Tie marketing back to emotions

The Context Of Things

Marketers spend a lot of time worried about ‘power branding’ and ‘automation suites’ and ‘the biggest possible number,’ and in reality? Very few of those things actually matter. We live in a much different world than we did even in 2003. That has massive business implications. The sales funnel your grandfather worked within? That sales funnel is dead. There are dozens — if not hundreds — of ways for a potential consumer/buyer to understand your product or service before they even speak to a single person from your company.

Here’s the problem: most people look at that — the complexity of the modern marketing mix! — and do 1 of 2 things:

  • They focus on those aspects above because those are things they can control, and ultimately work is just a complex exercise in having control or ownership over something.
  • They run around screaming about complexity and how busy they…

View original post 636 more words

Advertisements

Can You Use CSR For Your Competitive Advantage?

I recently did a paper on CSR and Competitive Advantage for Social Responsibility Course, and thought I might share it with you.

CSR and Competitive Advantage

This paper discusses relationship between Corporate social responsibility and competitive advantage. Sustainable competitive advantage is essential to success of any business. Until recently, CSR and competitive advantage were considered largely unconnected and were discussed separately. Recently, however, businesses are increasingly recognizing the need to integrate CSR in their core practices. While two are usually seen as opposites on the different end of spectrum, working against each other, there is a growing body of literature claiming otherwise – that CSR and competitive advantage can go hand in hand and be mutually beneficial. Businesses are mostly accountable for growing scarcity of resources, pollution, growing economic and power inequality, and slew of other issues which plague today and cripple tomorrow. As responsible, it is on businesses pay back to society through responsible practices what they hungrily consume. CSR in essence is, and should be integral part of any business. But, business do not only cause harm; they also provide to economical wealth of society. And as such, their success is essential element to prosperity of our societies.

 

Pitted against each other

Societies face the number of challenges: poverty, sustainability, hunger, lack of clean water, pollution, discrimination and the list just keeps growing. This issues are continuously growing. They are affecting and are expected to growingly affect the quality of life in present and future societies. For most of the issues largest blame is placed on businesses. Most often, rightfully so. They use resources, pollute the environment, contribute to poverty, and raise inequality. Therefore, lots of pressure is placed on business to remedy the situation.

Traditional view of CSR

Corporate Social Responsibility (CSR) is defined as “actions that appear to further some social good, beyond the interests of the firm and that which is required by law.” (McWilliams and Siegel, 2000). In other words, businesses are expected to sacrifice profit to remedy the increasing challenges societies are facing. Traditional view of CSR states that companies have to look beyond their interest and sacrifice some of their profitability in order to put social good at forefront. Corporate goals should be placed on backburner to more pressing issue of greater societal good. Traditional view does not look at CSR as an integrated part of business strategy, nor does it recognize it as point of differentiation. It is a case of CSR against competitive advantage, if we look at it closely. Because competitive advantage is partially due to financial profits. And if businesses are required to sacrifice part of their profits it certainly raises a questions – how much profit should be given back? Is it enough to make a difference? If we exam most of the businesses we will see some attempts to support charity of choice, or create awareness campaign. While still better than nothing, is it really enough? Most philanthropic donations barely remedy the issue. The CSR efforts are often uncoordinated, on periphery of business strategic making as something that ‘has to be done’. In traditional CSR approach businesses rarely integrate their CSR effort and align them with their business goals. It is usually done by randomly choosing a value or a cause shareholders believe in. Then CSR is done through philanthropic donations, cause support, sponsorships or partnership with non-profit organizations. A great example includes Chick-Fil-A, a fast food chain that supports traditional family values and marriages through their WinShape Marriage Program. While a great cause in itself, it has little, or practically nothing to do with Chick-Fil-A core business, competencies, or use of resources. It is strongly disconnected from their competitive advantage strategy. Upon analysis of Chick-Fil-A and similar examples one wonders that although businesses do have undeniable responsibility toward societies they operate in does solution really lie in sacrificing profit for causes so distant from core business itself?

