elf Makeup Strategic Initiative by Emily Whelan

strategic initiative NON - TRADITIONAL RETAILING PROFESSOR GRACE CANEPA

TABLE OF CONTENTS 01 / COMPANY OVERVIEW - PAGE 05 History

Mission Statement Vision Statement Current Ownership Structure Current Revenue Future Growth SWOT

02 / POSITIONING AND PLACEMENT - PAGE 13

DISCLAIMER This project is a mock report for The Savannah College of Art and Designâ&#x20AC;&#x2122;s Non-Traditional Retailing course, and is no way affiliated with e.l.f.

Perceptual Map Competitors Placement Distribution

03 / COMMUNICATION AND PROMOTION - PAGE 17

Annual Spending Figures CRM

04 / TARGET CUSTOMER - PAGE 21 Demographics Psycho-graphics Customer Profiles

05 / THE STRATEGIC INITIATIVE - PAGE 25

Key Objectives Technology and Implementation Market Analysis Proposed Target Consumer Communication and Promotional Plan Application Highlights Financial Plan

06 / APPENDIX - PAGE 43

Additional Information and Research A Complete List of All Sources Used

01 / COMPANY OVERVIEW 4

WE ARE E.L.F.

â&#x20AC;&#x153;At e.l.f. Cosmetics, we believe that beauty comes from within all of us. Our line of luxurious cosmetics captures great looking skin with gorgeous colors and quality ingredients. Our products are designed to let your inner beauty shine through. By engaging young, diverse makeup enthusiasts with innovative, high quality cosmetics at an extraordinary value, e.l.f. has become one of the fastest growing beauty brands in the United States.â&#x20AC;?

TARANG P. ADMIN

JOHN P. BAILEY

ERIN C. DALEY

JONATHAN T. FIELDMAN

JOSEPH SHAMAH

SCOTT VINCENT BORBA

CEO and Director

IT ALL STARTED WHEN two beauty obsessives wanted to create an affordable makeup line after they had noticed that very expensive cars were parked out front of 99-cent makeup stores. Co-founder Scott Vincent Borba says how “I saw all these women with Louis Vuitton purses, and they were just buying truckloads of lip balms and nail polishes.” They felt that women “shouldn’t have to skip lunch or not go out for dinner or have other cutbacks to afford makeup.” So with Joseph Shamah, they decided to find factories that understood their mission to create inexpensive, good-quality makeup. Since then, e.l.f. Beauty, Inc. became a public company on September 22, 2016 at an initial public offering price of $17.00 per share. Currently the company has net sales of $98.6 Million USD as of September 2016. Of that, $2.2 Million USD was profit. Over the next five years, e.l.f. is expected to grow at an annual rate of 20%. Previously, the brand saw negative the past two years up into the quarter ending September 30th, 2016. Of their various retail locations (excluding brick n’ mortar) only 6% of shelf space was allocated to e.l.f. merchandise. In this past year, that shelf space has been increased along with elevated display and lighting. This has allowed for not only an increase in retail sales, but increased awareness on behalf of the brand. For example, Target locations now carry e.l.f. in the main beauty aisle alongside one of their main competitors, NYX. This space has doubled the penetration of e.l.f. merchandise while giving the customer an elevated impression of the brand. e.l.f. has the mission to make luxurious beauty accessible for all women to play beautifully. Their vision has and always will be to empower and educate women to play in innovation without sacrificing their budget. They offer a complete line of makeup and professional tools all at an extreme value price!

Senior VP and CMO

Founder and Director

President and CFO

Senior VP of Operations

RICHARD F. BARUCH JR. Senior VP and COO

SCOTT K. MILSTEN

Senior VP, General Counsel, Corporate Secretary, and CPO

Founder

E.L.F. HAS SOME OF THE HIGHEST APPEAL AMONGST AFRICAN AMERICAN, ASIAN, AND HISPANIC WOMEN

58%

SWOT ANALYSIS

46%

29% 24%

STRENGTHS - Affordable price point - High quality - 27 Week innovation cycle - Strong multi-channel presence - Strong social media following - Strong appeal amongst minorities - #1 Mass cosmetics brand in e-commerce What isnâ&#x20AC;&#x2122;t there good to say about e.l.f? Their biggest competitive advantage is the fact that their cosmetic products are at a superior quality at an outstanding price point. A majority of their merchandise is $6 USD and under. Now that they have expanded into the skin care market, their already existing cult following has even more opportunity to have e.l.f. in their daily routine. e.l.f has one of the fastest innovation cycles from concept to final product at 27 weeks. This allows for them to be as productive as they are reactive to current beauty trends. Their products are sold at over 19,000 retail locations from Target to Old Navy, preserving the brands strong multi-channel presence. As mentioned before, their cult following has social media to thank. e.l.f has over 2 million followers on just their Instagram alone. Advocates for the brand are more than happy to express their adoration for e.l.f products. Their awareness amongst minorities is much higher in comparison to other mass market beauty brands. The graph to the right breaks down this awareness in more detail. Since their social media following is equally loyal as it is enaged, this has made e.l.f. Cosmetics one of the top beauty brands for E-commerce.

