Estee Lauder Smart Mirror Technology

N E W ST RAT EG I C I N I T IAT IVE

Shandy Frey, Makayla Hirst, Kendria Jones, & Ashlee Scott

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FASM 415

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W inter 2016

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With a reputation for innovation, sophistication and superior quality, Estée Lauder is one of the world's most renowned beauty brands, producing iconic skin care, makeup and fragrances.

For over 65 years, we have stayed true to the philosophy that inspired our founder, Estée Lauder: Every Woman Can Be Beautiful.

E XEC U T IVE SU M MARY

Estee Lauder is a prestige beauty company known for its quality skin care and makeup products. With its international appeal and long standing influence, Estee Lauder has developed a strong reputation for both its brand and products. Being true to the creator’s motto, Estee Lauder can truly make any woman look and feel beautiful.

The purpose of this new strategic initiative is to create a unique and personal experience for the Estee Lauder customer while also engaging new consumer groups.

The initiative combines sophisticated technology and customized interactions that will actively engage and excite consumers in new innovative ways.

The proposed initiative is to integrate the use of smart mirror technology within Estee Lauder counters that have the capabilities to scan and read facial tones and colors.

Additionally, the creation of precise foundations to match each individual customer, based on the mirror’s results, will also be employed and provide a completely unique and one-of-a-kind product. Lastly, this new initiative will also be integrated with a mobile app to complement the key strategic initiative. Implementing this new initiative will provide Estee Lauder with both a unique product and user experience.

More so, this initiative seeks to further reach the millennial market and provide strategic growth for Estee Lauder and the future.

C O N T E N TS 1 11 14

C O M PA N Y OV E RV I E W N E W ST R AT EG I C I N I T I AT I V E

V I S UA LS

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M A R K E T A N A LYS I S

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TA R G E T C O N S U M E R

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C O M M U N I C AT I O N & P R O M OT I O N P L A N

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FINANCIAL PLAN

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C O N C LU S I O N

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APPENDIX

C O M PA N Y OV E RV I E W H I STO RY Estee Lauder was founded in 1946 by Estee Lauder (born Josephine Esther Mentzer) and her husband Joseph. Originally, the brand carried only four products: Cleansing Oil, Skin Lotion, Super Rich All-Purpose Crème, and a Crème Pack. Lauder initially sold her products in beauty salons, but a year later, received her first major order- $800 worth of products from Saks Fifth Avenue.

The first international account was started in 1960 at Harrods in London.

Estee Lauder had an innate instinct for what women wanted and became a passionate and successful saleswoman. She was the creator of the “gift with purchase” concept where she initially gave away samples of her products with a purchase. She chose the pale turquoise color for her packaging believing it conveyed a sense of luxury as well as being complementary to all bathroom decors.

In 1995, Estee formally retired and the company went public. True to fashion, everyone that bought stock in Estee Lauder received a free gift with purchase. Estee Lauder passed away in 2004 at the age of 95 leaving behind a legacy of hard work and determination that made her a leader in the beauty and skincare industry.

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M ISS I O N

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To h e l p wo m e n to d ay lo o k a n d fe e l t h e i r m ost b ea u t if u l.

REVENUE Net Sales in 2013 were $787 million and were increased by 8% in 2014 to $10,968 million. For 2015, Estee Lauder continues to deliver strong sales and earnings growth.

C O M PA N Y O R G A N I Z AT I O N The current C.E.O. is Fabrizio Freda who has been in the position since 2009. Today, Estee Lauder’s children and grandchildren are actively involved with the business. Estee’s sons Leonard and Ronald still work for the company as Chairman Emeritus and Director and Chairman of Clinique Laboratories, LLC. respectively.

As of 2014, there are 9.6 million independently owned shares of Estee Lauder.

Headquarters are based in New York City, N.Y. and the Estee Lauder Company has over 30 brands within its corporate portfolio.

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FUTURE G R OW T H PLANS For the future, Estee Lauder is focused on long term growth plans that include expansion into new brands, new categories, new distribution channels, and development into new emerging markets

SWOT A N A LYS I S STRENGTHS

WEAKNESSES

• Large variety of products

• Not accessible to all

• Well known brand • Multiple distribution channels

consumers • Difficult to focus on one brand

• Global brand

with so many brands under

• Willingness to expand

one name

in the global market. Estee Lauder’s plan is to continue to establish a presence in

OPPORTUNITIES

THREATS

emerging market economies such as China, the Middle East, and Brazil. Additionally, the company seeks to boost sales through travel retail channels. With the growing popularity of online shopping and social networking, Estee Lauder is also continuing to expand its online presence.

• Expanding into emerging markets (BRIC countries) • Increasing social media presence • Streamline omni-channel experience • Invest in new technologies for consumers

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• Economic recession/depression • Sustainability/ eco-friendly movement (with non sustainable products)

ACCESSIBILITY

P E R C E PT UA L M A P

PRICE

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M A R K E T P OS I T I O N & C O M P E T I TO R S

Estee Lauder ranks number four in leading beauty brands with a 7% share of the market. The top beauty companies include P&G, L’Oreal, Unilever, Estee Lauder, and Johnson & Johnson.

PROCTER & GAMBLE Procter and Gamble, also known as P&G, is a global company for consumer goods. Products include cosmetics, personal care, baby products, cleaning supplies, and other household essentials. In 2014, P&G dropped around 100 brands in order to better concentrate on their remaining 65 brands which contributed most to the company’s profit. With this wide range of brands within their portfolio, the company is the number one beauty and personal care company with 15.5% share of the market, earning over $83.1 billion in sales in 2014.

L’OREAL L’Oreal is the world’s largest cosmetics company and second largest for overall personal care products with 11.5% share of the market. The company has over twenty-five brand names within their portfolio with classifications including luxe, professional, and consumer. Brands include Giorgio Armani, Yves Saint Laurent, Clarisonic, Urban Decay, L’Oreal Paris, Garnier, Maybelline New York, Essie, Matrix, Redken, and more. With over a hundred years in business, L’Oreal is a leading company with continuing growth in innovations and technologies.

