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Sephora in the United States, Research Paper Example

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Research Paper

According to its website, Sephora is visionary, unique, and broad in its approach to selling products for skin care, color, fragrance, body, smile care, and hair care. An international brand with over 1,300 stores located in 27 different countries, Sephora opened its first location in the United States in 1998. It has grown ever sense, now consisting of over 300 stores in North America. The success of Sephora speaks well for its in demand products, marketing strategies and approach to consumers and the marketplace. In recent years, the brand has been experiencing rapid growth and name recognition, which is also partly attributable to brand positioning and market strategies. The purpose of this paper is to examine in detail how Sephora’s marketing is aiding in the achievement of this growth. We will examine market strategy positioning as it relates to the 4 “P’s” (product, price, place, promotion) as well as apply their competitive approach by utilizing the five forces competition analysis.

Five forces: understanding how Sephora interacts with and differentiates as it relates to the competition is a fundamental strength of the five forces model. By understanding the points of differentiation, we can achieve a better understanding of the tactics that can be employed in order to further differentiate, resulting in enhanced perceived value within the marketplace. The rivalry that is at the heart of the five forces model is where all of the different key factors converge which define a competitive positioning. This can aid in assessing potential levels of risk, profitability and opportunities that in turn can help produce an effective, comprehensive marketing program. For this purpose, we will examine each individual key factor and provide insights as to how Sephora is positioned.

Suppliers: it is important for Sephora to nurture and manage its supplier relationships very carefully. In order to achieve a favorable positioning with its suppliers, Sephora has taken steps to produce what they hope is a positive, proactive and mutually beneficial partnership. Two examples of this partnership can be found in their marketing initiatives and product development. In both cases, Sephora does appear to have favorable positioning, as they are able to offer their suppliers recognition and attention in the marketplace that they would otherwise find hard to achieve.

The first example is a marketing promotion Sephora developed that was titled “15 days of beauty thrills”, a sweepstakes promotion. This promotion leveraged the supplier relationships to provide gifts and prizes that was in turn promoted to Sephora’s vast network of buyers and followers. In addition to its significant website traffic, this network included 3.5 million Facebook fans, 522,000 Twitter followers, and 30,000 Pinterest followers. Considered among the biggest audience of beauty product lovers that can be found anywhere, the response from suppliers was enthusiastic, and this in turn benefitted both Sephora and its customers (Drell, 2012).

Another example of the supplier positioning as a key factor in the five forces model involves product development. Capitalizing on a new trend in the industry, Sephora partnered with nail-brand OPI to produce a at-home kit for gel manicures. Gel manicures provide the benefit of durability, with the valid claim that they can endure a minimum of two weeks without chipping. Even though there are some product drawbacks, such as evidence that they weaken the underlying nail, gel manicures are expected to grow, representing a projected 25% of total sales in nail salons by the end of 2012. The at home kit provides superior value as it is more cost effective per application than the nail salons, and it is through Sephora’s influence with their suppliers that they were able to forge this mutually beneficial partnership (Holmes, 2012).

Buyers: one could argue that buyers have all the power, as ultimately these are the people that will fuel any business. That being said, by providing differentiation that includes a unique product that is highly coveted, Sephora can avoid the stigma of becoming a commodity, as this is when companies can become more vulnerable to competitors. Through production differentiation, Sephora can accomplish a favorable positioning. In addition to effective use of the four “P’s” Sephora has been successful in garnering much favorable attention, particularly through its promotions. These promotions are utilized to drive traffic from promotional materials to Sephora stores, where there are even more opportunities to enhance the brand experience through differentiation.

Differentiation is the focus of what Sephora is currently doing in New York City. For example, a store location in Union City recently revamped with state-of-the-art technology, additional new products and designer employee uniforms. The hallmark of those new improvements at this location is called the fragrance bar, where customers blind test different fragrances at four different stations called “chic”, “playful”, “casual”, and “addictive”. Everything is technology-driven here, and selections can be easily uploaded to an iPad where customers are provided additional assistance in fragrance selections based on their identified preferences. Another New York City location has added a 30-foot studio that provides customized makeup applications and express beauty services. Other locations provide refreshments, celebrity artist appearances, and live music. (Mirchandani, 2012).

All of these on location perks provided by Sephora are geared to create a unique customer experience that provides differentiation. As with their competitors, Sephora must be careful of the power of buyers as they develop their marketing plan and understand their competitive environment. The good news is that this company has done much to avoid direct competition and the danger of substitutes, which positions them more favorably in the marketplace.

