Case Analysis of Sephora Direct
The main issue with Sephora Direct is that Julie Bornstein, Senior Vice President of Sephora Direct, wants to double the budget for social media, video, and mobile in 2011. For the funding to be doubled, Bornstein must first convince David Suliteanu, President and CEO of Sephora USA. To convince Suliteanu, Bornstein’s team must identify what the company could gain from “winning” in the social media, video and mobile space. Also, figuring out what a “win” will mean for the company and how to measure the success of these digital efforts is important for Sephora. Situation Analysis
The Sephora Direct Group is responsible for all of Sephora’s direct marketing and digital initiatives, including Sephora. com and the Sephora Beauty Insider loyalty program. Sephora’s current budget is estimated to be about $20 million. Of this, about $7 million is spent on online advertising, with the bulk taken up by online-search advertising. Only about $1 million is devoted to social media, mobile and video — representing slightly less than 5% of the total marketing budget. Bornstein would like the social media, video, and mobile budget for 2011 to increase by $1 million to a total of $2 million.
Sephora spent millions on online-search advertising by buying thousands of keywords for brands, products, and beauty-related terms. Search advertising represented the single largest component of Sephora’s marketing budget and was the largest source of new traffic to the Sephora website. Email marketing to Beauty Insiders was also a key element of the marketing mix, and Sephora spent millions on the entire Beauty Insider program. Social Media is an important element for Sephora to invest in because it is becoming an increasingly popular way to shop and gain clients; especially its younger clients.
According to Comscore, mobile shopping rose from $396 million in 2008 to $1. 2 billion in 2009, and was projected to reach $2. 4 billion in 2010. Bornstein wants the social media budget for 2011 doubled so Sephora can expand its mobile offering, participate in social shopping programs, create more videos, and increase its presence on Facebook and Twitter. Sephora primarily competes with department stores as well as single-brand prestige beauty stores and multi-brand specialty stores. ULTA is the closest competitor to Sephora. Sephora also competes with several large online merchants such as Amazon. com and Beauty.com, as well as hundreds of smaller sites such as Birchbox and Gilt Groupe. Major strategic alternatives Sephora has two major strategic alternatives: maintain the status quo and not double its social media budget for 2011 or Sephora can choose the alternative and double its social media funding. Status Quo Sephora is the largest prestige beauty specialty retailer in the world, and are one of the top 50 retail sites in the U. S. Sephora has around 3 million users visiting its website each month. According to Comscore, during 2010, Sephora. com had 310,000 visits each day with 11 page views per visit.
Sephora has captured approximately 30% of the U. S. online market, making Sephora the number-one beauty website. Sephora also had nearly 900,000 Facebook fans and 100,000 Twitter followers by 2010. Also in 2010, Sephora already had 15 million customers signed up for the Beauty Insider program, and about 80% of Sephora’s sales came from Beauty Insiders. If Sephora decides to maintain its status quo and not increase the social media budget for 2011, it could mean that Sephora’s competitors will have an advantage over them. Sephora may lose out on potential profit from clients who decide to go with Amazon.com or Beauty. com. With many of Sephora’s potential clients shopping online and through mobile devices, it would hurt Sephora to not invest in social media, video and mobile space. Double Funding Sephora’s web presence is an important part of its strategy because young clients are going online to make purchases and Sephora needs to be able to reach clients online and through apps. Bornstein believes a mobile app could help clients while shopping in stores by giving them the information they need such as ratings and reviews to make purchasing decisions.
Bornstein also believes that a good mobile app would increase in-store purchases by providing instant answers to burning questions and could serve as a bridge between their website and their stores. Research has shown that 25% of shoppers with smartphones used them to make purchases during 2009. If Sephora Direct’s social media budget were doubled, Bornstein would have more funding to expand Sephora’s mobile offering, create more “how-to” videos for YouTube, and increase its presence on Twitter and Facebook.
Sephora discovered that its clients, who engage with them through Facebook and other channels, purchase more than those who do not. The downside of doubling the social media budget for 2011 includes determining where the money would come from, and how the money– if shifted to digital–would be allocated. Bornstein will also have to figure out how to measure the success of the investment and the best way to calculate a more traditional return on investment (ROI). Calculating ROI is difficult because Sephora also creates emotional connections that are difficult to quantify.
Decision Criteria While evaluating the decision of whether to double the social media budget for 2011, several important criteria need to be considered. These criteria will be the basis for analyzing both alternatives and choosing the most appropriate alternative. 1. Potential for Future Profits: Doubling the social media budget’s primary purpose is to increase profitability. Will profits increase? Why will profits increase? 2. Maximize Customer Satisfaction And Retention: Customer satisfaction and retention is very important for Sephora to remain profitable.
Will doubling their social media budget help increase customer satisfaction? How can increased customer satisfaction with Sephora’s social media increase profits? 3. Measuring Success If the Budget Is Doubled: Where will the money come from? What does it mean to “win” with social media? What can be gained from “winning”? What would a win look like for the company? How can Sephora measure their social media success? Analysis of Alternatives Sephora must analyze the two alternatives: maintaining the status quo or doubling the social media budget for 2011.
