How Amazon ad spending went from $30,000 to $11 billion
Earth’s Biggest Bookstore is in a prime position to be Earth’s biggest advertiser.
Amazon swept past Comcast Corp. to become top U.S. spender in the Ad Age Leading National Advertisers report and ranking, released this week—and the omnipotent, omnipresent retailer could displace Procter & Gamble Co. as top global spender when Ad Age ranks the World’s Largest Advertisers later this year.
Amazon rocketed its worldwide spending on advertising and other promotional costs 34 percent to $11 billion in 2019, giving P&G a run for the money.
P&G’s spending grew in its fiscal year ended June 2020 (the period that Ad Age will use for P&G in the upcoming global rankings), but the marketer’s final spending tally isn’t clear yet since it won’t reveal financial results until July 30. P&G spent an estimated $10.1 billion on advertising plus other marketing costs in the year ended June 2019.
Amazon opened 25 years ago this week—July 16, 1995—as “Earth’s Biggest Bookstore.” It spent $30,000 on advertising—5.9 percent of its $511,000 in net sales—in 1995.
Amazon, which now seeks to be “Earth’s most customer-centric company,” last year spent about $21,000 per minute on advertising and promotion.
The company’s estimated U.S. ad and promotion spending surged 37 percent to $6.9 billion in 2019, according to Ad Age Datacenter’s analysis, moving ahead of Comcast (estimated $6.1 billion in U.S. advertising, marketing and promotion spending) to take the top spot for the first time in Ad Age’s annual ranking of U.S. advertisers.
Amazon’s $1.9 billion U.S. ad and promotion spending boost was far and away the biggest dollar increase among all companies. Insurance seller Progressive Corp. had the second-biggest dollar increase among the nation’s top 200 advertisers, raising 2019 ad spending by $415 million to $1.8 billion.
Amazon first appeared in the Ad Age Leading National Advertisers report a decade ago, ranking No. 70 based on 2010 U.S. spending.
Amazon last year pumped 3.9 percent of its $281 billion in net sales into advertising and promotion. That was Amazon’s highest ad-and-promotion share of sales since 2001.
The company’s net sales have grown every year since Amazon opened for business.
Amazon’s worldwide ad and promotion spending has increased every year except for 2001, 2002 and 2003, according to Ad Age Datacenter’s analysis.
That period early in the millennium included fallout from the dot-com bubble, when Amazon’s stock tumbled, sales growth slowed and the retailer slashed spending on marketing, advertising and promotion. During that period, Amazon settled on a new winning strategy: Free shipping.
The company’s annual regulatory filing for calendar 2002 explained:
"In January 2002, we introduced a new shipping option … offering everyday free shipping for certain orders that exceed a specified amount. … Although marketing expenses do not include our free and reduced shipping offers, we view such offers as an effective marketing tool.”
The company built on that strategy in February 2005 with the launch of Amazon Prime, a membership program offering free two-day shipping with no minimum purchase requirement.
When Amazon unveiled Prime, CEO Jeff Bezos said it would be “expensive for the company in the short-term” but a benefit to customers because express shipping would become “an everyday experience rather than an occasional indulgence.”
It worked out OK. The stock traded below $42 when Amazon Prime launched. The stock July 13 reached an all-time high above $3,300 (more than double its COVID-19 pandemic low point in March), and Bezos is now the richest person on Earth.
The free-shipping initiatives helped put Amazon’s sales growth back on track, and ad and promotion spending increased in line with sales until the Great Recession. The company in 2003 spent 2.1 percent of its $5.3 billion in net sales on advertising and promotion. In 2008, Amazon spent 2.2 percent of its $19 billion in sales on ads and promotion.
Amazon in recent years has put more emphasis on advertising and promotion, boosting spending to 2.9 percent of sales in 2011, a range of 3.5 percent to 3.7 percent for the period of 2014 through 2018, and then 3.9 percent in 2019.
Just where Amazon’s 2020 ad and promotion spending will end up is to be determined, but dollar spending is increasing as the company delivers for consumers and investors during the coronavirus pandemic. Amazon’s first-quarter marketing spending jumped 32 percent. Advertising and promotion accounts for the lion’s share of Amazon marketing spending.
The company continues to rely on free shipping and other benefits of Amazon Prime as extensions of marketing. Amazon’s first-quarter regulatory filing noted: “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.”
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