International Marketing Report for Sephora

Introduction

Sephora, acquired by Louis Vuitton Mo?t Hennessy, is a worldwide leading retailer of beauty, fragrance, and cosmetic products. First founded in 1970 by Dominique Mandonnaud, Sephora began as a fragrance store in France. By 1997, Sephora was bought over by LVMH, offering a wide array of cosmetic products and expanded into the United States and rest of Europe. Today, Sephora operates in 33 countries globally, with an estimated 1700 stores across Europe, America, Australia, and Asia (Sephora report).

Dawson (2001), found that the increased number of retail organisations starting up in Europe caused the structure of the retail sector in Europe to change.

To adapt and remain competitive, existing large retail firms in Europe needed to expand their operations globally to grow and gain economies of scale (Dawson, 2001; Isenberg, 2008). Furthermore, Lamey (1997) stated that firms in Europe are internationalizing due to the lack of expansion opportunities in home markets and hence seek out new markets with opportunities to be exploited. It is also much simpler for firms to increase profits through expanding the number of outlets owned as compared to trying to raise more revenue from existing outlets (Dawson, 2001).

Hence, Sephora being no different from any other firm, will seize any opportunity to increase their network of stores.

As a global enterprise, there are still culturally proximate foreign markets with opportunities to be exploited, which can boost profits, increase economies of scale, and secure a better international competitive position (Glaister et al., 2014).

As such, the objectives of this report are to create a marketing plan for Sephora, analyse, critically evaluate, summarise and present collected information as to where and how the organisation should internationalise.

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Market Selection

Johanson and Vahlne (1977) defined the Uppsala model as one that merges and utilizes information about the target country’s environment and progressively expands into foreign markets that are nearer to home markets in “psychic distance” and then into markets that are more distant as illustrated in Figure 1 (Johanson and Vahlne, 2009). Psychic distance are the elements that hinder the understanding of foreign market climates (Johanson and Vahlne, 2009). Based on how Sephora has internationalized over the years, their internationalization strategy is like that of the Uppsala Model.

Looking specifically at the Asian region, Sephora has expanded into countries such as Singapore, Malaysia, China, Hong Kong etc. The choice for focusing on Asia is supported by Lennard (2010), who found that beauty products accounted for “23% of the global market share” with the Asian market as the primary contributor. In contrast, as found by IMF (2016), many European countries experienced capital flight of investments as a result of the euro financial crisis which makes expanding into Europe unfavourable. From this, possible considerations for markets that Sephora has not entered are Taiwan, Korea, Myanmar, Cambodia, and Laos.

Goodnow and Hansz (1971) who studied the foreign climate determinants for market entry, categorized countries into groups depending on factors such as political steadiness, economic growth, market opportunity etc. They categorized Taiwan and Korea under the “moderate cluster”; stating that countries under this cluster possess stronger economies, and are more favourable for internationalisation. Myanmar, Cambodia, and Laos however, were categorized under the “cold cluster”, meaning that these countries were unfavourable which leaves only Taiwan and Korea for consideration.

Opaciuk and oboda (2013), found that growth in the Chinese middle class due to higher education helped increase consumer’s wages which resulted to higher sales quantity and consumption of cosmetic products. The increase in wages of the Chinese led to a shift in behaviour to focus on personal needs such as “health, grooming and appearance maintenance” (?opaciuk and ?oboda, 2013). Thus, there is a huge demand for cosmetics in the Chinese market.

Next, by observing the GDP of countries that Sephora has internationalised into, Taiwan displays GDP similar to Singapore and Hong Kong and as such is suitable for selection.

Since Sephora has expanded into China and Hong Kong, the firm would have sufficient experience in dealing with the Chinese market. Hence, this report proposes for Sephora to internationalise into Taiwan; a market with close psychic distance.

Environmental Analysis

With the identification of Taiwan as a market to enter, specifically the capital city Taipei, this portion of the report aims to garner environmental information relating to the Taiwanese market.

Economic Statistics

In 2016, growth in Taiwan’s economy was at 1.5%, a boost from 0.7% in 2015. Taiwan’s GDP accelerated 2.6% “year-on-year” in the last quarter of 2016, setting a record high growth rate beating that of previous highest from Q2 2015. GNP of Taiwan was also the highest in 2016, valuing at $4,594,814 NT. GDP per capita (USD) also increased from previous 21,044 in 2011, to 22,469 in 2015. Exports in Taiwan increased remarkably to 8.2%, similarly with imports experiencing an increase to 9.4%; the fastest rate since 2010.

