Few posts ago I wrote about loyalty programs. You can read about it here.
As a group project for CRM class my friend and I teamed up to analyse Sephora loyalty program. I thought I might upload it, since it may be of use to some creating their loyalty programs, or students who might have similar task.
This paper provides analysis of Sephora loyalty program. Sephora is a beauty-retail concept which operates in 29 countries worldwide with approximately 1900 stores. In 2007 they launched a Beauty Insider loyalty program as a “as a way of thanking clients with special products, exclusive information, and an all-access pass to personalized beauty”. (About Us, 2015). In 2009, loyalty program was redesigned in attempt to grow further.
Loyalty – According to Merriam-Webster dictionary “loyalty” describes “a feeling or strong support for someone or something”. In business world it translates to “high positive attitudes and repeat purchase behavior towards a particular store thereby causing repetitive purchasing in the same retail store, despite situational influences and marketing efforts by competitors in persuading switching behavior.” (Omar et. all, 2010).
Loyalty Program – a marketing process that generates rewards to the customers based on their repeat purchases (Kumar and Reinartz, 2012)
Active Loyalty – loyalty that results in active engagement with the brand (Lewis, 2004)
Behavioral Loyalty – observes actions that customers have demonstrated toward a particular product or service (Kumar and Reinartz, 2012)
Attitudinal Loyalty – the perception and attitudes that a customer has toward particular product and service (Kumar, 2013).
Financial Value – hard benefits, i.e. tangible economic values/rewards (Ramanathan and Ramanathan,
Functional Value – convenience and flexibility of terms and conditions (Downling and Uncles, 1997)
Psychological Value – includes soft benefits, such as intangible and emotional recognition (Harris, 2000)
Externality Value – benefit transmitted through external parties in a fashion of partnership or point pooling (Kim et al., 2003).
In 2007 Sephora launched Beauty Insider loyalty program which offered birthday gifts, product rewards, seasonal promotions, and free beauty classes. Since its launch it was praised as one of the most effective loyalty programs. Almost instantly Sephora saw 400, 000 people join their program (Rabiedeau et al., 2015). It is easy to see why – it performed excellent on both psychological and financial value. Choi, marketing director at Sephora went on to say “When we started the Beauty Insider program, it was with the idea that women loved product and it was built around product, not promotion. No one in the industry was doing sampling in stores the way we were. It touched upon a consumer insight about passion for product.” (2013).
- With any purchase customers are able to join the Beauty Insider loyalty program
- For each 1$ spent customers earn points
- Rewards include birthday gift, product rewards, seasonal promotions, and free beauty classes
- Customers are informed about the rewards through email, or can look up information on Sephora website.
- Rewards are claimed in store, have an expiration date, and print out of the email has to be shown.
Strengths of the loyalty program were:
- Ease of entrance – anyone could enter the program; it is as easy as walking in the store, purchasing a product and you are in.
- Program structure- allows for quick points accumulation (each AED 10 spent equals 1 point). It includes both soft and hard rewards; rewards are spaced in not too far apart to avoid frustration of customers
- Reward structure delivered on two important values – financial and psychological; prizes were of high value – exclusive, full-sized products, and worthy special discounts and vouchers. Sephora also recognized birthdays as occasions to connect with customers.
- Ease of tracking points and rewards online.
- Good match of rewards and program to both business and customers.
Weaknesses of the loyalty program were:
- No tiers – there is no differentiation of customers and added psychological value trough added tiers.
- No customization of rewards
- Program lacks externality and functionality value.
*** At the time loyalty programs were available only in US and France, and they were different. This analysis is based on US program.
Analysis 2009- Present
In 2009, Sephora announced the re-launch of its loyalty program. The marketing program director, Choi described they “felt they did not push the envelope enough”. The new program revamped the structure, added tiers to reward the highest paying customers, and redesigned the reward structure.
***At the beginning the program was available in US and France only. However, later it was implemented worldwide. This analysis is based on US program.
Beauty Insider Sephora loyalty program is a three tiered reward structure. Everybody can join the program with their first purchase.
First tier – Beauty Insider: membership with any amount spent. Benefits include free birthday gift, free beauty classes, product rewards, and seasonal promotions.
Second tier – VIB: Transition to second tier happens after customer has spent $350 during a year. The perks include all of the benefits from beauty Insider tier, plus additional first dibs on new products, seasonal VIB-only gifts, advance access to sale, and private VIB-only shopping events.
Third tier – VIB Rouge: Third their rewards serious spending – cut off line is $1000 during a year. The rewards include those from previous tiers plus free 2-day flash shipping on all orders, unlimited access to beauty studio, exclusive rouge events, and special gifts.
It is important to note that reset of point happens at the beginning of every year – January, 1st.
