The New York Times reports that Amazon.com has decided that the cost of television advertising isn’t worth the return, and instead will rely on low prices, free shipping and positive word of mouth to drive sales.
Last year, Amazon spent $50 million on television advertising, but monitored its impact to see if it could directly correlate sales with ads. It couldn’t, so it has disbanded its five-person advertising department.
"Over the last couple of years, we have come to understand how low prices drive volume," Jeff Bezos, Amazon’s CEO, told the NYT. "We think we get a better return giving the money to customers instead of television networks."
The company will continue to advertise on other websites, as well as in Sunday newspaper circulars, an expense largely covered through manufacturers’ cooperative programs.
Last year, Amazon spent $50 million on television advertising, but monitored its impact to see if it could directly correlate sales with ads. It couldn’t, so it has disbanded its five-person advertising department.
"Over the last couple of years, we have come to understand how low prices drive volume," Jeff Bezos, Amazon’s CEO, told the NYT. "We think we get a better return giving the money to customers instead of television networks."
The company will continue to advertise on other websites, as well as in Sunday newspaper circulars, an expense largely covered through manufacturers’ cooperative programs.
- KC's View:
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The cost of free shipping will be more than $100 million this year, according to estimates, which means that not spending $50 million on television ads covers about half that expense. The rest, one assumes would have to come from increased volume.
Remarkably, this company that is emblematic of high-tech B2C commerce is counting on the lowest tech technique of all to drive its future volume and profitability.
Works for us.
Amazon is hardly the only company to have sworn off advertising in its desire to be more effective in reaching customers. Dorothy Lane Market, having created an effective loyalty marketing program, decided to do exactly that years ago -- and found that by using targeted niche communication vehicles it could be far more efficient in connecting with its best customers.