WEAKNESSES - Rely on customer generated content - Bland digital presence - Lack of diverse color range for Foundations - Lack of innovative products - In-house produced content typical A majority of the content released by e.l.f. via their social media outlets is done by their customers. The brands mass consumer base has allowed for mass amounts of content to be produced without e.l.f. having to lift a finger. As it is great they promote the customers using their products, when one looks at their official in-house produced content, it is rather lack luster. The imagery especially is typical to a beauty brand, and has no personality or differentiating appeal. Even if they have strong appeal amongst minorities, that factor is missing in store. Speaking beyond their brick and mortar locations, the e.l.f. assortment at other retailers is lacking a diverse color range, forcing women of color to purchase online, if they are not near an e.l.f. studio. The merchandise produced by the brand does have quality makeup at a bargain price, but they have not released many innovative products since their launch in 2004, keeping the price appeal one of their few positive characteristics. OPPORTUNITIES - Expand to other retailers to carry products - Increased brand awareness - Stand alone stores in emerging markets - Continued growth of the beauty market Currently, e.l.f. is available at a variety of re-

CAUCASIAN

26%

15%

HISPANIC

AFRICAN AMERICAN, ASIAN, OR OTHER ETHNICITY

e.l.f. COSMETICS CONSUMER tail locations, but there is additional opportunity to expand to other retailers in order to increase their market saturation. e.l.f may have a loyal following that swears by their products, but the company has the lowest brand awareness amongst its competitors at half the percentage. According to their investor presentation, e.l.f.â&#x20AC;&#x2122;s aided awareness through advertising and promotion is at 58% while their unaided or word of mouth is a measly 6%. Those who purchase e.l.f. tend to keep at least one of their products in their makeup collection, but the issue is getting the customer interested in that purchase in such a saturated beauty market.

sionate. The difference? NYX was elevated first. From the beginning, NYX has been seen as a quality brand. From packaging to promotion, anyone can see the sleek, sophisticated details to NYX beauty. They also gained premium shelf space at retail locations far before e.l.f. The modern consumer is asking more of her beauty brands. Specifically to be as transparent and natural as possible. e.l.f. is already a cruelty free brand, but is heavily lacking in the natural department. This may lead to incomplete purchases for those who are looking for a completely natural product.

THREATS - Rise of NYX and their brick and mortar presence - The consumer demand for more natural products When e.l.f. is mentioned, normally NYX will follow. An equally as quality makeup line at a similarity affordable price point has risen to fame the past few years. NYX customers are just as loyal and pas-

02 / POSITIONING AND PLACEMENT

COMPETITORS AVAILABILITY

PRICE RANGE

PHYSICIANS FORMULA

DRUGSTORES, WAL-MART, AMAZON, AND TARGET

$4.99 - $22.99

NYX

ULTA, CVS, AND TARGET

$2.47 - $34.99

ULTA PRIVATE LABEL

ULTA

$1.49 - $20

ESSENCE COSMETICS

ULTA, TARGET, AND WAL GREENS

$0.99 - $9.99

L’OREAL

WAL-MART, EBAY, AMAZON, WALGREENS, TARGET, ULTA, AND CVS

$3.99 - $24.99

COVERGIRL

WALGREENS, TARGET, ULTA, WALMART, KMART, AMAZON, EBAY, DOLLAR GENERAL, CVS, AND SEARS

$4.99 - $14.99

MAYBELLINE

WALGREENS, TARGET, KMART, ULTA, EBAY, CVS, AND AMAZON

$3.99 - $15.99

REVLON

WALGREENS, TARGET, ULTA, WALMART, CVS, KMART, EBAY, AND RITE AID

$2.99 - $24.49

BH COSMETICS

ULTA, MACY’S, AMAZON, SEARS, WAL-MART, URBAN OUTFITTERS, WALGREENS, TJMAXX, AND TARGET

$2.50 - $38

MOST

THE BRAND

$40

PERCEPTUAL MAP Most of e.l.f.’s makeup products are sold for $6 or less. E.l.f. believes in the combination of affordability and being on trend, allowing the consumers to experiment without breaking the bank. NYX is a strong competitor because they are just as accessible as e.l.f. but at a higher price point. Maybelline and Covergirl are more accessible than e.l.f. but Maybelline is at a lower price than e.l.f. while Covergirl is slightly more. Even though BH Cosmetics and Revlon are more expensive than e.l.f. they have an advantage of being available at more retail locations compared to e.l.f.

LEAST

ACCESSIBILITY

pRICE

COMPETITORS The top competitors for e.l.f. are Physician’s Formula, NYX, Ulta Private Label, Essence Cosmetics, L’Oreal, Covergirl, Maybelline, Revlon, and BH Cosmetics. These makeup brands are all sold in Walmart, Target, ebay, Amazon, Walgreens, and Ulta as is e.l.f. BH Cosmetics is also available in Macy’s, Sears, Urban Outfitters, and TJMaxx.

PLACEMENT E.l.f. Has 19 stores nationwide, along with their products offered in over 19,000 stores. E.l.f. Is available at CVS, Walgreens, Target, Old Navy, K-Mart, Wal-Mart, Amazon, and Ulta. Consumers can purchase items online through their website www.elfcosmetics.com

DISTRIBUTION E.l.f. uses Food, Drug and Mass channels, speciality, and direct channels. As far as their distribution model, there’s nothing now but might be in the near future. They believe there is significant potential in deepening distribution with their current retailers by continuing to leverage productivity, innovation, and growth to win more shelf space.

