Essay: Marketing Analysis Of Sephora.

Professor requires quantitative and qualitative analysis and also i attached files about his case analysis methodology and marketing framework that we should use in our work.

Competition

Sephora was founded in 1969 under the name Shop 8. The company began by identifying a niche market of selling high-end makeup. When it began operating, Sephora was the only seller of this product with the exception of department stores. Therefore, in the early years when the store was formed, this was a brand new idea where the different Sephora stores sold makeup exclusively for various brands. The concept spread among the people very fast, and Sephora became one of the most popular makeup stores (Ortiz, 2016).

In 1999, the company launched its website Sephora.com. The company at this time offered at least thirteen thousand products and more than two hundred brands. By the end of the year 2009, Sephora was reported to have nine hundred and eighty-six stores in twenty-three different countries and more than two hundred and fifty stores in North America alone. Currently, the company is operational in more than twenty-four European countries, and it has two hundred and eighty stores in the United States and Canada (Holson, 2017).

The relationship that now exists between Sephora and JcPenney commenced in the year 2006. This partnership blossomed, and the number of Sephora stores located in the middle of JcPenny shops have increased considerably. The two have planned to ensure that by the end of this year, there will be more than six hundred and fifty Sephora stores operating inside JcPenney shops that are in operation (Anderson, 2017). Apart from JcPenney, Sephora also collaborated with OPI in 2008, XpressSpa in October 2010, and QVC in 2011.

Aside from makeup products, Sephora also offers products of other different categories. These include; skincare products, men products, accessories, and other body and bath products. Such products include; Urban Decay, Nars, Stila, as well their Sephora collection that is exclusive (WILSON, 2016).

The perception that Sephora has created in the marketplace is that it is a high-end beauty store which sells its products in retail and which offers designer products with knowledgeable and expert advice from people who work in the beauty departments. The company also created Sephora University which is aimed at informing people are aspiring to be beauty consultants on all the essential beauty products that they need to know and understand about (Holson, 2017). This is also the institution where the company’s employees are trained.

Sephora has employees who are experts in the beauty field. This aspect of expertise also comes with the company’s brand name. There is a value added to the products that are sold to the customers. The beauty products offered by Sephora-being more expensive as compared to other beauty products-give the customers a feeling that they have reached their ideal selves and this leads to aspirational shopping. The image the company portrays is perceived as being fashion forward when compared to that portrayed by their competitors (Ji, 2016). This is mostly because the majority of products that Sephora advertises are used in fashion shows, therefore, supporting the notion that the company is a luxury and trend retailer of beauty products.

Marketing Methods

This paper provides an analysis of the marketing issues at Sephora. The major issue that is faced by Julie Bornstein-the chief marketing and digital officer at Sephora as well as the company’s vice president-is how two million dollars should be allocated to the marketing of products through social media (Loeb, 2013). Alongside this issue, many other issues are considered with the intention of providing solutions to optimize returns in Sephora in spite of the different constraints such as competition.

Competition

Competition should be very well analyzed by any company to ensure that the company does not lose its market share and to make sure that it remains competitive. Sephora faces competition from different retailers of beauty products, but its main competitor is ULTA. This is because the company offers a wide assortment of products and services which Sephora does not provide. About half of the makeup sold by ULTA is drugstore kind of makeup. ULTA describes itself as a one-stop shop where it offers hair salon services across all the stores (Ji, 2016). They also offer skin care spa, and their make-up products have different price ranges.

The main advantage that Sephora has in the face of this high competition level is its high level of global exposure. Sephora has stores in twenty-three countries across the globe, and it is still growing. Conversely, ULTA has only three hundred and eighty-nine which are all located in forty states in the United States (Loeb, 2013). Another advantage that has enabled Sephora to remain more competitive than ULTA is the fact that the company offers exclusivity on a variety of the high-end products that it provides. This exclusivity provides the customers with a feeling of prestige as they shop at the different retail points. This can, however, serve as an advantage and a disadvantage for Sephora. This is because it is prestigious, but it may lead to the loss of some customers who may be unwilling to pay more for the designer products (Koonce, 2017).