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M A R K E T P OS I T I O N & C O M P E T I TO R S

UNILEVER Unilever is an international consumer goods company with products including food, beverages, cleaning agents, and personal care. While the company owns over 400 brands, Unilever focuses on 13 key brands with a market share of 7.5%.

Key brands, including Axe and Dove, are distributed to over 190 countries and are present in seven out of ten households globally. Additionally, Unilever has incorporated strong initiatives for sustainable living with the purpose of delivering quality products while reducing their environmental impact.

JOHNSON & JOHNSON .Johnson & Johnson is a multinational brand most noted for their medical and baby care products. However, the company includes around 250 subsidiary companies with products sold in over 175 countries. With over 130 years of business, the company focuses on three divisions: consumer healthcare, medical devices, and pharmaceuticals. Well known brands include Band-Aid, Tylenol, Johnson’s Baby, Neutrogena, Clean & Clear, and Aveeno. Johnson & Johnson holds 5.1% of the market share with sales over $17 billion last year.

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D I ST R I B U T I O N C H A N N E LS Distribution for Estee Lauder consists of a variety channels including, department stores, specialty multibrand retailers, travel retail, upscale perfumeries and pharmacies, prestige salons and spas, and e-commerce and m-commerce. For the U.S. market, the majority of sales are through department stores, multi-brand retailers, and e-commerce platforms.

Estee Lauder products are sold in over 150 countries and territories. Fourteen of the Estee Lauder brands are sold through approximately 120 of its own e-commerce and m-commerce sites. Distribution through both e-commerce and m-commerce has seen significant

OT H E R M O D E LS

growth and continues to be a key area of expansion.

Estee Lauder Companies also holds multiple fragrance licenses as

Additionally, travel retail continues to grow and was one

part of their portfolio, including brands such as Michael Kors, Tory

of the highest growth channels for Estee Lauder in 2014,

Burch, and Tom Ford.

contributing to 13% of its product distribution.

In 2001, Estee Lauder entered a joint venture with the Sarantis Retail accounts are mostly focused on the core markets-

Group of companies in order to distribute and market brands in

North America, Europe, and Asia. 42% of sales comes

Greece, Romania, and Bulgaria. The jointly owned company is

from the Americas, followed by 38% from Europe, the

called ELCA Cosmetics Limited, with Estee Lauder being a 51%

Middle East, and Africa. Sales from Asia and the Pacific

majority shareholder.

contribute 20%. Emerging markets like Russia and Brazil have also seen growth. Estee Lauder the brand has

Most recently, in October 2015, Estee Lauder bought a stake in

presence in 69 cities, 340 stores, and more than 800

Have and Be Company Ltd., a South Korean cosmetics and skin

points of sale.

care brand.

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S A L ES VO LU M E

Skincare 42%

The majority of sales come from skincare products, accounting for

Makeup 40%

42% of overall sales and makeup which makes up 40%. The Estee Lauder brand is the company’s second largest with sales of $3.6 billion worldwide in 2014. 50% of sales come from department stores, 10% of which comes directly from Macy’s department stores. While e-commerce only accounts for 8% of overall sales, this channel grew by 26% and shows continuing expansion. Out of Estee Lauder’s e-commerce business, mobile accounts for more

Hair Care 5% Fragrance 13%

than a third of sales.

Americas 42%

Europe, Middle East, Africa 38%

Asia/Pacific 20%

EMERGING

CORE 8

C U R R E N T C O M M U N I C AT I O N & P R O M OT I O N A DV E RT I S I N G ACT I V I T I ES Estee Lauder employs a variety of advertising activities, with focuses on television, magazine ads, digital and social media, billboards, direct mail, promotional activities, in store displays, and editorial coverage. Globally, Estee Lauder spent $155.22 million on magazine advertising alone. However, Estee Lauder has started to shift their focus on social and digital marketing rather than traditional marketing means.

S P E N D F I G U R ES Global

net

expenses

for

advertising,

With the purpose of capturing the millennial audience, merchandising,

sampling, promotion, and product development costs for the entire Estee Lauder Companies were $2.84 billion in 2014 or 25.4% of net sales. However, spending in this area decreased nearly 3% in 2015 accounting for $2.77 billion that year.

Estee Lauder is ranked as the number one prestige beauty marketer in the U.S. and the second in the world. Advertising in the U.S. alone accounted for $954.6 million, of which $133 million was specifically used for marketing of the Estee Lauder brand.

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Estee Lauder has invested into this new marketing sector. Estee Lauder currently has 53 mobile sites in 12 different markets. The brand itself has five key social media platforms, including Facebook, Twitter, YouTube, Instagram, and Pinterest, in addition to the Estee Lauder mobile app. Moreover, Kendall Jenner has become the latest face for Estee Lauder with the goal of targeting the millennial generation. Another example of digital marketing is Estee Stories, where articles and videos are shared on the Estee Lauder website which cover not only beauty, but also inspiration, lifestyle, and stories.

C R M ACT I V I T I ES

E-LIST LOYALTY PROGRAM • Rewards & gifts • Instant exclusives • Free samples + free shipping and returns • 3 Level Tier (1 pt for every $1 spent)

SERVICES • In-store events • E-mail notifications • Skincare & foundation finders + how to videos and tips • E-gift cards

CUSTOMER SUPPORT • Live Chat • E-mail and phone support • Social media interactions • Corporate Marketing Center of Excellence 10

T H E N E W ST R AT EG I C I N I T I AT I V E

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Our strategic initiative is to implement smart mirrors into the retail space so that the consumer experience is enhanced. The smart mirrors are implemented so that the customer can find the best shade that suits their skin tone while maintaining the same customer base but attracting the millennial.

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M O D I FAC E S M A RT M I R R O R • Who: Modiface • What: Smart Mirror • Where: Ontario, Canada • Sourcing: Sourced in Canada and in house, do not outsource at all • Overview: The smart mirror is a mirror that uses facial analysis in order to show makeup, hair, skin, and anti-aging changes on a person. It can show realistic makeup on the skin of the person looking into the mirror, as well as shade matching and recommendations for the skin type. While using the mirror, one can press play/pause and so much more. It gives the customer a full 3D visual that allows them to feel as though they are actually trying it on in reality.

