Among the major digital platforms, with the exception of Amazon, the last to raise prices was Netflix. The company raised in October 2021 the cost of its Standard plan from 11.99 to 12.99 euros per month and that of the premium package from 15.99 to 17.99 euros per month. An increase that did not lead to any improvement in the service provided to its subscribers.

The Amazon mobile app on a smartphone screen.

The Amazon mobile app on a smartphone screen.

Unsplash / Europa Press

For its part, Spotify’s latest increase only affected its family planwhich rose from 14.99 euros to 15.99 euros in February 2021. At the end of the same month, Disney+ increased its monthly rate by two euros, to 8.99 euros, coinciding with the expansion of its offer in integrating Star series and movies.

In the case of HBO, the last upload was in 2019, when the price of the platform was increased by one euro, to 8.99 euros per month. Even with its conversion to HBO Max in October 2021, the company has not changed its prices in our country.

The sector and inflation

After so many months with frozen prices and at a time when inflation hit its highest level since 1984, hitting 10.8% in July In Spain, it cannot be ruled out that other platforms will follow Amazon’s path and pass on to their users the increase in costs due to the general increase in prices.

Morlanes recalls that all sectors are affected by inflation, including digital platforms. These face increases in their own costsincluding those resulting from its technological development, having highly qualified personnel or its energy bill, as well as the associated costswhich are usually passed on in part to customers.

Streaming apps on tv screen.

Streaming apps on tv screen.

Chema Flores

Homicronous

In this context, these companies are now hesitating between transferring prices to the user or assuming a higher cost to conquer more market. The EY partner adds that the decision will depend on each company, but she stresses that it “has to be measured very well”since taking on the costs “is not sustainable” in a scenario where inflation is maintained over time.

In its communication to customers, Amazon points out that behind the reasons for this change in its prices lies the “general and material increase in expenditure levels due to rising inflation which affects the specific costs of the service Prime in Spain and which are due to external circumstances that do not depend on Amazon”.

However, Morlanes points out that the 38.6% increase applied to the annual rate is “significantly” higher than July inflation (10.8%), so it does not seem that this is the only cause of this increase. “Very well it seems to be the justification for an increase already planned“, he admits.

In this regard, remember that the company has already started from “relatively low” prices which, in the current economic context, require revision. In fact, he adds that the entire platform ecosystem is experiencing increased costs stemming from the events of the last two or three years (covid-19, US-China trade war, war in Ukraine, etc.).

Loss of customers

But there is also the risk that a price increase will lead to a drop in your number of users. And even more so in a macroeconomic context such as the current one, where the customer always tends to consider the price as a variable when choosing the companies you want to spend money with.

Specifically, a recent EY study found that 67% of Spaniards are worried about a possible rate hike pay television or diffusion, more than 55% of the world average. Additionally, 43% fear paying for content that is not consumed.

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However, Morlanes adds that, increasingly, the customer’s decision, especially the new digital generations, is motivated by how she thinks companies meet her needs in aspects such as product variety, delivery times, ease of return, ease of making a claim.

“If the difference is not very high, it is most likely the customer will stay loyal and the company makes more money,” concludes the EY partner.

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