Business Plan: “e - store for a cosmetics retailer with operating physical stores”
By… Anastasia Anthopoulou, Vasilis Ntokoros, Giannis Tsakanikas, Nikos Stavrakakis Supervising Professor: Klas Eric Soderquist
Athens University of economics & Business
iMBA
Table of Contents Executive summary Description of the service Market and customers Financial return 1. The idea and the business model… Business model The website Services Competitive edge Current situation and market needs 2. Management team… 3. Cosmetics Industry Overview… Domestic Cosmetics Market Overall Cosmetic Market Cosmetic Market by Product Category SWOT analysis Market Trends Product trends Potential products 4. Marketing Strategy… Overview Marketing mix B2B 5. Business system and Organization structure… Inbound Logistics/Suppliers Operations and services Outbound Logistics/Delivery Customer Service Organization 6. Financing… Initial Costs Fixed costs per month Financial Statements 7. Appendix… The market Survey – The Questionnaire The market Survey – The SPSS analysis The market Survey – The focus groups
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2 2 3 3 5 5 6 7 8 8 11 12 13 14 15 16 18 19 19 20 20 20 22 23 23 23 24 24 24 25 25 25 26 29 29 33 38
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Executive Summary Description of the service: The service that we offer is an online platform/shop proposed for existing beauty and cosmetics retailers in the Greek market. The opportunity: The research we have conducted showed very low competition in the onlineshop business for those products and also an increasing demand by customers for cosmetics e-shops. Key services: o Customers can search and choose between various cosmetics products both for women and men. o Customers can easily put in an electronic basket the desired products and proceed to fulfill their orders. o There will availability for payments through credit or debit cards. o Delivery will be in about 2 to 3 working days and only in Athens for the beginning of operation. Added value for the firm: o Be present in the e-commerce world, while operate at very low costs. o Increase significantly sales and market share through lower pricing policy. o Take advantage of the established physical store brand and have an addition edge in the e-commerce world. o Reduce marketing costs through specific targeting via social media and analytics tools. Added value for the customer: o Customer can shop cosmetics in lower prices compared with those at physical stores. o Customer can save time and energy by shopping from home. Superiority compared to existing solutions: o We offer an intergraded platform, where customer can shop online and get their products delivered at home, not just a web-site for promotions and temporary discounts. o Opportunity to integrate online shop and physical one, maintain customers who don't want or are unwilling to shop online. o Opportunity for customers to communicate with the sales team for comments, suggestions or for ordering out-of-stock products and having them delivered at home.
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Market and customers Market characteristics: o The market of cosmetics in Greece is quite significant compared to the market of other consumer goods. Although in last 3 years the market is shrinking, only due to the unique economic crisis that Greece faces, it is quite stable in size and we expect to grow again in the near future. o Cosmetics market is highly profitable as gross profit margins are quite attractive (30%-50%). o Customers are shopping online more frequent than the past and this tendency is expected to continue (26.9% of total internet users have shopped online in 2012). Customer profile: o Targeted customers are mostly teenager girls and women from 15 to 34 years old. Our market research showed that this target group is shopping frequently online cosmetics products. o Focus in Attica for the beginning, which is about 40% of the total market. o Customers who are PC literate, search and compare prices, while follow the fashion trends and modern lifestyle. How we attract customers: o Social media advertizing, Google adwords and YouTube banners. o TV and radio spots to gain publicity. o Coupons in physical stores for specific promotions. Competition: o There are no significant competitors in the online cosmetics industry at the moment. o Most competitors are small, new established e-shops, without physical stores. o There are various competitors in the physical market, but only one has an online shop as proposed in these business plan (Sephora).
Financial return How the service makes money: o The innovative platform will increase sales of the physical store about 10%, thereby adding to the bottom line. Although we will charge lower prices compared to competitors, we can maintain sustainable profit margins (30% to 50%) at least for three years ensuring high profitability, mainly due to low operating costs. Primary Costs and financing: The initial costs of our e-shop are the following: o Legal and accounting expenses. o Website development. o Marketing research. o Expenses for the office.
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The costs of the above are estimated at 23.800 â‚Ź. As the costs are relatively low we don't plan to use external funds, as the firm can finance this new service by contributing 30.000â‚Ź. Operating costs, Sales and Net Profit: The main operating costs are briefly the following: o Office rents o Advertising campaigns o Employees payroll Those costs are relatively low and will ensure profitability even from the first year. Even though we perform an aggressive marketing campaign, we carefully and estimate the expected sales. This conservative approach leads to small but sustainable net profits for the business for the first years of operation.
600.00 500.00 400.00 300.00 200.00 100.00 0.00 Year 1 Sales
Year 2 Operating Income
4
Year 3 Net Income
Athens University of economics & Business
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1. The idea and the business model… Business model Our business model consists of a bricks and clicks approach; simultaneously operating physical and online stores. This idea applies better for well-known, established brand names such as Hondos Center, Gallery de Beaute and other mutli-store companies such as Patistas perfumeries. Global trends have shown an average 10% increase in income when e-stores and physical stores operate simultaneously. However, our main concern is establishing an online presence and a highly committed customer base through sales promotions, coupons and online opportunities combined with the services offered in the traditional physical stores. The main differentiation lies upon the designation of the site and the domain name of it. So, if, for instance, Hondos Center applies our business model idea, its e-store will have an electronic address like the following: “hondos-center.gr”. As suppliers, the same companies and distributors used for the physical stores will be used. Another advantage, in contrast to other e-stores, is the broad e-catalog that consists of ALL the products we have available for sale in the physical store. In case that the selected by the customer products are immediately available for sale, the delivery will be within a day since the order is sent. If the product is out of stock, our company will be supplied with it and then make the delivery. The whole procedure is not expected to last more than 3 days. This means that the company can satisfy customer needs by accomplishing fast deliveries, although the profit margin will be lower than the case of using a parallel market for our product supplies. In addition to the above, social media advertising will be used in order to absorb and retain a client base. This is the optimal strategy for our marketing plan, since our main target-market is the market of young people (especially women) aged 15 to 35. This kind of advertising is cheaper than TV or radio broadcasting, reaches our main target and it can be combined with a Google adwords campaign and a website design aiming at Search Engine Optimization. So, our key objective is our website to be always present in the first page of the Google results, when potential customers search for perfumes, beauty products and brands of the cosmetics industry. Suppliers will be also provided with space in our website for their banners where they can advertise products or offer sales and purchasing opportunities to our clients. This function will be a paid service and it will support both a link to our supplier’s website (example L’ Oreal) and a link to the respective product in our catalog. 5
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Finally, a provision is made for our business customers. They have the opportunity to order online our home-made perfumes in bulk. This feature will be available in cases of stores like Patistas Perfumeries, which produce their own perfumes and distribute it to other cosmetic stores and pharmacies. Such kind of market offers a tremendous profit margin which exceeds 200%. Not many Cosmetic stores offer such a service to other business customers, so it is an opportunity to grasp upon.