Substitutes: Through review of suppliers and buyers we understand that Sephora has done much to create a favorable positioning. This is critical to avoid the danger of substitutes and new entries into their competitive environment. As defined in the five forces model, other products that fill a similar need can be utilized by buyers and customers to lower dependency on the products that Sephora carries. The example of gel manicures also applies here, as gel manicures are replacing more conventional ones at salons. That itself is not a danger to salon business, but with so many credible national companies creating at home kits for customers that offer more applications for less investment, this development does represent a potential danger.

Many companies including Sephora, Pacific World Corporation, and Coty are all delivering on home kit applications. The dilemma each company is racing to solve involves a current limitation to the number of color shades that are available as gel manicures. Whoever solves this challenge first will likely have an advantage in a fast growing and potentially lucrative product line (Holmes, 2012). Additional concern must be given to products that may try to emulate Sephora’s products and/or image in an effort to cannibalize their business. This issue also speaks to the challenge of addressing and contending with substitute products.

This is another example where differentiation is key, as many of the services and experiences Sephora is crafting to create their brand image and unique marketing statement could also set them apart from substitutes. If they continue to offer services and perks in addition to their product, it becomes more problematic to replace Sephora with a product from another industry that otherwise may be able to fill the same need.

Entrants: All companies need to maintain a close and careful assessment of where they stand versus existing and incoming entrants into their competitive marketplace. As companies seek to expand and grow, it is important to fully understand existing barriers to enter a new market, and the potential profitability of such a venture. At the same time, it is equally important for companies to protect their existing markets, as it is within those markets where a company can enjoy both present and future success.

It is clear that Sephora has placed much effort in their utilization of the 4 “P’s” to set themselves apart from competition. This has provided advantages that are made clear as we continue to establish their competitive position through review of the five forces analysis. In 2010, the global beauty industry was estimated to be worth $230 billion dollars (Renfrow, 2010). This industry is full of competition, and an example of one competitor highlights how important it is for Sephora to continue its efforts at differentiation and effective marketing techniques that are especially designed to drive traffic from all types of different media into their store locations.

Known as “The Amazon Effect”, Amazon and other online based companies that are similar have threatened the profitability of traditional retail. Several retailers, such as Circuit City and Borders, proved incapable of competing against this online providers of many different types of products and services. Consumers are now attuned to more choices, more information, and some would say they show less brand loyalty. To this end, the challenge for traditional retail is to stay relevant, and it is imperative that companies like Sephora continue to innovate ways to drive traffic into their stores and to shop their retail websites instead of going to Amazon (Abramovich, 2012). It requires adaptation and creativity, especially in a company marketing plan as well as competitive positioning.

Competitive Rivalry: as defined through the five forces analysis, rivalry can vary greatly between industries. A broad industry may be less concentrated and more fragmented, which could result in weaker competitive overlap. Other industries are more tightly defined, which may enhance the intensity of rivalries as companies are more prone to compete directly. Some of the ways competitors may seek to gain advantage over each other focuses on the 4 “P’s”. They could modify pricing, improve product differentiation, modify distribution and/or product availability, and effective use of promotional strategies. All of these approaches would need to be strategic, and producing an effective marketing plan should complement the inherit strengths of a company that could lend to its further success.

In the case of Sephora, the 4 “P’s” have been used, and the company has seen much success as evidenced by some of the accolades they have received. As mentioned previously, Sephora has a significant number of online followers through Facebook, Twitter, Pinterest and other social media channels. They were also ranked one of the top 500 Internet Retailers in 2012 (Moore, 2012).

Through evaluation by utilizing the five forces competitive analysis, we know that Sephora enjoys good partnerships and reputation among many of its suppliers, who clearly understand that there are advantages doing business with a company that has such a significant name recognition and customer base. Buyers increasingly have responded favorably to Sephora, as evidenced by their increasing profitability, popularity and overall success. Through differentiation and promotions, Sephora avoids potential pitfalls such as substitute products that could overlap with needs that this company currently addresses with their customer base. The cosmetic industry is broad with many competitors, and although Sephora has been successful it is important that they continue to focus on their marketing plan, brand positioning, utilization of the 4 “P’s” and creativity in the marketplace to achieve sales growth and marketing goals.

The 4 “P’s”: as the five forces analysis provides competitive insights into Sephora and its positioning within the marketplace. The 4 “P’s” of price, product, place and promotion will assist us in determining what elements to focus on in brand positioning and development of a marketing plan. This company has changed many aspects of it approach in recent years, and their efforts have produced much recognition and success. For purposes of this paper, each of the 4 “P’s” will be reviewed and examples shown of Sephora’s current approach to the marketplace. One thing that will be noted is how their efforts at product differentiation and utilization of current technology has been a large component of all aspects of their business strategy and marketing efforts.

