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I’m stuck on a Business question and need an explanation.Hello Class,CASE 15- Sephora Loyalty Programs: A comparison between France and the U.S.Discussion Questions :1.Identify the benefits for a company to implement a loyalty programDevelop repeat purchase behavior
Engender customer commitment and create a bond with the retailer (sense of community)
Encourage retailer loyalty
Collect customer data on transactions, customer contacts, preferences, descriptive information, responses to marketing activities
Use the information to target communications and promotions
2.What are the design characteristics of an effective loyalty program?Identify each customer and provide rewards for their purchases
Use a tiered program. Not all customers have the same value for a company, therefore rewards should be tiered according to the volume of purchase.
Offer customer choices because not all customers value the same rewards
Reward all transactions
Combine discounts and points for reward. Not simply offering price discounts. Research has shown that customers generally prefer to get something extra for their purchases, rather than a discount
Incorporate charitable contributions
Feature transparency and simplicity. The loyalty program should be easy to understand and quickly usable
Provide customer services
Offer unique benefits and target messages to individual customers = Personalization and personal attention
3. What are the benefits of having a tiered loyalty program such as Sephora’s loyalty program?Not all clients have the same value. In general, 20% of the customers account for 80% of the sales or the profits. Premium members are the most profitable and loyal customers. They are not overly concerned about merchandise prices and discounts; rather they place value on special and personalized services. They generally patronize only one retailer for a particular product category. By having a tiered program, customers in the lower tiers have incentives to purchase more to get to the higher tiers (Levy, 2014).4.Describe Sephora’s loyalty program design characteristics in both countries. What are the main differences? Which loyalty program is most effective at developing customer loyalty? Why?US loyalty programsFrench loyalty programsCommon to all programs : $1 spent = 1 pointCommon to all programs : 1€ spent = 1 pointRewards Beauty Insider Program :100 points = sample-sized product500 points = full-sized productBirthday giftInvitation to Cardholders only eventsRewards White card :150 points or 4 purchases = 10% discount for next purchaseRewards Black card : minimum of 4 purchases or 150€ spent a year150 points or 4 purchases = 10% discount for next purchaseSample-sized birthday giftPrivate sales 20% discountSpecial discounts on clients favorite brandsUpdate information on innovative productsPersonalized offers based on clients skin type or make-up stylePremium programV.I.B : minimum of $350 spent a yearRewards in addition to the regular program :Deluxe samplesExclusive month perks and giftsAccess to pre-released productsEvents invitation10% discount as welcome offerSpecial discountsRequirements : re-qualify each year with a minimum of $350.Premium programGold Card : minimum of 1500€ spent a yearRewards in addition to the regular programs :Exclusive private salesFull-sized birthday gift handpicked by the clientFree-shipping on the online storeFree access to Sephora’s Beauty Bars once a monthE-newsletterSpecial telephone linePersonalized and privileged in-store assistance1000 points : Choice among several limited edition Sephora gold giftsRequirements : re-qualify each year with a minimum of 700€The main differences are:Discount: in the French program, there is a mix of discount and rewards; whereas the American program only offers rewards. Discounts are used to tease consumers at the beginning of the relationship. This entry level relationship, which is based on a lower price point, does not garner loyalty because it is easily copied by completion (Levy, 2014). As the customer reaches higher levels, Sephora grants higher rewards and services, which creates a stronger relationship.
A different tiered program: American program is a two-tiered program and French program is a three-tiered program. Adding one level might allow having customer segments that represent different values for Sephora in order to differentiate marketing activities. The three-level program echoes the customer pyramid developed by Zeithaml et al. (2001).
Customer service: the French program offers a large number of services including personalized offers, personalized in-store assistance, free-shipping, access to the beauty bar and a special telephone access in the Gold program. These services create value for the French customers because they make them feel special. There is also the incentive to purchase more to qualify for these services (Levy, 2014).
The French program is more effective at developing customer loyalty. It combines discount and rewards. The more a customer is valued (in terms of purchase amount or purchase frequency) the more he/she will get rewards rather than discounts. Discounts are used to transform customer into good customers because it is a way to make them patronize the retailer more frequently.The American program offer rewards only; whereas the use of discounts are good way to get newer customers to patronize the retailer more frequently. The two-tier program does not fairly reward those customers that are in the middle in terms of starter and loyal customers. For instance, in the French program, those that purchase at least $150 already feel special because they are in the middle tier. In the two-tier American program, there is not enough differentiation between customers, which makes it more difficult to segment customers that seek different benefits (Levy, 2014).5. Are both Sephora’s French and American premium programs worth what they spend to reward customers?French premium programThe costs include: (1) the costs of rewards ; (2) the cost of shipping ; (3) the costs of newsletters ; (4) the costs of salesperson’s training and time ; (5) the costs of telephone line ; (6) the costs of additional gifts and private salesThe benefits include : (1) recovery of the partial cost (a minimum of 1500€ is needed to access the program) ; (2) increased spending by this segment a minimum of 700€ each year has to be spent to keep the premium card ; (3) targeted and efficient marketing to the customersAmerican premium program :The costs include: (1) additional points and deluxe samples ; (2) discount of 10% as welcome offer and special discounts ; (3) event invitationThe benefits include : (1) recovery of the partial cost (a minimum of $350 is needed to access the program) ; (2) increased spending by this segment a minimum of $350 each year has to be spent to keep the premium card (Levy, 2014).Analyzing the costs and benefits of both premium programs, we conclude that they are worth more than the costs incurred in the program.6. Why do both programs have a limited time validity and a specific requirement regarding the amount spend per year?Time validity is a used to give the feeling to customers that they have to deserve their special status and that they can lose it. Purchase amount requirements are used so that customers understand that not all customers can be in the premium program. If there was no yearly purchase amount requirement, customers would spend more money to access the premium level the first time and after accessing it, could then reduce the yearly amount spent while benefiting from the special rewards and the customer services. With no such requirements, Sephora would lose money (Levy, 2014).7.Could the premium loyalty program implemented in France be adapted to the U.S. market? Explain.Since there is no information in the text, further information needs to be sought. Data about the beauty market in both France and the U.S. are available on Datamonitor, on the websites of the French National Institute of Statistics and Economic Studies and the website of the U.S. census bureau.On average, U.S. consumers spend more for fragrance, skin care and body care than do French consumers who are on the fourth position behind the U.S., Japan and Brazil (INSEE, 2006). Nevertheless, premium body care is the largest segment of the hand & body care market in France, accounting for 45.3% of the market’s total value whereas mass body care is the largest segment of the hand & body care market in the United States, accounting for 58.3% of the market’s total value (datamonitor). Therefore, it could be assumed that the French premium program could not be implemented in the U.S. even if U.S. consumers spend more on average for beauty products, because they purchase more mass market beauty product than premium beauty products. Since Sephora sells mostly premium products (except for their private label), French consumers spend more at premium retailers such as Sephora than American consumers. This explains the difference between both premium programs in terms of purchase amount required ($350 versus 1500€). It might be assumed that not enough American consumers would be in the Gold premium segment and this would not be worth the additional trouble for Sephora.