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REV: JUNE 25, 2012
ELIE OFEK
ALISON BERKLEY WAGONFELD
Sephora Direct: Investing in Social Media, Video,
and Mobile
Julie Bornstein, senior vice president of Sephora Direct, glanced through Sephora USA Inc.’s
(Sephora) latest set of social media metrics as she waited for the elevator in the lobby of her
company’s headquarters in San Francisco, California. It was late in October of 2010, and she was
heading up to the 32nd floor to meet with David Suliteanu, President and CEO of Sephora USA.
Sephora was the largest prestige beauty specialty retailer in the world with nearly $2 billion of
revenues from the company’s stores in U.S and Canada as well as the Sephora.com website. Started
in Europe in 1969, the company entered the U.S. in 1998, selling a wide range of cosmetic, fragrance,
hair, and skin care products. Sephora was known for its vibrant stores that encouraged trial and
experimentation.
As Bornstein stepped out of the elevator into the black and white striped hallway, she thought
about the upcoming budget meetings with Sephora’s parent company, Louis Vuitton and Moet
Hennessy (LVMH). The Sephora Direct group was responsible for all of Sephora’s direct marketing
and digital initiatives, including Sephora.com and the Sephora Beauty Insider loyalty program. In
2008, Bornstein’s team began to experiment on Facebook and with online videos, and in 2009 the
team began making plans for mobile applications. By the summer of 2010 Suliteanu had authorized
the creation of a new group within the Sephora Direct organization to focus on these new initiatives.
Bornstein was hoping to double her budget in social media, video, and mobile for 2011, and she
wanted Suliteanu to back up her requests for close to an additional $1 million dollars of funding.
Suliteanu conveyed that he would support more funding if Sephora could “win” in this space, but it
was up to Bornstein to determine what winning would look like for the company. Along those lines,
Bornstein was contemplating how Sephora should measure the success of its digital efforts.
As Bornstein walked to Suliteanu’s office, she glanced again at the weekly metrics sheet. She
noted the rapid growth of Sephora “fans” on Facebook and the thousands of recent downloads of
Sephora’s new iPhone app. Bornstein felt good about the company’s efforts to date, but she knew
more opportunities lay ahead. Just last week she and her team talked about expanding their mobile
offering, participating in social shopping programs, creating more videos, and increasing presence on
Twitter. They also had the opportunity to pitch a promotional program for a new Jennifer Aniston
fragrance launch using a variety of new media platforms. Bornstein thought about all of the
directions they could pursue, focusing both on how to have the biggest impact and how to measure
________________________________________________________________________________________________________________
Professor Elie Ofek and Alison Berkley Wagonfeld, Executive Director of the HBS California Research Center, prepared this case. HBS cases are
developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effective or ineffective management.
Copyright © 2011, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be
digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Yousef Alshawaf in MKT 449 SU2018 10237 taught by JOY GRIFFIN, California State University – Northridge from May 2019 to Jul 2019.
For the exclusive use of Y. Alshawaf, 2019.
511-137
Sephora Direct: Investing in Social Media, Video, and Mobile
that impact to support additional funding. But even with additional funds, her team had only limited
time and energy to dedicate to each of these programs, so they had to choose carefully. The meeting
with LVMH was in ten days, and Bornstein was eager to discuss her ideas with Suliteanu.
Company Background
History
Sephora was started in France by Dominique Mandonnaud in 1969 as a single perfume shop. In
1979 Mandonnaud expanded to several stores, which were designed so customers could try multiple
brands in an “assisted self-service” environment. Mandonnaud’s retail concept represented a stark
break from the traditional cosmetics retail model in which each prestige brand would commission its
own sales representatives to push products onto shoppers, often in a department store setting at
brand-dedicated counters. In 1993, Mandonnaud teamed up with investors to combine his stores with
a perfume chain acquired from British retailer Boots PLC. Mandonnaud rebranded the combined set
of stores under the Sephora name, derived from the Greek word for pretty (sephos) and the Biblical
name Zipporah (Moses’ beautiful wife). Mandonnaud continued expanding the chain, and several
years later Sephora operated 54 perfume stores throughout France, representing 8% of the total
French retail perfume market.1 Sephora attracted the attention of luxury product group LVMH,
which bought the company for $262 million in 1997.
