Amazon

In two thousand and five, Amazon had a problem. Customers browsed on Amazon, compared prices, then bought wherever shipping was cheapest. Loyalty did not exist. A customer might order books from Amazon, electronics from Best Buy, and household goods from Walmart. Every purchase was a fresh decision. Amazon had traffic but no lock-in. Prime changed that. For seventy-nine dollars a year, members received free two-day shipping on everything. The economics made no sense. Shipping a single package cost eight to ten dollars. A member ordering ten times a year cost Amazon more in shipping than the fee collected. Amazon lost money on every active member. But something shifted inside the customer's head. Once the annual fee was paid, it became a sunk cost. Every purchase made somewhere other than Amazon felt like wasting money already spent. A member who previously split purchases across five retailers began routing everything through Amazon. Average spending jumped from six hundred dollars a year to roughly fourteen hundred dollars within the first year of membership.