03 / COMMUNICATION AND PROMOTION

ANNUAL SPENDING FIGURES Annual spending for communication and promotion efforts are included in the $78.7 Million USD sum for “selling, general and administrative” expenses listed in their quarterly report. This is a very general description for the sum, so how much of that $78.7 Million is used for promotions is unclear. The high number is in large part due to an increase in warehouse and distribution costs in association with the distribution center moving from New Jersey to California. In the report, they do also state that $50,453 USD is spent on customer relationships within the retail store environment, and only $489 USD is spent on customer relationships within their e-commerce platform. We estimate that roughly a third of the $78.7 million is for Communication and Promotion. On the other hand, e.l.f. does not publicly advertise their spending on individual campaigns or any current promotions. E.l.f. Cosmetics relies heavily on their customers to promote the brand and their products. This is both a strength and a weakness for the company. It is a strength because it shows that the customers are excited about the products enough to share their experiences. However, with most of their content being consumer-generated, they do not produce much brand-generated content. Therefore, they have room for improvement in this area. There is potential for e.l.f. To have a strong digital presence, but it is currently mainly in the hands of the consumer. E.l.f. Needs to gain control back and produce high quality and innovative content to enhance their consumer experience

and keep the “innovative” descriptor word they use for their products. Beauty squad members receive marketing emails periodically, but can unsubscribe at anytime. These emails are catered to the consumer’s membership in the program. This includes a monthly balance review email. CURRENT CUSTOMER RELATIONSHIP MANAGEMENT E.l.f.’s customer relationship management is essentially catered toward millennials. Most customer interaction is via the internet and social media platforms. In this way, e.l.f. is modern and transparent, responding to comments and listening to feedback in an effort to please the customer using their products. Most of the time, however, other e.l.f. Cosmetics users will do all of that for the brand. To recognize fans of the brand, e.l.f. invites them to become members of “The Beauty Squad”. Anyone can join to instantly feel like a member of a cool club. It is free, and serves as a reward program. With every dollar spent, two to six points are earned. Additional points can be earned by sharing e.l.f. posts and tweets (5 points), by following them on Instagram (10 points) or by referring a friend to the Beauty Squad (150 points). Members are divided into three groups based on number of points earned: glow getter (0+ points), rising star (101+ points), a-lister (401+ points). Rewards range from an enrollment gift to a “pick your sale day”.

04 / TARGET CUSTOMER

EXISTING CUSTOMER PROFILES JESSICA is an experiencer. She is 13 years old and lives in

THE E.L.F. CUSTOMER

the suburbs of Denver with her parents younger sister and the family Golden Retriever, Bailey. Still in middle school, she is a beauty beginner. She purchases e.l.f. Makeup products with her own allowance when on trips to Target with her mom. Jessica has had a couple of professional makeovers since her parents want her to understand how to apply makeup correctly. She enjoys watching beauty vlogs on YouTube, her favorite being Zoella. On the weekends, she likes sleepovers with her friends, going to the movies and to the mall where her favorite store is Forever 21. She also reads Seventeen magazine where she gets makeup look ideas. She gives her face quite minimal, and the products she uses include Beautifully Bare Finishing Powder in Light $6, Long Lasting Lustrous Eyeshadow in Toast $3, Lash Extending Mascara in Black $3, Pout Perfecter in Glow $3, as well as tools being the Powder Brush $4 and the Eye Blending Brush $1.

ANNA is a striver. She is 26 years old and is single, but often goes

The e.l.f. target customer is diverse, but is predominantly female, Hispanic, and of lower income. Her age range varies as the inexpensive prices attract both tweens and shoppers in their mid-twenties. The young teens that purchase e.l.f. products are often makeup beginners. On the other side of the spectrum, the older consumers, averaging 24 years old, are attracted to e.l.f. for its affordability and diversity. The average income of an e.l.f. shopper is under $20,000, and she is likely to have some sort of college education. e.l.f. is most often purchased in the Western part of the United States, purchases are often incorporated as adds-on and are a part of a large “pantry stocking” shopping trip, and some inexpensive items regularly purchased along with e.l.f. products include Hawaiian punch, TRESemme, and Archer Farms. The older e.l.f. consumer is influenced by her urban environment, eats at Starbucks and shops at Banana Republic. The younger consumer lives in the suburbs with her her family, shops at Ulta, Forever 21 and PacSun.

on dates. She lives in Sacramento, California where she is a waitress at Seasons 52 and earns a yearly salary of around $26,000. When not waitressing, she takes night classes in Psychology at Sacramento City College. Anna enjoys dressing up and getting drinks with friends after work and class. Her guilty pleasures include gossip from Ok! Magazine, reality TV E! Network and Ben and Jerry’s Phish Food straight from the container. She learned makeup tips from her older sister but also looks to celebrities for inspiration like the Kardashians as she prefers a heavier contoured look. Anna shops with e.l.f. for the low price and high quality, she enjoys experimenting with beauty products and often goes on specific cosmetic shopping trips to CVS. The products she uses include Daily Hydration Moisturizer $8, Flawless Finish Foundation SPF 15 in Caramel $6, Prime & Stay Finishing Powder $2, Contour Palette in Medium $6, Illuminating Palette $6, Shimmer Highlighting Powder in Bronzed Glow $6, Shadow Lock Eyelid Primer in Sheer $2, Everyday Smoky Eyeshadow Palette in Everyday Smoky $10, 3-in-1 Mascara in Very Black $3, 11 Piece Brush Collection $30 and the Highlighting and Blending Sponge $6 .

05 / THE STRATEGIC Initiative 24

THE STRATEGY “TO INCREASE CONSUMER ENGAGEMENT AS WELL AS BRAND AWARENESS THROUGH IN STORE INTERACTIONS WITH SMART MIRROR TECHNOLOGY AND APP DEVELOPMENT FOR A TRUE OMNI-CHANNEL EXPERIENCE.” OVERVIEW Currently, there is no mobile application for e.l.f. cosmetics. For a brand that is so heavily influenced by social media, this was a huge disconnect. Pair this with the problem of a lack of omni-channel experience, the solution was clear. When we sat down to develop this application, we wanted to solve the current problems e.l.f. Is facing in terms of their lack of an omni-channel presence and excel them forward in their technology development. The inspiration came from the team asking themselves, “What’s the most annoying thing about shopping for drug store makeup?” The answer was pretty obvious- customers cannot sample the makeup. Our goal was to create an imitative that combines mobile and in store experience that also elevated the brand in terms of technology.

