Sephora Direct Case Study
Sephora is one of the largest reputed beauty product retailing company in the world and is owned by Louis Vuitton Moet Hennessy (LVMH). The Sephora Direct group is directly responsible for the complete digital and direct marketing initiatives of the Sephora Group, including its online and retail initiatives. (Ofek & Wagonfeld, 2012, p. 1) The company has a presence in the US since 1998. Sephora paid special attention to the look of its stores as well as the concept of trying on makeup as a method to get users to like the brand. As far as the competition went, in the traditional retail segment, Sephora faced a stiff contest from established stores such as Macy and Nordstrom as well as single brand stores such as MAC and multi brand stores such as ULTA Beauty. In the online segment, Sephora had faced competition from online retailers such as Amazon, Beauty.com, and a few hundred smaller sites. (Ofek & Wagonfeld, 2012, p. 3) The problem that Julie Bornstein and her team faced was to find out the precise media platforms that they should use in order to have the maximum brand and sales impact, but within budgetary constraints.
The established names in the business, particularly ULTA, were already breathing down Sephora’s neck in terms of competition. With the traditional media marketing modes being replaced by online methods, Sephora had to ensure that they had a robust social media as well as internet and mobile phone web presence. Bornstein knew that any future opportunities as well as prospective competition would come from the online modes rather than the retail sales mode. Can Bornstein and her team succeed in striking a balance between the retail and online as well as maintaining the brand image of Sephora? The assumption would be that Sephora under Bornstein would be able to secure the $1 million funding from LVMH. The two plans presented here will give solutions to this problem followed by our recommendation.
The current media spending indicates 45% for retail, 35% for online, and 20% for Beauty Insider. (Exhibit 5) With the new funding, Bornstein must increase her focus on honing Sephora’s online presence in a big way. So the newly acquired fund could be possibly allocated in a 25% (retail) and 25% for Beauty Insider with the balance 50% allocated to online media. Within the 50% allocated to online media, Bornstein must consider a decent portion, say 25% toward development of apps that would help customers connect to the product as well as the brand. The response that the company got for its iPhone app is enough reason to provide this budget allocation. Within the online presence, the company can use the balance 75% (of the 50% ‘online media’ allocation) funds to run new campaigns on social media sites, advertising on YouTube and enhancement of the Sephora Direct website. The main reason for this approach is that the company would be able to reach a completely different set of clientele in those states of the US where it has no retail presence. The investment in apps would pay off since eventually these apps would provide product information to clients and the company must view it as ‘constant advertisement’ on user’s phones.
In this plan, one could consider not providing any allocations for the development of new apps as well as toning down the Beauty Insider Program. Thus, the allocations would be, approximately, 25% Retail, 15 – 20% Beauty Insider and 55 - 60% Online, but with no focus on apps. The particular reason for this media strategy is simple. Although, the company gets 80% of its sales from the Beauty Insider program, this program already has a budgetary allocation in place. A higher allocation from the newly approved budget of $1 million, therefore, would not be vital for this program. The largest allocation of 60% to online media primarily means that over a year the sales team must sharpen their online media strategy, particularly the ability to use social media to reach out to prospective clients in regions where Sephora is not present. At the same time, unlike Plan 1, some funds from the Online allocation could be used to maintain the existing apps, including making payments for the annual maintenance fees. However, this plan would not go for the development of any new apps. The basic rationale here would be that the management could consider these steps once the company’s online strategy succeeds. Once a visible success (in terms of sales and brand image) in the online media space is seen, it also makes sense to allocate money for the development and maintenance of newer apps.
Although, one could view Plan 1 as an aggressive one since it involves a leap in all directions, the current market scenario dictates that Plan 2 is the most prudent and a wiser option. The key difference between the two plans, other than the allocation, is the development of apps. Since the company already has a functioning app, one can consider that it already has a presence in this segment. Hence, instead of developing new apps, it would be advisable to use the money obtained to focus primarily on online media campaigning. Further, in Plan 2, the reduced allocation to the Beauty Insider Program (15-20%) is done with a view since it is already an established media option for the company and there is no need to significantly increase the same.
The enhanced allocation to online media, particularly social media campaigns and the website has multiple benefits. Firstly, the cost of online media campaigns is far lower compared to those of conventional campaigns. At the same time, the feedback received from the social media platforms would be priceless since the company would be able to use the same to strike an effective balance between profit and brand image. Thus, Plan 2 achieves both the aims of the company – enhancement of sales and striking an effective balance between the profit and the brand image. Therefore, Plan 2 comes highly recommended.
Ofek, E and Wagonfeld, A (2012). Sephora Direct: Investing in Social Media, Video, and Mobile. Boston, MA: Harvard Business School Publishing.