Another significant competitor against Sephora is Macy’s. Today, Macy’s holds the highest market share. This is attributed mainly to its strong brand presence and its promotional marketing. Majority of Gen x and baby boomers shop at Macy’s. However, research has indicated that Sephora is slowly taking customers away from Macy’s. The table below shows different competitors of Sephora and their market shares.

Brand	percentage of market share
L Brands	22.20%
Sally Beauty Holdings	21.40%
Ultra Salon	13%
Sephora	5.60%
Other	37.80%

Table 1

One of the main methods that Sephora uses to advertise itself is by the use of celebrity endorsements. Different stars such as Jennifer Aniston and Kim Kardashian have launched their fragrance lines at Sephora, and they were successful. The company also places ads in magazines such as People’s style watch, Glamor, and Vogue. Sephora also uses their different products to support different charitable causes (Loeb, 2013).

KPIs and The Marketing Mix

Sephora also makes use of digital marketing to communicate about its products. The company makes use of Facebook, YouTube videos, Sephora’s beauty and blog, and Twitter to market its products. Sephora’s YouTube page has forty thousand three hundred and ninety-nine subscribers and more than one hundred and fifty videos that demonstrate makeup tutorials using the products provided by the company. The YouTube page also contains different product launches, reports on makeup trends, and exclusive celebrity products. The company has also managed to attract many enthusiasts of makeup who create tutorials and exclusively use Sephora’s makeup products (Koonce, 2017).

Sephora’s Facebook page contains almost five million fans. The company’s Twitter page has nine hundred thousand followers, and there are six hundred thousand Apple passbook registrations. The posts put up on these social media platforms include; product reviews, hottest new products, and sales. More than a third of all of Sephora.com’s traffic is caused by mobile devices (Smith, 2015).

To address the major issue being faced by the company, it is vital for Sephora to define its key performance indicators as well as define its optimal marketing mix. The key performance indicators include sales targets for the different stores which in turn leads to sales targets for all the employees, conversion rates of the different social media platforms, and levels of customer satisfaction based on customers’ reviews. The optimal marketing mix for Sephora will combine its different social media platforms with offline marketing with the objective of striking a balance between the two to ensure maximum revenue.

The marketing mix is made up of four factors. These are price, place, people, and promotion. The prices of the different Sephora products range from $6-$500 per product. This is because the company sells luxury products as shown in the table below (McHugh, 2015).

Makeup	Skincare	Fragrance	Bath & Body	Hair	Tools
$5 - $100	$5 - $225	$20 - $500	$8 - $300	$12 - $500	$6 - $350

Table 2

The promotion techniques used by Sephora include the use of gifts, value sets, and exclusive online promotion. Different costs incurred in marketing include the maintenance of website and applications and the costs incurred in the creation of videos. The place where marketing takes place is mainly online, but it also occurs offline in the different Sephora stores (Meyer, 2016). Finally, the products have already been seen to be luxury and trendy beauty products. By adopting the 4P’s marketing mix, Sephora will be able to cater for all its marketing needs and consequently increase its profits over time.

Strengths	Weaknesses
· iPad and iPhone app · Website as well as a mobile site · Has a great understanding of the target market · Makes use of social media extensively · Has in-store face scanner and iPad technology. · Enjoys the presence of marketing executives · The company’s brand name · High levels of customer loyalty · Presence of an innovative culture	· Lack of scale · Presence of outdated technology · Poor cost structures
Opportunities	Threats
· Presence of new technology · More social media platforms that can be exploited. · Emergence of new markets · Emergence of new products	· Competition · Showrooming where people search for products at Sephora but then shop for them in other places. · The replacement of traditional retailers. · Emergence of substitute products · Presence of intense competition. · Poor global economy · Changes in tastes of Sephora’s customers

Table 3

Statistics show that the average number of likes per day by Sephora are five hundred. This will incur a cost of $400 and bring in fifty new customers. The Facebook messages also have a high probability of having an impression on about six hundred people on a daily basis. This in turn incurs a cost of $60,000 and brings in twenty-four thousand new customers.