MEET MODIFACE A truly innovative company, pioneering the way for Augmented Reality (AR) cosmetics. It all started in 1999 at Stanford University where initial research on face analysis began. Jump ahead to the early 2000’s, and this research branched to the University of Toronto. During this time, the technology grew to include signal processing algorithms. Today, MODIFACE is a leader in patent pending skin analysis and facial visualization software. HOW DOES IT WORK MODIFACE is more than just software, it is both smart mirror technology as well as application development paired with their innovative technology. The first is the mirror, this mirror can show makeup, hair, skin, and anti-aging changes in LIVE 3D under any light conditions. The AR simulation is photo-realistic,and offers consumers the option of trying on makeup shades to hair colors in real time. The application shares the same features, but for the modern age. Simply download the application, and anyone can try on whatever makeup look or hair color they’re in the mood for. They have expanded to also include nail colors as well as hair styles. For this initiative, we are focused on the makeup feature.

SUPPLIERS AND VENDORS OF THE TECHNOLOGY The best part about MODIFACE is that they’re self sufficient. They offer in-house development of their exclusive software for any interested client. Their services cover all the bases from visualization, customization, and support. Their package ensures that platforms including IOS, Android, and Web are included and omni-channel. They work with brands to create their wireframes and designs. If the brand does not have their own creative team, MODIFACE has their own in-house designers that work with the brand to create these assets. As well, they work with them closely on the rendering of the products, to ensure what the user is seeing digitally applied to their face is true to the actual product. All of this can be easily applied to the smart mirror, if that connection from app to mirror is required.

application for the brand, and from seeing what our competition has to offer, formed our operational requirements for the application. The first was that the app has to be shoppable. The MODIFACE e.l.f. application was to extend the existing e-commerce website to a mobile platform. The software had to retain customer profiles that could be easily received on mobile or in-store. Tying back to the MODIFACE technology, e.l.f. will have created various makeup looks available to “try on.” All of these looks must be made with 100% e.l.f. products, and suggest those products for purchase to the customer when using the app or mirror. There will also be tutorials available to show customers how to achieve the desired makeup looks. Once the customer is trying on the makeup, they have the option of a side by side before and after comparison of their face. Since social media is so crucial to the e.l.f. brand, we wanted the app to have the ability to share the final look on any social media platform, or simply save the photo to share when the customer is ready. The largest and most important feature is that the software must be seamless. What the customer experiences online, must be available in-store. This includes having access to their personal customer profile as well as past purchases to encourage loyalty.

OPERATIONAL CONSIDERATIONS The success of Sephora and Ulta is the engagement consumers have with their products in store, proving to them the worth of their merchandise. From there, we looked into the lack of a mobile

MARKET ANALYSIS OVERVIEW A few brands that are implementing smart mirror technology, that are not from the beauty segment are Panasonic, Juno, and The Connected Mirror. Panasonic’s smart mirror is basic to what has been introduced in the market as it simply shows the user their surface level flaws with suggestions on how to fix them. Juno, on the other hand, is a kickstarter brain child that is “bringing your makeup game to a whole new level.” The mirror boasts three built -in light settings along with a studio grade ring light for the ideal variety of moods to see how your look appears under various light. Lastly, is The Connected Mirror, it works with in-house wi-fi to be a personal aid in the home. From local time to weather, the device will notify users of any missed notifications from your phone, as well as updates from any other Griffin (the brand behind The Connected Mirror) gear under your roof. SIZE OF THE BEAUTY MARKET IN NEW YORK The beauty market is heavily diverse, depending on the location. Our technology is fresh and innovative for e.l.f., and demands an area that mirrors such characteristics. It was the most logical choice to select the New York e.l.f. Flagship Studio as the ideal location to test the seamless interface MODIFACE technology has to offer. Besides e.l.f, New York is home to a plethora of other beauty brands from local boutiques to high end. According to a Refinery29 survey in 2016, the most beloved beauty brands from least to most popular in the area are as follows: Too Faced, Urban Decay, Sephora, Tom Ford, Covergirl, Revlon, Dior, MAC, Estee Lauder, and Maybelline at number one. This report showed not only the mass range of budgets held by those who regularly purchase cosmetics, but that mass, drugstore merchandise still reigns supreme. Online sales for the market currently only holds 8% of sales, but that number is

rising heavily with the demand of omni-channel business models. The largest customer base in New York, according to PRIZIM are the “Connected Bohemians.” These individuals fall perfectly within the e.l.f. customer sweet spot, as their age range is 21-40 years old. These mobile urbanites are heavily connected, represent the most liberal lifestyle, and are the funky ones who you’d find spending $6 on a cup of coffee without blinking an eye. Typically, they’re without kids, young couples that are either students or young professionals. Renting is their way home, for their income at an average of $49,709 USD, and they rather invest their income on travel or café dates. FUTURE COMPETITION Smart mirror technology is nothing new. What is making the difference is both how advanced as well as how affordable it has become. There are a few contenders who have risen in late 2016, early 2017 as true innovators in smart mirror technology. The first of which would be the Samsung S-skin. Described as a “portable skincare solution that saves time and costs associated with professional dermatological care,” the unit uses one time use microneedles to penetrate the skin to both treat it and measure factors such as hydration and melanin levels. Another is the Hi Mirror, CES 2017’s winner of the Innovation Award, this mirror offers a touch-free design and ability to analyze a user’s skin by simply taking a photograph. Hi Mirror can only inspect surface level flaws, but does offer product suggestions as well as routines to fix the users issues. Lastly is LUMINI, a portable device allows users to take a photo of their face which is sent to an app for under-the-surface analysis. Enlarged pores, redness, wrinkles and sebum are all put under the microscope, with users able to see how their skin is likely to change.