The website The idea behind the website is simple. The online address will be in a form like www.companyname.gr. If we take Hondos Center for example, the possible address may be www.hondos-center.gr. The electronic catalog will consist of all the product codes currently in use in our ERP system (or any other system used by the company). In the homepage, customers can choose between men and women product, info or contact. Our initial idea was introducing a feedback or request system for the contact section. New products suggestions by clients can be made my just clicking the contact button and sending us a message about ordering a product that is not currently in our database or suggesting new products for our e-catalog.
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When choosing a product category, the customer can choose any product they want. The products will be categorized according to our 5 major categories (perfumes, skincare, haircare, face&make-up and beauty) and then according to manufacturer. The customers can choose whatever products they like and add them in the cart. When done, they can proceed to the check-out point, where they register creating their account or login and pay via VISA, MasterCard or Maestro. The process is the typical followed by most estores, whatever industry they operate in. In the case of a company website that also offers business to business services (such as in-house made perfume sold in bulk to business clients), the home page will have an extra button under the name “company client login”. The client company (other cosmetic stores or pharmacies will login with their info and order the quantities of products they are available to them. By scrolling down each page, links for Social Media (Facebook, Google+, Twitter and LinkedIn) will appear.) Finally, banners and advertisements will appear at the edges of the site. The companies advertised will be our suppliers (the Greek subsidiaries of Gucci, L’ Oreal, Givenchy, Estee Lauder, D&G etc).
Services The main services of an electronic store will be supported by the website. A huge variety of products will be displayed for each product category. In order to ensure a highly updated and functioning e-catalog, the site designer will integrate our inventory product codes with the site catalog. This way, the eclient will have full access to our whole range of brands and product codes. If the client desires a product that is not in our catalog but exists in the database of the Manufacturer (example: a perfume code from Gucci) they can contact us with their request. All available products are deliverable within 48 hours (2 working days). If a product is out of stock, the client will be notified before selecting it. Delivery time for unavailable products will be 48-72 hours (2 to 3 working days). Payments will be made by Visa, MasterCard or Maestro. In addition to what is mentioned, sales and product promotions will be uploaded in the site for both 7
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electronic and physical stores. Furthermore, Facebook, LinkedIn, Google+ and Twitter links will lead to the Social media pages of our Company for Like and Share.
Competitive edge Our main competitive advantage derives from the very nature of our idea. Creating an OFFICIAL e-store for a company with physical retail stores in the cosmetics industry, is something that only Sephora does, but we should not neglect the fact that Sephora is a multi-national Chain of stores. So, our only highly recognized online competitor is Sephora. Tying up our company’s name with the electronic store is meant to add value to the online processes. By doing so, our prospect customers can either refer to the physical or the electronic sales channel and conceive our services transparent and guaranteed. Integration of both our channels by having a common catalog, thus ensuring the same product variety for both kind of stores is another privilege we offer to our customer in contrast to our competitors. Social media deployment for our marketing campaign is another key boost for our performance. Using guerilla marketing, online campaigns, promoting our services and offers leading our prospect customers straight to our official website will increase our Company name recognition and the awareness of the market, leading to higher conversion rates for both our sales channels by increasing the traffic in them.
Current situation and market needs In the table below, the yearly trends of the cosmetics industry are shown: year
Skin
Hair
Face
Perfume
total
2007
462.610
330.190
111.345
100.855
1.005.000
2008
500.900
322.580
103.649
103.871
1.031.000
2009
515.000
329.000
107.000
99.000
1.050.000
2010
460.000
304.000
97.000
85.000
946.000
2011
415.000
278.000
80.000
67.000
840.000
2012
352.000
248.000
72.000
56.000
728.000
So, we can deduce that the ongoing financial crisis has affected this industry. However, the internet penetration in the Greek household still grows and its usage for shopping purposes follows. 96.2% of total households had a 8
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broadband connection in 2012 while 53.6% of total households had at least one Internet user during the same period. Also, taking into account the fact that the total population of Greece is 11 million people, 2.1 million are older than 65 years old and 1.6 million are younger than 15, we deduct that there are 7.3 million Greeks between the ages 15 and 65, a population group that uses the internet at a large scale and offers market opportunities in a growing electronic market. In addition to the above, the shift to electronic market is quite prevalent over the last years and for 2012 26.9% of total internet users have conducted electronic purchases: This implies a 14% increase of the respective rate for 2011, when 23.6% of total internet users shopped at least once via the internet (statistics by the Hellenic Statistics Authority). Therefore, our assumption is that the current trends favor the existence and operation of e-stores. Especially in the sector of cosmetics, the perspective is positive, since most well-known branches of stores (examples: Hondos Center, Gallery de Beaute, Beauty shop etc) do not offer any opportunity for online sales. The only exception is Sephora, a multi-national branch of stores, with electronic presence in every country. Another important fact is that cosmetic stores are supplied directly by the Greek subsidiaries of the cosmetics producers. So, they are obliged to build their stock supplied only by the Greek market. However, if they chose a parallel (grey) market (Italian for example), they would be provided by the same products for lower acquisition prices, however they do not choose so, due to legal restraints. What they usually do is operate a “ghost� website, with an address that does not give 9
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away the true owner and exploit the e-store (examples aroma.gr, perfumes.gr etc), thus claiming a higher profit margin, while evading any legal penalties incurred by the agreements with local suppliers. The lack of e-stores for well-known established companies with a set of physical stores was what triggered us towards this idea. We decided on creating a business plan for a well-known company, under the same name, in order to create a value adding link between the physical and the electronic store. So, our idea was the simultaneous operation of two marketing and sales channels; physical stores and e-store.