• How: The way that the smart mirror works is that the company Modiface brought models in with different skin tones and put them under dim, medium, and bright lights to create the illusion of different shades of skin. They then put real makeup, from various companies, on the models. This is then implemented into the mirrors using Modiface’s scanners that teach the mirror and app on how it should actually look on any person and creates an algorithm which can be applied to virtually anyone.

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O P E R AT I O N A L P L A N The technology that will be implemented into the retail space will be smart mirrors. The research for this technology will start in July 2015 and will continue until November 2015. The research will include how the technology works and what drives this technology. The mirror that was researched as a developmental team was the smart mirror. The smart mirror works by tracking and shaping your face so that it can create an outline.

It can then accurately capture a person’s face in order to allow the person to see the different types of makeup on their face.

After the research and development, the next stage will be to search for the best companies that offer the best service and product, which will take place from December 2015 into January 2016 where we will then set up a consultation. After careful analysis, the company Modiface was chosen, which will not only help with the production of the smart mirrors but will also help develop the app that is being proposed. Following the consultation in February of 2016 we are going to install the smart mirrors into the retail space. Then after the installation there will be training from March 2016 until May of 2016. Then the product will be tested for a few more months following. Finally, the mirrors will be fully launched into stores by the end of July 2016 with a launch party and a free gift with purchase.

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V I S UA LS

In Store Set-Up of the Modiface Smart Mirrors

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Includes 1 Large Format Mirror Plus 2 Small Personal Mirrors In Store 15

Integrated App Feature to Complement Strategic Initiative 16

T H E N E W EST E E L AU D E R A P P P o w e re d b y M o d i fa ce

Monitors Change By taking pictures of your skin periodically, this app will monitor how your skin tone changes over time.

Identifies Skin Tone Just take a picture of your skin, and this app helps pick your perfect shade.

Shop Now Use the shop now feature to purchase the exact right shade of Estee Lauder foundation from your mobile device.

Recommendations Gives you easy suggestions for foundation colors, blush, hair colors and more.

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N E W P R O D U CT L I N E I N T RO D U C I N G P E R F E CT M ATC H

Perfect Match is Estee Lauder's newest line of powders and foundations to appropriately compliment the new Smart Mirror technology. Currently, Estee Lauder offers 10 - 15 shades of foundation. In order to appropriately match the customer's skin tone, Perfect Match offers 40 different shades of foundation and matching finishing powders. If none of our premade shades match your skin tone, our trained beauty specialists will be able to mix shades right in the store in order to give you the Perfect Match.

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P E R F ECT M ATC H A S S O RT M E N T

Perfect Match Liquid Foundation $50

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Perfect Match Loose Powder $55

Perfect Match Pressed Powder Compact $40

P E R F ECT M ATC H C O LO R PA L E T T E

FAIR

ROSE BEIGE

IVORY

CAPPUCCINO

BISQUE

SABLE

NUDE

CHESTNUT

MEDIUM

BROWN SUGAR

PORCELAIN

COCOA

DEEP OLIVE

LATTE

TOPAZ

MAHOGANY

LIGHT

DEEP

SOFT BEIGE

SIENNA

VANILLA

TEAKWOOD

AMBER

ALMOND

NATURAL

EBONY

GOLDEN SAND

MAUVE

TOFFEE

MOCHA

CLASSIC TAN

SANDY

HONEY BRONZE

CAFE

BLUSH

CASHMERE

CARAMEL

LINEN

DUNE

WHEAT

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FREE GIFT WITH P U R C H AS E With any $40 purchase of any of our new Perfect Match line of foundations and powders, customers will be treated to a free gift - in true Estee Lauder fashion. The free gift comes with: 1 Estee Lauder makeup bag, 1 full size Pure Color lipstick, one sample size of Advance Night Repair for Eyes and 1 sample size of Daywear Multi-Protection Antioxidant creme. Gift worth $50 MSRP.

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P R O P O S E D LO C AT I O N S

M A R K E T A N A LYS I S

For the implementation of the Estee Match Smart Mirrors, the pilot location will be based in the Macy’s department store located at the Lenox Square Mall in Atlanta, Georgia. Atlanta is a growing metropolitan area that has seen tremendous growth, particularly with millennials. Additionally, the Atlanta area is the tenth largest metro economy in the United States and the largest in the South and features reasonable business costs, key logistics hubs, and a diverse industrial structure.

Following the implementation in the Atlanta pilot store, Estee Match Smart Mirrors will expand to other key Macy’s department stores throughout the United States. Macy’s will be a strong partner with this initiative as the company contributes 10% of Estee Lauder department store sales. Also, Macy’s has implemented strategies for targeting millennials as well as implementing strong omni-channel initiatives. These key stores include:

• Macy’s at the Domain; Austin, TX

• Macy’s at Stonestown Galleria; San Francisco, CA

• Macy’s at Cherry Creek Shopping Center; Denver, CO

• Macy’s Herald Square; New York, NY

• Macy’s at Fashion Valley; San Diego, CA

• Macy’s State Street; Chicago, IL

• Macy’s at Dadeland Mall; Miami, FL

• Macy’s Center City; Philadelphia, PA

• Macy’s at the Mall of America; Minneapolis, MN • Macy’s Downtown-Metro Center; Washington, D.C. 22

DEMOGRAPHICS (ATLANTA AREA) • Average Household Income: $50,000 • Median Age: 36 • Local Population: 500,000 • Trade Area Population: 600,000 • Population Breakdown:

Caucasian 44%

African American 42%

Hispanic 9%

Asian 3%

Other 2%

LENOX SQUARE MALL STATISTICS • 99% occupancy rate • More than 1,400 retail units • Over $1 billion in sales a year, with about $1,000 sales per square foot • Nearby Apple store contributes a 13% increase in the mall’s sales per square foot

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M A R K E T CO N S U M E RS The majority of U.S. women—eight out of 10—shop for beauty products. However, in 2014 there was a 4% drop. This brought the industry to its lowest level of shoppers since 2008, according to the Annual Beauty Consumer Economic Indicator, the latest beauty report from global information company The NPD Group. “Consumer attitudes have changed, and beauty is viewed differently than it was in years past,” said Karen Grant, global beauty industry analyst for The NPD Group.

