Amazon's Prime Challenge

Rob Hof's new shipping club, in which customers pay $79 a year for unlimited free two-day delivery and discounted next-day delivery on in-stock items, has gotten mixed reviews. Some say the Amazon Prime program is too expensive for customers--and others say it's too expensive for Amazon. But at a Friday night meeting of Silicon Valley's Churchill Club, CEO Jeff Bezos explained what he's really trying to do. ...

Instead of some kind of windfall, he's hoping the faster free shipping will persuade shoppers to consider buying more different kinds of products from Amazon--stuff they might have only bought in physical stores before. "If you pay $79 for a membership, then you'll say, well, if I want to buy a digital camera, maybe I'll look at Amazon," says Bezos. "It gets people to start checking across categories."

That points up one of Amazon's biggest challenges: extending its brand beyond media. In focus groups, Amazon has asked heavy book, music, and video buyers why they don't buy other things. "They say, 'You don't have an electronics store.' We tell them we've had one for five years, and they'll argue with us."

Of course, he adds, "If only people who buy a thousand things a year sign up, then we're in trouble."

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