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Athens University of economics & Business
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2. Management team‌ The management of the business will be performed by four people with different backgrounds, skills and ambitions that share the same dream about [our company]. To watch it grow as the No.1 brand in the market. We present here some more information about the people forming the management team.
Managing Director: Anastasia Anthopoulou Anastasia holds a bachelor in Accounting from TEI Piraeus and a MBA from Athens University of Economics and Business. Anastasia has extensive working experience, as she has worked as an accountant and as a personal assistant of the CFO in a large Greek chemical corporation. Her experience as well as her knowledge and interest in the cosmetics industry make Anastasia an ideal managing director.
Operations Manager: Nikos Stavrakakis Nikos holds a bachelor in Mechanical Engineering from Aristoteleion University of Thessaloniki and a MBA from Athens University of Economics and Business. Nikos has worked for three years as a mechanical engineer in the telecommunications industry. We believe that his product development and project management skills will contribute to his success as an Operation Manager.
Marketing and Sales Manager: Vasileios Ntokoros Vasillis holds a bachelor in Business administration and a MBA from Athens University of Economics and Business. He has worked as a marketing assistant for two years in a Greek company. Vasillis’s personal interests on the on-line sales industry, social media and his experience in the marketing sector make him ideal for the position of marketing and sales manager.
Financial Manager: Ioannis Tsakanikas Ioannis holds a bachelor in Mathematics from University of Ioannina, an MSc and a PhD in Mathematics from University of Athens and a MBA in Finance from Athens University of Economics and Business. He has worked for five years as a teacher of mathematics and for one year as a business consultant in the banking and capital markets sector, focusing in particular in financial risk management techniques. We believe that his strong quantitative skills and his experience in working with clients in the financial sector will help Ioannis be an effective financial manager. The management team is characterized by the diversity in the background and personalities of its members. Furthermore, the members of the team have cooperated effectively in the past and we think that combined with their enthusiasm and hard work will contribute to the success of the company.
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3. Cosmetics Industry Overview… Any product that is meant for personal care or enchase of one’s person appearance is considered as cosmetic. The cosmetic industry comprises stores that primarily retail cosmetics, perfumes, toiletries and personal grooming products. These cosmetics items include mainly skin lotions, make-up, hair preparations and perfumes. These segments are complementary and through their diversity they are able to satisfy all consumers’ needs and expectations with regard to cosmetics. In the last 20 years Global Beauty Market has grown by 4.5% a year on average (CAGR), with annual growth rates ranging from around 3% to 5.5%. This market has proven both its ability to achieve stable and continuous growth despite the economic crisis the last five years. According to Kline and Company, a business management consulting firm, currently values the global personal care and cosmetics industry to be worth around $300 billion. The last few years have shown that the cosmetics industry is not only fruitful, but also resistant to the recession. The industry has continued to rise despite economic downturn post2008, and still continues to do so. Globally, the cosmetic industry continues to develop, and the Internet also allows this industry to further extend its reach. The variety of products in the cosmetic industry is unlimited that’s why many cosmetic companies try to sell their products online, which can make the process of choosing and purchasing products convenient and easy. Households and spa boutiques are the main customers of cosmetics products. Usually enterprises that provide cosmetics are targeting women at the age of fifteen till seventy. Beauty products can be also subdivided into premium and mass production segments, according to the brand prestige, price and distribution channels used. Cosmetic marketing companies use popular television shows, movies, internet and other forms of entertainment in order to promote their products to potential customers. Within the cosmetic industry there are many types of products to choose from, and these products make various benefit claims. Therefore, consumers can easily become confused when trying to select cosmetics, and might even refrain from purchasing products due to the complexities. Because of this, marketing companies often focus their strategies on making the choice fast and simple for the consumers in order to sell their products. One of our prime goals is to make it easier for consumers to choose their products according to their needs through internet. Our site will be user-friendly and through a platform we will have direct contact with our customers either in case they want to know more details about the product or they confront problems with the use of the product. The description of the products will be
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with many details and customers will be able to vote for the product. This way we will have the chance to measure if the product attracts customers or not. According to the National Bureau of China we can see the sales in the Global Cosmetic Market in 2012 per country:
It is very important to state that Cosmetics is the most lucrative industry now in China according to a report by the Beijing-based China Entrepreneur magazine.
Domestic Cosmetics Market This section analyzes the domestic cosmetics market. The market size is the value of the sale of cosmetics at wholesale prices. In order to calculate this market we will need to assess the value of sales both produced in Greece and the imported products value as well. The methodology for estimating the sales value of imported cosmetics at wholesale prices comes out from the following equation: Sales of Imported Products = Import Value + Importers’ Profit Margin The value of imports is based on the data of foreign trade from ELSTAT. As commercial importers' profit margin we have used the mean profit margin calculated by all companies whose main activity is the import of cosmetic. The balance sheet analysis of the period 2009-2011 shows that the average gross profit margins of those companies ranged between 55% -57%. Based on this
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relationship we have deduced the value of imported cosmetics in order to calculate the overall market.
Figures in â‚Źk
Year
Production
Imports
Exports
Market Size
Change (%)
2008
250.500
993.345
212.845
1.031.000
2,6
2009
240.000
990.000
180.000
1.050.000
1,8
2010
220.000
885.000
159.000
946.000
-9,9
2011
212.000
755.000
127.000
840.000
-11,2
2012
195.000
651.000
118.000
728.000
-13,3
Note that in order to estimate the value of exports we have considered the foreign trade data from ELSTAT. The following table shows the mean monthly family expenses for cosmetics per area. Our primary concern is the urban areas, where the people spend almost 3% of their total expenses in cosmetics.