U.S. Expansion
Under LVMH’s ownership, Sephora expanded beyond perfume into other cosmetics and opened
its first U.S. store in New York City in 1998. For the first few years, Sephora had difficulty getting
products from Clinique, Estee Lauder, and Prescriptives, which were owned by Estee Lauder
Companies and comprised 44% of the prestige beauty market in 1999.2 These companies perceived
Sephora as a niche player and would not distribute to Sephora stores located near department stores
carrying the same lines. According to William Lauder, president of Clinique Laboratories and a board
member of Estee Lauder Cos, “People will continue to shop at department stores because they offer
trained salespeople who are knowledgeable about each brand.” 3
Given the reaction by some of the established brands, Sephora relied on less well-known brands to
fill its shelves, and the company built relationships with hundreds of small cosmetic manufacturers.
Sephora encouraged customers to try products in the stores, and multiple brands of similar product
categories (e.g., lipsticks, eye shadow) were placed side-by-side to encourage experimentation.
Sephora hired non-commissioned employees to guide consumers and answer questions, and over
time, these employees were trained on all the different products.
All Sephora stores had a similar “look and feel” with black, white, and red as the dominant color
theme for walls and displays, and employees (“cast members”) dressed in these colors as well. (See
Exhibit 1 for store photos.) The stores played a combination of pop and alternative music that
contributed to creating a fun, party atmosphere. The company attracted younger, hipper customers
(referred to as “clients”) than department stores. Suliteanu explained, “We told young women that it
was OK to come in and try on make-up without buying anything. This was a new concept for
cosmetic retailers, and it allowed us to grow the pie with customers who had never shopped for
cosmetics before.” Within several years of opening stores in the U.S., the bigger prestige cosmetic
companies such as Estee Lauder and Clinique started supplying product to all Sephora stores.
Suliteanu noted, “Over the years, the large public cosmetic companies like L’Oreal and Lauder have
become much bigger supporters as our brand has grown both in size and credibility.”
2
This document is authorized for use only by Yousef Alshawaf in MKT 449 SU2018 10237 taught by JOY GRIFFIN, California State University – Northridge from May 2019 to Jul 2019.
For the exclusive use of Y. Alshawaf, 2019.
Sephora Direct: Investing in Social Media, Video, and Mobile
511-137
Sephora USA in 2010
By 2010, Sephora had nearly 1,000 stores in 23 countries, of which 450 were in the U.S. and
Canada. Sephora had a retail presence in 36 states, with the majority of the stores in metropolitan
areas and shopping malls. In 2006, Sephora entered into a retail partnership with JC Penney (a large
chain of mid-range American department stores) in which Sephora became the exclusive beauty
retailer inside JC Penney department stores. Approximately 200 of Sephora’s U.S. stores were located
within a JC Penney location. The company’s headquarters were located in San Francisco where
Bornstein managed a team of 75, organized into seven functional areas: customer relationship
management, social media, acquisition and retention marketing, analytics, e-commerce, dotcom
merchandising, and the company’s call center. “Traditional” marketing and merchandising was run
by Sharon Rothstein, senior vice president of marketing, who was based in Sephora’s offices in New
York City. (See Exhibit 2 for management biographies.)
Sephora offered 288 brands, representing over 20,000 products, ranging from classic lines such as
Lancome and Clinique to emerging brands such as Urban Decay and Too Faced. Sephora’s products
were considered prestige brands, which were perceived as more upscale than the mass market
brands (e.g., Revlon, Maybelline) found at drug stores and supermarkets. Sephora carried nearly
every large prestige brand except for Chanel and MAC Cosmetics. Sephora’s pricing was often
identical to that of department stores because U.S. beauty retailers tended to price prestige products
at the manufacturer suggested retail price (MSRP). Promotions typically involved offering samples
rather than discounting, although Sephora did offer two discount events each year to its loyalty card
holders. Sephora also carried a host of private label products in nearly every category, some of which
were priced below the prestige brands. Sephora’s target market in 2010 was 25-35 year old women,
many of whom “grew up” with the company. Bornstein noted, “This age group had an aspirational
element, as the teenage girls looked up to this cohort and older women wanted to look 25-35 again.”
