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May5,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
1) SephoraandUltaarethetop-twobeautyretailchainsintheUS.In2016,theyaccountedfor22.7%and26.7%ofUSbeautyspecialistretailsales,respectively.Inthisreport,wediscusstheirloyaltyprograms,whichareverydifferentandfittheirpositioninginthemarketaccordingly.
2) BeautyInsider:Sephora’sBeautyInsiderprogramfeaturesmultiplemembershiptiers—themorethecustomerspends,themoreexclusivetherewardsandbenefitsare.Thiscreatesapremiumfeelingforthehigher-spendingcustomerandmatchestheretailer’spositioninginthehigher-endsegment.
3) ULTAmateRewards:Ulta’sUltamateRewardsprogramfeaturesvalue-relatedrewards,suchaspointsfordiscountsandextrapointsaccrualforhigher-tiermembers.Indeed,mostofUlta’scustomerscitepriceandpromotionsasreasonstheyshopthere,accordingtoProsperInsightsMonthlyConsumerSurvey.
Beauty Loyalty Programs:
Sephora Vs. Ulta
Deborah Weinswig
Managing Director,
Fung Global Retail & Technology
US: 917.655.6790
HK: 852.6119.1779
CN: 86.186.1420.3016
2
May5,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
IntroductionSephoraandUltaarethetop-twobeautyretailchainsintheUS.In2016,theyaccountedfor22.7%and26.7%ofUSbeautyspecialistretailsales,respectively,accordingtoEuromonitor.
Sephorawasfoundedin1970,andin1997,wasacquiredbyLVMH,oneofthelargestluxurygoodscompaniesintheworld.Ithasover413storesacrosstheUSandCanada,aswellas573outletsinsideJCPenney.Sephorafocusesonbeautyproductsinthemiddletohigh-endsegments.Italsooffersbeautyservicesandbeautyclassesatsomeofitsoutlets.
Source:Shutterstock
Ultawasfoundedin1990andoperates974storesintheUS.Itexpectstoopen100netnewstoresbytheendoffiscalyear2017.Theretailersellsdrugstoreitemsalongwithmid-rangebeautyproducts,andoffersbeauty(hairandbrow)andskincareservicesatitssalons,whicharefeaturedinallofitsstores.
Source:Shutterstock
Toretaintheirloyalcustomersandcapturecustomerdata,bothbeautyretailchainshavewell-establishedloyaltyprograms:BeautyInsiderandUltamateRewards.
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May5,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Toretaintheirloyalcustomersandcapturecustomerdata,bothbeautyretailchainshavewell-establishedloyaltyprograms:SephorahasitsBeautyInsiderprogramandUltahasitsUltamateRewardsprogram.Inthisreport,wecomparethetwoprogramsandanalyzehowandwhytheydifferfromeachother.
WhatDrivesConsumerstoShopatSephoraandUlta?WelookedatthereasonsconsumerscitedforshoppingforhealthandbeautyproductsatSephoraandUltabyanalyzingdatafromtheProspermonthlyconsumersurveyconductedinNovember2016.
Merchandisemix:Accordingtothesurvey,themerchandisemixisasignificantdriverforbothretailers:65%and77%ofloyalcustomersmentionedselectionasareasontoshopatSephoraandUlta,respectively.
Qualityandservicevs.priceandpromotions:Sephoraleadsonqualityandservice,whileUltaleadsonvalue-relatedfactorssuchaspriceandpromotions.
Location:Ultaisalsopreferredbycustomersbecauseofitslocation,whichcorrelatestomanagement’sfocusonrealestateasacorecompetency.
Loyaltyprogram:LoyaltyprogramplaysamoreimportantrolefordrivingcustomerstoshopatUltathanSephora:citedby31%ofUlta’scustomersand21%ofSephora’scustomersasareasontoshopatthelocation.
Figure1.ReasonsforShoppingMostOftenatSephoraandUlta,November2016
SampleSize:SephoraCustomers:N=101;UltaCustomers:N=148Source:ProsperInsights&Analytics,MonthlyConsumerSurveys
0%
20%
40%
60%
80%Seleceon
Quality
Promoeons
Price
Locaeon
BrandsAvailable
LoyaltyProgram
Service
Sephora Ulta
Sephoraedgesonqualityandservice,whilemoreUltacustomersmentionedvalue-relatedfactorssuchaspriceandpromotions.
