MAC Omni Channel Strategy

Winning with Omnichannel

March, 2016

Agenda Industry and Competitive Landscape

• • • •

Attractiveness MAC's Positioning Industry Trends Competition

Recommendation 1

Recommendation 2

Recommendation 3

Industry and Competitive Landscape

Cosmetics retailing industry: an attractive industry Low - Growing demand - No major substitute

Low-Medium - Low switching cost - Low mass purchasing - Moderate demand for product quality

Threat of Substitutes

Low-Medium - Many suppliers provide basics - High standards for quality, not differentiated - Forward integration

Supplier Power

Buyer Power

Low-Medium - High inventory demand - Need large supply chain - Relationship based industry - Growing interest in niche brands and products (i.e. organic)

Threat of Entry

Medium-High - Increased retailers - Not concentrated - Promotional competition - Growing online retailing

Competitive Rivalry

MAC’s positioning

Canadian DNA

All ages, All races, All sexes Professional Celebrity partnerships Optimized user packaging Socially conscious

Industry trends

“I want to maintain, not hide.”

“Korean brands are the best in business.”

“I look for brands that advertise to all ethnicities.”

The competing retailers in cosmetics retailing

Sephora

MAC

Retailer of multiple cosmetic brands along with its own private label

Estee Lauder brand

Products range from cosmetics, skincare and haircare – one stop shop

Cosmetic products sold for consumers and makeup professionals

Loyalty program – “Beauty Insider”

Loyalty program – to be released in Canada soon

Only free standing stores

Stores - free standing and in Hudson's Bay and Nordstrom

MAC’s growth opportunities……

In Store Customer Service 80

80

Loyalty Program

62

70 53

63

Professional makeup application

60 50

Sephora 33

40

80

Mobile App (Canada only)

72 Self Service

30

47

20

0

MAC

0 10 0

Ease of navigation from social media to online store

28

50

68 Accessibility 73

of Stores

23

20 50 37

Online Experience

48

63

Offer sample-sized cosmetic products

55

Offer product meets my needs 78

Experiment new looks

Omnichannel Performance - Sephora vs MAC

MAC: Playing field

Omnichannel integration

Higher accessibility in tier 2 & tier 3 cities

Make-up classes awareness

Recommendations

Omnichannel optimization and accessibility expansion, seamless integration of artist experience

Horizontal expansion – new skincare products

App learning loyalty program – MAC Guru

Recommendation 1 Seamlessly integrate all components via an omnichannel experience

What constitutes omnichannel?

Seamless, regardless of place of purchase

• Mobile Application (loyalty program) • Mobile-based social media

Online Sales

Offline Sales

• Service • Product Availability • Store Accessibility

Online Marketing • Online sales website • Web-based social media

How to integrate the channels?

• Interactive mobile strategy • Streamlining physical and digital interactions • Engagement across all channels

• Expansion to increase instore accessibility • Increase household penetration through vending machines and kiosks

Action 1: Localize Social Media Contents

Action 2: Social Media Channels: Click Away from Shopping

2011 report - Benefit Cosmetics sees a 10 times higher click-through rate for the “buy now� button on Facebook than the average online ad

Action 3: Create Self-serve Friendly Shopping Experience

" I don't feel free in the MAC shops. It feels like someone is always looking at me, or I have to rely on assistants to get the cosmetics I want. Whereas in Sephora, I feel that I can find the makeup I want and try them on just like being at home."

Action 4: Expand through vending machine and kiosks High agility – fast market entry and exit 30% of participants showed interest in using these channels Travel sized products to minimize customer adoption Partnership with technology savvy and vending/kiosks companies

The better-off test Tier 1 • Expand market • Synergistic locations • Inventory rotations based on product consumption • Increased user convenience

Tiers 2 and 3 • Pilot test new markets • Market research • Increased accessibility • Understand market prior to opening free standing stores • Increased user convenience

Recommendation 2 Enhance the MAC brand by including more ageless focused products

Horizontal Expansion: Include more cream products under MAC Expand MAC’s BB cream category to introduce anti-aging creams Better-off test • In line with consumer trends – capturing the “ageless segment” • One step closer to being a one stop beauty and cosmetic shop • Leverage expertise and skills from Estee Lauder to introduce this product

Recommendation 3 A beauty guru’s journey

Purchase products

Achieve different levels and benefits

Receive “Expertise� time

Guru

Winning with Judo Strategy Redeem in-store makeup tutorials

The long term strategy: how to win Use vending machine data to reach 50/50 free standing store goal Identify and develop partnerships with technology firms to remain competitive in digital retailing Re-introduce YouTube channel and partner with Snapchat Videos on self application of make-up Reflect diversity – all sexes, ages and genders

Partner with make-up professionals and stars to develop a live training during product launch

Thank You!