Competitive Landscape
The U.S. beauty and personal care market was approximately $58.9 billion in 2009.4 Sephora
primarily competed with department stores such as Macy’s and Nordstrom as well as single brand
prestige beauty stores (e.g., MAC Cosmetics) and multi-brand specialty stores (e.g., ULTA Beauty).
ULTA was the closest competitor to Sephora, as it operated nearly 400 retail stores in the U.S. Most of
ULTA’s stores were in “off-mall” locations (i.e., strip malls with 8-10 stores and easy parking), and
included a full-service salon. The ULTA chain was started in the 1990s with an emphasis on
discounted mass-market products, but the company added several prestige lines during the 2000s
and positioned itself as a “beauty superstore” by the end of the decade boasting 21,000 products. In
2009, ULTA reached sales of $1.2 billion with $40 million of net income; analysts estimated 18%
revenue growth for 2010 over 2009.5 ULTA introduced an updated e-commerce site (ulta.com) in
2008, and had seven million members in its customer loyalty program in 2009. 6 ULTA did not have a
distinct mobile offering in 2010. Bornstein described ULTA as a “fast follower” of Sephora. According
to Karen Grant at NPD research, “The two chains go head to head among 25- to 34-year-olds, 29
percent of whom shop at Ulta, 30 percent at Sephora.”7 (See Exhibit 3 for an article about ULTA.)
Sephora also competed with several large online merchants such as Amazon.com and Beauty.com,
as well as hundreds of smaller sites. Two newer online companies included Birchbox, which
delivered a curated box of samples to consumers each month in return for a monthly membership fee
of $10, as well as Gilt Groupe, one of several growing companies that offered a limited set of luxury
products at deep discounts during a short time window (known as “flash sales”). Sephora.com was
the largest online prestige beauty website, capturing roughly 30% of the U.S. online market.
3
This document is authorized for use only by Yousef Alshawaf in MKT 449 SU2018 10237 taught by JOY GRIFFIN, California State University – Northridge from May 2019 to Jul 2019.
For the exclusive use of Y. Alshawaf, 2019.
511-137
Sephora Direct: Investing in Social Media, Video, and Mobile
Sephora’s Marketing Plan
Shortly after Rothstein arrived at Sephora in 2009, she worked with Bornstein to build a marketing
plan for 2010. Key elements of the 2010 marketing mix included: store window merchandising, 32page print catalogs sent to a portion of Sephora’s Beauty Insiders three times a year, print advertising
in magazines, a few direct mail pieces sent to Beauty Insiders, two major sales/promotions (one in
April and one during the holiday season), and free gifts for Beauty Insiders. Rothstein and Bornstein
talked regularly to coordinate messages, particularly around “animation” themes for the windows
and Sephora’s homepage. Rothstein explained, “Animations are one of the most important
components of our marketing mix, they represent themes that form the basis of how we build our
calendar. Our store window designs and site homepage bring our stores to life. Our CEO believes
that our marketing image should start with the store experience, both offline and online.” (See
Exhibit 4 for sample store window designs and print ads.)
In addition, Sephora spent millions on online search advertising (e.g., Google AdWords) 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. Sephora was also looking into purchasing more online display
advertising on sites such as Facebook. Email marketing to Beauty Insiders was also a key element of
the marketing mix, and although the emails were not particularly expensive to send, Sephora spent
millions on the entire Beauty Insider program. The 2010 plan had a modest amount of money (just
shy of $1 million, representing under 5% of the total marketing budget) designated for social media,
mobile and video, and those were the categories Bornstein hoped to double in funding in 2011. (See
Exhibit 5 for a breakdown of total media spending.)