A case for integrated framework

Traditional view that companies must give back to societies by sacrificing profits has been challenged recently by some of the greatest business minds.

Porter and Kramer Integrated Framework

The question Porter and Kramer raise is do these actions really have to be beyond interests of firm? They raise a case which questions pitting CSR and business against each other, proposing instead CSR and competitive advantage working in an integrated framework where two are in synergy, and work for each other. They propose inside-out and outside-in approach – analysis of business and its impact on society, and analysis of society and its impact on business. In intersection lies an opportunity for integrating strategic responsible societal practices and sustainable competitive strategy which can further both societies and businesses. (2006)

Strategic CSR

The alternative to traditional CSR is strategic CSR which integrates CSR deep into the core of the business, aligning business and societal goals and visions in one. In other words, CSR is regarded as one of the activities that contribute, and can carry the competitive advantage strategy. In strategic CSR case businesses choose goals that align with core competencies of the business itself. Examples include a car manufacturer Toyota focusing on pollution reduction with new eco-friendly electric car model, or an IT business focusing on use of IT technologies for electricity consumption reduction. By doing so, CSR does not only become a side issue – it becomes integral part of businesses, a competitive advantage and a central focus.

Carrol and Shabana case for business and CSR

Similar to Porter and Kramer, another substantial research by Carrol and Shabana raises the questions if firm can do well by being good, and is there a return on CSR investment, creating a case for business and CSR. (2010). They rely on completely different definition of CSR which states that “social responsibility of business encompasses the economic, legal, ethical, and discretionary [later referred to as philanthropic] expectations that society has of organizations at a given point in time” (Carrol, 1979), with the emphasis on economic responsibility. Carrol and Shabhana in same paper further discuss that businesses can utilize the CSR as part of their cost-reduction, competitive advantage, strengthening reputation, and synergistic value creation through building win-win situations.

Competitive advantage

Carrol and Shabana case for business and CSR builds up on Porter analysis of competitive advantage. If we examine a definition of competitive advantage by Porter which explains competitive advantage as an ability of the business to do offensive or defensive action to create a defendable position in industry, cope with industrial forces and create a superior profit (1980) can we assume that CSR can be used to achieve the said competitive advantage? Can CSR be a part of the strategically planned offensive and defensive actions to create a defendable position in the industry and achieve profit? Can companies, instead of sacrificing profit for greater good by aligning with causes far removed from their core business itself, achieve higher profit by doing greater good? Both Porter and Kramer, and Carrol and Shabana, as well as handful of other authors think so. To examine even further the Porter widely accepted concept of competitive advantage let’s look at the two generic strategies for achieving competitive advantage – cost reduction and differentiation. By both Carrol and Shabhana, and Porter and Kramer, CSR can be source of cost reduction or differentiation, therefore carrying competitive advantage for the businesses.

Marrying CSR and competitive advantage in real world

While still widely unpracticed by businesses, and under-researched there are few exemplary efforts of strategic CSR. Laudon and Laudon in Nordea goes Green with IT study identify Nordea’s integrated CSR efforts within the core of the business. They went with cost reduction strategy; it included number of actions.  Switching off/switching to standby computers at night lead to annual electricity consumption reduction of 3.5 million kKh, which equals to 647 tons of carbon dioxide. Using virtualization software to reduce number of physical machines lead to further reduction in electricity consumption. Also, they shifted computer halls to sea for cooling, instead of using cooling systems which require electricity consumption. However, Nordea decided to go even further by using video conferencing as a replacement for frequent traveling of its agents. Lastly, their effort went to reduction of paper used. By reducing consumption of natural resources Nordea cut costs so significantly they decided to integrate the CSR efforts into the core of their strategy – one of their strategic goals is reduction of electricity consumption by 15% by 2016. (2014). Another great examples include BodyShop and Lush, businesses that differentiate themselves by their CSR strategy. Both businesses are in beauty industry. Often under scrutiny for animal testing, both companies pride themselves in their no – animal testing policy. Both companies practice transparency as their core practice. Both companies maintain that there is no environmental damage done in production of their products. A great example of how strategic CSR works – focus on societal issues that align with business itself. These examples, although rare in business world, make strong case for strategic CSR.

