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Sephora Direct: Investing in Social Media, Video, and Mobile
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Problem Statement
In general, the Internet has transformed how companies promote and advertise to
consumers. In this day in age, companies must adjust themselves accordingly as two-way
communication provides an avenue to speak to consumers directly, receive feedback, and satisfy
their needs better. However, the ability to find quantifiable metrics to measure the efficacy of this
investment have been difficult.
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Sephora is a cosmetic retail store with numerous prestige brands of cosmetics. It operates
1000 stores in 23 countries which generate nearly $2 billion in sales, making itself prominent in
the market. It also operates online as “Sephora Direct” which sells the leading beauty brands on
its site. Sephora has grown their brand by becoming keenly aware their customers’ wants and
needs, and then take advantage of technological improvements to reach out to consumers. The
Senior VP (SVP) of Sephora Direct is encouraged by these new social media platforms and the
opportunities they offer to potentially increase customer awareness, consumer loyalty, and
revenue. The SVP believes these tools will improve Sephora sales and wants double the current
$1 million dollar budget to explore new possibilities and ways to expand the existing media mix.
Therefore, Sephora must decide whether to reallocate the current online media budget or increase
the annual budget for social media, video, and mobile platforms.
Situation Analysis
In 2009, the U.S. beauty and personal care market was approximately $58.9 billion (Page
3). Realizing that beauty can be an affordable luxury, Sephora has been successful with print and
in-store advertising. Also, Sephora has kept up with the changing digital media landscape and
has captured 30% on the U.S. online market, making it the largest prestige beauty website (Page
3). Its utilization of their Beauty Insider Program has allowed them to keep in communication
with customers at a low cost. Another avenue of consumer contact has been through the use of
product ratings and reviews. This online presence has created a direct path to hear the needs,
wants, and experiences of consumers.
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Sephora understood that more and more people spent time online visiting social media
platforms. Rather than become complacent, they deicided the first step was create a website,
followed by a Facebook page which has attracted close to 900,000 fans (see Appendix A). Due to
the high-volume of questions and inability of Facebook analytics to group similar questions
together, Sephora created a Q&A section with their own website to allow consumers to see
answers to previously asked questions. Despite the Q&A section, it did not give information on
whether it drove additional customers to purchase on the Sephora website.
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In addition to Facebook, Sephora has started to use Twitter and YouTube to supply
content to their customers and other promotional giveaways. Despite the fact that other
competitors lacked mobile offerings, Sephora saw an opportunity to add a mobile platform to
enhance consumer experience and grab market share of the $2.4 billion mobile shopping
industry. Currently, there is no set number of key metrics for Sephora to utilize to convert
onlookers to buyers. In addition, there are high costs for occupying the digital space, from
$20,000 for video production to upwards of $200,000 for app creation, with a $30,000 yearly
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maintenance fee (see Appendix A). Regardless, Sephora is at a crossroad where it must
determine which direction could have the greatest impact on acquiring new customers and
establishing more loyalty with existing customers to help create more added services, thereby
increasing sales.
Major Strategic Alternatives
To pursue a strong position in digital media initiatives, Sephora must take two major
strategic alternatives under consideration:
1. Do not increase the social media budget, but allocate more to Sephora website and
mobile application
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Sephora could continue on the same digital media course that has allowed it capture the
largest online market percentage (30%) in the U.S. However, by allocating more towards its
website and mobile application, it can capitalize on those loyal consumers that make up 80% of
sales and 25% of shoppers that use smartphone during the buying process (Page 5, 9). Moreover,
Sephora’s own data showed that an overwhelming number of clients access its website on a
mobile device. The disadvantage here is the cost associated with creating the mobile application,
which can cost anywhere between $100,000 to $200,000 and $20,000 to $30,000 for yearly
maintenance (Page 9-10). In addition, Sephora has struggled in the past with finding the
appropriate balance between allowing clients to share their own answers and providing expert
opinion that could be perceived as biased (Page 7). Also, this could allow competitors an
opportunity to move into the digital space and position themselves ahead of Sephora in consumer
minds if they do not proceed on any digital initiative. Finally, the 10% of individuals who do not
use Apple products will not be able to connect with Sephora via mobile platform.
