Two events from Amazon-land have caught the eye recently. On 15 July, Amazon ran a major promotional event called “Prime Day”. And one week later, its founder Jeff Bezos’ net worth grew by $7 billion. It seems plausible to assume there might be some connection between the two. The question  – maybe the $7 billion question –  is what connection?

The happy news for Jeff Bezos was driven by the release of Amazon’s half-year earnings, and buried within them, in the small print of the section on marketing costs, is an intriguing clue:

“While costs associated with Amazon Prime memberships and other shipping offers are not included in marketing expense, we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely.”

It might be small print, but it certainly isn’t small beer.

Last year Amazon spent a whopping $8.7 billion on shipping. Meanwhile, it only recovered $4.5 billion of that by charging shipping fees to its customers, leaving it out of pocket to the tune of $4.2 billion, or 4.7% of net sales, pretty much exactly the same amount as it spent on “real” marketing. Just to put that number into context, it’s roughly the same as annual worldwide total sales at Debenhams. Even this looks rather pathetic when set alongside another eCommerce pureplayer usually celebrated for its marketing, Asos, who spent 5.7% of net sales on this marketing in 2014. But they also spent a startling 13.4% of net sales on subsidising shipping and returns, including enhancing Premier, their own version of Prime.

Conventionally, discounted or free delivery tends to be seen as a tool for driving conversion. It is well documented that sticker-shock – those extra charges over-and-above the product price that appear during the checkout process  ̶  is the top reason for customer cart abandonment.

Incidentally this is also one of the main drivers behind the phenomenal rise of click & collect: 60% of customers choose to collect primarily because it is free – or at least cheaper than delivery. The supposed convenience factor is very much secondary. For retailers, fulfilment is made cheaper by consolidating multiple orders into a single store shipment. Moreover, there is a 30-40% probability that a collecting customer will buy something extra when in-store. In other words, click & collect apparently drives overall sales while reducing costs, so it is no wonder retailers are enthusiastic proponents of it and use shipping pricing to nudge customers towards choosing it.

If click & collect is not to your taste, or does not really suit your business model and you do not fancy Amazon lockers or shipping to your nearest newsagent, then subsidised delivery is also used as a tool to drive average transaction values. Current average transaction value of £40? Put a free delivery threshold of £50 in place. (This only works well, by the way, if your range includes plenty of 'stocking fillers' – items priced between 10% and 40% of the threshold value).

Prime and its cousins becoming effective retention tools almost goes without saying. Part of the psychology of the offer is that a customer who forks out for the membership is going to feel compelled to justify it by returning to the site. The same can be said for that closely related shipping-cost subsidy of free returns, and in fact Asos explicitly says so:

“A key part of retaining customers is ensuring that the returns process is as smooth as possible”

At first glance Prime Day is apparently rather unusual in that it is a marketing event built around what is fundamentally a shipping offer. But actually it is simply Amazon taking the idea that shipping offers are really part of its marketing spend – shipping offers work for driving conversion and cart-size, they work for driving retention, why not make them work for driving acquisition too?

We’ve grown used to talking about the omnichannel customer. What Amazon Prime Day is reminding us is that the omni-functional organisation is just as important. So the next time you’re scheduling your regular marketing strategy-planning meeting, why not invite your logistics director along to it too? They might surprise you…

Chris Jones is a freelance specialist in multichannel and eCommerce, with extensive senior-level experience as both consultant and hands-on interim. He has worked extensively in both B2B and B2C sectors, and has client engagement experience in 15 countries. He is the author of ‘The Multichannel Retail Handbook’. You can find him at www.redsock.biz