Sephora Direct – Sephora.com and Beauty Insider
Sephora.com
Sephora.com was launched in 1999 with 100 brands, and within several months expanded to
include all of the brands sold at any of the Sephora stores. The e-commerce site grew quickly into a
sizeable business for Sephora, and it was projected to generate 15-20% of Sephora USA sales in 2010.
The company appreciated the growth in online sales, as Sephora.com offered higher margins than a
typical store due to lower overhead costs.
Approximately 3 million unique visitors came to the site each month, making Sephora one of the
top 50 retail sites in the U.S. According to Comscore, on average in 2010, Sephora.com had 310,000
visits each day, and 11 page views per visit. The Sephora website offered sophisticated search
functionality along with details about every product the company sold. (See Exhibit 6 for
Sephora.com trends from 2000-2010 and data about online beauty shoppers.) Sephora encouraged site
visitors to purchase online by offering free shipping for orders over $50 and three free samples with
every order. Suliteanu summarized, “Our web presence became an important part of our strategy.
Our young clientele were going online and we needed to be there. The Sephora brand had been
primarily about the physical experience, but we started to see the importance of the Internet as a
forum where our customers could discover and learn.”
Sephora Beauty Insider Program
Sephora USA introduced its Beauty Insider customer loyalty program in 2007. Suliteanu explained
the rationale, “We wanted to know more about our customers, so we thought it would be helpful to
4
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For the exclusive use of Y. Alshawaf, 2019.
Sephora Direct: Investing in Social Media, Video, and Mobile
511-137
introduce a CRM [customer relationship management] program. Most of these programs were set up
around discounts, but our goal was to build our program around perks. We offered free samples to
our Beauty Insiders and gave them “first looks” at new products. The program exploded and we had
millions of sign-ups within the first year.”
Clients were invited to join the Beauty Insider program when they made a purchase in the store or
online, and all that was required was an email address, although clients were also asked for their
birthdays. Bornstein commented, “Our store cast members [employees] get great training, and they
really believe in this program. I’ve been in many stores and I have never seen a client buy anything
without being asked to join our Beauty Insider program.” Sephora offered one point for each $1 spent
in stores or online. Clients could redeem points for a free gift at 100 and again at 500 points. Some
opted to hold their points, hoping to redeem thousands of points for bigger gifts in the future.
Beauty Insiders typically received emails from Sephora once or twice a week, and a special offer
on their birthday. Customers who spent more than $350 in a year were designated Very Important
Beauty Insiders, also referred to as VIBs. VIBs were invited to special events at stores, received
“deluxe” gifts and were given early access to products. VIBs were identified with a small icon when
they posted questions or answers on the Sephora.com website.
By 2010, 15 million customers had signed up for the program; with 9 million considered “active
members” (purchasing something from Sephora in the last 12 months). Approximately 80% of
Sephora’s sales came from Beauty Insiders. Bornstein commented: “One of the reasons the program
works so well is that the beauty category lends itself to sampling, and our clients love to experience
new products! We also make it really easy to join, and our clients see quick benefits. The program
gives us a way to communicate frequently with our clients using our low cost email platform.”
Sephora Direct – Social Media
Ratings and Reviews
Sephora’s initial forays into social media began by enabling users to post product ratings and
reviews on Sephora.com. In early 2008, Bornstein pushed to add this feature to the company’s
website even though there was internal concern about the implications of negative reviews. The
direct team believed it was worth the risk because clients were asking for the feature, and research
had shown that most people went online to rave about products rather than complain. In addition,
the direct team believed that ratings and reviews could lead to desirable outcomes: improving site
conversion from shoppers to buyers by providing confidence in a product’s results, increasing traffic
from online search results, keeping clients for longer durations on the site, reducing returns, lowering
call center visits, and encouraging repeat visits. Moreover, other e-commerce sites such as
Amazon.com already had active review boards, and some of Sephora’s customers were posting
reviews on these sites for products they had bought at Sephora.
Sephora contracted with a third party to build software that could be integrated into Sephora’s
website, and in September 2008, Sephora opened its ratings and reviews boards. The company
publicized this new feature by emailing its …
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