Amazon's new ad strategy: Free samples based on what it knows about you

Amazon is quietly piloting a program to let brands like Maybelline and Folgers pay to send free samples to consumers — all based on what the retail giant already knows they're likely to buy.

Why it matters: Turning free samples into new targeted ads plays to Amazon's strength as a trusted delivery service of everyday goods, something Americans already expect from the company. Amazon is betting the sample strategy is something its biggest competitors — Google and Facebook — can't match.

The big picture: Analysts see this as a big advantage for Amazon in its efforts to take on Google and Facebook's ad dominance. The tech giant has the purchasing data and logistics infrastructure to offer samples of actual products, which could be more effective than display ads on Facebook or search ads on Google for certain kinds of consumer packaged goods brands.

Display ads are currently how Amazon makes the majority of its roughly $5 billion in ad revenue. But Amazon says that marrying old-school samples with its customer data will provide brands "a higher likelihood of conversion than display ads,” according to a summer job posting.

• Amazon has more than 100 million subscribers to its Prime services alone, meaning it has established long-term relationships with users. Millions more purchase goods regularly from the company, even without a Prime subscription.
• "Having this huge installed base of users, or really Prime subscribers, and putting something in the box that people will have a high proclivity for liking — that seems like a brilliant Amazon strategy," said Rich Greenfield, a managing director and media analyst at BTIG.

How it works: Samples of new products are sent to customers selected using machine learning based on Amazon's data about consumer habits, according to recent job postings and details listed on its site.

• In a November listing for a “BizTech Leader” position, the company says that it is an “advertising product that leverages Amazon’s customer data to allow brands to put their products in the hands of the right customers to drive product awareness and conversion.” ("Conversion" is an industry term for when a person goes from seeing an ad to buying the product in the ad.)
• Amazon doesn’t publicize the offering among its other ad products, but its legal terms for advertisers include details about how its sample program functions.
• “No later than the date specified by Amazon, Advertiser will deliver to Amazon at the location(s) designated by Amazon and at Advertiser’s expense, all Samples to be delivered or distributed by Amazon,” the terms say.

Amazon declined to comment. The company has experimented with different approaches to samples, including one where Prime members can buy samples and get a credit for a later purchase.

Between the lines: Analysts predict that offering consumers samples of products in the convenience of their homes also opens up opportunities for Amazon to sell more packaged goods and products. 

• "I would think this would play in well to Amazon’s efforts to capture more activity from packaged goods companies," says Pivotal Research Group's senior advertising analyst Brian Wieser. "To the extent that this sort of an initiative would capitalize on co-op/trade promotion budgets (rather than brand advertising) it’s probably helpful."

Yes, but: There could be privacy concerns. Customers are getting items that Amazon’s vast trove of customer data predicts they'll want to buy. But some customers could feel violated when something they haven't ordered shows up unexpectedly on their doorstep.

• On social media, consumers have acknowledged receiving samples of products from major brands, including mascara from L’Oreal’s Maybelline brand and Folgers coffee. But it doesn't appear as though all of them know why they were selected.
• “Amazon sent me a random coffee sample!” said one Twitter user in August. “Is it because I have like 15 [different] types of coffee in my cart 😂😂😂.” A package pictured in the tweet included both Amazon and Folgers branding and a link to a website devoted to the new coffee offering.
• Amazon tells consumers that it “surprises select customers with samples that we think will be delightful and helpful,” sent to their account’s default address.
• Customers can opt out of receiving samples through the settings section of their Amazon account. When Axios created a new Amazon account on Monday, it was automatically opted in to receive the samples.

What’s next? “Ultimately, this product leader will develop a suite of sampling products and unify Amazon’s sampling offering, establishing core differentiated capabilities and effectively monetize this Ad format,” says the November job listing.

• A software developer job listing also says the unit’s tech team works to automate the ad campaigns with the ultimate goal of enabling “self-service,” which means brands can run the ad campaigns without the assistance of a human sales representative.

Our thought bubble: Facebook and Google built their ad empires through precise targeting and platforms where companies can spend millions without dealing with a human salesperson.

• Amazon could leapfrog its competitors by combining that approach with its delivery prowess — bringing samples, and data-based ad targeting, to doorsteps in a visceral way.

Go deeper:

• Amazon becoming 3rd-biggest digital ad platform
• Amazon's big advertising push