“Today, there is more competition among beauty brands and retailers, and more competition between beauty and other products, services and even experiences, such as vacations, entertainment and dining. The consumer’s desires outside of

Similarly, virtually half of women indicated that they usually

beauty have become just as important as those inside.”

shop for beauty products that are on sale, while the other half reported that price isn’t the most important factor when

The NPD Group found that women continue to have a strong

shopping for beauty products. The contrast continues when

emotional connection to beauty products. The highest

looking at individual product categories. Spending less on

motive for purchasing has been to feel confident, which has

makeup and fragrance occur 1.5 times as often as in skin care

been followed by feeling sexy. The study found a significant

and hair care—because the products are seen as “for special

difference when looking at beauty shoppers’ attitudes toward

occasions.” However, if women were given an extra $100 of

shopping and purchasing in today’s economy. While about

disposable income to spend on beauty, most noted that they

50% of women reported that beauty products are the first

would purchase makeup or fragrance products. “These distinct

thing they would cut back on if money got tight, an almost

differences among beauty shoppers keep us as an industry

equal proportion said that they would continue to buy beauty

on our toes and can also be seen as a positive because they

products in such a situation because the products make them

pose a big opportunity for the industry,” added Grant. “If the

feel better about themselves.

industry responds to the consumer in new and exciting ways, these opportunities will drive growth in 2015.”

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S A L ES Retail sales of beauty products reached $38.1 billion in 2014 and are projected to grow 2% each year to follow. By 2019, sales are expected to reach a whopping $42.5 billion.

B E AU T Y T R E N D S O F 2 01 5 While color cosmetics still maintain the highest market share of all beauty products at 25%, anti-aging skincare continues to gain popularity amongst young and mature consumers alike.

40% of Millennials are taking an active approach to staying young by using anti-aging products, while older consumers are looking to reinvent themselves. Having an “ageless� image and attitude is important to both generations, which is reflected in $6.79 billion product sales.

C H A N G I N G L A N DSCA P E The beauty retailer landscape is indeed shifting, as online shopping is gaining steam. Online beauty retail sales were estimated to have hit $3.01 billion in 2014, and are forecasted to increase 17% by 2019. Women are beginning to become more comfortable making purchases online, and stores must keep up with their consumers’ changing habits.

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S I M I L A R I N I T I AT I V ES B E YO N D T H E B E AU T Y M A R K E T

F U T U R E CO M P E T I T I O N

The Branchage Film Festival, BMW, and Hirzberger

fashion and innovative technology.

Competition is not at all scarce for this strategic initiative that is being proposed. Companies such as Burberry and Ralph Lauren have been leaders in the fashion industry, especially when it comes to combining

Events are just a few retailers employing 3D projection mapping

outside

of

the

fashion

industry.

Since Christopher Bailey joined the company, he has recast

The

Burberry as a digital pioneer, directing innovative digital campaigns

Branchage Film Festival used the technology to create

like the ‘Art of the Trench,’ with street style photographer Scott

an architectural projection. The projection was cast

Schuman, and this year premiering the entire Burberry Spring/Summer

on the ancient structure Mont Orgueil Castle. The

2016 collection on Snapchat a day before the catwalk show. Other

creative minds at Seeper combined art and technology

initiatives include enabling customers to order their products while

to entertain the masses at the film festival. BMW used

watching Burberry’s runway shows and adding ‘smart personalization’

the 3D projection mapping technology in a completely

tags to new season bags and coats that, when scanned in Burberry’s

different way. They projected Asia’s 1st interactive

stores, show videos of the products being made.

projection map on a building in Singapore to promote their marketing campaign called Joy. Hirzberger Events used geometric mapping projection to create digital wallpaper to decorate the office space of Büro Hirzberger in Vienna. The basic idea was to illuminate the black-and-white striped office wall by mapping the architecture with multiple projectors. The program developed by Strukt is scripted in vvvv and is scalable to any number of projectors and any architectural shape.

Several different visualizations have been realized already. The content could also be made interactive, reacting to people passing the ground-floor offices.

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Burberry’s flagship store on London’s Regent Street has changing room mirrors that can also scan and play the video clips. Under Bailey’s leadership, the brand has established a tech-infused “retail entertainment” environment and omnichannel strategy for its next generation customer experience.

Ralph Lauren also has a history of pioneering digitally innovative consumer experiences. The brand was one of the first to move into mobile commerce, as well as its shopable window displays. Recently they discovered a new technology in Amsterdam called digital mapping and decided to take the initiative to America. David Lauren describes the projection saying, “This is like Avatar but without the glasses.” He also gave the argument that people could say: “Well, what does that have to do with Ralph Lauren? But just like fashion is cutting edge, it’s about knowing the next trends and getting ahead of those trends. We weren’t satisfied with a single

C U R R E N T I N I T I AT I V ES I N B E AU T Y Sephora and Mac are a couple of other retailers who are

spread in a magazine. That doesn’t mean anything to us.

in the same position as Estee Lauder in terms of being able to

We want to be on the cutting-edge. The same way we saw

engage in 3D projection mapping and customizing makeup.

QR code technology and brought it to America, we saw this

In recent years, Sephora has aggressively incorporated digital

new technology and thought: what could we do to take it

technology into in-store retail, and has recently opened its

to the next level?” On Madison Avenue, a new store was

new Innovation Lab. The lab is a team and facility focused

built and Lauren wanted to bring it to life in a “very cool

on “envisioning the future of retail for Sephora, and making

way.” He defines it as the collision of fashion, technology,

sure that we’re staying ahead of our clients and the different

art, commerce and architecture. “That contrast of old world

trends that are out there,” says Bridget Dolan, a 14-year

sensibility with modern technology is what we’re after” he

digital marketing veteran of the company whose title is now

concludes. These are just a couple of retailers in the fashion

VP, Innovation Lab. The lab is configured to develop and test

industry who have employed new technology into their retail

a broad range of digital experiences designed to inform and

spaces.

enhance shopping across web, mobile, and brick-and-mortar.