Twitter has a likelihood of bringing in about twenty retweets in every campaign held by the company. This in turn translates to a cost of $30,000 and brings in sixty thousand new customers. In the case of google + campaigns, the company can hold twenty campaigns which will cost the company ten thousand dollars and could consequently bring in ten thousand customers and one hundred thousand brand impressions.

For google Adwords, there is a probability of two hundred people using the site which will lead to a cost of a thousand dollars and two hundred customers joining the company. About five hundred people are likely to use the Google business places. This will lead to a cost of two thousand and five hundred dollars and bring in five thousand new customers. For content creation, the cost incurred will be based on whether it is video content, texts, or pictures.

Tests will incur a cost of one thousand, two hundred and fifty dollars and bring in three thousand seven hundred and fifty customers. The pictures will incur one thousand dollars and bring in four thousand customers. Two videos can be used which will incur forty thousand dollars and bring in two hundred and sixty thousand dollars.

Sephora can then send out about five hundred thousand emails for marketing purposes. These will incur five hundred dollars and bring in eight hundred and thirty-three customers. For YouTube, Sephora can make use of ads and campaigns to reach people. They can use about ten thousand ads which will incur a cost of fifty thousand dollars and bring in fifty thousand new customers. It can also carry out a hundred YouTube campaigns that will cost it ten thousand dollars and bring in twenty thousand new customers and create forty thousand brand impressions. In the case of mobile app AdWords, there is a likelihood of one thousand units being downloaded which will lead to a cost of ten thousand dollars and which will bring in one thousand new customers.

Instagram could be used in carrying out two campaigns per month. These will cost the company six thousand dollars and bring in six thousand new customers per year. The company can also carry out contests in which it encourages people to participate and the winner is given a prize. Six campaigns can be carried out annually which will cost the company three hundred thousand dollars and bring in three hundred thousand customers.

The company can also make use of affiliate marketing which will cost it twenty-five thousand dollars and in turn bring in twenty-five thousand customers. Search engine optimizations can also be used where the company will incur a cost of sixty thousand and in turn bring in six hundred thousand customers. Sephora should not carry out mobile app development activities as these will not bring in any income for the company. Finally, the company will partner up with ShopKick which will cost it fifty thousand dollars annually.

The market for US cosmetics grew by more than $1 billion in 1999 (McHugh, 2015). This was a growth rate of 6.6%. This growth rate was attributed mainly to spa positioning and niche lines. The table below shows the growth in different beauty product categories.

	Sales	growth	market share
skin care products	5551	3.40%	28%
color cosmetics	6173	8.90%	31%
fragrance	3345	1.40%	17%
body and bath products	3498	7.50%	17%
men's line products	1478	-2.50%	7%
Total	20045	6.60%	100%

Table 6

This shows that the market had a high potential for growth and expansion in the year 1999 (McHugh, 2015). At this period, the category that had the highest growth levels are color cosmetics followed by body and bath products. These product categories are both provided by Sephora. The market for beauty products has different price point classifications. These include; prestige, alternate or direct sales, specialty with spas and salons, and broad or mass merchandisers. Sephora’s price point classification is for prestige purposes.

Of the different categories, the alternative category provided the highest volume and the largest growth rate. The sales were $7,228,000,000, and the market share was 36%. Broad which came in second had sales of $6,645,000,000. Prestige came in third place with $6,112,000,000 in sales with a 31% market share (Taylor, 2017).

This analysis focuses mainly on the female market because it is the market most targeted by Sephora. The women in this analysis are aged between twenty-five and sixty-five years old. At the time of this research, there was a projection that the female population will grow at a rate of 5.18% from the year 2000 to 2025 in the whole of the United States. There were 33,642,000 women with a college education used in this study and 87% of them-29,293,000 women-reside in major cities (Fiorletta, 2017).