OTHER RETAILERS USING MODIFACE OR SIMILAR We were surprised to discover that a fair amount of our competition have already teamed with MODIFACE. These brands include Covergirl Canada, Sephora Italy, and L’Oreal. Even so, each of the applications developed for them were unique all on their own, the only thing they shared was the MODIFACE team’s insight and technology. Sephora Italy has also joined forces with Hi Mirror, testing their smart mirrors currently only overseas, with no word if and when it will enter the United States any time soon. Covergirl has no other affiliation with other smart beauty technology brands the same level as MODIFACE, but they have developed the “BeautyU” app. This application can “get a real time face scan, then answer quick consultation questions, then try on all products that fit your profile.” There is also the ability to purchase in-app, allowing for an easier Segway from sample to final purchase. Ulta currently has an addition to their existing application known as the “GLAMLab” where essentially Augmented Reality allows for the user to

virtually sample the top brands offered in store along with some in-house created beauty looks. L’Oreal credits themselves as the first beauty/cosmetics brand to release a virtual makeup tester, but the available looks are inspired only by celebrities and doesn’t appear to have any in-house created looks. HOW THIS WILL AFFECT THE INITIATIVE Our competition having similar applications to our initiative poses a few issues. The largest being that their technology has the possibility of being more advanced while we are just entering the Augmented Reality beauty market. On the other hand, we can turn to their existing technology as a reference for our application. Our competitors appear to not be showcasing this technology as part of their omni-channel experience, a fact that we will make sure not to repeat. Their successes and failures will act as a base for all of our future decisions. Other smart mirror technology besides MODIFACE could be the source of a cheaper technology alternative.

COMMUNICATION AND PROMOTION PROPOSED TARGET CONSUMER Our proposed target consumer is tech savvy, adapts well to new technology and is willing to spend time and money on technology. She enjoys experimenting with makeup, however as her career is just freshly starting, she doesn’t have adequate funds to spend on a variety of makeup products. The e.l.f. app is extremely useful to her as she can see herself in a variety of looks before purchasing. This way she spends her money on only useful products, and avoids going over her strict budget. She does enjoy “treating herself” however and will buy the occasional random product, often a lipstick in a fun, bold color. Asleigh is a striver. She is 23 years old and grew up in suburbia Michigan, but always dreamed of living in an up-and-coming urban setting. After graduating from the University of Texas, Austin in Communications she couldn’t leave the booming and trendy city and has settled in Austin. She just accepted a position as social media coordinator for vintage Feathers Boutique on sprawling South Congress St where she is expected to earn $22,880 yearly. She enjoys paddleboarding on Lady Bird Lake in the middle of Downtown Austin and dressing up for drinks and music on swinging 6th Street. Although she does occasionally splurge on drinks Downtown, she is on a strict budget as she is completely independent from her parents and is still paying back student loans. She purchases e.l.f. products from a CVS that is a few blocks from her apartment, and will go to CVS specifically to buy e.l.f. Will also order e.l.f. online, but only when Free Shipping is offered. She likes a natural, “no makeup” makeup look for the day and dewy, shimmery look for night. For her everyday look her favorite products include, Daily Hydration Moisturizer SPF15 $8, Tinted Moisturizer SPF20 in Nude $3, Mineral Pearls in Natural $8, Blush in Tickled Pink $3, Rose Gold Eyeshadow Palette $10, and Volumizing & Defining Mascara $2. For her nighttime, glam look she uses Tinted Moisturizer SPF20 in Nude $3, Illuminating Palette $6, Contour Palette in Light/Medium $6, Intense Ink Eyeliner in Blackest Black $3, Eyelash Curler $2, Rose Gold Eyeshadow Palette $10, Volumizing & Defining Mascara $2, and Perfect Finish HD Powder in Sheer $6.

INTRODUCTION The promotional plan for e.l.f. will focus on social and digital platforms and include PR events. Our consumer will remain at the focus every step of the way. The e.l.f. girl is tech savvy and aids in promoting our products, so it is incredibly important that she is excited about the brand. For our makeup products, the average innovation cycle is about 27 weeks, or nearly 7 months. For our MODIFACE technology app and mirror launch, the full rollout plan will take about 12 months. As a multi-channel brand making a move toward becoming omnichannel, we will promote the new technology across all of e.l.f.’s social media platforms, the company website and in the retail stores. The new technology will integrate connectivity and purchase opportunity between multiple platforms, making the brand closer than ever to an omnichannel presence. Influencer outreach is very important for the brand, and the app and mirror will provide the opportunity to share pictures and video, which will promote the innovative technology as well as the e.l.f. products being used in the interface. Overall, this will increase consumer engagement, which falls in line with the brand, its structure and its goals. The technology will also contribute to the high quality image e.l.f. aims to provide and project to its consumers. PRE-LAUNCH There will be a twelve month rollout plan, to include preparations for the app launch, the launch

party itself and everything involved post-party that will keep the app up-to-date, relevant and exciting. Five of the twelve months are dedicated to pre-launch tasks and promotions that will create hype and awareness of the innovative collaboration with MODIFACE. Market Research will account for a total of six weeks, and strategy will be planned the following two weeks. The development of the app and mirror using Modiface will take three months, with a fourth month reserved for making minor corrections before the official launch. During this time, e.l.f. Will be promoting the collaboration with a bubbly and colorful campaign, featuring their tagline “play beautifully”. Some of the images from the campaign’s photoshoot will be made into GIFS and posted as a progression of teasers on their main social media platforms: facebook and instagram. On facebook, there would be a sentence or two of text for explanation and promotion purposes, which would fit the platform’s intended use. With instagram, the text would be quick and to the point, using catchy taglines and phrases to grab the scroller’s attention, in addition to multiple hidden hashtags used to enhance post discovery. Behind-thescenes videos of the photoshoot and short promotion videos advertising the collaboration with MODIFACEwill be featured on YouTube. Website promotion will entail a banner ad, and email blasts will be sent out to Beauty Squad members in the US. The emails will give an overwiew of the new technology, build hype with campaign imagery, and give customers the link to enter into the launch