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The Innovation Lab team will spend two days a week in the space, as well as hold testing and feedback sessions with store associates to ensure that digital instore experiences align with sales staff’s knowledge of customer needs. The opening of the Innovation Lab corresponds with four new digital programs. The first is Pocket Contour, a product that, using a mobile device, provides a tutorial on contouring to complement the user’s specific face shape. By uploading a selfie to the app, the customer gets step-by-step contouring instructions and product recommendations.

Also in-store will be an augmented reality front-window display

Second, Sephora is launching Beacons in

featuring female founders of numerous cosmetic brands that Sephora

all locations, after beta testing the program in two

carries, such as Laura Mercier and Kat Von D. When a customer hovers

San Francisco-area stores. The location-aware, opt-

their phone over a founder’s face, a video telling the story of the

in mobile notifications activate in the store through

founder and the brand will automatically play, and stop when the phone

the Sephora to Go mobile app, which is linked

is moved away. The videos will also link to any makeover tutorials that

to a customer’s online account, to notify them of

the founders have on Sephora’s site.

promotions and birthday month benefits, remind them

of in-store services like mini-makeovers, and display

company’s version of Amazon Prime—for an annual enrollment fee of

information such as a customer’s point balance with

$10, customers get free two-day shipping, or overnight shipping for

Beauty Insider before they reach the register so they

$5.95. For VIB Rouge members—those who spend $1,000 or more at

know how much they would need to spend for the next

Sephora in a calendar year—Flash is a free benefit. While “innovation

reward. Beacons also prompt users to set their mobile

labs” have become popular among retail and technology companies to

app to “store mode,” which displays a menu limited

highlight their experimental activities, the separate, customized space

to in-store-relevant information such as a customer’s

outside of Sephora corporate headquarters will have specific value

saved online shopping cart and the bar code for their

given that, despite Sephora’s long-time investment in e-commerce, in-

Beauty Insider card to use at checkout.

store shopping and personal interaction is still extremely important to

the brand’s success.

Finally, Sephora is introducing Flash, which is basically the

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MAC Cosmetics also recently started using

more innovative technology. The company is turning

LONG TERM SUCCESS

its e-commerce into a social event. The makeup line

Sephora and Mac Cosmetics have already employed great

launched MAC Shop Together, which lets friends shop

strategic initiatives. However, their current use of technology

for makeup online together – enabling real-time,

could be pushed even further. Once Estee Lauder implements

synchronized shopping sessions through a proprietary

the strategic initiative of a smart mirror and a line of customizable

instant- messaging application. Users can chat with up

foundation shades, many companies will follow in their

to five friends, and will have the ability to invite friends to

footsteps. This in turn will create more competition; however,

join them via Facebook, Twitter, email and IM.

Estee Lauder will ensure to obtain customer feedback through

Mac has also introduced The MAC Mirror. This

social media and use their feedback to continue to create a

is an RFID (Radio Frequency Identification Technology)

stronger initiative and to correct any errors that may have

enabled interactive makeup station that supports the

occurred during implementation. This will give Estee Lauder an

MAC Artist and enhances customer engagement. The

edge over the competition and give the chance to improve the

first MAC Mirror launched in DFS Waikiki on June 21,

use of the technology in the long term.

2012. All product throughout the MAC store is tagged with RFID. As an artist engages the customer for a make-over or a simple product demo, the products are placed on the MAC mirror makeup station and product presentations come to life as the mirror transforms into a content-rich display. Product presentations can be shown in the customer’s own language while photos of their new look or product trial can be sent and shared via text or email. Products demonstrated during their session are automatically sent via email and also in the customers’ shopping bag ready for online purchase.

Mobile offers and product news extend the experience beyond the store continuing the relationship with MAC through CRM integration.

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TA R G E T C O N S U M E R For this initiative, the millennial generation will be a key target market.

DEMOGRAPHICS

Representing one-third of the U.S. population, millennials are now the largest generation. With over $200 billion in annual buying power, millennials are trendsetters across all industries.

Average Income is $33,833

KEY STATISTICS • Gender: Female • Age: 18-35 yrs. old • Education:

-72% graduate high school

-68% enroll in college

-58% enter a four year college and

will receive a bachelor’s degree

within six years

*Student loan debt is at its all time high

Source: Business Insider 30

THE MILLENNIAL P SYC H O G R A P H I C S & L I F EST Y L E • 3 out of 5 do not affiliate with a religion • 50% are registered as independent voters • Millennials are in no rush to marry • The most radically diverse generation • Linked to social media and technology • Non traditional shopping habits.

Millennials tend to rather spend money on experiences rather than tangible items.

• Look for deals rather than expensive items

31

S O C I A L M E D I A & T EC H N O LO GY • Millennials connect better with people rather than logos

• Millennials touch their phones about 45 times per

• Extremely brand loyal

day

• 1% say they trust brands’ advertisements

• Watch scheduled television programs less and

• 33% rely on blogs before they make a purchase

more on their own time

• 60% are often brand loyal to products that they have

• 62% say they are more likely to be loyal to a

already purchased

brand if they connect with them on social media

• 87% use two to three technology devices at least once

• Five out of six millennials connect with companies

daily

on social media

-77% use a laptop

-87% use Facebook

-67% own game platforms

-37% use Twitter

-72% use MP3 devices

-53% use Instagram

-15% use a tablet computer

-34% use Pinterest

-85% use a smartphone

32

C U STO M E R P R O F I L E V E R O N I C A VAU G H N • Age: 28 years old • Degree: Graduate with a B.F.A. in Fashion Marketing and a minor in Photography from Fashion Institute of Technology • Occupation: Visual Merchandiser for Saks Fifth Avenue • Income: $34,720 • Location: Chicago, Illinois • Family: Lives with boyfriend Matthew and has a dog named Sir • Skills: Writing, Photography, Photoshop / Has an eye for detail and is personable • Interests: Enjoys reading, traveling, yoga, is culturally diverse, enjoys arts, and walks in the park with Sir 33

C O M M U N I C AT I O N & P R O M OT I O N P L A N R AT I O N A L E With the new proposed strategic initiative, Estee Lauder aims to target and increase influence among the millennial generation.