The primary factor resulting to a rise in Taiwan’s GDP was gross investment, increasing substantially to 8.2% in Q4 2016, a stark difference compared to 3.1% in Q3. Unemployment rates in Taiwan declined from 4.4% in 2011, to 3.8% in 2015 and average family income per capita rose to $311,256NT in 2015. Furthermore, income inequality indices reduced from 6.17 in 2011, to 6.06 in 2015, indicating that more of the low and middle class households are doing better. Overall, economic growth in Taiwan remains positive and further growth is to be expected (focus-economics.com; Taiwan national statistics).

Cultural Environment

Taiwan is a multi-racial society that welcomes foreign cultures and their influences, bringing about a highly dynamic environment where multiple cultures coincide.

Wu (2006), conducted a study comparing the Taiwanese and American work-related cultural outlook based on Hofstede’s (1984) research on cultural dimensions. His findings displayed that the Taiwanese cultural values were becoming more westernized, due to internationalisation which transformed societal and economic environments in Taiwan. Furthermore, Wu (2006) added that Japanese and American culture influenced the Taiwanese culture, playing a crucial part in the cultural values change.

Sephora, possessing a westernized culture, would find it easier to enter the Taiwanese market based on the aforementioned information. Although the official and spoken language in Taiwan is Mandarin, Sephora can bring managers and executives from Singapore or China to overcome the language barrier.

The Market

Rise in household wages coupled with increased consumption in Taiwan have created a profitable market for cosmetic products appraised at approximately US$1billion in 2009. In addition, the Taiwan cosmetics market accounted for 12% of the country’s market share, with an expected annual growth of 10%, valuing at US$200million.

Customers

Changes in lifestyles led to a rising number of male consumers becoming more concerned about maintaining appearances which caused a rise in demand for male cosmetics (?opaciuk and ?oboda, 2013; Cosmetic Overview, 2015). Although this trend is also coherent for females, organisations are focusing more on male cosmetic products as the women’s market is becoming more diffused. Furthermore, two separate groups have been identified as main contributors of sales; those purchasing at cheap prices and those purchasing at premium prices. Age groups of consumers fall between the range of 14-28, with professionals suggesting that this will rise soon.

Competition

In recent times, the Taiwan cosmetics market saw an increase in entry of famous cosmetic brands. For Sephora, the biggest competitor would be Japanese brands such as SKII, Shiseido and Kose, who established early and possess a strong position amongst consumers. Other competitors include American brands such as Estee Lauder, and South Korean brands being the most competitive in promoting their products.

Sephora (Internal Analysis)

Financial Performance

In 2015, a total of ˆ11,233 million was generated in revenue, an improvement from ˆ9,534 million in 2014. The highest contributor was America, at 39% of total revenue with Asia being the next highest at 29%. Profits from existing stores increased by ˆ58 million, totalling ˆ940 million in 2015. Operating investments increased from ˆ395 million in 2015, to ˆ558 million in 2016. Per LVMH’s (2016) financial report, profit from the retailing sector rose by 8% which was steered by Sephora’s amplification of revenue worldwide.

Marketing Factors

Global growth carried on in 2015, with approximately 100 new stores being opened. Efforts concentrating on digital engagement and services were sustained, to strengthen customer experience. Such efforts include creating mobile applications, providing on-site electronic features to improve convenience and reduced transportation time. Sephora has also introduced more luxurious brands to their product offerings targeted at younger consumers, and driven by strong marketing strategies via social media.

SWOT

Strengths

1. Customized services, specialist consultants, and advanced digital technology in-store
2. Luxurious brands and high value products in consumer’s minds
3. Sephora’s mobile application extends reach to consumers and provides on-the-go expert advice
4. Vast experience in dealing with Western and Eastern economies
5. Global market presence
6. Online store with delivery services to most parts of the world
7. Wide array of brands and own private brand

Weaknesses

1. Sephora brand name not as established in Taiwan market compared to Japanese brands
2. Saturated female target market

Opportunities

1. Living standards changes caused high demand for premium cosmetics in Taiwan market
2. Taiwanese firms meet under 15% of local market demand (ITA, 2015)
3. New market sub-sector with increased male consumers
4. Wide range of brand offerings allows targeting of spend-thrift and high-end customers in Taiwan

Threats

1. Most competitors catering to low-end market
2. Expansion of Korean cosmetics into Taiwan through aggressive marketing
3. Market saturation makes product differentiation difficult

Recommendations

Based on the SWOT analysis, Sephora can capitalize on their unique customer-oriented service through providing expert advice on their products, which helps educate the local market on Sephora’s brand and establish a stronger influence. Sephora’s mobile application and online store serves as a marketing platform and further extends their reach to capture more demand and establish brand influence. Furthermore, Sephora offers products ranging from low to high-end tiers, allowing the organisation to cater to the various needs of consumers. Moreover, innovative digital media prevalent in-stores can be used to attract consumers in a place where differentiation of products is difficult. Lastly, creative marketing promotions and advertisements should be implemented to educate clients on why Sephora’s products are better and establish a stronger foothold in the market.

