Analysis of Sephora's Investment into Social Media and Video

Table of Contents

Problem Statement:

About Sephora:

Current Market and Market Strategy for Sephora:

Strategic Analysis:

Objectives for different stages of “Customer buying habits of Sephora Brand”

Solution Analysis, Options and Risks:

Decision Criteria Options:

Fundamental Analysis and Budget Allocation:

Recommendations:

Appendix

Reference:

Problem Statement:

The objective of this document is to analyze and justify how Julie Bornstein should consider her marketing strategy for Sephora in 2011 to best allocate the budget to make the biggest impact. Further, it is to justify Sephora’s need to increase the budget for social media, video, and mobile which is less than 5% of total marketing budget in 2010. Lastly, it is to justify why Metrics need to be put in place for calculating the real ROI. The paper will also recommend a product mix and marketing approach to support the budget allocations for 2011.

About Sephora:

Sephora is a cosmetic retail company that has stores with multiple prestige brands of cosmetics. It operates 1000 stores in 23 countries generating nearly $2 billion in sales, making them one of the biggest market leaders in cosmetology. Sephora’s business model is like a supermarket of make-up cosmetics. Sephora has grown to be a huge brand by constant media innovation, becoming keenly aware of their customers’ needs and likes by bringing in new products, constant feedback and encouragement of experimentation on both ends. Sephora Direct's senior vice president Ms. Bornstein is inspired by these new social media outlets and their opportunities to potentially boost brand recognition, consumer engagement, and revenue. The SVP hopes that these resources will boost the revenue of Sephora and aims to double the current budget of $1 million and explore new opportunities and ways to broaden the existing media mix. Sephora must therefore determine whether to reallocate the current budget for online media or raise the annual budget for social media, video and mobile platforms.

Current Market and Market Strategy for Sephora:

In 2009, the U.S. beauty and personal care market was approximately $58.9 billion and was fast growing (Page 3, sephora case). Previously, Sephora realized that personal beauty was a low-cost luxury and attracted a greater population of teenage girls who wanted to look older, whereas older women of ages 25-35 wanted to look much younger. Their print and instore adverts worked successfully for the older population.

Get Help With Your Assignment

If you need assistance with writing your assignment, our professional assignment writing service is here to help!
Find out more about our Assignment Writing Service

Sephora had also stayed up to date innovating with the fast-growing digital media landscape and has captured 30% on the U.S. online market, making it a powerhouse beauty website (Page 3, sephora case). Their strategy and digital use of their Beauty Insider Program has allowed them to keep in communication with clients at a low cost while also generating direct personal touch points of their habits and choices. Another avenue of client contact has been via the use of product scores and reviews. This online presence has created a direct route to hear the needs, wants, and experiences of approximately 3 million unique visitors.

Strategic Analysis:

With growing internet demand, Sephora foresaw an increase in growth of e-commerce customers, especially millennials using more digital ways to connect to the brand. They decided to opt for a robust Facebook Page with target audience pull of 900,000 fans. They however suffered issues with Facebook as active responders couldn’t get enough recognition and women were ashamed to ask personal questions on open web pages. Thus, Sephora came up with their own website with a Q&A section to allow consumers to see answers to previously asked questions.

In addition to Facebook, Sephora began to use Twitter and YouTube to produce content to their customers and alternative promotional giveaways. Despite the very fact that competitors lacked mobile offerings, Sephora offered a mobile platform to boost shopper expertise and grab market share of the $2.4 billion online shoppers’ market. They struggled to quantify how many onlookers became customers. Additionally, there were high prices for occupying the digital area, from $20,000 for video production to upwards of $200,000 for app creation, with a $30,000 yearly maintenance fee (see Appendix A). Regardless, Sephora is at a crossing wherever it should confirm that direction might have the best impact on getting new customers and establishing additional loyalty with existing customers. If Sephora creates a more personalized experience for consumers by providing a strong online presence and a great in store atmosphere, they should succeed to remain the industry leader.

Objectives for different stages of “Customer buying habits of Sephora Brand”

Solution Analysis, Options and Risks:

To preserve a strong position in digital media initiatives, Sephora must take two major strategic alternatives under consideration:

1.  Allocate higher budget to Sephora website and mobile application; maintain nominal budget for social media.

Benefits:

• Reallocating higher budget for its website and mobile application, they can capitalize on the loyal consumers (VIB) that make up 80% of sales and 25% of web shopper that use smartphones during the buying process.
• Enhanced communication between clients, Consolidation as the main platform for ratings and reviews regarding the products of Sephora.

Challenges:

• Gives competitor advantage to create their digital space and position themselves in line with Sephora in buyer’s mentality if Sephora is to proceed on any digital initiatives. They also lose on 10% of clients due to incompetence to android and BB software.

Increase the social media budget from $1 million to $2 million

Benefits:

• Alternatively, enable Sephora to pursue digital initiatives at greater pace and diversify the quantity of content. Additionally, enable Sephora to have customer interaction in ways that were previously neglected due to constraints on capacity or funding.
• Allows to understand awareness of frequency of use, interest behavior flow, purchase other actions, user retention and churn rate, conversion rate, transactions (redemption and purchases) Re-purchase Repeated actions WoM, Avg. customer rating – Like reviews.
• Additional funding will facilitate Sephora’s “own” video category by creating skilled videos which will generate incoming traffic similar to alternate adverts and contest promotions.