Based on the values of the majority of millennials, the communication and promotional plan will likewise reflect those values by focusing on key marketing tools that appeal to this demographic. The majority of the marketing will be focused on social media platforms and the digital space as millennials tend to stay connected through these outlets for extended periods of time. The goal is to engage and interact with this target consumer and to provide a personal and unique experience. Beyond product promotion, the plan also aims to create a sense of community with consumers. Through various media outlets, including influential blogs and the brand’s own Estee Stories, content will create personal stories and engage users to become a part of the brand. The marketing strategy also employs the use of various contests and sweepstakes that allow

RETURN ON INVESTMENTS:

consumers to participate and engage with the brand and receive

The marketing and promotional plan is a key strategy

rewards in return. Estee Lauder will also collaborate with charities

to properly introduce and launch this initiative. While

for unique events that will allow the consumer to give back to the

initial costs for the promotional plan may be high, the

community as well. The launch of this new initiative will be timed

investment will be beneficial in the long run, as it will

with the Atlanta International Fashion Week which occurs in early

drive sales and develop consumer engagement.

fall, which is also a strategic season for cosmetic sales in addition to holiday sales in the following months.

34

ACT I V I T Y C A L E N DA R The new strategic initiative will employ various integrated

scheduled around the intended launch date of the new strategic

channels for promotional activities, including both traditional

initiative which will take place at the start of August 2016. Pre-

and non-traditional marketing. The launch of the initiative will

launch activities will take place two months prior to the launch

last from August to February, and the post launch will continue

date with focus on creating and building awareness through

for the three following months in order to evaluate sales

various media channels, but strongly focused on social media

performance as well as the performance of the promotional

platforms and the digital space.

strategies involved.

35

The communication and promotional activity calendar is

P R O M OT I O N A L ST R AT E G I ES SOCIAL MEDIA Social media will be directed for the purpose of engaging and informing the consumer. Frequent posts/content will be delivered in timely manners featuring a range of topics and promotions. For pre-launch phase, social media will be used to announce new strategic initiative and create hype leading up to the public launch date. Thereafter, social media will be used to continually interact with customers. Content will include product features, user experience, events and news, behind the scenes, make-up tips and how-to’s, guest posts, and user feedback. Additionally, social media will be used for the promotion of key sweepstakes and contests, as well as special limited offers. Interaction will be encouraged through social media with unique hashtags that allow for community involvement.

DIRECT E-mail blasts will be strategically sent in correspondence to key events and promotions. First, e-mails will be sent during pre-launch to announce new initiative and launch promotion.

Secondly, e-mails will be sent to inform subscribers of sweepstakes and contests. Next, e-mails will also be used for key sales dates, especially during Black Friday and the holiday months. Lastly, e-mails will also be used to communicate new events happening on the Estee Lauder website specifically with the Estee Stories’ page.

36

PRINT Magazine ads will be placed in correspondence with the launch of the initiative, being placed in key publications a month before the launch as well as during the month of the launch. Ads will also be featured in the September and March issues which are known for their extensive size and fashion focus. Ads will also be placed during holiday sales months.

In store signage will promote the new initiative by being both engaging and informative. A variety of signage will be used at key locations for the purpose of informing shoppers as well as promoting the new concept. Key locations will include shopping centers as well as travel destinations like airport terminals.

37

DIGITAL Estee Lauder will work with key bloggers to share their own experience to promote the initiative within their personal blogs.

Blog posts will be key for the pre-launch and beginning phase of the launch in order to create attention and hype as well as a form of press coverage. Blog posts will also occur during holiday months and then again in early spring to retain consumer interaction and engagement. For the Estee Lauder website, the new initiative will be announced and promoted, as well as the newly upgraded app. Additionally, the concept will be the focus for several Estee Stories features for the following months. Key figures, including model representatives, bloggers, or industry celebrities, will share their own Estee match foundation as well as other “matches� in their life, whether that be favorite recipes, memories, key figures, etc. Lastly, banner ads will also be used to promote the new concept on other sites in order to promote and inform a variety of consumers.

38

EVENTS PRE-LAUNCH: ATLANTA FASHION WEEK Since the Macy’s of Lenox Square Mall in Atlanta, GA will be the pilot location for this new strategic initiative, Estee Lauder will sponsor and partner with the Atlanta International Fashion Week that typically takes place around the end of July and beginning of August, and will serve as the pre-launch for the new initiative. Atlanta Fashion Week is a global experience that features over 50 designers, 12 runways, and 6 celebrity events with additional workshops and trunk shows. Estee Lauder’s new initiative will be featured during this time and will lead up to a launch party in synchronization to the Fashion Week schedule. The launch party will be targeted for press coverage and will invite a range of celebrities, bloggers, and industry leaders for a special first view and experience.

FREE GIFTS For the launch, free gifts will be given to a limited number of first come users who experience the initiative in stores.

During holiday months, free gift with purchase (must include new product within purchase) will be advertised.

Additionally, a free gift with purchase will take place in the spring months to coincide with Melanoma month in which a percentage of proceeds will go to skin cancer research.

39

SWEEPSTAKES & CONTESTS For specialty sweepstakes and contests, Estee Lauder will engage in three key promotions related to the launch of the new concept.

1. The first contest will promote consumers to engage on social media by sharing how they wear their Estee Lauder make-up. The winner will receive a three night stay in Atlanta along with one guest and will have the opportunity to attend Fashion Week as well as the Estee Lauder launch party. Additionally, air fare will be included as well as a $1,000 Macy’s gift card for shopping.

2. The second promotion will be a sweepstakes that encourages customers to interact and engage with the brand. In a game like format, consumers will earn entry points when they experience the mirrors in-store, purchase new product, and share on social media platforms. This will be integrated with the app to make it a more interactive mobile experience and will allow participants to keep track of entry scores and other key factors. Winners will receive an Estee Lauder gift-card based on the total number of entries. 3 First place winners will receive $1,000, 5 second place winners $500, and 45 third place winners $100.

