Sephora Case History, Issue And Objective, Competitors

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Sephora Case Study
CASE HISTORY
Sephora was founded by Dominique Mandonnaud in 1969, France. It was first established as simple perfume shop and by 1979 it had expanded to several store chain. Originally, the company was set as a self-service store that offered a wide range of products. As Sephora continued to grow, it was rebranded in an attempt to expand its market niche. After the rebranding, the founder established several branches across France something that increased its market share to 8% in the country. In 1997, Sephora was purchased by LNMH, luxurious product chain at a cost of $262 million. After the purchase, the company included a wide range of products and services to its portfolio. Under the management of LNMH, Sephora entered the international market by opening its first oversees store in New York City, United States in 1998. Like any firm entering the global market for the first time, Sephora experienced various challenges especially in the supply chain due to stiff competition from strong established companies such as Clinique and Estee Lauder. This led Sephora to initiate partnership relations with unknown brands. It was through these relationships that innovation and creativity for their brands was born to introduce new supply channels as well as line of products and services. Sephora had to address various issues in their line of division especially the supplies from their direct suppliers. The bottom line, Sephora offers more than 190 brands ranging from typical classics to new and exotic brands; in this regard it provides more than 21,000 products.
All of Sephora’s direct marketing and digital initiatives Sephora Beauty Insider and Sephora.com are managed by Sephora Direct Group. Currently, its budget is estimated to be $22 million where and estimated amount of $8 million is allocated to online marketing. Much of the budget is allocated to online-search marketing. The social media, mobile and video is awarded $1 million representing less than four percent of the total marketing budget. Bornstein wants the social media, video and mobile marketing budget to be increased by an addition of $1 million to make a total of $2 million.
Sephora spends huge funds on online-search advertising by purchasing keywords related to its products. Search marketing represents the largest component of the company’s marketing budget and contributes much to its traffic through its website. Another key element in Sephora’s marketing mix is email marketing especially for the Beauty Insider program. In the modern business world, social is a crucial element for any company to invest in due to its popularity in attracting more clients and is becoming the easiest and cheapest way to shop especially in the younger generation. According to Sephora’s financial reports, its mobile shopping has been increasing and that is why Bornstein wants the social media marketing budget to be doubled to create more value to its customers. It is believed that the more value a company creates, the more profits it gets.
CASE ISSUE AND OBJECTIVE
The core issue of this case is to justify why the $1 million additional budget for social media campaign is necessary by evaluating the involved platforms and how the marketing budget will be allocated to each platform to produce the expected results. In justifying this budget, Bornstein should make various decisions in regard to Social Media and how they will create value to their customers. Some of this decisions include:
* How can the connections with customers be strengthened?
* Can the User Generated Content (UGC) be integrated into the brand and how can it be done?
* Should they include the “Beauty Talk” into the marketing plan and if possible how can it be integrated into the social media platforms such as Facebook?
* How can the Sephora App downloads be increased.
* Should they invest in iPad and Android App softwares?
* Should they partner with other Social Media Companies?
* How can they measure Media platform expenditure?
SEPHORA’S COMPETITORS
Sephora operates in a very competitive market environment thus it competes with various both departmental and single-brand prestige and multi-brand specialty beauty stores. ULTA is its largest competitor. It also faces stiff competition from other numerous large online stores such as Beauty.com and Amazon.com.
STRATEGIC ALTERNATIVES FOR SEPHORA
Sephora has two alternatives:
* Decide not to double the social media advertising budget.
* Double the social media funding.
In case Sephora decides to double the budget, it implies that the proposed social media, video and mobile budget will get an increase of 100% as suggested by Bornstein. BUDGET ALLOCATION
Besides the $1 million budget allocated for social media, video and mobile budget, Bornstein wants an increase of the same amount. Considering Sephora’s rapid growth in its social media and limited personnel dedicated to each platform, I recommend the following:
Category

Description

Budget allocation ($2M)

Percent

YouTube, Video Production and Video Content

110 videos, 320 + viewers, how to apply the products

$654,500

32.7%

Social Media development

Likes, comments, shares

$810,500

40.5%

Social Partnerships

Blogging

200,000

10%

Mobile

iOS

100,000

5%

Website Development


150,000

7.5%


Additional Categories



Mobile Apps

Android, Blackberry

60,000

3%

Live Support

Responding to customer queries

25,000

1.3%

Total


2,000,000

100%

YouTube, Video Production and Video Content
This budget allocates 32.7% to YouTube, Video Production and Video Content Development. During the last financial year, Sephora had 156 users per minute and it had 100 videos that received more than 3 million views per video. Considering the penetration the YouTube videos had, this is much less. This is a growth opportunity for the company if it utilizes it effectively. However, the low views can be attributed to low quality videos. This implies that the company needs good content videos that are professionally developed and well aligned to its brand to create value to the customers.
Sephora has several UGC videos online that needs professional development and be integrated with its brand. The company can collect the videos and sort them according to their quality. This might be time consuming but will be worthy it after the developing high quality content videos which will enable the customers understand the brands better resulting in brand loyalty. The cost of professionally developing quality videos is $2 per video.
Social Media Development
Facebook has become the largest used among all Social Media platforms. It has the highest penetration rate than other platforms. Among those companies that have utilized Facebook as a market penetration tool assert that those who engage them through the media purchase their products than those who do not. This is an opportunity that should be utilized by Sephora. This is also demonstrated through Sephora’s previous year market penetration. The current budget has not allocated any funds for social media. It should come up with new incentives to supplement the existing promotion of “become an Fb fab and get 10% off on your next purchase”. The promotion had a great impact in Sephora since its Fan growth raised by 180% from the previous year. Sephora spent $50,000 to develop the Santa Claus initiative that resulted in more than 1 million sales. This provided a margin of 94%. This demonstrates the influence of Facebook on sales. Every fan is estimated to be $3.40 implying that for every dollar spent to promote the products through Facebook, Sephora gets $3.40 via sales. Despite increasing sales, Facebook is another important tool in carrying out market analysis, through a careful monitoring of the “likes” and “comments” the company will identify which product is in demand and use it to stimulate its sales by giving out samples to either those who share the products. Providing samples is one way of maintaining the brand image than through discounts which will lower it to the level of its closest competitors. The samples should not only be sent to advocates (fans who share or recommend the product on Fb), but also to followers (fans who like and comment on Fb). These categories of fans are expected to have a significant impact on Sephora’s sales.
Despite being a sales generating tool, Fb has become a powerful interaction and research tool. The data collected from the advocates and followers can be implemented on Sephora’s suppliers. The company can use the information to reduce its costs and create a strong relationships with suppliers. Currently, Sephora has a center of monitoring the Fb activities, but it lacks filters. The additional budget will help in creating better filters to prevent it from future brand contamination.
Mobile App
The proposed budget has allocate...