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Amazon raises price of Prime service to $99 a year

NEW YORK — Amazon is betting that shoppers will pay $20 more for its popular Prime two-day free shipping and video streaming service of movies and TV shows.

The giant online retailer said Thursday that it is raising the price of Prime to $99 a year as it seeks to offset rising costs to ship products to customers. It's the first price hike since Amazon rolled out the service in 2005.

The move could please investors at a time when Amazon continues to face pressure to boost its bottom line after years of furious growth. As more Americans shop online, Amazon has spent heavily to expand its business into new areas — from movie streaming to e-readers and groceries — often at the expense of profit.

But the price increase also threatens to scare away online shoppers who tend to resist fee hikes. The company, which warned it would probably raise the price of Prime by $20 to $40 in January, is bolstering the membership program by adding more items available for two-day shipping and rolling out a greater selection of streaming TV shows and movies.

Still, online shoppers don't always react favorably to price hikes — for example, when Netflix tried to raise its annual subscription fee in 2011. The online video streaming service had to do an about-face after widespread customer backlash and a jarring stock plunge of 80 percent from its highs.

Social media was buzzing on Thursday after Amazon announced the price hike. Many Prime users' comments fell equally on either side of the fence between those who didn't mind the increase and those who planned to stop using the program.

"It's my go-to retail site," said Nick Begley, 33, of Salisbury Mills, N.Y., who ordered from Amazon 53 times last year. He said, "$79 was a great price, but $99 is not enough for me to give it up."

Rick Valente, who lives in Boston, felt the complete opposite way. After learning of the increase, he checked how much he actually uses Amazon: He realized Prime wasn't worth it for him.

Analysts say that if Prime users are turned off by the increase, it could have a significant impact on Amazon's business. Since it was introduced, Prime has increased customers' appetite for speedy and reliable service, said Jordy Leiser, CEO of StellaService, which tracks customer service.

"The intersection of consistency and convenience for these customers has attracted so many people," Leiser says. "It shaped the expectations of everyone in the industry."

Cowen & Co. analyst John Blackledge, who estimates there are about 23 million U.S. Prime members, says he doesn't expect the continued growth of Prime members to slow down despite the price increase.

Amazon raises price of Prime service to $99 a year 03/13/14 [Last modified: Thursday, March 13, 2014 7:10pm]
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