Mean Monthly Family Expense for cosmetics per area All Urban Characteristics of areas Areas Areas Total Consumption 2065,11 2177,05 Perfumes, cosmetics, shampoo, body wash 42,13 45,49
Agricultural Areas 1052,96 25,25
Source: icap study
Overall Cosmetic Market The domestic market for cosmetics (at wholesale prices) followed upward trend between 2000 and 2009 with annual growth rate of 4.9%. However, from 2010 the total sales have been declining consistently due to the deep recession of the country that has negative effect to the market. In 2011 we had a decrease in total sales to 840 million (a decrease of 11.2 % compared to the previous year). The overall cosmetic market in our country is estimated to have declined by 20 % over the last 2 years. Sales of imported cosmetics had an upward trend in 2000-2008 with an annual rate of increase of 7.1%. On the other hand, from 2009 to 2011 the sales have reduced at an annual rate of 8.7%. 14
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Figures in â‚Źk.
Year
Skincare
Hair Care
Make Up
Perfumes
Total
1999
249.500
208.400
61.600
88.000
607.500
2000
296.400
217.100
85.100
82.000
680.600
2001
329.500
232.000
87.000
85.000
733.500
2002
370.500
250.000
90.000
91.000
801.500
2003
395.700
261.900
93.108
94.800
845.508
2004
419.400
260.500
95.900
95.100
870.900
2005
420.500
313.240
102.200
98.250
934.190
2006
437.930
332.950
117.710
104.010
992.600
2007
462.610
330.190
111.345
100.855
1.005.000
2008
500.900
322.580
103.649
103.871
1.031.000
2009
515.000
329.000
107.000
99.000
1.050.000
2010
460.000
304.000
97.000
85.000
946.000
2011
415.000
278.000
80.000
67.000
840.000
2012
352.000
248.000
72.000
56.000
728.000
It is very important to mention that although the sales have decreased in numbers, the lucrative of the sector has increased. This is a result of a continuously limited demand in branded products, that have a small profit margin and an increased demand in mass production cosmetics that have a high profit margin. We have analyzed this phenomenon in SWOT analysis where we provide more information.
Cosmetic Market by Product Category Skin care products have the highest average annual rates of change in the period 2000-2011 (3.1%) and hair care products follow (2.3%). The corresponding average rate of change of category of makeup products and perfumes stood at -0.6 % and -1.8 %.
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It is important to note that in the structure of the market value of cosmetics, the skin care products have historically stood as the main category. According to the Icap study in 2011 it is estimated that the skin care have covered 49% of the total sales value, followed by hair care products with percentage 33%.
Perfumes, 8% Make Up, 9.50%
Skin Care, 49.40% Hair Care, 33.1%
Perfumes
Make Up
Hair Care
Skin Care
Ref. Icap study
SWOT Analysis For our on-line store concept operating in the Greek market, the SWOT analysis is as follows: Strengths Brand Loyalty There are not many substitute products Established presence and reputation of domestic production of natural cosmetics firms abroad Extensive distribution network throughout the country Weaknesses Lack of a clear legislative framework for herbal cosmetics The operation of too many businesses compared with the size of the Greek market which creates conditions of oversupply Cosmetics are not considered as a necessity by customers Opportunities Further development of organic cosmetics The growth of internet as an alternative channel of distribution Potential growth in men and children market Investigation of export opportunities 16
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Threats The shrink of consumers’ income and as a result the decrease in their purchasing power The increase of cost production The reduction of banks financing and the lack of liquidity that prevents corporations from investments A detailed analysis follows: Strengths Analysis In cosmetics industry brand loyalty is one of the most important strengths because consumers want to feel secure that the brand they use cover their needs in a price that are willing to pay. In our site we will supply consumers with branded products of both mass and branded production. In addition, the extensive existing distribution network will be a strong asset in our operations, since we will use the existing infrastructure in order to deliver our products on time. Weakness Analysis The domestic cosmetics industry consists of a significant number of companies. The majority of the companies deal with more than one product category. Many of these companies have operations in other sectors as well, such as pharmaceutical products, chemical products etc. The sector has intense competition due to the oversupply of the products. Although consumers can easily access a store with beauty products, the modern way of life has left no time to shop during the week. That’s why we strongly believe that an e-commerce market will succeed in the Greek market and will add-value in a company that has physical stores. According to our survey, people are more and more willing to buy products through internet since they care more about the time they will save shopping from their home than the delivery time of the product. Also, the prices of the products may be more competitive than to the prices of a physical store since the customers can use coupons or discounts if they prefer to buy on-line. In general, people consider that cosmetics industry is not considered as a necessity but women are not willing to reduce buying beauty products. They just prefer to buy mass productive products (L’Oreal, Max Factor, etc) that are cheaper than the branded ones (Dior, YSL etc) Opportunities analysis The Internet is increasingly becoming a popular distribution outlet driven by convenience, as online shopping through websites allows consumers to quickly 17
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obtain information of products’ use and offers direct and discreet shipping to the consumer’s home. Online sales of cosmetics are growing at a rapid pace, but not equally for all categories. For example, perfumes, nail polish, body lotions, and hair care products are preferred by customers and have a high rate of online purchase. However, products such as eyeliners, shadows, lip gloss and powder, tend to be purchased more often at physical stores because consumers want to try it on themselves. That’s why we will create a platform (as mentioned before) where consumers will be able to communicate with an expert in order to provide all the details they want. Threat Analysis The economic crisis has affected the cosmetics market. Consumers want to buy cheaper products with a good quality that’s why they have replaced branded products with mass products. The paradox is that although the sales have decreased in numbers, the profitability has increased. This is reasonable since the profit margin in branded products is much lower than the profit margin in mass products. Indicative we mention that the profit margin in branded products is 30% whereas the profit margin in mass products is 70%.
Market Trends Figures are showing that the cosmetic industry is not only expanding in terms of revenue, but also in terms of market and audience. Young women, older generations, even men are turning to cosmetic products. Combining these positive trends with the direct marketing and sales strategy has resulted in a positive track record and even more established brands turning to the company for help. These figures show that the market will maintain its velocity throughout this year, but in fact suggests a continual increase for the next few years. The market trends seem to be: o Leading brands focusing more and more on improving customer experience o Social media is becoming an important marketing tool for cosmetics companies o Green cosmetics products are becoming more popular compared to the past o Cosmetics brands are keen to explore e-commerce opportunities Today, there are numerous markets within the personal care industry, and the specialty market is showing moderate to high growth on average. More specifically, the personal care ingredients market is valued between $14 billion and $18 billion. The bulk of sales in all markets, however, come from Europe and United States.