The criteria that will help make the decision are the potential for future profits, maximizing customer satisfaction and retention, and measuring success of the doubled budget. Investing Helps Potential for Future Profits Investing in social media will help acquire new clients because many regions do not have a Sephora store; therefore Sephora’s online presence can reach out to those regions to invite new clients and gain more profit. Sephora’s e-commerce was projected to generate 15-20% of Sephora USA sales in 2010. Another benefit of e-commerce is that Sephora.com offers higher margins than a typical store due to lower overhead costs. By 2009, consumers spent 16% of all online time with social media. According to Comscore, mobile shopping increased dramatically from $396 million in 2008 to $1. 2 billion in 2009, and was projected to reach $2. 4 billion in 2010. With the increased budget, Bornstein can increase Sephora’s Facebook presence. Bornstein wants to purchase more online-display advertising on sites like Facebook because Facebook is the largest and fastest growing social media site with over 500 million worldwide users and a 53% reach in the U.S. in 2010. One industry analyst valued each Facebook fan at $3. 60 based on the average number of messages a typical fan receives and comparing that to the amount of paid-online impressions needed to reach the consumer with the same number of messages. Also, when the Sephora. com website became optimized for mobile users in 2010, the team saw an increase in purchases from mobile phones within days. Bornstein estimated Sephora would generate several million dollars of sales through mobile devices in 2010. Not Investing Hurts Potential for Future Profits
If Sephora does not double their social media budget for 2011, Sephora would not be able to reach as many potential clients since Sephora will have less of an online presence. As a result, Sephora may lose customers to competitors like Ulta. com or Amazon. com. Sephora would also not have the funds to increase its Facebook and Twitter presence, which will hinder Sephora’s ability to reach more potential clients. Sephora would also not have the funds to create as many videos for YouTube, which has been helping Sephora, attract clients from all over the world.
Finally, if Sephora Direct’s social media budget is not doubled, Sephora will not be able to create a Sephora app for Androids and BlackBerrys which can hurt profit because these apps have been shown to increase Sephora purchases. Investing Increases Customer Satisfaction and Retention Sephora’s website served as a forum where its customers could learn and discover about all the different makeup products offered. Sephora’s clients were able to click on any product and read reviews from customers to decide if they want to purchase the item.
When Sephora’s website opened its ratings and review board, Sephora had 32,000 ratings and reviews posted within 24 hours. By September 2010, Sephora had over 1 million product reviews posted, because its clients wanted to talk with each other and Sephora’s experts. The investment would help enhance and regulate Sephora’s website. Sephora began uploading videos to YouTube in 2007 and tens of thousands of users were watching Sephora’s “how-to” videos. In 2009, Sephora brought all of its company-produced videos together on an “official” Sephora YouTube channel, which generated over 3 million views.
Customers enjoyed watching these videos to learn how to apply the makeup products they purchased and learn about new products they may want to purchase. The investment would allow Sephora to create more videos for its viewers. Sephora’s mobile app helped customers by providing instant answers to questions. The iPhone app was focused on making shopping easier for their clients. Sephora’s clients that did not own iPhone’s also wanted a Sephora app for Android and BlackBerry devices too. With an increase in the social media budget, Sephora would be able to allocate money to creating apps for those devices and satisfy those clients.
Bornstein believed that social media played an important role in helping Sephora listen to its clients. Facebook and Twitter allows Sephora to be in constant dialogue with its clients to find out what they like and want. Sephora’s clients also use Facebook as a way to let Sephora know when they are out of products or if they had a bad experience at a store. Sephora was able to use Twitter and Facebook to its advantage by spreading news about promotions, contests, events, and other timely information. Also, Sephora clients tweeted about Sephora when they came across a great product or a new promotion.
An increase in the social media budget will allow Sephora to expand its Facebook and Twitter presence and monitor those sites better. Not Investing Decreases Customer Satisfaction and Retention As soon as the Sephora app for the iPhone came out, Sephora clients with Androids and BlackBerrys began voicing their complaints about not having an app for their phone. If the social media budget is not doubled for 2011, these clients will not be able to have apps for their phones and they will be unsatisfied and will use another beauty app instead.
Sephora’s clients enjoy watching its “how-to” videos, which also helps Sephora reinforce its positioning as an expert advisor. However, due to the cost of the videos, Sephora will not be able to make as many videos as its clients would like without the additional funding. Without an increase in the social media budget, Sephora would have a harder time remaining in constant dialogue with its clients through Facebook, and its Facebook page would not be as carefully monitored which could allow spammers to take over. Measuring Success
If Sephora decides to increase the social media budget, Bornstein will have to determine where the money will come from. Sephora had already reduced the number of new animations each year from 18 to 13 and have scaled back circulation of their catalogs. However, Sephora may need to scale back even more on the number of new animations and catalogs to accommodate the increased social media budget. Winning in social media means making a profit off of the investment put into increasing Sephora’s social media efforts.
A win for Sephora would look like an increase in clients and therefore profit for the company. Sephora can measure the success of the increased social media budget by tracking the increase in Facebook comments, Facebook likes, Twitter followers, Beauty Talk members and posts, and mobile usage data. Sephora can also measure the success of the increased budget by measuring the increase in purchases from mobile devices. Recommendation: After analyzing both alternatives and considering the facts using the decision criteria, the results show that Sephora should double its social media budget for 2011.
Since Sephora needs to reach its clients through social media to produce a higher profit, increasing its social media budget will help increase its profit. Also, because Sephora needs to make its customers happy to retain them and remain competitive, additional funds for apps, Facebook, Twitter, and YouTube will satisfy its clients and attract even more clients. For these reasons, Sephora should double its social media budget for 2011.