	Year 1	Year 2	Year 3	Year 4	Year 5	CAGR
potential customers income levels
<$35,000	21,475,000	22,548,750	23,676,188	24,859,997	26,102,997	5%
>$35,000, <$74,999	10,276,000	10,789,800	11,329,290	11,895,755	12,490,543	5%
>75,000	1,891,000	1,985,550	2,084,828	2,189,069	2,298,522	5%
Total	33,642,000	35,324,100	37,090,306	38,944,821	40,892,062	5%

Table 7

The purchasing power of the market segment of women aged between 18 and 25 years continues to increase. There are currently more than one hundred million female consumers in the United States. Campuses have a population of female students that is higher than 60% (Schwartz, 2017). The buying power of all these women is estimated to be around $4.4 trillion. In the year 1997, about sixty-four percent of women who were working earned at least half the family income. Today, businesses that are owned by women generate an annual revenue of more than $3.6 trillion. It is therefore very important for Sephora to provide quality products to these women who are looking for value in the products as opposed to simply making purchasing decisions based on the price of the commodities.

Financial Analysis of Sephora from 2015-2016.

Sephora is a company that is publicly traded. Financial reports from LexisNexis show that the revenue brought in by Sephora stores have increased from $50 million to 75 million dollars in the past three years. Sephora is expected to keep growing as it engages with millennial shoppers. In the year 2013, Sephora earned a revenue of $5.85 billion. It was then projected that the company would gain a 10% annual growth over the next five years to 2018. Currently, the company is on track with the set projections. In the year 2014, Sephora earned a revenue of $53 billion. It also recorded a steady growth of 4.9%. Sephora’s market share has also been growing globally, and it now has thirty thousand employees across the globe in its one thousand nine hundred stores worldwide (Speduto, 2017).

Sephora is expected to keep on expanding and continue being competitive with other retailers in the beauty products market. Sephora has been able to capture more than twenty percent of the United States cosmetic and fragrance market.

Sephora has a vision of becoming the store of the future in the provision of makeup products. It is working towards the achievement of this goal by making use of the latest technologies, providing luxury brand products, and incorporating a savvy team of salespeople (Schwartz, 2017). Currently, Sephora is executing its innovation lab which is taking in ideas from different employees. It is carrying out this activity in an attempt to see how the stores will look like a few years into the future.

The company should place focus on KENDO brands because of the partnership between Sephora and the LVMH group. It should also increase its digital engagement with its target audience which is consumers between the ages of 18 and 65. Moreover, it should create awareness for its different winter products. It should also put in measures that will increase the usage of Sephora apps as well as downloads (Fiorletta, 2017). Additionally, it should reward its loyal customers and capitalize on any available market opportunities.

Another tactic that Sephora can employ is cannibalization. This is the situation whereby the company introduces new products to compete with another of its products. This can be incorporated in the sale of different products such as perfumes to ensure that when the sales of the initial product go down, the company still has another product in the market that will replace the failed product.

Other Objectives that can Increase Sales

Sephora can increase its key products and be sure to sample them throughout the year. It should also reward its most frequent shoppers with product samples that are distributed by KENDO brands. During its different events, the company should boost its rates of conversion with at least $25 for different samples (Speduto, 2017). It should be engaged with its customers in all its online platforms and provide loyalty program benefits.

Marketing Promotions

The company should make use of different social media platforms. It should also partner with different social media personalities and bloggers in an attempt to promote their different products. It should also continue making use of innovative technologies and its exclusive luxury products in a bid to increase its market share. Finally, it should create snapchat stories showing their consultations and the in-store experiences that are technology driven.

References

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McHugh, P. (2015). Data Mining Can Help Retailers Realize the Promise of Enterprise CRM Systems. Customer think.

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Smith, a. (2015). Social Media Marketing Metrics Assignment. Marketing discussions.

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WILSON, M. (2016). J.C. Penney is expanding its 10-year relationship with Sephora. Chain store age; the business retail.