Entry – easy entry to the program. You can enter a program by purchasing practically anything, from bobby pin to a $500 luxurious serum, you get in the program just as same. Lots of time programs require complicated steps to enter program. One of the principal reasons behind program success was it is so easy to sign up. The staff at each of the outlets will guide customers to fill out the short form requiring name, personal email, birthday and PO Box. Same form is filled after online purchase.
Point Collection – points are rewarded for each $1 spent. While some programs reward only by giving only small amount of points for large purchases, Sephora awards every $1 spent with them. This way Sephora truly encourages spending. However, there is still room for improvement. Sephora can reward also non-purchasing behavior, such as online reviews and recommendations.
Reward structure – Sephora successfully incorporates both soft and hard rewards. Their hard rewards include exclusive products, special discounts and vouchers. Their soft rewards include recognition through program tiers, exclusive rights for first pick among the newly launched products, or events with beauty experts and celebrities. Important takeaway from Sephora loyalty program is that all rewards are carefully aligned with both brand and customers alike. Also, perhaps the main reason behind Sephora loyalty program success is that all rewards further encourage spending behavior and interactions with the brand. From personalized emails with selected offers, special beauty classes which usually lead to some purchases, and exclusive shopping events that encourage spending behavior. Excellent example is a choice of products – Sephora phone case not only rewards customer, but further deepens connection with the brand. Sephora not only encourages spending – their program ensures that most loyal customers essentially become brand ambassadors. While essentially one of the most successful reward structures out there, Sephora could include more diversity in their rewards structure to add free beauty treatments, wider range of products, and more affiliate rewards outside Sephora.
Value Structure –
- Financial value: Sephora delivers on financial value. Customers do get rewarded for their spending and it reflects in customers’ retention. The products are often most popular picks (moderately high in financial value).
- Psychological value: Sephora is aware on how much psychology and emotions come to play when it comes to make up and beauty. Therefore, they carefully utilize the soft benefits and smart tiering of the program to feed into craze. The programs recognition of high-spending customers, exclusivity of rewards plays on status and emotional aspects of consumers’ behavior to build a loyalty that goes beyond “lowest cost”. It ensures both attitudinal and behavioral loyalty. In this way Sephora engages customers beyond just looking for the best bargain. There is an exclusivity in being Sephora’s loyal customer. Sephora well feeds the beauty maven illusion which encourages customers’ alliance with the brand and increased spending. Because who does not want to be a VIB Rouge?
- Functional value – improves with each tier. While beauty insider tier needs to pick up their rewards, and faces a chance to miss it due to cut off date, the upper tiers are mostly sent their rewards to home address. I believe functionality of the program was crafted and reflects tiers carefully. However, there is a large room for improvement in the cut off date. For example, most customers will increase their shopping around holidays (ex, Halloween and Christmas), yet slow down purchases during some months. January cut off date does not do justice to the customers who shop seasonally. Ideally, much better option would be to use roll cut off date, which takes in consideration a date when customer joined, and counts a year from there. Sephora could also include express rewards.
- Externality value – while other aspects of the program are carefully crafted, and deliver, it seems that Sephora completely overlooked the power of externality value. Weather purposely so, or not, this leaves a lot of space for Sephora to explore future improvements. With as strong affiliates as Sephora’s, there could be a whole new world of possibilities to further impress customers.
Customization – Sephora utilizes the data collected by customers joining the program to customize its rewards.
Execution – while Sephora’s loyalty program is carefully crafted, it often faces problems with execution – missing emails and non-delivered rewards are still cumbersome factor that affects customers’ loyalty.
Additionally, it is important to note that while most of the beauty retailers do have loyalty program, Sephora has succeeded in using its loyalty program as a differentiation strategy. That all contributes to Sephora program being one of the most successful ones. It successfully builds both behavioral and attitudinal loyalty through carefully crafted program that delivers highly on financial and psychological value. It also drives positive behavior. It is noted that customers increase spending as they reach proximity of new tier. It is also noted that Sephora rewards itself drive more purchasing behavior – events, classes and access to beauty academy all usually result in higher spending than usual. Sephora successfully encourages active loyalty.
Conclusions and recommendations
Sephora program is carefully crafted, which reflects in both attitudinal and behavioral loyalty of customers. Most important to note is that customers become actively loyal. However, there are still room for improvements. The most important aspect of loyalty program is execution – promising customers one thing and failing to deliver can lead to large disappointments and cut off of the relationship with the brand. Also, lots it left to be desired on externality and functional value of the program – simple shift to rolling cut off days, or better use of affiliates and partners could lead to large improvements. The diversity of rewards can be even further improved, especially by including affiliate-provided rewards, and wider range of products to choose from. Lastly, Sephora can reward not only purchasing, but also other positive brand related behavior such as reviews and recommendations. Overall, Sephora loyalty program is one of the best out there, and as such, there is much to be learnt from it.