Traditional Vs. Strategic

While there is plethora of literature on traditional CSR, the strategic CSR is still under-researched for any definite conclusion. While most of the CSR in larger part of the world is done by traditional philanthropic ways, and disorganized efforts, only handful of the most powerful companies are starting to embrace strategic CSR and build competitive advantage around it. Maybe consequential examples matter too in comparison of traditional vs. strategic CSR. “The collapse of firms such as Enron, Lehman Brothers, and (now largely in public hands) General Motors who all suffered from poor strategic models shows that new business strategy models are essential. And, as argued here, a key message is that CSR is becoming a, if not, the core of business activity. It is fast becoming acknowledged that a strategic stakeholder model of engagement with the business environment means that the potential for avoiding disasters and increasing success and innovation can be increased. CSR is obviously not a panacea for all ills but more and more companies are seeing that it can enhance their competitive advantage.” (Hopkins, 2009).

 

Conclusion and recommendations

Businesses are largely responsible for growing scarcity of resources, pollution, growing economic and power inequality, and slew of other issues which plague today and cripple tomorrow. It is only fair that businesses pay back to society through CSR what they greedily consume. CSR is, and should be integral part of any business. However, business do not only cause damage; they also contribute to economical prosperity of society. And as such, their profitability is essential element in supporting the causes relevant to our societies. Although still under-researched, growing examples of strategic CSR indicate that it seems to be the solution both businesses and societies need. After all, traditional CSR does not seem to be working. Therefor, marrying societal needs and businesses visions in strategic unison that benefits both seem to be win-win solution that can make scalable results. Utilizing CSR as a competitive advantage may just be solution we need. There is a definite need of more research on strategic CSR for any definite firm conclusion to be made. It is definitely area to be explored.

I will conclude this paper by a call for more research on strategic CSR. The ability of CSR to become a competitive advantage is a concept that has potential to bring the change businesses and societies need. As it is, CSR is not achieving scale. It is simply not done enough. New approach can be the answer. But key is in research. The second recommendation is that iregardless of which type of CSR is used, businesses must increase their efforts to engage in more responsible behavior.

 

 

 

 

 

 

 

References:

  1. Carroll, A.B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4, pp. 497–505.
  2. Carroll, A. B., & Shabana, K. M. (2010). The Business Case for CSR: A Review of Concepts, Research and Practice. International Journal of Management Reviews. 12(1): 85–105
  3. Hopkins, M. (2009). Strategic CSR and Competitive Advantage. MHC International. Retrieved from http://mhcinternational.com/articles/strategic-csr-and-competitive-advantage
  4. Laudon, K., & Laudon, P. J. (2014). Management Information Systems, Global Edition, 13th Edition. [VitalSource Bookshelf version]. Retrieved from http://online.vitalsource.com/books/9780273789970/page/229
  5. McWilliams, A., & Siegel, D. (2000). Corporate Social Responsibility and Financial Performance: Correlation or Misspecification?. Strategic Management Journal, 21: 603–9.
  6. Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980.
  7. Porter, M., & Kramer, M. R. (2006). Strategy and Society: The link between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review. Retrieved 20 October, 2015, from http://sharedvalue.org/sites/default/files/resource-files/Strategy_and_Society.pdf

Analysis of Sephora loyalty program

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.

analysis of sephora loyalty program

Sephora loyalty program

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.

Important Concepts 

 

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).

Analysis 2007-2009

 

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).

Program structure:

  • 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.

Program Overview:

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.

Program structure:

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

  1. 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).
  2. 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?
  3. 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.
  4. 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.