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Nowadays, beauty products are available through dedicated internet-only retailers, who have more recently been joined online by established outlets, including the major department stores and mortar beauty retailers.
Product Trends The last decade, consumers seem to be more interested to more complex products. The most compromising categories are: o Cosmetics with organic ingredients o Cosmetics with high-tech ingredients o Skin Products for Men o Anti-aging products It is of primary interest to the consumers to buy natural products. Usually these products contain herbal or natural ingredients. Consumers perceive natural products as more effective in skin and anti-aging problems and are willing to pay more to acquire them. Also, skin care products for men are gradually taking place. Men are starting to notice the benefits of cosmetics, and to become daily users of beauty and skin products. According to a report by Alibaba Research Centre, the men's skincare sector grew by 27% in 2009 and 40% in 2010, five times faster than the women’s skincare market. Nowadays, consumers expect new elements to be continuously introduced into skincare products for better and more believable efficacy. Hightechnology and power ingredients bring inspirational and credible promises to the products. For example, ingredients like Lacto-nutrient complex, Collagen, Vitamin E, Alpha hydroxyl, Gold, minerals, caviar, etc are used in order to satisfy customers’ needs.
Potential Products
Eye Shadow Eyeliner Mascara Face Powder Rouge Make-Up Concealer Lipstic Lip Gloss Nail Polish Body Lotion Body Oil Perfume Bath foam Shampoo 19
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4. Marketing Strategy‌ Overview The purpose of our marketing strategy is to maintain the existing customer base and enhance it by acquiring customers via the electronic store’s operation. The nature of our idea is substantially different than the grey lines approach of many competitor stores in our industry which choose the parallel market to import products but sell them through an electronic store that does not give away their identity. Our strategy incorporates elements of Supply chain integration (by (a) exposing the name of our company in the website, (b) choosing the local companies which already supply our physical stores as our main suppliers, (c) providing these companies with advertising space in our website and (d) deploying an IS oriented in the fastest product delivery), B2B marketing and the simultaneous operation of an official e-store for our company. The main target set, is increasing the traffic and revenue for both our sales channels. The total advertising and marketing budget will not exceed 60.000 euros for the first year, allocated in Social Media advertising, Google adwords, TV and radio broadcasts targeting our main potentials customers as defined by our market research. The sales target for the first year is set at about 435.000 euros, which is between 1/5 and 1/3 of the total revenue of most cosmetic store companies in Athens.
Marketing mix Product All products will be available by our website. The website will have the name of our company, in order to ensure higher recognition levels and built our customer base for both our channels; electronic and traditional (physical stores). The five main categories of products that will be available through our website are the following: o Perfumes o Skin care products o Hair care products o Other beauty products o Make up and face care products Some of these categories, according to interviews with owners of other cosmetic stores are not very popular online, mostly due to inability to try products via internet. However, as we analyze below, our site offers many products as part of a basket (bundling).
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Price The prices of our products in the e-store will be lower than the physical store prices, however, they are going to be higher than the prices found in other estores, which do not belong to well-known companies and stores. This way, we will use the uniqueness of our model (same physical and online stores’ name) to lure customers and build awareness. So, we intend to be more appealing to customers than Sephora (by setting lower prices) and other sites like aroma.gr, e-perfumes .gr (by promoting our company name as a guarantee for quality and processes). The prices will be set to such levels, so that the perfumes category will offer a profit margin of 20-25% and the other categories will offer a profit margin of almost 100%, which are lower than the margins offered in physical stores. This way, we offer the opportunity to customers for more purchases, especially for the low-cost but high-margin categories (eyeliners, lip-glosses etc) which can be purchased in higher frequencies. Place The buying process will be made exclusively in our website. No external links or subscription to other websites will be required. Even the paying process will be in-house. The delivery time is set at 2 days when the product is in stock, and at 3 days when it is now, thus we are demanded to order it from our local suppliers. The distribution will be done door to door by our company’s van. Promotion For the promotion of our website, we will use Social Media advertising and Google adwords. Through Social Media, we can reach the targeting market (mostly females in the age group of 15-35) and try to build upon our existing clientele-base. Higher conversion rates for the physical stores can also be observed, since customers may use the website as a guide for their physical store purchases. Bundling and special offers are introduced for products that are traditionally rigid in the internet environment, such as lip glosses, lip sticks and mascaras. Perfumes will be the flagships of our campaigns, since they are the most frequently purchased category in online cosmetics stores. Social media advertising will also target to some physical store opportunities, because we do not intend to cannibalize our traditional channel sales by focusing on the internet channel exclusively. Coupons for the physical stores can also be granted to those who make expensive online purchases, hence ensuring both online and physical enrollment by the clients. Other means of advertising such as TV spots, YouTube advertising and banners in other sites will be implemented according to budget restrictions. 21
Athens University of economics & Business
iMBA
Finally, in our promotional and advertising moves, we will underline the enhanced CONTACT feature of our site, where customers, if they cannot find the products they desire, they can place their order by sending us a message completing a form and we can get it for them.
B2B Business clients, other cosmetics stores and pharmacies will have the opportunity to be supplied directly from us with in-house made perfume sold in bulk. This is a tremendous business opportunity, because bulk perfume offers a profit margin that exceeds 100%. The website will offer a business login function, enabling the business customers to login with their passwords, order the perfumes they prefer in bulk and proceed with internet payments or make other arrangements. Furthermore, the website will also offer the chance for our suppliers to advertise their new products or promote their sales in existing ones (they publish offers and sale discounts every 2 months). This will be done by being provided with a certain space in our site, where they can post their banners with all their updates.
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Athens University of economics & Business
iMBA
5. Business system and Organization structure‌ The business system is a framework that allows our company to formulate the set of actions most likely to achieve sustainable advantage over competitors. The business system charts all the steps involved in creating and delivering our company’s products. At each level in the value chain, from ordering to sales, we present how we plan to conduct business and gain a competitive advantage.