4
May5,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
AnOverviewoftheTwoLoyaltyProgramsLoyaltyprogramsplayavitalroleforbothSephoraandUlta.AccordingtoUlta’s2016annualreport,UltamateRewardsmemberscontributed90%ofthecompany’srevenue.AsforSephora,80%ofitstransactionsweremadethroughtheBeautyInsiderprogram,accordingtoBridgetDolan,VPofSephora’sInteractiveMedia.
Fundamentally,thetwobeautyretailchains’loyaltyprogramsaresimilartothoseinotherindustriessuchasairlinefrequent-flyerprogramsorhotelloyaltyprograms—customersearnpointswiththeirspending,andthemoretheyspend,themoretheygetrewardedandthebetterthebenefits.
Inthefollowingtable,weoutlineandcomparethemainfeaturesofthetwoprograms.Enrolmentisfreeforbothprograms,customerscanearnonepointperdollarspent(basicplan)andreceiveafreebirthdaygifteachyear.
Figure2.ComparisonofSephoraBeautyInsiderandULTAmateRewards
NumberofMembers(asof2016) 17million(USandCanada) 23.4million
AverageNumberofMembersperStore 17,241 24,025
MemberDriverofSalesasa%ofTotalSales 80% 90%
MembershipTiersBeautyInsider(free)
VIB($350annualspending)VIBRouge($1,000annualspending)
Basic(free)Platinum($450annualspending)
Points
Earning OnepointperdollarspentBasic:1pointperdollarspent
Platinum:1.25pointsperdollarspent
Expiry NeverBasic:expiresafteroneyearPlatinum:pointsneverexpire
Rewards Giftredemption Giftredemption,money-offpurchase
Bene
fits
BasicMembersFreebirthdaygiftFreebeautyclasses
FreebirthdaygiftExtrapointsduringbirthdaymonth
Higher-TierMembers
SeasonalsavingsFreecustommakeovers
Privatehotline(VIBRougeonly)Exclusiveproducts&events(VIBRouge
only)Freeshipping(VIBRougeonly)
ExtrapointsformultiplieroffersCashcoupononbirthday
Extrafreegifts
Source:Companywebsites/KatjaMakeupArtistry/BeautySkeptic
UltamateRewardsmemberscontributed90%ofthecompany’srevenue,whereas80%ofSephora’stransactionsweremadethroughitsBeautyInsiderprogram.
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May5,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
UltamateRewardsrequiresahigherspendingof$450overthecourseofoneyeartoreachthenextmembershiptierPlatinum,whichishigherthanthe$350requiredtoreachSephora’sVIBstatus(VeryImportantBeautyInsider).However,SephorafeaturesonemoretierknownasVIBRouge,wheremembersenjoyevenmoreexclusivebenefits.
UltaSeeingFasterGrowthofitsMembershipBaseUltahasseenmuchfastergrowthinitsloyalmemberbasethanSephora.UltamateRewardshad15millionmembersin2014,whichgrew56%toreach23.4millionmembersin2016.Duringthesameperiod,SephoraBeautyInsidersawitsmembershipgrow17%from14millionto17million.
OnUlta’sfourthquarterearningscallforfiscal2017,seniormanagementstatedthatthecombinationandthesimplificationoftheloyaltyprogramhavehelpedtoacceleratemembershipgrowth.
Ultahasalsosignificantlyincreaseditsin-storeexecution,withstoreassociateshelpingeducateandconvertpotentialmembers.
Figure3.MemberNumbersfortheRespectiveLoyaltyPrograms,2014vs.2016
Source:Companyreports/Pressreleases/CNBC
WhatDifferentiatestheTwoLoyaltyPrograms
LeverageCustomerDataBothSephoraandUltahaveleveragedthecustomerdatafromtheirloyaltyprogramstoprovidepersonalizedexperiencesfortheirmembersacrossdifferenttouchpoints.
AccordingtoUlta’sCEOMaryDillon,UltamateRewardshelpedtodelivermoretargetedandpersonalizedoffersacrossallchannels,andinitiativessuchasequippingstoreassociateswithadigitaldevicethatgivesthemthe
14
17
15
23
10
15
20
25
2014 2016
Mem
berN
umbe
rs(m
illion)
SephoraBeautyInsider UltamateRewards
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May5,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
abilitytotracktheprofilesandpreferencesofindividualcustomers,aswellastoprovidemorepersonalizedcustomerinteractions.