Product: Sephora sells many sought after products. As cosmetics are a big business that are in high demand, this company has succeeded in developing their consumer base and enhancing customer loyalty. One of the ways this has been accomplished has been through utilization of technology to increase the perceived value of their products. Through utilization of some of the most sought after brands such as Apple and Facebook, Sephora has integrated services into its product experience. For example, having access via an iPad to what shade of lipstick you have bought previously ensures the selection choice can be made correctly (Renfrow, 2010). The fragrance bar mentioned previously that was built in their Union Station location in New York allows an easier way to preview as many products as you want, in a way the customer can control and utilize (Mirchandani, 2012).

To combat “The Amazon Effect” on its products, Sephora recently relaunched its website, marking the first significant change to their site in over ten years. The new site includes 14,000 Sephora products that can be viewed online (Abramovich, 2012.) This site makeover represented over 5,000 employee-hours in development, and includes 80,000 new images, with more product and color views with a much improved and faster checkout system (Moore, 2012).

The improvements to Sephora’s site go beyond pictures and checkout. Every product on Sephora.com has been tagged and cross-indexed with over two dozen characteristics (Abramovich, 2012). This leads to highly advanced search features that provide consumers with many tools that they can utilize in order to find the product best suited for their needs. Sephora also continues to build an online catalog of videos designed to instruct and inspire those who purchase and want to learn more about their products. Such videos provide real advantages, as they allow interested consumers to learn more about Sephora products and the benefits they provide (Renfrow, 2012).

The infrastructure that is now available to Sephora with its website is now positioned to provide additional marketing, promotional and product opportunities. Sephora has over 14,000 products, and this product quantity and selection is highly sought after. Such products are capable of being highly competitive based on its own merits. The true competitive advantage, however, is how Sephora utilizes it marketing and technology savvy to enhance the perceived value of its products. By creating events, and offering unique services with online convenience, Sephora is establishing a brand that is not easily duplicated by its competitors.

Price: Of all of the 4 “P’s”, this one has changed the least in recent years. Simply put, Sephora does not rely heavily on pricing as it relates to discounting. Sephora products are more about value and additional services and experiences that create a value added position. One article quotes Julie Bornstein, Sephora’s Vice President of digital, as stating “ We’re not a typically promotional company, so it’s not about discounting. It’s more about cool offers, new things going on and first looks” (Drell, 2012). To this end, there are a number of effective promotional strategies that have been implemented by the company that takes the pressure off when it comes to competing on price. Sephora does provide a value statement through weekly specials and giveaways, but their strategy intentionally downplays the importance of price discounting in the selling of their products and brand image.

As it relates to the five forces competitive analysis, pricing is another important aspect to avoiding a potential pitfall, as it makes you vulnerable to potential substitute products as well as competitors. When you compete heavily on price you are running the risk of being perceived as a commodity. Sephora’s marketing strategy has went the opposite way, as they are reinforcing brand value in highly effective ways, including the lack of discounting which could affect the perceived value of their many different products.

Place: In addition to its suppliers providing products, Sephora traditionally has been reliant on its stores to distribute their products. The most significant change that has led to increased notoriety and success has been on a renewed reliance on their website and electronic media to assist in the sales and promotion of their products. Re-introduced for the first time since 1999, this website has led to a closer interaction with their customer base, providing additional incentives to visit their stores and improve brand loyalty. More than a website, it was designed to recreate the entire Sephora shopping experience, and the consumer response has been both significant and trackable. Among other accomplishments, the site in 2012 has seen a 300% increase in mobile shopping, and iPad traffic to the site has jumped by as much as 400% (Drell, 2012).

A good example of how website development has led to more consumer loyalty for Sephora is evidenced by the success of their loyalty program. Called “Beauty Insider”, this program runs concurrent with many of the online promotions and events that Sephora does on a routine basis. Rewards are counted in the program for every Sephora purchase, where points can be collected and exchanged for free products when enough points have been collected.

Another important aspect of this loyalty program is the social component, which includes social media such as Facebook, Twitter and Pinterest. In addition, there is Beauty Talk, an online forum and chat room where many customers demonstrate a strong interest in conversing with each other about beauty tips, their experiences and preferences (Renfrow, 2012).

As important as website and social media have become to Sephora, there is no replacement for the environment that the company can present with their retail stores. This is why there is so much focus within the company to provide cross promotional opportunities through marketing in an effort to drive more traffic to their stores. To this end, Sephora has struck a deal with JCPenney, creating a store-within-a-store concept. According to the Sephora website, these locations started in 2006 and continue to increase in JCPenney stores across the country. Although these locations are generally smaller than full Sephora stores, they still offer the same look and feel that consumers have come to expect from Sephora.