Inbound Logistics/Suppliers We plan to maintain the same suppliers with the physical store, while try to bargain and have better prices as a result of higher expected volume of orders. Value is creating by leveraging the warehouse facilities and personnel that works there, with low additional cost to the business. Moreover using data analytics from the web-site combined with the experience from physical store, we are going to manage more effective the stock and perform better product demand planning.
Operations and services This is the main part of our project. We plan to design and maintain a modern web-platform, which will fulfill customers' expectations. In order to ensure success the design of the web-site will be assigned to experts. Therefore we expect a modern, user-friendly e-commerce platform that will boost sales. In addition to that, reliability, high speed and safety are our main concerns. Thus the web-site is going to be hosted in a reliable, fast server, while we will use the highest industry standards in encryption for personal data and payments methods. Regarding every-day operation, two experienced developers will be hired in order to update data, make changing and ensure proper 24h e-business operation. They will be also responsible for creating and updating the ecatalog with pictures and sufficient product description. In addition to that, an experienced Digital Marketing professional will design and implement all online and offline marketing strategies. Last but not least an administrative officer will be accountable for accounting, operating issues and after sale service. We mainly create value to the business by offering an integrating platform, where the customer can choose from a huge catalog of products, fill the basket, pay online and get the products delivered in her house.
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Athens University of economics & Business
iMBA
Outbound Logistics/Delivery Initially, we plan to service our customers in Athens Greater Area (Attica region). Deliveries will be made through a small van to customer's choice vault in about 3-4 working days after the order placement. The small delivery van will be low-cost, flexible and will be able to cover the demand at least for the beginning of the e-commerce venture. This fast, low cost framework will lead to very low shipping fees or even zero fees if we achieve sufficient economies of scale. Therefore we will gain an edge compared to competitors who either charge higher fees or simply offer no delivery at home.
Customer service As a modern e-commerce venture we want all problems or requests of our customers to be solved immediately. The main communication channel will be through e-mail and alternatively through telephone. Therefore at working hours there will be a person to answer possible customers concerns and ensure that they are satisfied. Want customers feel safe and come again in the future.
Organization We choose the functional organizational structure as we believe it is the best for small companies that focus on a single product or service. The resulting departments are Operations, Marketing and Sales and Finance. The team is relatively small and we expect close cooperation and high efficiency.
Organizational Structure/Chart
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Athens University of economics & Business
iMBA
6. Financing… In the next pages we present the projected financial status of the company for the next three years. We should point out that we don’t plan to use loan financing. On the other hand we will use personal savings of €30k in order to start our business.
Initial costs. In the next table we present the expected initial costs that are required to start our business. Initial Costs Legal and Accounting expenses Website Marketing Office Total
Become a legal entity Creating the website Conduct market research Expenses for the office
1.000 € 10.000 € 800 € 12.000 € 23.800 €
Thus, we see that we have estimated that we will only use €23,8k and we will also have €6,2k cash available from the €30k ejected.
Fixed costs per month The expected fixed costs per month are c. €13,24k. We have estimated that we will have 4 employees and we will conduct an aggressive advertising campaign that is expected to cost c. €5k per month. Operational Costs - Monthly Miscellaneous Buildings Total
Office
200 € 2.000 € 2.200 €
Advertising Costs - Monthly Advertising Total
5.000 € 5.000 €
Salaries 2 Developers 1 Digital Marketing Manager 1 office employee Insurance contribution Total
2.400 € 1.500 € 800 € 1.340 6.040 €
Total fixed costs per month
13.240 €
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Athens University of economics & Business
iMBA
Financial Statements Income statement The next table shows the Projected Income Satement for the first three years of the operation. Projected Income Statement Year 1
Year 2
Year 3
436,80
480,48
528,53
Cost of Goods sold
218,40
240,24
264,26
Bank's commission
13,10
14,41
15,86
Salaries expense
84,56
93,02
102,32
Advertising Expense
60,00
66,00
72,60
26,40
29,04
31,94
Depreciation Expense
2,40
2,40
2,40
Total Expenses
404,86
445,11
489,38
Operating Income
31,94
35,37
39,94
Income tax expense
8,30
9,20
10,18
Net Income
23,63
26,17
28,97
Operating Revenues Sales Operating Expenses
General expenses
and
administrative
Figures are in €k
We have come to these figures with the following assumptions. Firstly, the entire market in Greece for 2012 was €728m. We have estimated that in Attica where we operate are made the 40% of these sales. Then we expect that our target ages perform 50% of those sales and finally we expect to obtain 3/1000 of the market. Thus, we arrive at a figure 728000*0,4*0,5*0,003 = €436,8k. For the next two years, we expect a growth of 10%. Secondly, on the groundings of the market research that we have performed, we have estimated that our mean COGS/Sales ratio will be 0,5.
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Athens University of economics & Business
iMBA
Statement of Cash Flows Projected Statement of Cash Flows Year 0
Cash at the beginning of the period 30
Year 1
Year 2
Year 3
6,2
46,12
89,96
Cash Inflows Net Income
0
23,63
26,17
28,97
Depreciation and Amortization
0
2,4
2,4
2,4
Other expenses
23,80
0
0
0
Net cash flows
-23,80
26,03
28,57
31,37
Cash end of period
6,20
32,23
60,80
92,17
Cash Outflows
Figures are in â‚Źk
27
Athens University of economics & Business
iMBA
Balance Sheet Projected Balance Sheet Year 1
Year 2
Year 3
Cash
32,33
60,8
92,17
Other Current Assets
0
0
0
Total Current Assets
32,33
60,8
92,17
Property, Plant & Equipemnt
9,6
7,2
4,8
Other long term assets
0
0
0
Total long term assets
9,6
7,2
4,8
Total assets
41,93
68
96,97
Current liabilities
0
0
0
Long term liabilities
0
0
0
Total Liabilities
0
0
0
Retained Earnings
11,93
38
66,97
Contributed Capital
30
30
30
Total Stockholder's Equity
41,93
68
96,97
Total Liabilities & Stockholder's Equity
41,93
68
96,97
Assets Current Assets
Long term assets
Liabilities
Stockholder's Equity
Figures are in â‚Źk
28
Athens University of economics & Business
iMBA
7. Appendix‌ The market survey – The questionnaire In order to determine the major tendencies, buying habits and attitude of consumers towards cosmetics stores, we created the following questionnaire (it is in Greek, since it was created as part of a market research in the metropolitan area of Athens): 1. Stores of usual purchases (as shown). 2. Kind of products purchased. o Perfumes o Hair care products o Beauty, Lipgloss, Mascara etc o Face care, make up o Creams, skin care 3. Frequency of visits. o Once per week and more o Once per 15 days o Once per month o Once per 3 months o Once per 6 months 4. Average amount of money spent at EACH visit. o 0-10 o 11-20 o 21-30 o 31-40 o 41-50 o 50+ 5. Conversion rate (how many visits turned into buying products). o 1 out of 5 o 2 out of 5 o 3 out of 5 o 4 out of 5 o 5 out of 5 6. Annual expenditure in cosmetics stores (as shown).
