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Budgeting For Advertising: The Amazon Hack

How Amazon, a $16.9B Global Advertiser, Budgets for Paid Media

The First Step? Budgeting

On the topic of budgeting for advertising, it is said that brands fail more often from under-budgeting than over-budgeting. But how much is enough? So many blogs and ad spender tools boil it down to oversimplified formulae. Or firms provide the often misguided advice of mimicking competitor ad spends.

Criterion Global often consults on budgeting for advertising. For legacy brands, challenger brands, new brand launches and global expansions, we provide a compass for budgeting for advertising where there is none. And so our client commissioned an analysis for a top-secret new brand launch.

The client? Amazon, “Earth’s Biggest Ad Spender as of 2020[1],

The launch? The next destination for luxury, Amazon Luxury Stores.

Amazon-Luxury-Stores-Budget-Blueprint-Budgeting-for-Advertising-Case-Study

A Unique Challenge: The World's Largest Advertiser

Amazon is not a typical luxury advertiser. With 310+ million customers globally, it is the most massive mass-channel retailer in human history.

And while its 95+ million US Prime subscribers spend an average of $1.4K yearly[2], 9/10 Amazon customers use it to price-compare [3]. Not to see the latest collections coming out of Milan. How could Amazon credibly sell Gucci – in the same app that sells you cat food?

Amazon is a famously analytical organization. Its culture is “intense and effective.” Its methodology begins by “working backwards” [4], discovering solutions by first defining outcomes. Journalist Franklin Foer of The Atlantic observed that, to Amazon employees (or “Amazonians”) [5],

“…[Amazon is] a paradigm – a distinctive approach to making decisions…”

But first Amazon needed media planning to court the luxury market. The brand agency orchestrating this first-foray into luxury retail needed a quantitive basis for budgeting for advertising.

This “Amazonian” approach was both compatible and complimentary to our own Criterion Global Budget BlueprintSM process. The project’s leaders defined the goal of making Amazon Luxury Stores the mobile “store-in-store” for the world’s best luxury brands. To get there, the team asked: What could Amazon do for luxury brands? For luxury consumers? The answer: brand protection, overnight delivery, exclusive inventory, 360° photography and more.

ecommerce ads, amazon luxury

"Make a Splash" Budgeting for Advertising

Ironically, for Amazon Luxury Stores, the assignment was far from quantitative.

To start, Amazon defined the goal for budgeting for advertising: “Make a Splash.” And while the task of quantifying the depth, height, circumference of “splash” prompted a few sideways glances, we understood exactly what Amazon was aiming to do:

Although the so-called “Everything Store” set a record with $9.91B in revenue in its Prime Day prior to launch [6], and spent $16.9B on advertising in 2021 [1] it wisely approached luxury with a challenger mindset. It recognized its newness to the luxury retail space.

Challenger brands need a compelling reason to divert shopper attention. However, on the other hand, Amazon has the benefit of existing customers that likely shop elsewhere for their luxury goods. The question is how to harness their attention. And win credibility in this new space.

"Capital" vs. "Cash"

To start, most brands see budgeting for advertising purely as an expense. Amazon understood that there’s much more in play.

In budgeting for advertising, most consider only the cash outlay used in ad spending. They see advertising as “dollars out, dollars in.” Amazon’s goal was never to out-luxe Gucci. Rather it was intended to win the support of the multitude of luxury brands Amazon would be selling. And to show that Amazon can showcase so much more than cat food.

Understandably, client confidentiality prevents us from sharing Amazon Luxury Stores’ precise budgeting for advertising. But we can share that its resources included more than just cash. Yet, despite its challenger position in luxury, Amazon had a resource inaccessible to any other business on the planet: Amazon’s existing customer data. This proved to be a form of capital more valuable than any amount of cash spent on luxury ads.

Budgeting for Advertising, Amazon Luxury Stores Case Study

Budgeting for Advertising: The Takeaway

As we began, it is said that brands fail more often from under-budgeting than over-budgeting for advertising. This statement is often attributed to David Ogilvy – the legendary ad man. Ogilvy – and most advertising media agencies – had and have a vested interest in growing paid media budgets. It’s how they make their profits.

If all you have is a hammer, every problem looks like a nail. (And if more budget means more revenue to you, budgets should always increase). Suffice to say: our work for Amazon Luxury Stores, as with the majority of our clients, was set as a clean, flat-fee. This gave Amazon’s entrepreneurial Luxury Stores leadership comfort in knowing our counsel was objective.

The outcome?

  • Amazon Luxury Stores launched in November, 2020, in the height of the Pandemic’s second wave.
  • Initially the service was invite-only to win over fashion insiders in key markets.
  • The project made an indelible impact on the luxury market with fewer resources than initially expected, aided by efficiencies identified by our team.
  • This new platform launch is live in the US as well as Germany, the United Kingdom, France, Italy and Spain.
  • To date, Amazon Luxury Stores has offered brands such as Alexandre Birman, Altuzarra, Aquazurra, Boglioli, Christopher Kane, Clé de Peau Beauté, Dr. Barbara Sturm, Elie Saab, Jonathan Cohen, La Perla, Linda Farrow, Missoni, Rianna + Nina, Rodarte, Rolant Mouret, Sergio Hudson, Silvia Tcherassi, Theo Philo and more.

Budgeting for Advertising: Suggested Reading + Sources