3. The third contest will take place during the holiday months where customers will share their Estee Lauder wish list on social media. The most creative and innovative post will receive an exclusive Estee Lauder gift set.

40

FINANCIAL PLAN

OVERVIEW MODIFACE SMART SERVICES For $60,000, Modiface provides not

BUDGET

only the Smart mirror, but maintenance,

Modiface Smart Services

$120,000

installation, and app services on the

$60,000

investment also includes a customized

1 Large Mirror

mirror for the year. The initial $60,000 app. Additional mirrors cost $30,000 a

2 Small Mirrors

Human Resources Product Development

$60,000 $3,000 $600,000

Marketing

$170,000

Social Media

$12,800

Print Ad

$130,000

piece.

HUMAN RESOURCES This

includes

training

5

beauty

specialists at our Atlanta store in how to use the new Modiface technology and the new Perfect Match foundation.

MARKETING The marketing is broken down into 5 categories. The Launch party will

Free Gift Launch Party

Sweepstakes/Contest

Total Budget 41

$8,000 $60,000 $19,200

$953,000

be held during Fashion Week with a Estee Lauder Experience party, and the Sweepstakes includes $10,000 in gift cards and the ultimate prize - a trip to Atlanta to try out the new Modiface Mirrors with customized packages and a weekend full of shows.

S A L ES FO R EC A ST R E A S O N I N G % Increase

At the beginning of the installation of

the strategic initiative, people will be highly interested in the new products and the new Modiface technology. Modiface’s website shows a 158% increase in conversion of web traffic when the Modiface technology is installed. Based on this figure, we estimate that sales will increase by 100% during the first year of the strategic initiative. This is the time that shoppers who are early adopters and innovators will be interested in the experience.

After the first year, people will still be

interested in the new technology, but it will start to lose its novelty. As time wears on, the strategic initiative will still show a promising sales increase – just not as much as the first year of business. The early/late majority of consumers – shoppers who are still interested in the Modiface technology, but are more inclined to use it after watching others use

In 2015, Estee Lauder reported net income of $1.08 billion. This is down from $1.2 billion in 2014 and $1.09 billion in 2013. On average, Estee Lauder experiences a 14% increase in sales (based on sales figures over the last five years). Additionally, the Americas account for 41.7% of Estee Lauder's annual revenue, their largest geographical segment. Using this information, we estimate that Estee Lauder Companies will make the following net income over the coming five years in the Americas:

YEAR

NET INCOME (IN MILLIONS)

2016

$480.38

2017

$547.52

2018

$623.83

2019

$710.98

2020

$810.23

it first – will be the main shoppers between years 2-4, finally followed by the laggards in year 5.

42

5 - Y E A R S A L ES FO R E C A ST

In order to understand the long term affects of this strategic initiative, we have created a 5-year sales

forecast to illustrate how much profit can be expected in terms of dollar amounts and percentage increases. In the years 2019 and 2020, the increase in sales starts to plateau at around 2%. This would be the ideal time to introduce a new strategic initiative for Estee Lauder.

43

5-Year Sales Forecast

2016

2017

2018

2019

2020

TOTAL

Annual Revenue Forecast

$480.4

$547. 5

$623.8

$711 .0

$810. 2

$3,172 .9

% Increase

5%

4%

3%

2%

2%

16%

Sales Increase Forecast

$24.02

$21 .90

$18.71

$14. 22

$16. 20

$507.67

Total Revenue

$504.4

$569.4

$642 . 5

$725. 2

$826.4

$3, 268

6 - M O N T H S A L ES FO R E C A ST

Though it is important to study and understand the long-term lasting effects of the strategic

initiative, we can't forget about the short-term. This 6-month sales forecast displays the first six months of the installation of the smart mirrors and new line of foundations, starting with August 2016. Sales increase percentages start low, as people are still learning about the new products and technology. As business starts to pick up around the holiday months (November and December), more traffic in stores creates more interest in the strategic initiative.

6-Month Sales Forecast

AU G-16

SE PT-16

O CT-16 NOV-16 DEC-16

JAN-17

TOTAL

% Sales Forecast

14%

15%

16%

20%

23%

12%

Company Sales Forecast

$38.84

$41 .61

$44.39

$55.4 8

$63.81

$33. 29

$27 7.42

% Sales Increase

5%

7%

3%

8%

10%

4%

37%

Monthly Revenue Forecast

$1 .94

$2 .91

$1 .33

$4.4 4

$6.38

$1 .33

$102 .65

Total Revenue

$40.78

$44. 53

$45.72

$59.92

$70.19

$34.62

$380.06

44

CO N C LUS I O N

With a reputation for prestige and excellence, Estee Lauder is a global beauty brand recognized for its quality products.

With the implementation of this proposed strategic initiative, Estee Lauder has the opportunity to tap into new innovative technologies that will allow the company to continue to grow. Integrating smart mirror technology and customizable foundation products provides a unique and exciting experience that will appeal to the already established Estee Lauder customer as well as market to the millennial generation. This strategic initiative will provide an advantage to the Estee Lauder brand that will serve to create interactive experiences, personal products, and exciting technology that will shape the future of this established brand.

45

AP P E N D IX

T H E M A R K E T & I N D U ST RY

OV E RV I E W

The cosmetics industry saw modest growth in 2014 due to a productive stock market and increasing employment

K E Y T R E N DS

rates.

Large,

multinational

companies

continue

to

dominate the market, though small specialty brands have steadily increased.

• Expanding beyond the beauty counter.

Consumers are becoming more interested in the “natural look”, opting for neutral palettes that can be worn year round. Additionally, consumers today are highly interested

• Beauty service industry is on the rise.

• New products that combine technology and strong brand positioning are set to cannibalize other product categories.

47

in multi-purpose products that feature various benefits as well as reduce the need to purchase several items, saving both time and money.