Promotion: Of all of the 4 “P’s”, this is the one where Sephora seems to be excelling and placing as high priority and importance. From a media perspective, they have received much recognition from their efforts, which are specifically designed to create a longer, more lasting relationship and interaction with their valued customers. In addition to their website presence and well established position in social network media, Sephora is also involved in many aspects of direct marketing, including direct mail, along with e-commerce and email blasts (Renfrow, 2012). Further integration efforts with social media networks is also underway, including a “Pin it” button that is on every product page on their website, tying to a promotional effort with Pinterest. Another example can be found on Instagram, where followers can obtain a behind the scenes look at the company, employees and hot trends in cosmetics (Abramovich, 2012).

If the company has excelled in any one area in its promotions, it is considered very savvy at integration of some of the hottest products and trends. Among its most successful achievements have been the integration of both social media and Apple products. One example of how this approach can be effective is a recently completed promotion called “15 days of beauty thrills.” This promotion was a sweepstakes where giveaways were provided in abundance to those who utilized Sephora’s social media pages, website and store visits. Teasers about the next big giveaway would be exclusively posted on Facebook, and included everything from Sephora products, a $5,000 shopping spree and even a Fiat that sported a Gucci interior. The key to the promotion was the fact that it provided customers with constant, daily incentives to visit Sephora. Evidence of the effectiveness of this promotion is available through the response numbers. During the promotion the fan base for Sephora grew at about six times the normal rate, and their website traffic had a sizable and measurable increase (Drell, 2012).

Another example relates to Sephora’s integration of popular technology icon Apple. The relationship is ongoing, as evidenced by its incorporation of iPad and iPhone technology into how consumers can view and learn about Sephora products. In fact, over 70% of mobile traffic to Sephora comes from iPhone devices (Siwicki, 2012). Sephora continues to grow and develop this technology tie in, as evidenced by their early adoption of the Apple Passbook technology.

Passbook is a new Apple technology that allows customers to store loyalty card data, event tickets, promotions and coupons in an iPhone, iPad or iTouch device. Sephora is one of a handful of companies that are considered early leaders and adopters of this new application. They succeeded in this effort by integrating their Beauty Insider loyalty card members, allowing them to download their info into Passbook (Siwicki, 2012). Although somewhat limited as it relates to paying for products (currently unavailable), it provides another important convenience and service to Sephora customers that continues to enhance the promotional relationship between social media networks, website and Sephora store locations.

Conclusion: From a competitive analysis as provided through an examination of the five forces, Sephora seems to largely be positioned well. They have strong supplier relationships where the importance of Sephora’s customer base is recognized. In addition, the company’s increasingly popular position with buyers is apparent, evidenced by its growth of website traffic, number of stores and increasing popularity in social media. They must continue effective marketing promotions and positioning if they wish to continue to stay ahead of potential substitute products and competitors who would like to take advantage of business opportunities.

An analysis of the 4 “P’s” to evaluate how Sephora approaches the marketing of its brand and product shows a heavy reliance on promotion first and foremost, as this is a critical component of how they differentiate from other would be competitors. In order to continue a positive trend, they must persist in their creative and innovative approach, leveraging their resources in social media, website, technology driven promotions and event marketing to continue to drive positive perceptions with customers.

Place is also crucial, as their store locations are still their best opportunity to promote and sustain their unique marketing message and brand. Continued utilization of online promotions that bring in store traffic is essential if they are going to continue to combat “The Amazon Effect” and avoid what has happened to other retailers such as Borders and Circuit City.

Product innovation needs to continue. With over 14,000 products, Sephora has great selection. By continuing to tap into new trends such as gel manicures, they should be able to continue to compete well against other brands and products.

References

Abramovich, G. (2012, April 12). Sephora battles “The Amazon Effect”. Digiday.com. Retrieved from http://www.digiday.com/brands/sephora-battles-the-amazon-effect/

Drell, L. (2012, June 20). How Sephora used Facebook to “thrill” its fan base. Mashable.com. Retrieved from http://mashable.com/2012/06/20/sephora-15-days/

Holmes, E. (2012, October 2). The manicure arms race. Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10000872396390444004704578032333568464940.html

Mirchandani, R. (2012, August 10). Sephora gets a giant makeover in New York. New     York Daily News. Retrieved from http://articles.nydailynews.com/2012-08-10/news/33141897_1_giant-makeover-sephora-nail

Moore, S. (2012, April 9). Sephora gets a mobile and social makeover. Internet Retailer. Retrieved from http://www.internetretailer.com/2012/04/09/sephora-gets-mobile-and-social-makeover

Renfrow, J. (2010, October 20). Sephora beautifies on-the-go direct marketing. Direct Marketing News. Retrieved from http://www.dmnews.com/sephora-beautifies-on-the-go-direct-marketing/article/181333/

Siwicki, B. (2012, September 26). Apple’s Passbook opens a new mobile marketing venue. Internet Retailer. Retrieved from http://www.internetretailer.com/2012/09/26/apples-passbook-opens-new-mobile-marketing-venue

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