party invitation contest. For the beauty brand’s influencers, flyers will be sent to them explaining the collaboration. The idea is that e.l.f. wants the influencers to have all of the details and information they need so that they can turn around and promote the ModiFace app and mirror themselves. Finally, as the launch party approaches, there will be in-store teasers. One example is a single card displayed on an otherwise empty table that says, “Coming Soon: the e.l.f. smart Mirror”. LAUNCH For the launch of the in-store MODIFACE mirror, we will be hosting a private party for 50 distinguished guests at the e.l.f. flagship store in New York City. The guest list will range from media notables to beauty gurus and bloggers. At the party, there will be demos and live tutorials of the MODIFACE mirror technology and the e.l.f. app. To complement the colorful campaign, the theme of the party will be fun and playful with cupcakes from Baked by Melissa to snack on, a DJ, and lots of decorations. Attendees will receive gift bags with the newest collection of e.l.f.products and a mini mirror as a reminder of the new technology available in-store. Also, five previously chosen e.l.f. shoppers will attend as winners of a drawing conducted online through elfcosmetics.com The five lucky winners will be flown to NYC where they will be hosted for the evening in a nearby hotel and attend the party. They will also be gifted a special giveaway box of product and a $25 e.l.f. gift card. The party will be Friday, July 14th at 8 - 11 PM. The store, which typically closes at 9 PM, will be closing early at 7 PM for the event. There will be store managers present as well as four sales associates to oversee partygoer needs. There will also be an armed guard at the door. The following day, Saturday July 15th, during regular hours the store will cater to the public and promote the new MODIFACE mirror and e.l.f. app. Shoppers will be able to participate in tutorials of the MODIFACE mirror and be encouraged to download the e.l.f. app. The store will be decorated in a similar colorful fashion as the night before and there will be a DJ. POST LAUNCH In an effort to maintain excitement and awareness of this new and innovative collaboration in the final six months of the twelve-month rollout plan, there will be a special MODIFACE makeover day

LAUNCH EMAIL BLAST

once a month. This way, the makeup artists doing the makeovers can walk the customer through the process and show them how it works. E.l.f. already does makeovers for customers whenever they ask, so this will be a natural and seamless promotion for the brand. Cards explaining the technology and promoting the collaboration will be displayed next to the smart mirrors in the flagship store. Email blasts and website banners will remind customers about e.l.f.’s new app, and invite them to try it out or even make it down to the flagship store to see the smart mirror. A challenge that e.l.f. Is aware of is the constant changes and innovations in technology and its trends. Maintenance for the technology will include updates once a month, and every three months that will include the transition to e.l.f.’s new seasonal products. App updates are included through MODIFACE with their twelve-month subscription. Probably the most important post-launch task will be data tracking. E.l.f. mainly wants to know how many people are downloading the app, how many purchases are made through the app or mirror, and what products are selling the best with the app and mirror? Managers at the flagship store will be giving e.l.f. consistent feedback on the success of the mirror in-store. If successful, e.l.f. Will consider purchasing more mirror casings from MODIFACE to display in some of their other select retail locations in the following year.

SOCIAL MEDIA CAMPAIGN

OPERATIONAL AND PROMOTIONAL

TASK

MONTHS January 2017

February 2017

March 2017

April 2017

May 2017

June 2017

KEY

July 2017

August 2017

September 2017

October 2017

November 2017

December 2017

PROMOTIONAL

PRE LAUNCH

Social Media Teasers (All Platforms)

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

Facebook Specifc Content

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

Instagram Specifc Content

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

Website Promotion

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

Email Blast

>>>>>>>>>>>> >>>>>>>>>>>>

Mailers

>>>>>>>>>>>> >>>>>>>>>>>>

In-Store Teasers

LAUNCH POST LAUNCH

>>>>>>>>>>>>

Launch Party Planning

>>>>>>>>>>>> >>>>>>>>>>>>

Public Launch Party Planning

>>>>>>>>>>>> >>>>>>>>>>>>

Launch Party Contest

>>>>>>>>>>>> >>>>>>>>>>>>

Contest Drawing

>>>>>>>>>>>>

Contest Winner Contacting

>>>>>>>>>>>>

Launch Party Setup

>>>>>>>>>>>>

Public Launch Party Setup

>>>>>>>>>>>>

Launch Party

>>>>>>>>>>>>

Public Launch Party

>>>>>>>>>>>>

MODIFACE Makeovers (1x month)

>>>>>>>>>>>>

In-Store Informational Pamphlets

>>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>>

OPERATIONAL Market Research

>>>>>>>>>>>> >>>>>>>>>>>>

Strategy Development

>>>>>>>>>>>> >>>>>>>>>>>>

Advertising / Promotional Shoot App Development App Testing and Review

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>>

In-Store Tech Installation

>>>>>>>>>>>>

Employee Training

>>>>>>>>>>>>

Data Tracking

>>>>>>>>>>>>

Check for Tech.Updates (1x month)

>>>>>>>>>>>>

Seasonal Looks Updates (1x 3 months)