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Athens University of economics & Business
iMBA
7. Ever made electronic buys? o Yes o No 8. Ever bought cosmetics online? o Yes o No 9. If yes, which stores in 2013? (as shown) 10. Amount of money spent in the stores of question (9) annually. o 0-50 o 51-100 o 101-150 o 151-200 o 201+ 11. If no, why is it? o Afraid of online purchases/ don’t know how to execute one o No trust in quality and safety issues o I want a product trial o I already have a store I visit o Product return is hard o Other 12. Mention the 2 main motives to switch from traditional to online stores. o Better prices o Fast transactions o Fast delivery o Product range o Price comparisons o Free samples and gifts o Authenticity and quality guarantee o Coupons and online sales o Other
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Athens University of economics & Business
iMBA
13. Determine the importance of the following factor in your decision to prefer an electronic store to a traditional one. (scale values: not important, somehow important, important, very important). o Better prices than physical stores o Speed of buying and paying o Speed of home delivery o Broad range of the offering products o Price comparisons with other electronic stores o Gifts with the product, and free samples with the purchases o Guarantee for authenticity and quality of the products sold o Existence of discount coupons and online sales o Paying options: Visa, MasterCard, MaestroCard o Product change options and returns 14. Kind of products that you are willing to buy online. o Perumes o Hair Care o Beauty, Lipgloss, Mascara etc o Face care, Make-up o Creams, Skin care o Underwear, accessories, others 15. Satisfactory time of delivery. o 2 days o 3 days o 4 days o 5 days o 6 days
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Demographics: Gender. o Male o Female Age. o o o o o
15-24 25-34 35-44 45-54 55+
Education. o Junior High o Senior high o University/College o Master’s degree o Phd Marital status. o Single o Married, no kids o Married, kids o Divorced Average annual family income. o Less than 15.000 euros o 15.001-20.000 euros o 20.001-25.000 euros o 25.001-30.000 euros o More than 30.000 euros
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Athens University of economics & Business
iMBA
The market survey – The SPSS analysis Annual expenditure In the graph and table below, we show the annual expenditure of the interviewees. 66.2% of them spend up to 200 euros annually for cosmetic products. We can also note that a significant percentile (a bit above 26%) spends even more, between 201 and 400 euros in such stores. annual_expenditure Frequ Valid Cumulat ency Percent ive Percent 0-100
103
36.7
36.7
101-200
83
29.5
66.2
201-300
45
16.0
82.2
301-400
29
10.3
92.5
401-500
11
3.9
96.4
501+
10
3.6
100.0
Total
281
100.0
Age and Gender In general, males and people aged in the categories 45+ refused to fulfill the questionnaire. The excuse for men (of almost all ages) was that they never get in such stores and they would not intent to buy cosmetics via the internet. The most frequent excuse for the 45+ age groups, was that they do not use a PC and they would not convert from their traditional buying channels. age
0 15-24 25-34 35-44 45-54 55+ Total
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Frequen Valid Cumulati cy Percent ve Percent 2 .7 .7 135 48.0 48.8 129 45.9 94.7 12 4.3 98.9 1 .4 99.3 2 .7 100.0 281 100.0
Athens University of economics & Business
iMBA
Gender and expenditure In the gender and expenditure bootstrap table below, it is shown that the main target group that agreed upon completing our questionnaire are women. Men have a much lower statistic means than women. Also, the 2-tailed sig of this statistic analysis was close to 0 indicating a statistical difference in these 2 means. So, statistically, women buy significantly more (annually) than men. Group Statistics gender
male annual_expend iture
female
Statistic
Bootstrapa Bias Std. 95% Error Confidence Interval Lower Upper
N
71
Mean
1.62
-.01 .09
1.43
1.79
Std. Deviation Std. Error Mean N
.744 .088 210
-.011 .067 .587
.863
Mean
2.48
.00
2.66
.09
2.30
Std. Deviation 1.428 -.002 .065 1.302 1.550 Std. Error Mean .099 a. Unless otherwise noted, bootstrap results are based on 281 bootstrap samples
Conversion of visits 68% of the respondents stated that have a high conversion rate when they visit physical stores. So, out of the 5 times they enter a physical stores, they will convert into buying a product more than 3 times. conversion_rate
Valid
Frequency
Percent
Valid Percent
1 out of 5
39
13.9
2 out of 5
51
18.1
3 out of 5
66
23.5
4 out of 5
63
22.4
5 out of 5
62
22.1
Total
281
100.0
13.9 18.1 23.5 22.4 22.1 100.0
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Cumulative Percent 13.9 32.0 55.5 77.9 100.0
Athens University of economics & Business
iMBA
Stores they visit Respondents of the questionnaire answered that they visit the following stores: Hondos: 80% of the respondents Gallery De Beaute: 18% Sephora: 23% Mac: 10% Local stores: 15% Fresh Line: 2.5% Korres: 12% Beauty Shop: 6% Other: (mostly Duty Free): 7% Statistics
N
Valid
Hondos Gallery_ Sephor Mac D_B a
Local_stor Fresh_lin Korres Beauty other es e _shop
225
Missing 56
Sum
225
51
64
29
41
7
33
16
20
230
217
252
240
274
248
265
261
51
64
29
41
7
33
16
20
Product Categories they buy Respondents of the questionnaire buy the following products, when visiting a cosmetics store: Perfumes: 64% Hair products: 35% Beauty products (lip-gloss, lipstick, eyeliner etc): 45% Make-up and face care: 31% Skin products and creams: 37% Accessories: 32 %
Statistics
Valid
perfume Hair care s
Beauty, lip gloss etc
Face care Skin care, creams
180
98
125
87
105
accessories_ underwear_ etc 91
183
156
194
176
190
N Missing 101
a. Percentiles are calculated from grouped data.