2. Increase the social media budget from $1 million to $2 million
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This alternative will allow Sephora to pursue digital initiatives at greater pace and
diversify the amount of content. It will also allow Sephora to engage in more opportunities that
were previously ignored due to constraints on capacity or funding. Specifically, Sephora can
double its budget from categories such as video production to mobile platforms (see Appendix
B). While there is no formula to make a video go viral, the additional funding can help Sephora
“own” the video category by creating professional videos that can generate traffic, as well as
other advertisements and contests. The downside is making sure that videos fit the brand image
and does not sway away from the target market.
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The Sephora app created for the iPhone will produce millions in sales with a $2.4 billion
mobile shopping market. Since consumers questioned Sephora’s decision to solely focus on
iPhone, they can increase their customer reach by devoting time to creating an app for Android
and Blackberry/RIM devices, in addition to the iPad. Here, the downside is that only 10% of
users access Sephora using with something other than an iPhone or iTouch (Page 9). Essentially,
this would be a waste of an investment because the risk is greater than adding an incremental
amount of potential clients.
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Decision Criteria
The decision whether to maintain or increase the current budget for social media, video,
and mobile applications will be based on several criteria to convince management that Sephora
can “win” with its digital initiatives.
1. Increase customer loyalty
Sephora primary goal is to remain connected with its target market of women 25-35.
Since 2007, the Beauty Insider Program has provided a way to communicate with customers in a
low cost email platform. The program accounted for 9 million “active” users which purchased
something in the last 12 months (Page 5). The alternative chosen should also consider enhancing
the perks provided in the CRM program (i.e. better discounts or products).
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2. Increase customer acquisition
Sephora has encountered great success with some social media platforms and mild with
others. Specifically, the Sephora website and Facebook page have generated an increasing
number of “fans,” while other media (i.e. Twitter) has not fared so well. The chosen alternative
will need to determine the optimal digital marketing mix that will allow Sephora to attract new
consumers by increasing engagement, and then conversion to provide value added services.
3. Increase sales
Ultimately, the goal for marketing strategies is to increase revenue. The alternative
chosen should have a positive impact on new potential sales. Some potential metrics to measure
could be increasing the number of active users or amount of Facebook fans. As the case
indicates, each Facebook fan is valued at $3.60. Other media can be based on the same ratio of
messages received to the amount of paid online impressions need to reach the consumer.
Analysis of Alternatives
1. Do not increase the social media budget, but allocate more to Sephora website and
mobile application
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According to Exhibit 5, Sephora divides its media spending into 3 categories: Beauty
Insider (20%), Retail (45%), and Online (35%). The current budget is estimated to be about $20
million. Of this, about $7 million is spent on online advertising and only around $1 million
specifically devoted to social media, mobile, and video (Page 4). Since 80% of sales come from
Beauty Insiders, Sephora should focus on deepening communications with loyal customers. One
way to build more loyalty from clients is to customize the shopping experience with gifts of their
choice. This can be a monetary value or specific products that have a designated point value.
Sephora benefits from this interaction because it shows that they value loyal client business.
One way to increase customer acquisition among its target market is to find and sell
exclusive ULTA brands at Sephora, which creates less need to shop at ULTA. Another way to
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increase customer acquisition is to partner with mobile shopping platforms ShopKick and Shop
Socially. With ShopKick, users are given rewards and offers for simply entering the store (Page
10). With Shop Socially, users ask friends for recommendations and share their own experience
and expertise (Page 10). These platforms can help Sephora engage with more potential clients,
such as “Followers” and “Searchers.” In order to convert these leads, Sephora can offer
additional incentives if consumers sign up for both Beauty Insider and one or both of the social
media platforms. Furthermore, Sephora can also increase online advertising by partnering with
YouTube beauty personalities and offering to bring them in-stores. While Sephora YouTube
channel has 100 videos with more than 3 million views, adding this experience will likely
increase in the amount views generated on its YouTube channel and could lessen the costs
associated with video production.
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Finally, Sephora can increase sales by optimizing the mobile application to address client
complaints about slow download time, thus leading to an increase of the current amount of users
who utilize a smartphone during the buying process. In addition, partnering with YouTube beauty
personalities will draw more attention to the user generate content and increase the 32% growth
of visits to the Sephora website. In addition, YouTube videos will help “make something go
viral” and increase the 65% currently spending more than $25 per month on beauty products.
These steps would satisfy the decision criteria to increase sales while remaining ahead of the
competition in the ever-changing technology landscape.
2. Increase the social media budget from $1 million to $2 million
This alternative allows Sephora to increase its current budget, maintain spending in other
market areas, and provides an opportunity to pursue greater online presence that has been part of
its marketing strategy.