Challenges:

• Need more defined metric system to calculate the End Action Rate= percentage of Searchers / percentage of Active Users. Need identifiable ROI for social media investment conversion-based conversation rate.

Decision Criteria Options:

To convince management that Sephora can hit big with its digital initiatives these criteria should be considered.

Increase customer acquisition

Sephora had great success with major 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.

Increase sales

The ultimate goal of this strategy is to increase revenue. Thus, the chosen option should have a positive impact on potential sales. As seen in Metrics below for YouTube, 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. Major social media can be based on these ratios of messages received to the amount of paid online impressions needed to reach the consumer.

Best Media ROI Option:

The best option is producing online videos, especially through YouTube. YouTube has the foremost positive response. The value of one YouTube follower is far more than that of Twitter or Facebook followers. The Twitter follower is priced at $.90 and Facebook $4. The YouTube fan is priced about six times in addition to the Facebook follower. Sephora fans are watching self-learning videos, learning the ideas and shopping for the product. The ROI for brief and long videos were each positive. It shows that making a short video is actually worth more than making an extended video.

Fundamental Analysis and Budget Allocation:

Observing the data analytics for the suggested budget allocation for the $2 Million for year 2011 is constructed in (Table 1). The investments for digital marketing are primarily focused on content creation and distribution to media platforms. In Exhibit A, we allocate the largest share to Social Media followed and the lowest to search mechanisms as our customers and sales will be highly derived by the social media and video distributions.

49% of value is given to social media to high costs associated with media creation, software upgrades and Maintenance of social media platforms (Table 3). The investment of these high cost will reward Sephora with large number of potential customer engagement while enhancing and solidifying the Sephora Brand in the online cosmetic market.

Although content creation is primary focus, Sephora needs to use a model of inbound marketing where their customers choose their services and products as a result of good campaigns. The already have a solid loyal customer base. Thus, the “Beauty Talk” and “Beauty Insider” campaign should be run between 25-30 times a year to bring together the loyal base with potential new clients and referrals. Furthermore, they will host Quarterly beauty contests with affiliates, which creates a market opportunity growth of 250,000 new customers and shape right in brand value.

Lastly, Sephora Direct and the Facebook page needs to be combined in a space where their customers will be directed straight to the Sephora Page and Online Store in one click. Thus, SEO proper links on social media channels is a must and high importance should be given to portray unique customer experiences with Sephora Programs and In-store activities to pull customers on an emotional level.             

Below is the calculation for collaborative budget allocation of Sephora Market Strategy for Social Media ROI.

• Cost per acquisition – 0.35$
• Cost per impression- 0.12$
• Budget spent- 100.00%
• Value of base – 18,702,228.00$
• Social Media Budget ROI = (derived value – investments) / Investments

(18,702,228.00-2000,000) / 2000000 = 8.451 ROI

Thus, referring to the excel sheet below and the ROI of 8.451 through quantitively shows us the possible growth in the digital and social media through the additional investment of $1 Million in the upcoming year. Another spectacular observation shows this investment would derive an additional 5.2 Million direct customers. This can be much higher if proper content is produced and will derive a greater customer experience. 

Recommendations:

Primary Focus: Video Creation and Video Advertising and downscaling on prints and catalogue production.

Secondary Focus: Video Contest; Offering interactive ways to connect with the brand and incentivize clients to interact back would be a major differentiator between them and their competitors.

As the demand for web clients grow rapidly, I can recommend that the Sephora Directs Budget should be increased by $1 million. We see from the statistic of YouTube engagement, twitter engagement, and video tutorial how much their customers value that media space. Thus, for them to build on and stay more engaging than their clients, more funding in this program is necessary. Sephora’s clients love watching their how-to videos on YouTube, but Sephora cannot steadily produce them due to the high price that they cost. Statistics that show how important those online videos and content are, “13% of U.S. adults online create 80% of the content that influences people, and 6.2% of these web users are responsible for 80% of social media influence” (PewInternet.org). According to ComScore, mobile shopping is projected to increase by $1.2 Billion in one year.

The increase in budget will allow Sephora to capture its efforts to increase social media followers, self-teaching videos and professional content creation, in order to fill their demanding base of online shoppers and build a very strong presence through Inbound Marketing methods. Sephora can add more video contests and holiday promotions geared towards their target market, but also by converting “Searchers” and “Followers” into “Potential Clients.” As inbound marketing grows, more client’s resort to mobile and social media to learn about new beauty products and their usage which has created an influx in social media revenues market wide. Optimizing the digital marketing would instantly provide and deliver new clients, but Sephora would need to realize barriers and drivers of implementing mobile apps.

Sephora must calculate its increased social media engagement and correlate with increased sales that occurred as a direct effect of new investments after diversifying in different areas of marketing. Sephora must also calculate the conversation ratio to know how many people purchased off their website after visiting through the link. This will help them identify the ROI, which is the ultimate goal of this market strategic budgeting. This solution offers the best opportunity to increase sale because Sephora can double the current social media operations, while adding more strategies to attract sales.

Thus, to conclude Julie Bornstein should be allocated an increased $1 Million in Budget for social media as we see strong argument on growth scale of the Sephora Business in 2011.

Reference:

• Ofek, E. & Wagonfeld, A. (2012). Sephora direct: Investing in social media, video, and mobile. HBS No. 9-511-137. Boston, MA: Harvard Business School Publishing.