>>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>> >>>>>>>>>>>>

>>>>>>>>>>>>

FUNCTIONAL HIGHLIGHTS

THE APPLICATION

OVERVIEW The e.l.f. application is extremely simple and convenient. To start, simply open the application and explore! To connect to the mirror, scan the QR code in store and your profile will appear. Choose from e.l.f. created makeup looks or pick individual products to try on yourself. Play! Have fun experimented with all of the e.l.f. products and see which you like best. Compare images of yourself before and after your makeover. Discover new product by browsing through similar available products in a variety of formulas and colors. Add your favorite look to your cart and any individual products or save them for later. Once you’ve found your perfect look, checkout quickly through the application. Of course, save your beautiful new look and share with friends on your social media accounts! WALK THROUGH The application is available on all devices from smart phones to tablets, simply download the application through the respective store for free. Upon opening the application, users will be first welcomed by a playful landing page of confetti. From there, options

to either sign in or create an account are offered. No account is necessary to use, shop, or explore the application, but if users wish to save any items or beauty looks, a beauty squad membership is required. The side menu has three options - home, shop, and play. The highlight feature, play, is where MODIFACE comes in. A welcome screen will give users the options to either look at all the available looks or refer to the ones previously saved (if they are a beauty squad member). Simply tap on the on screen image of ones face to the areas they wish to play with. From there, swatches will be offered from current e.l.f. products. Holding a finger on the screen for a moment will prompt "before and after" views. On the top right, there is the option to review all the products used to achieve the makeup look. If someone isn't a fan of the proposed product, tap the drop down menu for additional suggestions. This feature was added to consider if a customer would like options. For example, if the look calls for a pencil eyeliner but the user prefers liquid. All of the products shown can either be "hearted" or added to the cart for checkout. Users have the ability to save individual looks or toggle between previously saved looks to see which they would prefer.

LANDING PAGE

MENU OPTIONS

“PLAY” INTRODUCTION

Application Searched Under “e.l.f.”

Home, Shop, and Play

Option To Search All Or Saved Looks

“PLAY” AR IN ACTION

SWITCHING IN-BETWEEN LOOKS

SHOPPING THE LOOK

MODIFACE Technology Application

All Products Required

PROMOTIONAL Pre-Launch

LET'S TALK NUMBERS

Models (5 @$75/hr; 5hr shoot+1hr prep)

$2,250.00

Photographer (5hr for shoot & 1hr before/after @$350/hr)

$2,450.00

Backdrop+Stand Props-confetti (2 heart, 2 circle packs @5.99/pk), donuts (7.99/dozen)

$31.95

Studio Lighting Kit (2 Umbrellas+Stand+Bulbs+UmbrellaCarry Case+Bulb Carry Bag)

$55.99

Reflector (5-in-1)

$17.99

Muslin Clamps (6 Pack)

$7.98

Contest Promotion (In-Store Promotion w/ Clear Stand)

$6.59

Invitations (50 guests+5 winners @$0.42 per piece) Promoional Campaign Budget Launch Party

Decorations-balloons (3 letter @9.99/each, foil solid shaped @1.99/each-50) Photo Booth (3-hr Rental)

$23.10 $26,000,000.00 $129.47 $1,600.00

Party Takeaways- bundle of $20 (50 @78% MU)

$220.00

Contest Winner Baskets (5 @$75)

$375.00

Transportation for Guests (To/From Washington Square Hotel; budget)

$500.00

Hotel+Flight Package for Contest Winners (budget) DJ (3 hours) Licensed Caterer ($41/head+2 servers+travel+service) Armed Security Guard (3hrs @$20.46/hr) 1.5 Pay for 2 e.l.f. employees (3 hrs for event+30min. cleanup) 1.5 Pay for Assistant Manager (3 hrs for event+hour after) Post-Launch

$170.00

In-Store 8 1/2"x 11" tri-fold brochure (25 minimum)

Total

$3,300.00 $400.00 $3,000.00 $61.38 $105.00 $78.00 $20.00 $26,014,802.45

OPERATIONAL Pre-Launch

Up-Front Development Fee Yearly Licensing Fee Mirror Casing (2 @$8,000/unit)

Launch

Mirror is on a stand; no additional setup

Post-Launch

Training for the Trainer (1 hour/month) Employee Training (New Looks/1x a Month for 6 months; 1 hr each) Data Tracking (Included in Modiface cost; no additional cost)

Total Final Cost

$50,000.00 $100,000.00 $16,000.00 $0.00 $150.00 $1,000.00 $0.00 $167,150.00 $26,181,952.45

06 / APPENDIX

THE BEAUTY SQUAD THE TEAM THAT MADE THIS PROJECT POSSIBLE

PHOTOSHOOT BEHIND THE SCENES

ELIZABETH FUCCI

EMILY WHELAN

ANNA “CALLOWAY” KANDT

DANA CARIELLO

JOANNA “ANNA” ALBERT

JACKI DeSAINTS

WILL LEATHERMAN

LAURA MAE BECKERDITE 45

ADDITIONAL VISUALS LAUNCH PARTY MAILER

CONTINUED APPLICATION FEATURES

SHARING YOUR LOOK ON SOCIAL MEDIA

BEFORE YOU LEAVE, WANNA SAVE

“HOT SPOTS” SELECTION FOR COLOR OPTIONS

MINI TUTORIAL

ABILITY TO NAME WHEN SAVING LOOKS

IN-STORE QR CODE

Hey, Beautiful! Big things are happening at e.l.f. and we’re inviting you to test them out! Come party with us as we demo our new in-store ModiFace mirror. Be the first to try e.l.f. x ModiFace with music, goodies and, of course, lots of giveways! Friday, July 14th at 8 PM e.l.f. Flagship:

741 Broadway, New York, NY 10003

See you there!

INFORMATIONAL FLYERS

How e.l.f X ModiFace Works:

ModiFace's patented facial tracking and augmented reality technology creates the most realistic rendering of makeup products, with full vivid simulation of texture, shine, and finish.

Download the e.l.f. App through iTunes or Google Play to your smartphone and create your Beauty Squad profile.

