Sephora: Staying Ahead of the Amazon Threat

Sephora should consider monetizing its personalization features, powered by consumer data on beauty preferences, to maintain its competitive edge.

Looking for a makeover? Confused by all the options? Want to avoid the chapped lips resulting from applying a lipstick 20 different times? Sephora Virtual Artists (SVA), powered by the AR/AI startup Modiface, allows customers to trial their favorite brands, palettes, and makeup with the click of a selfie. SVA is not the first time Sephora has turned to data to innovate on its value proposition to customers and remain relevant in the digital age.

Sephora disrupted the beauty industry from its earliest days by providing its customers with both autonomy and personalization. First, it took the pressure off consumers looking for high-end beauty products. In the pre-Sephora days, consumers would have to contend with beauty experts behind a department store counter pushing them towards certain products. With Sephora, consumers can walk in and begin to play around with their own ideas, while having the option to ask for expert advice. At the same time, in-store sampling allowed women and men to have a more customized experience by allowing them to trial as many products as they needed before they decided to buy. Later, Sephora enhanced the in-store personalization experience by introducing Color IQ, allowing in-store beauty artists (a.k.a. Sephora PRO artists) to use technology to find the best color match for a customer’s skin tone and thus provide them with the best recommendations for foundations.  

Sephora also personalizes both the ecommerce and email experience for consumers. After the introduction of Sephora’s Beauty Insider rewards program, makeup lovers rejoiced. For the professional facial artist and hobbyist alike, loyalty with Sephora brings significant benefits. The accumulation of points leads to free gifts, free makeovers, free trainings, and/or exclusive invitations to events. For Sephora, the loyalty program is an effective way to capture information about the consumer’s habits and preferences and deliver customized recommendations. Personalization in the cosmetic industry is critical as consumers’ buying decisions are strongly based on personal preferences, including the consistency of the product, ingredients, color, or brand. To date, Sephora has effectively leveraged its rewards program and technology to quickly capture data on consumers and provide a personalized experience both in-store and online.

Sephora Virtual Artists is a natural extension of Sephora’s strategy for a world rapidly moving towards augmented reality. Sephora can use SVA to collect more data on consumers while further encouraging consumers to experiment with products beyond the ones they are accustomed to purchasing.

However, the Amazon threat looms over Sephora. Amazon has been aggressively moving into the cosmetics space and now lays claim to over 20% market share in online beauty sales. Sephora’s competitive advantage is at risk as Amazon continues to grow and accumulate more data in beauty. Amazon’s lower prices will certainly overtake Sephora’s allure in experience. While Sephora’s investment in apps like SVA are beneficial, the out-of-store trial may only encourage leakage. Consumers may play with Sephora’s innovations and then buy their products at cheaper prices on Amazon. In addition, it is possible that Amazon can set up its own partnership with Modiface to collect more data on consumer preferences.

In order to maintain its competitive edge and ensure consumers both trial and purchase within the Sephora ecosystem, Sephora should attempt to capture value not just from purchase but the trial and personalization it provides. One possibility is for Sephora users to pay upfront for product trials with their selfies, providing them with credit towards Sephora products. Thus, the consumer will be more incentivized to stay within the app and use their credit towards purchasing beauty products at Sephora. Of course, this may run counter to Sephora’s vision of allowing beauty purchasers to try products without any pressure. However, while Sephora’s brand is still synonymous with the most personalized customer experience, it needs to determine new ways to keep consumers engaged and purchasing within its ecosystem.   




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Student comments on Sephora: Staying Ahead of the Amazon Threat

  1. Very interesting article.
    Amazon has been making moves to conquer the Beauty industry for years now. Yet, despite this, it seems more of a threat to non-prestige retailers (think Target) than it really does to “higher-end / more customized experience” Sephora.
    However, drawing from BSSE theories, this hardly means that Sephora is out of the woods, as Amazon is following a typical low-end disruption that might eventually take over Sephora while it leasts expects it. Sephora would probably be better served to leverage the new innovations you described to foster an out-of-store experience turning it into a full-scale e-tailer itself.

  2. I’ve used Color IQ before and have found it helpful in guiding me towards the right product. Given the “unique” type of data they are able to collect from users (e.g., consumers’ skin tones), I am wondering if there are opportunities for Sephora to commercialize this data (e.g., selling this data to beauty product makers so that they can gain a better understanding of consumers).

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