The online retailing giant has terminated its use of TV advertising and instead plans to focus on luring customers with free shipping offers and lower product prices, company spokesman Bill Curry said.
Amazon's move last month to eliminate its TV advertising rather than just scale it back is highly unusual for Corporate America, say advertising industry experts. But that has not stopped Amazon from taking the plunge.
"When we measured our advertising, we felt the creative (generated by the ad agency) was working, but felt free shipping and lower prices would bring an even greater return on investment," Curry said.
Amazon plans to spend up to $100 million this year on offers of free shipping for, Curry said. Last year, Amazon reported $41 million in shipping losses, according to its financial results.
Analysts and advertising experts say Amazon will likely see little downside from terminating its TV ads--providing it did not largely use them for building brand awareness or introducing new product categories.
"Amazon has a well-established customer base, and there are probably a lot of ways to go back to that base beyond TV. There's fliers when you purchase a book and other steps they take," Pacific Crest Securities analyst Steve Weinstein said. "Second, they have done a lot of research, and shipping is one of the sticky points with online commerce. Yes, they'll still need a certain amount of new customers and need to gain awareness, but there are a lot of other types of media for that."
Amazon plans to rely on its existingprogram, which pays commissions to Web sites for sending it customer leads. In addition, the online giant will continue to advertise on other Web sites, as well as in newspaper inserts.
But companies have historically relied on TV advertising to build brand awareness, industry experts say.
For example, online auction site eBay is considering ramping up its own campaign, according to Weinstein, an analyst at Pacific Crest Securities. "I think advertisers are usually looking for the best return on investment," he said. "eBay is looking at increasing their TV ads. They're interested in broadening our awareness of how large their category offerings are."
Last year, Amazon used its TV advertising for both branding and driving immediate sales, Curry said. The company's TV ad campaign focused on the advantages of shopping online versus going to the mall, he said. The campaign was created by ad agency Wieden & Kennedy.
He added the company in the past has not promoted its new product categories, or "stores," via TV ads, but rather has relied on e-mails to Amazon customers or has promoted them on its site.
Curry declined to comment on the size of Amazon's TV campaign budget last year, but a report published in The New York Times put that figure at slightly under $50 million. He added he could not "generalize" on how much of the cost savings would be applied toward Amazon's free shipping program or other expenses, versus socking it away.