Beautify Case Study

Mckinsey Case Sample

Client goal

Our client is Beautify. Beautify has approached McKinsey for help with exploring new ways to approach their customers.

Description of situation

Beautify is a global prestige cosmetics company, who sells its products mainly in the cosmetics area of high-end department stores (e.g., Harrod’s, Shanghai №1) but also has presence online and in specialty retailers like Sephora. Beautify produces a number of makeup, fragrance and skin care products, which are sold through several different brands.

In the department stores, the beauty consultant (BC) plays a critical role for the consumers:

• approaching ‘passive’ customers
• demonstrating their knowledge of the products
• actively selling the products
• maintaining a loyal customer base of repeat buyers

The consultants are hired directly by the beauty company or from specialized third-party agencies that find employees for a fee. Beautify is then responsible for selecting, training, and paying the consultants. Within Beautify, beauty consultants are managed independently by each brand in each country (i.e., a consultant would be part of the ‘Chanel’ team in a store). However, consumers are shifting more and more to online and too many beauty consultants are working empty department stores.

McKinsey study

Beautify’s President and Chief Operating Officer has engaged McKinsey to help evaluate if training most beauty consultants to rely much more on virtual channels to connect with customers could be profitable for Beautify.

Question 1:

Beautify is excited about helping their current staff of beauty consultants develop into virtual social media beauty Advisors. These employees would still be leading direct consumer engagement and would be expected to maintain and grow a group of clients. They would sell products through their own page on beautify.com, make appearances in major retail outlets, and be active on all social media platforms.

What possible factors should Beautify consider when shifting this group of employees to a new set of responsibilities?

Answer:

Since, Beautify is shifting to virtual medium and is intended to boost sales through their website adaptability to social media and being constantly on the hook on various social platforms plays a major role. Following are the factors that our client should consider while shifting employees to new set of responsibilities:

1. Training

• Sufficient training to adapt to the social environment will surely benefit. They must gain inputs on how to generate audience, increase reach of their page and convert potential viewers into customer by providing complete knowledge regarding the product.
• Leading direct consumer engagements virtually requires the employees to manage a attractive consumer interface using engaging graphics (probably a video demonstrating application of the product and after results). Creating crisp and SEO implemented content is important in virtual world. What they would have said personally with gestures, now should be presented online in a lucrative and attractive manner. Information regarding ingredients, Date of Expiry and precautions must be mentioned properly.

2. Increasing Customer Base:

• Beautify can implement a Chat or Call system wherein they can contact the beauty advisors 24*7. Hence, they must appoint certain group to be constantly active at answering and replying to the consumers.
• They can even keep track of items in a potential customer’s cart and provide simultaneous recommendation. Also, contact them personally when a order gets cancelled to gain information about any glitches or inefficiency to be resolved further.
• Review points can attract more attention of customers. After a purchase, person can be provided an option to give reviews and earn points to redeemed in next purchase.
• Beautify can also employee beauty advisors to write blogs on specific skin issues and give recommendation about products that helps that particular issue. Each category of product can also have a link on blog about top best sellers and their advantages. Aforementioned, can also be used to send newsletters to customers based on their previous orders or items in cart

Question 2:

One of the key points that Beautify wants to understand is their current and potential new customers reaction to the virtual social media Beauty Advisors.

Imagine you are a current Beautify customer, and you mostly shop in your local department store and enjoy the high-touch service of working with the in-store consultants. What features would make you consider switching to a mostly virtual sales experience?

Answer:

An Ideal Customer profile will include high income (as its is present in high end department stores and online retailers like Sephora). The target group can be college going and adult buyers who like experimenting and trying in drugstore products to treat skin issues or pleasure trying luxury products. Being a customer following strategies can make virtual sales experience:

• If Beautify has an option of earning reward or discounts while shopping from their website, would make the website much more lucrative option.
• Lack of complete details like date of expiry, consistency of the product etc, is what makes the virtual platform bit apprehensive to the customer. If online interface can include video of person applying the product and giving honest after reviews can help. Giving complete information about each intricate aspect and ensuring authenticity of the product can make it a better choice for the customer.
• Ensuring an user friendly interface with easy navigations like categorizing products into subcategories, allow adequate filters in search results, navigation bars, quick search option etc. will avoid any confusion and offer a hassle free experience.
• Providing regular update on Tracking of an order and ensuring complete refund in case of any glitches as well as ensuring a safe mode for payment will retain trust of the customer.
• Giving free samples on every order made online can help to generate sales and add to the confidence of the buyer.

Question 3:

The discussion about virtual Advisors has been energizing, but you’d like to ground the discussion in some analysis. One framing that you’ve always found helpful is to express the investment in terms of how long it will take until it turns profitable (when incremental revenues are greater than the cost of the project). You sit down with your teammates from Beautify Finance and come up with the following assumptions:

• With Advisors, you expect ten percent incremental revenue overall (the team assumes Beautify gains new customers who like the experience and higher online sales for those engaged, but also lose some to other brands still providing more in-store service). The team assumes this happens in the first year.
• In the first year, Beautify will invest €50 million in IT, €25 million in training, €50 million in remodeling the department store counters, and €25 million in inventory.
• All-in yearly costs associated with a shift to Advisors are expected to be €10 million, and will start during the first year.
• Beautify’s revenues are €1,300 million.
  How long would it take, expressed in years, until the investment in Advisors turns profitable?

Answer:

Assuming, investing in Advisors will give ten percent incremental revenue overall during the first year.
First year profits after investing in virtual Advisors:

Revenue — Cost(Fixed + Variable) = Profit/Loss
[10% 1,300 million] — [ 10 million + ( 50 million +25 million +50 million+ 25 million)] = P/L
P/L= 130 million — 160 million
Hence, Loss for first year = 30 million

Note: Assuming that variable cost remains same and there is 10% incremental revenue every year.

Second Year:-
Revenue — Cost = P/L
(20% of 1300 million) — 160 million = P/L
P/L = 0

Thus, During the first year, Beautify may face loss but will reach the Break- Even in the second year where we will have no loss and no gain situation. Hence, we can expect profitable returns on investment only after the second year.