Like what you see? Add your fave products to your cart and checkout easily through the e.l.f. App!

Play! Choose the makeup look you want to try. Experiment with all the looks or try individual products.

Donâ&#x20AC;&#x2122;t forget to share wirth friends! Save your new makeup look to your camera roll or post it directly to your social media.

MODIFACE INTERACTION

EMAIL CORRESPONDENCE With your customization for brands, what is your pricing? And what does it include? Our business platform is licensing out our technology. With that being said, there is a up-front development fee of about $50,000 along with a yearly licensing fee of $100,000/year per platform. Platforms include iOS,Android and Web. Please let me know if you would like me to go into further detail on what these fees include. Do you develop the app completely for the brand, or would the brand get to be involved in that process? Both. We work with the brands to create their wireframes and create designs. If the brand does not have their own creative, we have our own in-house designers that work with the brand to create these assets. As well, we work with them closely on the rendering

of the products, to ensure what the user is seeing digitally applied to their face is true to the actual product. With that being said, we do all the development ourselves. We do however, offer a second solution, an SDK. We can provide the basic SDK to the brand, and they would have their digital team build out the UI/UX and integrate their own products. Is the app connected to e-commerce? Is it shoppable via a Buy Now button in-app? We can most certainly hook up e-commerce in the application. This is usually done with a API call or by opening a web browser in the app, and using the API to call to “add to bag” function. Can the app be integrated with your smart mirror technology? So, if we were to use the smart mirror in retail stores, would it have the ability to connect with a personal profile via the app? Would the mirror technology

be shoppable? Absolutely. We can create any experience the brand would like. This is the beauty of custom applications!

seasonal updates, which is all including in the cost. If you would like to use our Mirror casing, we provide them at cost at $8,000.

Could you expand on how you provide support? Is training involved? If so, what would that look like? We provide support of the application throughout the entire duration of your licensing year. Meaning, we provide tech support on app updates, ensuring the application works with the new OS that are released each year. We also allow our clients to update their products throughout their term. In regards to training, I am not sure what you mean by this. Our applications are “turn key”, meaning that once the assets are provided to us, we deliver a fully functioning application that is ready to deploy onto the app store

In reference to the mirror “casing”, is that the large screen display and stand? Also, when you say “them”, how many casings would that include in the $8,000? We would only need 1-2 in-store mirrors. I have attached a photo of the mirror casing that we just released this year. The $8,000 is per unit.

What is the estimated time that it would take to develop the app and smart mirror from start to finish? Once the client hands off all assets, it takes typically 12-16 weeks. By the end of the 12 week, we would hand the client a test link. From there we implement any feedback and launch the app by the end of the 16th week. Assets include, designs, wireframes, signed contract, and products. What is the cost breakdown, given that we (e.l.f.) would give you the reins for development (as opposed to the SDK)? Please include cost of the app as well as the mirror, and all support (if not included in the base price). The cost for a iOS app which can be deployed in a mirror like casing would be typically be $50,000 one-time for the development and the yearly licensing fee of $100,000. The development fee includes building out the UI and implementing the products. Other standard features include, 2D photo upload, 3D try-on, social sharing, ecommerce, comparison, preset looks, video recording, and camera flip. Once the application is completed, you would start your yearly licensing term. This fee includes all support during the duration of your contract, as well, we are happy to make updates to your application, like product updates, and

Would any of these prices change if we hired a third party app development team? They would be developing the visuals and design of the app, so that our aesthetic and app needs are clearly communicated to your team. This is because the makeup company does not have an in-house app development team yet, with this being their first and only app. As for your second question, I am a little confused. If you are hiring a third party to do the development, then there would be no need for them to communicate the aesthetic of the app. If this is the case, we would provide the third party the SDK which they would build upon; they would build out the UI/UX and implement the products. The cost for this would be $50,000/year. Is there a cap on how many people can download the app before we start paying extra? There is no cap for how many people download the app nor are there any hidden fees!

SPECIAL THANKS TO ASHLEY FROM MODIFACE FOR TAKING THE TIME TO ANSWER ALL OF OUR QUESTIONS QUICKLY AND THROUGHLY.

ADDITIONAL INFORMATION SALES OF BEAUTY AND PERSONAL CARE FORECAST VALUE

LEADING BEAUTY BRANDS ON SOCIAL MEDIA

SALES OF BEAUTY AND PERSONAL CARE FORECAST BY CATEGORY

BEAUTY INDUSTRY BREAKDOWN IN UNITED STATES BY SEGMENT

CONSUMER DEMOGRAPHICS

E.L.F. INVESTMENT PRESENTATION

SOCIAL MEDIA AUDIT FACEBOOK

INSTAGRAM

- 1,867,616 likes - Purpose: product/event promotion - Tag the locations products are available at - Promote youtubers who use their products - Are very good with answering customer comments/questions - All of their promotions are very similarly formatted and start to get boring quickly - Lots of repeated images

- 2.1m followers - Good mix of customer and product photos - The feed becomes predictive very quickly - Promote those who use their hashtag on insta and link that within the website - Same photos youâ&#x20AC;&#x2122;ll see across all channels - consistent - Wish they did some more short videos since the ones they occasionally post are brand accurate and show personality - Promote more of their beauty guru collaborations

GOOGLE PLUS

TWITTER

- 122,472 followers - Mostly celebrity makeup looks and how to recreate with elf products - Links you out of Google plus into other platforms - Posts coupon codes - Too many coupons to the point that it felt like a discount code website

- 319,000 followers - Purpose: product promotion - Retweet positive posts about them - Repost customer images using their products - Had more of a fun personality with emojis and snappy comments - Same images as their Facebook

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CALLOWAY KANDT DANA CARIELLO EMILY WHELAN ELIZABETH FUCCI