Motives to buy online The most frequently mentioned motives for our respondents to buy cosmetics online are as follow: Price: 79% of the respondents mentioned price Authenticity& guarantee: 26% mentioned guarantee of authentic products Sales and coupons: 22% mentioned the existence of coupons and sales Fast transactions: 12.5% mentioned fast paying and ordering procedures Delivery: 12.5% mentioned fast delivery Price comparison among stores: 10% mentioned price comparison via internet and other e-stores
35
Athens University of economics & Business
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Product range: 8.5% mentioned the product range and variety Free samples and gifts: 4% mentioned the possibility of free gifts and samples, similar to the ones given in physical stores.
Statistics motive motive_ motive_ motive_ motive_ motive_ motive_ motive_ motive _price fast_tra fast_del produc estore_ gifts_sa authent sales_c _other nsactio ivery t_range price_c mples_ icity_pri oupons n omparis etc ce_gua _etc on rantee Valid N
221
Missing 60
35
35
24
27
12
74
61
3
246
246
257
254
269
207
220
278
Importance of factors to buy online The most important factors, for a buyer to choose online stores for their online purchases in order of importance are: (a) price, (b) guarantee of authenticity and quality, (c) option to return products, (d) product range, (e) online coupons and sales, (f) fast delivery (g) comparison of prices among stores, (g) fast transactions, (h) ability to pay with Visa, Master or Maestro and finally (i) free gifts and samples. The importance ranking of these factors is determined by the means of each factor grade by the interviewees. Statistics better fast_tr fast_ produ estore gifts_fr guara coup _price ansac deliv ct_ran _price ee_sa ntee_ ons_o _than tions ery ge _com mples qualit nline_ _physi pariso y_aut sales cals n hentic ity Valid 281 281 281 281 281 281 281 281 N Missin 0 0 0 0 0 0 0 0 g Mean 3.68 2.95 3.01 3.22 2.96 2.14 3.49 3.06 Median 4.00 3.00 3.00 3.00 3.00 2.00 4.00 3.00 Mode 4 3 3 4 3 2 4 3 1 = not important 2 = somehow important 3 = important 4 = very important
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VISA_ produ MAST ct_ret ER_M urns AESTR O 281
281
0
0
2.66 3.00 4
3.29 3.00 4
Athens University of economics & Business
iMBA
Income and annual expenditure There is no statistically significant difference in the average annual expenditure for cosmetics according to different income levels. The means of the answers are a bit higher for most categories indicating annual levels of expenditure in the ranges of 101200 and 201-300 with the tendency reaching the higher expenditure range (201-300). However, these changes are not always statistically significant. This means that people buy cosmetics no matter their annual income with a slight tendency for more purchases by the higher levels of income. annual_expenditure according to income levels N Mean less than 10.000 10.001-15.000 15.001-20.000 20.001-25.000 25.001-30.000 more than 30.000 Total
Std. Deviation
Std. Error
109 54 42 20 15
2.14 2.44 2.38 1.80 2.33
1.294 1.410 1.248 1.105 .976
.124 .192 .193 .247 .252
22
2.95
1.704
.363
262
2.29
1.337
.083
Reasons why they do not do online shopping The reasons why people seem to hesitate to buy products online are (starting from the most frequently mentioned to the least one): Product trial: 52.2% of the respondents stated that they want to try the products before buying them. No trust: 15% stated that they do not trust online stores in terms of quality, authenticity and guarantee. They already have trusted stores: 11.5% have a physical stores from which they buy. Unawareness/fear: 9.7% do not know how to make purchases online and/or are afraid to make those purchases. Hard to return: 4% stated that not having product-returning provisions is hindering their intentions of buying online. OTHER reason: 7.5% of the respondents if_no_why Frequency Percent
Valid
Missing Total
22
7.8
Valid Percent Cumulative Percent 9.7 9.7
34
12.1
15.0
24.8
118
42.0
52.2
77.0
26
9.3
11.5
88.5
hard_returning_products 9
3.2
4.0
92.5
other reason Total System
6.0 80.4 19.6 100.0
7.5 100.0
100.0
afraid_unaware no_trust_quality_guarant ee product trial already have trusted store
17 226 55 281
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Athens University of economics & Business
iMBA
Willingness to buy online Perfumes, Beauty products and Skin care products are the categories that respondents were most willing to buy online. The least willing were for make-up and face products. According to the questionnaire answers, people are willing to buy these product categories online: Perfumes: 65.5% of the respondents are willing to buy them electronically Hair care products: 34.2% are willing to buy them in an electronic store Beauty products: 40.6% are eager to buy them electronically Face care and make-up: 28.5% would be willing to buy them in electronic stores Skin care products: 37% would like to buy them electronically Accessories, Underwear etc: 37.7% are willing to buy them in an electronic store
The Market Survey - The Focus Groups In order to validate the findings of our quantitative analysis (SPSS analysis of data after gathering a significant number of responses for our questionnaire), we conducted 2 focus groups. The first one was consisted of 8 people, aged 22 to 27. All of them were freshly out of university and recently entered the working environment. They came from different backgrounds and family income. The second focus group was consisted of people aged 25 to 45, all professionals with working experience, with an economic academic and professional background and of a steady through the years income. Both focus groups results we conclusive to the prior SPSS analysis. Males were not eager to go shopping, especially to buy cosmetics. This was considered a female task by most. Women spend a high proportion of their budget in cosmetics and clothing in contrast to men. Also, a very significant result is that differences in income level do not significantly affect the aggregate cosmetics purchases. The only product category in which income affects the products turnover is the beauty products category (lip-gloss, mascara, eyeliners etc) but still, the differences are marginally insignificant. Finally, the results also validate iCap survey’s results for the industry, especially in categories that are mostly bought by consumers.
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