Sephoraalsoutilizesitsloyaltyprogramtoprovideacoherentandpersonalizedexperienceacrossdifferenttouchpoints,accordingtoDolan,theprogramenablesSephoratoproviderelevantrecommendationstotheirmembers.Forinstance,itrecordstheskintypeofindividualcustomersandtheemailsreceivedbythecustomerwillhavethatattribute.
RewardsandBenefitsIntermsofrewardsandbenefits,BeautyInsiderisskewedmoretowardservices,whileUltamateRewardsfocusesmoreonvalue,whichalignswiththerespectivepositioningofthetwobeautyretailchains.Forinstance,Sephoraoffersfreebeautyclassestoallofitsmembers,andfreecustommakeoverstohigher-tiermembers.Ulta’sprogram,ontheotherhand,focusesmoreonvaluepurchases.Thisisdeliveredbygivingmembersextrapoints,whichistranslatedintomoney-offpurchases.
Wecomparedthetwobeautyretailchains’loyaltyprogramswiththosefromotherindustries,andidentifiedsomesimilarities.
Figure4.ComparisonofRewardsandBenefitsforSephora,Ulta,AirlinesandSupermarkets
RewardsandBenefits Airlines Sephora Ulta Supermarkets
MembershipTiers 3–4 3 2 1
AccrueExtraPoints ü* ü*
PointsforMoney-offPurchases ü ü
ExclusiveEventsandServices ü* ü*
*Forhigher-tiermembersonlySource:Companywebsites/FungGlobalRetail&Technology
Useoftiersandexclusiveservices:Sephora’sloyaltyprogram,similartoairlinefrequent-flyerprograms,hascreatedapremiummembershiptiertoretainitshigh-valuecustomers,andoffersthemexclusiveproductsandservices.SephoraVIBRougemembersenjoydedicatedcustomerservice,unlimitedaccesstothebeautystudio,invitationstoexclusiveeventsandearlieravailabilityofproducts.Thisissimilartobenefitsenjoyedbytheairlines’higher-tierloyaltyprogrammembers,suchasdedicatedcheck-inlines,aswellasaccesstoairportlounges.
Money-offpurchases:Ultacarriesmostlydrugstoreitemsandmid-rangebeautyproducts,wherevaluehelpstobuildloyaltybetterthanservice.ThisissimilartotheapproachbysupermarketchainssuchasSainsburyandWoolworths,wherecustomerscanearnpointsformoney-offpurchaseswiththeirloyaltyprograms.Asvalueandselectionarethekeyfactorswhycustomersshopattheseretailers,theydonotsegmentoffhigh-spendingcustomers.
SephoraBeautyInsiderisskewedmoretowardservices,whileUltamateRewardsfocusesmoreonvalues.
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May5,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
KeyTakeawaysLoyaltyprogramsareaneffectivetooltoretaincustomers,encouragespendingandcollectcustomerdatatoenhanceoperations.Inourview,aneffectiveloyaltyprogrammusthaveaclearvaluepropositionandmatchthepositioningoftheretailer,andthiscanbefoundinbothUlta’sandSephora’sprograms.
Sephora:Sephorasellsmostlymid-tohigh-rangebeautyproducts,andmostofitscustomerscitedqualityasthereasontoshopthere.Theuseoftiersandexclusiverewardsnotonlyhelpstoretaincustomers,itcreatesasenseofluxuryandmatchesthemorepremiumpositioningoftheretailer.Inaddition,ithelpstoencouragecustomerstospendmoreandprogresstoahighertier.
Ulta:Ultasellsdrugstoreitemsandmid-rangebeautyproducts.Mostofitscustomerscitedvalue-relatedfactorsasreasonstoshopthere.Similartosupermarketloyaltyprograms,theuseofpointsformoney-offpurchaseseffectivelyencouragescustomerstoretainandspendmoreattheretailer.
Inourview,aneffectiveloyaltyprogrammusthaveaclearvaluepropositionandmatchthepositioningoftheretailer,andthiscanbefoundinbothretailers’programs.
8
May5,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comEddieWongSeniorResearchAssociate
HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017
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