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Here, Sephora will have the resources to maintain the current digital initiatives. While
focusing efforts on creating more customer loyalty through other initiatives, Sephora would
maintain its current level of online customer loyalty, coupled with the Beauty Insider Program
provided they are able to keep up with the demand. Sephora has built a strong following and the
last thing it wants to do is alienate clients and make them feel unappreciated. If clients can keep
or increase the level of interaction with Sephora, then the decision criteria of increasing loyalty
has been satisfied. However, if Sephora cannot keep up and starts to turn away business, such as
the Beauty Insider Program or Facebook and Twitter events, then bad ratings may follow and
discourage client loyalty.
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Due to the increase in budget, Sephora can build on its efforts to increase Facebook
development, Twitter followers, and create professional YouTube videos teaching consumers
about available products. Sephora can also add more video contests and holiday promotions not
only geared towards their target market, but converting “Searchers” and “Followers” into
“Advocates.” As more and more clients resort to mobile and social media to learn about beauty
products, it has created an influx in revenues and social media sites. Moreover, Sephora can
utilize the additional funding to optimize the mobile application to address client complaints
about slow download time and possibly create apps to work with other devices, such as Android,
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Blackberry/RIM, and iPad. Optimizing the digital marketing mix would instantly deliver new
clients, but Sephora would need to realize barriers and drivers of implementing mobile apps.
Despite the fact that individual marketing categories will not incur budget cuts, it puts an
extreme burden on the operational staff who have limited time to dedicate to these extra
programs. If the staff is overburdened and is unable to increase sales, then Sephora is just
throwing good money away with no sales increase. For instance, Sephora could introduce more
contests and/or sweepstakes, such as the Sephora Claus promotion which generated more than $1
million in sales with relatively insignificant costs. Another possibility to increase sales is direct
customer traffic toward the Sephora website while watching YouTube videos about their
products. This option offers the best opportunity to increase sale because Sephora can increase
current social media operations, while also adding more avenues to attract sales.
Recommended Solution
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There has been a shift from utilizing traditional marketing to more digital advertising.
Due to the power of the Internet, it can create a window to engage with customers, learn client
desires in real-time, and respond immediately. With this advanced communication, there can be
threats such as negative reviews or harmful information going viral. For these reasons, it is
important to stay ahead of the curve and act accordingly.
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The mobile market also offers the ability to increase both the reach and revenue of
Sephora. Doubling the budget will allow Sephora to generate more ways of reaching consumers,
especially Beauty Insiders, and create platforms to grow e-commerce activities. Thus, the
additional money will help increase: customer awareness, customer loyalty, sales, and create new
value added services. Therefore, Alternative 2 is aligned with Sephora’s goal to cultivate and
improve customers’ digital experience.
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Appendix A – SWOT Analysis
Weaknesses
 High investment costs in video and
mobile apps
 Low Twitter followers in comparison
to Facebook
 Low response rate to customers on
social media
 Inability to capture all opportunities
 No stores in non-metropolitan areas
Threats
 Lack of diversity in mobile platforms
 High costs of digital media
 Constant technological evolution
 Competitors gain higher market share
through digital advertising (ULTA)
 Many substitutes available for
consumers to choose from
 No defined online metrics
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Strengths
 Largest online beauty website (high
online margins)
 Loyal customers account for 80% of
sales
 Increasing social media following,
especially Facebook
 VIB Program
 Beauty Talk allows interaction with
clients
Opportunities
 Digital advertising to reach new
customers
 Enhance Beauty Talk site
 New online initiatives from social
shopping apps
 Potential partnerships to market
products
 Internet and mobile shopping
increasing
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Appendix B – Proposed Budgets
Alternative 1
Alternative 2
2011 Budget Allocation
$100,000
$100,000
$40,000
$150,000
$50,000
$50,000
$460,000
$50,000
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Budget Category
Video Production
Video/YouTube Advertising
Video Contest
Facebook Development
Holiday/Viral Promotions
Social Partnerships
Mobile
Store Kiosks
2011 Budget Allocation
$200,000
$200,000
$80,000
$300,000
$100,000
$100,000
$920,000
$100,000
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Budget Category
Video Production
Video/YouTube Advertising
Video Contest
Facebook Development
Holiday/Viral Promotions
Social Partnerships
Mobile
Store Kiosks
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