Struggling to trim marketing costs, jewelry and home decor e-tailer Ashford.com Friday released details of its revamped marketing alliance with Amazon.com.
Under the terms of the new, one-year agreement, Amazon.com will continue to promote Ashford’s products. But in lieu of an up-front cash payment, Ashford said it would pay Amazon an unspecified amount for marketing work such as e-mail and in-package inserts.
Ashford chief executive Kenny Kurtzman said that the new marketing initiatives would likely work better and prove more cost-effective than the companies’ previous marketing arrangement.
Under the companies’ deal last year, Ashford gave up about 16 percent of its stock (at the time worth about $50 million) in return for $10 million in cash and a “wide range of marketing activities,” Kurtzman said. In addition to e-mail and package inserts, those activities included sponsored links.
Under the new deal, payment to Amazon would be based on the number of e-mails and package inserts only — promotions that Kurtzman said would result in lower customer acquisition costs. Another consideration is the fact that Amazon, as a stockholder in Ashford.com, has an interest in helping the smaller e-tailer in its marketing efforts.
“The history that we have in working with Amazon is a very accurate understanding of the conversion rates of the [marketing] activities … whether it’s e-mails or in-box inserts,” he said.
Kurtzman said he wasn’t sure of the exact savings from the renegotiated deal, but “there is the potential for millions of e-mails and inserts to be sent out throughout the year.”
Additionally, “continuing to be linked with the leading e-commerce company is very important to us,” he added. “We’re a trusted partner, and we’ve found that a lot of Amazon customers value that endorsement.”
Ashford’s marketing budget is primarily restricted to search engine keyword and sponsored links on portals and shopping sites. The company also does e-mail marketing to its database of customers and prospects.
Kurtzman said Ashford has seen acquisition costs drop 15 to 25 percent for first, second and third quarters in 2000, and anticipates a 25 percent decrease in fourth quarter.
He said he expects the new deal will drive costs down even more during the coming year, with the ultimate goal of reaching a customer acquisition cost of below $100. At that point, Kurtzman said the company would turn a profit on every sale to a new customer.
“This relationship [with Amazon] is one of the keys to our continued reductions in customer acquisition costs,” Kurtzman said.
Investors were reacting favorably to the deal at press time, driving shares of ASFD up 20 percent, to $0.56. However, shares of AMZN slid to $13.63, or down 12.1 percent.