Marketing Objectives

Capture demand and gain 30% market share in 2 years:

Local firms only cater to less than 15% of the local cosmetics market. Need to find out what these products are and capture this demand.

Establish brand influence for premium market within 1 year:

Leading local suppliers are confined to the lower-tier market share. Opportunity for premium market to be exploited. Marketing should be done on social media and Sephora’s mobile app as competitors do not have the same technology and this can help establish stronger brand influence.

Focus marketing efforts on male beauty products:

The male consumer market share is less saturated and there is increasing demand for male cosmetic products. Efforts should be focused on this market sub-sector to capture this rising demand.

Foreign market entry strategy

As mentioned earlier, Sephora has been using the Uppsala model as an internationalisation strategy. However, Sephora is now a global firm that can expand at a faster rate and should change their internationalisation approach. Sephora should integrate the Uppsala model with the network approach; one that takes advantage of vast networks to expand worldwide (Lee and Carter, 2012). This approach begins with local connections, and through these networks, develop connections abroad. Sephora having a global presence, can use relationships formed in Asia as bridges to develop networks in Taiwan and gain access to important opportunities and resources. The Uppsala approach focuses on internal growth of knowledge while the network approach looks at the market and their connections to it; overcoming the flaws of the Uppsala approach (Whitelock, 2002; Lee and Carter, 2012).

Next, an international business model should be decided before a market entry strategy can be chosen. Osterwalder et al. (2005), stated that a business model is a strategic device used to direct a firm in a specific way towards financial goals. Sephora has always emphasized on creating a unique consumer experience, hence, combinations of the “Loyalty and Service Quality” model should be adopted. Per Lee and Carter (2012), these two models are focused on improving customer loyalty, through attaining customer satisfaction from their products and services.

Sephora obtains updated business information rapidly via their global connections, and with their customer oriented business model, per Abdel-Maquid Lotayif’s (2003) framework on “marketing entry modes”, matches that of the wholly owned subsidiary mode of entry. Hence, Sephora should enter Taipei through greenfield investment. This entry mode focuses on extending operations globally as a basis of expansion, acquiring business knowledge and loyal consumers, suggesting that the ability to react first will provide an edge over others (Lee and Carter, 2012). As the market for premium and male cosmetics are unsaturated in Taiwan, and with local suppliers meeting under 15% of total demand, there is not a need for Sephora to use the acquisition mode of entry (Lee and Carter, 2012).

Marketing Mix

Products are outputs of an organisation that seek to bring value to consumers in terms of the core product and supporting services (Bitner, 1992; Lovelock, 1995). Since there is an increasing demand for male cosmetics, high demand for premium products and local suppliers being unable to cope with market demand, focusing on product offerings will help Sephora gain market share and establish brand influence quickly.

Opaciuk and oboda (2013) stated that in 2010, skincare products accounted for most of the sales growth in Asia, and is vital for the success of the beauty industry. They state that Asian women pay special attention to “face-whitening” products, as having fair complexion remains the epitome of beauty in Asia. Furthermore, they found that the aging population are becoming more concerned with receiving expert opinions and increased value relating to anti-aging products. Moreover, with improvements in living standards in Taiwan, these consumers possess the buying power and are more inclined to spend extra on premium goods (Unlocking Asia, 2012).

Given that a significant number of consumers in Taiwan are less price sensitive and more concerned with the quality and value the products offer, Sephora should introduce more premium products relating to skincare via their online and physical stores to capture this demand. Although attributes of a product help with disparity from competitors, consumers usually do not fully access this. Hence, Sephora should focus on introducing the most famous brands to gain a competitive advantage (Kotler and Gertner, 2002). This is coherent to theory of heuristics in consumer behaviour whereby speedy decisions are made by determining quality through significant brands or prices (Solomon et al., 2006). Furthermore, brands can affect perceived value of products, resulting to customer satisfaction and loyalty eventually (Kotler and Gertner, 2002).

Promotions play crucial roles in supporting product offerings as it can drive a message to the masses to induce a certain perception of a product (Hoyle, 2002). Promotional offers on premium products can be placed on Sephora’s mobile application to entice consumers since competitors do not possess similar technology. In addition, on-site and online store promotions should be done as well. These promotions should not only be limited to price reductions, but should also focus on promoting product benefits and intricately crafted product bundles that gives added-value.

In sum, while product is the most important factor in the marketing mix for the success of Sephora to capture the prevalent demand in Taiwan, other “Ps” are also important in contributing towards success.