And off the top of my head it's probably combination of:
1) Helps with micropayments for low value in-app purchases
2) Creates a disconnect between the real cost and perceived cost
The latter helps Amazon create an artificial incentive that they can use to build their store. For example: Buy something physical off amazon.com and earn 100 free Amazon coins to spend on something digital (implicit: with Amazon).
This is the concept behind all loyalty programs, in a nutshell. It's about giving ostensible rewards to loyal customers in an attempt to create what economists call "switching costs," i.e., the degree of hassle involved in moving from one service provider/vendor/business to another. If you've got enough points built up with one provider (e.g., American Airlines), you'll be reluctant to spend money on other providers (Delta, for instance).
Side benefits include increasing customer basket size, increasing purchase frequency, converting customers across categories, and increasing share of wallet per customer.
As loyalty programs go, Amazon Prime has been stellar. It's very costly for the company, and it had Wall Street in a frenzy when it first launched. But it works (and it's also very beneficial to consumers who use it).
I can't say I see the value in this program as much as I do with Amazon Prime, but the logic makes sense.
If you're going into it expecting benefits, and you find yourself getting carried away and overspending, then it's less valuable to you.
I wouldn't call it a trick, so much as I'd call it a loyalty program -- with all the potential risks and rewards that such a term entails. There's nothing necessarily shady or evil about a loyalty program. Indeed, if it makes Amazon a much better consumer experience for you, it can be a win-win.
Somehow, I doubt Amazon plan to remove the other payment options.
Plus there's stuff like using off-by-one values for fractional exchange. Eg 79 points for 99c, or vice versa. If you step to 80p / dollar it's easy to calculate a sufficiently-good approximation mentally, but lots of people aren't used to mental shortcuts like that.
The upside for them is I spent about $4000 on Amazon last year, which is way more than I would otherwise. I don't know if it is good for them, but it sure seems good for me.
If you are comparing an in-store price to the amazon Prime one you have to factor in the costs (implicit and explicit) of actually making a trip out for a particular item or waiting for your monthly Costco run to pick-up X rather than having it here by Saturday.
Example:
Item A, $100 PRIME
Item A (ie same item..), $80 (no prime available) $8 2d shipping, free super savers shipping.
I'm actually cancelling my prime account because of this. There is none of the last 10 objects i bought over the last 3 month that didn't have this issue.
Wait, no, Walmart avoids things like loyalty card discounts, etc. They also seem to have a decent business model. You're going to have to elaborate a little more.
Walmart has "walmart cards" and while they don't give you a discount, what you will notice is that if you return something they might resist if you ask for cash back but saying "put it back on my walmart card" will result in a near instant refund in almost any situation.
Lots of bad press about kids spending $1000 of mum's credit card dollars on Google Play Store.
Better to give the kid an Amazon Coin account, like a charge card. Amazon do offer an alternate android ecosystem after all.
Amazon created this currency and gives some of it out to users, who can use it to purchase apps for kindle fire. Now Amazon gets to subsidize app development while letting the users decide which apps are worthy.
(This analysis isn't original, it's one I read a month or two ago.)
Store value without storing money for small transactions. Some countries are finicky about storing money, and its a tight balance to avoid being covered by banking laws.
Lowering the barrier for micro-transactions. Customer avoids to repeatedly have to make the decision to spend money, he has spent it once, and now he is just using "virtual credit".
Avoiding cost of processing payments. One processing now covers several purchases.
If you're interested, I wrote about it in IEEE Spectrum when they first announced Amazon Coins in February.
http://spectrum.ieee.org/tech-talk/telecom/internet/amazon-c...
[1] http://www.digitaltrends.com/mobile/heads-or-tails-amazon-co...
Best Buy, for example, sets that level at about two years. In fiscal 2011, the electronics company recorded $53 million in income from gift-card “breakage,” or cards that are unlikely ever to be redeemed, up from $43 million a year earlier.
Subscription schemes and prepayments create offsetting liabilities.
That is:
I give Example Co. $100 now.
They book an increase of $100 in their cash at bank, but they also book an offsetting liability -- services owed -- of $100.
However, from a cashflow perspective, $1 now is always better than $1 later.
I am not an accountant, this is not accounting advice.
The actual best solution would be to allow spending controls, so that, even with a linked credit card, the account can only buy $100 worth of product per month or something.
It's a series of infinite gift cards, without the inconvenience of having to print physical gift cards.
And conversion of customer behaviour... they could offer Amazon coins as rewards for Marketplace sales knowing that they'll move some customers to future digital offers (I'm thinking the 2nd hand CD, books and DVD markets, but there are others I'm sure).
http://www.slate.com/articles/technology/technology/2013/02/...
Have you checked out the Xbox Marketplace? See "Microsoft Points".