2 01 4 B E AU T Y I N D U ST RY F I G U R ES $ Sales 2014

% Growth 2009-2014

Forecasted % Growth 2014-2019

Color Cosmetics

$12,341

22.6%

6.1%

Fragrances

$5,874

15.8%

5.4%

Hair Care

$11,555

8.3%

4.6%

Men’s Grooming

$6,275

11.2%

2.6%

Skin Care

$12,696

18.5%

8.7%

Premium Beauty Products

$21,489

27.2%

10.7%

Mass Market Products

$42,782

10.9%

3.7%

Total Beauty Industry

$76,276

14.6%

5.3%

48

TO P 5 B E AU T Y C O M PA N I ES B E AU T Y S A L ES D I ST R I B U T I O N Non-Retailing Channels: 2.9% Non-Store Retailing: 16.5%

Store Based Retailing: 80.6%

15.5% 11.5%

7.5%

7%

5.1% 49

OT H E R C O M P E T I TO R S

Avon is an international manufacturer and direct

Coty is a beauty products manufacturer selling

selling company in beauty and personal care

fragrances, color cosmetics, and skin and body

products with over 6.4 million representatives. It is

care products. Coty has a large portfolio of brands

the fifth largest beauty company and second largest

including Calvin Klein, Marc Jacobs, Philosophy,

direct selling business in the world with annual sales

Adidas, OPI Products, Rimmel London, and Sally

of $10 billion worldwide in 2013.

Hansen. Revenue was over $4.5 billion in 2015.

LVMH is a multinational luxury goods conglomerate.

Revlon manufacturers, markets, and sells a range

Ten houses are featured within the beauty and

of beauty and personal care products, including

perfume sector including the likes of Givenchy,

cosmetics, skincare, and hair color. The company

Dior, Benefit Cosmetics, and Makeup Forever. 45%

operates a consumer segment as well as a professional

of sales from this division comes from perfumes.

segment. Brands within the Revlon group include Revlon, Almay, and Pure Ice. 50

D I ST R I B U T I O N & S A L ES F I G U R ES 42% of Estee Lauder sales come from skincare products followed by 40% of sales from makeup. Fragrance accounts for 13% and hair care products account for 5%. The majority of sales come from department stores, which makes up 50% of sales. Other, or 8% of sales, comes from e-commerce and m-commerce platforms.

EST E E L AU D E R S A L ES BY C H A N N E L CHANNEL

51

SALES VOLUME

US $ MILLION (2014)

DEPARTMENT STORES

50%

5,484.4

PERFUMERIES

14%

1,535.6

TRAVEL RETAIL

13%

1,425.9

RETAIL STORES

11%

1,206.6

SALON/SPAS

4%

438.8

OTHER

8%

877.5

C U R R E N T TA R G E T M A R K E T DEMOGRAPHICS

AGE

35- 44 13.1%

GENDER: 95% Female INCOME: Average Household

Income of $74,789

20- 24 12.8% 45- 54 15.1%

EDUCATION: College Degree or Higher 55- 64 12.6%

RACE

Caucasian 82%

Asian 2.8%

African American 6%

Hispanic 12.5% Multi-racial 8.6% 52

L I F EST Y L E & P SYC H O G R A P H I C S

WORK Creative Careers (Interior Designer, Buyer, Make-up Artist, etc.)

RELEVANT OPINIONS & BELIEFS • 43% say they would rather have a bigger government with more services • 64% say they describe themselves as a “patriotic person” • 49% says their generation is unique • “We felt we had to fight” to have a voice, to make an impact, to earn a seat at the table of power.

LEISURE ACTIVITIES Yoga, Gardening, Reading, Traveling, Cooking, & Shopping

TECHNOLOGY USAGE 83% use Tablets 68% use Smartphones

• Access to authority is limited and must be earned.

24% have shared a selfie on social

• Very individualistic generation. “They were very independent

media

They wanted to get the corner office and the trappings of success.”

SHOPPING HABITS

53

MEDIA CONSUMED (By Gen X: 34-54 yrs. old) Facebook: 82%

• 21% of consumers purchase on Saturdays

Twitter: 42%

• 41% purchase in the afternoon

LinkedIn: 39%

• 190 Index of consumers paid with credit cards

Google Plus: 35%

• 169.04 Index of consumers buy in the Northwest

Community Forums: 11%

BRAND LOYALTY If an item was out of stock...

PROFILE

• 24 % purchased another brand • 31 % went to another store to purchase • 30 % waited until next trip to same store • 14 % bought a similar Estee Lauder item

BEHAVIORAL In the 1970s, the consumer who shopped in a very upscale, prestigious store like a Neiman Marcus would never consider shopping in a Walmart or in the Walmart of the day. Today, she thinks nothing of driving her Suburban to Neiman Marcus in the morning to buy that very fancy Prada outfit, having lunch with her friends, and then getting in her Suburban, going to Walmart and picking up the toilet paper that she needs because she knows it’s the best value. She doesn’t have a problem with that today. And she doesn’t think that says anything in a

• Name: Jenn • Age: 34 years old

negative way about her. In fact, maybe she can even say, “I didn’t even

• Location: Washington, D.C.

shop Walmart, I shopped Costco.”

• Career: Interior Designer • Income: $75,000/yr salary

Consumers still want to see it, touch it, feel it, and smell it. Technology does not allow that to be replaced, so she’s still willing to go to a store to gain that experience.

• Hobbies: Yoga, Hiking, Gardening, Reading, Traveling, Cooking, and Shopping

54

O M N I C H A N N E L AU D I T TRAFFIC VOLUME

Estee Lauder’s website ranks #15,234 in the U.S. Globally, it ranks #48,004. There have been over 979,20 K visits since February 2016 with the average time on site being 04:25. Typically, 4.21 pages are viewed and the bounce rate is 46.28%. The U.S. contributes 54.38% of traffic, followed by China who contributes 21.99%.

STRENGTHS

SOCIAL MEDIA

•

Great customer service (live chat / e-mail)

•

Answer directly on their social media

•

Great in store experience

•

Pinterest was very intriguing

•

Great set up for website

WEAKNESSES

Source: Similar Web 55

•

Integrate social media platforms

•

Advertise more for social media

•

Consistently utilize social media

•

Enhance app

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56

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57

New Strategic Initiative

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Shandy Frey, Makayla Hirst, Kendria Jones, & Ashlee Scott

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2016