SASA Cosmetics Success: A Case Study by Group 4

SASA Cosmetics
Case Study

BY GROUP 4
Meenakshi chauhan 79
Meera sethi 80
Megha saraogi 81
Milin Mathew 82
Umair khan 83
Mohit patel 84
SaSa Cosmetics
Situation Analysis:
SaSa which is one of the leading forces in cosmetics retail and beauty services aims at “quality products at a fair price.” Low prices, wide product selections and convenient retail locations helped SaSa to capture the market and expand its business in branded cosmetics and toiletries in Hong Kong. It also led to high brand recognition throughout Asia.

Hong Kong's robust economy, absence of trade barriers, transparent regulations, well-established rule of law and freedom of capital movement were the reasons for it being an attractive place for retail businesses, especially for cosmetics and toiletries.

It being a free port, there were no import tariffs levied on beauty products. Tourism also provided a substantial market for these products. Hong Kong with its affluent population of 7.2 million people and a per capita income of over $25,000 was a profitable market for imported cosmetics and perfume.

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The people also thought that imported goods were of a high quality and it was Prestigious than the domestic goods.

SaSa was started by husband and wife, Simon and Eleanor Kwok, on April 1, 1978, and it was headquartered in Hong Kong. They aimed at providing a wide selection of beauty products at competitive prices in a one-stop-shop concept. When they started their business they were not in a position even to reach breakeven. It was then they decided to introduce a technique that brought about a 20% markdown on our merchandise for a period of two weeks.

This increased their sales and their profit was about $800 by the end of the month. SaSa thus pioneered the discount store concept in the cosmetics industry in Hong Kong.

More than half of SaSa’s merchandise was parallel imports, which on average produced a gross margin of 15% to 20%. The balance of its stock was sourced in the normal way from authorized agents. Though merchandise purchased from authorized agents was more expensive, they carried a higher gross margin of 30% to 40%. Hence, SaSa was able to sell them at a discount to MSRP (manufacturer's suggested retail price) or even use them as loss leaders at times to attract customers into the store.

SaSa store is now 2,000 square feet of retail space (earlier 40 square feet of retail space) and is street-facing. It is located in one of the busiest streets in the city’s shopping district. It has self-service shelves and sampling trays located in the middle of the store. SaSa sets price within the customers’ comfort-zone, which were considerably lower than the MSRP. A female team consisting of a supervisor and 12 beauty consultants ran each store. Beauty consultants were professionals equipped with both beauty knowledge and sales skills. They were trained to recommend to customers the most suitable products rather than those with high commission rates.

SaSa began to gain attention all over Asia which allowed the Kwok’s to expand the business to other overseas locations. To finance its growth, SaSa completed an Initial Public Offering and was listed on The Stock Exchange of Hong Kong on June 13, 1997. SaSa now being a public company was responsible for increasing shareholders’ returns and formalize processes to strengthen their platform for growth. As a part of this it expanded its retail network to Singapore, Malaysia and Taiwan. (Main markets were Taiwan and Hong Kong)

Increased media coverage and public filing of company information had exposed SaSa’s formula for success in the cosmetics discount retailing business. Imitators flooded the market and entrenched players extended their merchandise selection to include cosmetics. The main competitors were Bonjour Cosmetics and Rainbow Group. New competition for parallel imports from other cosmetics discounters intensified, causing a lack of supply. As a result, SaSa had to make adjustments by increasing its purchases from authorized agents and manufacturers. In order to solve its supply chain problems, SaSa expanded its business vertically into carrying house brands.

This arrangement not only gave SaSa more control over its supplies but also enabled the company to capture the attractive profits that would otherwise be shared by wholesalers or distributors. SaSa had by now outsourced private label production to North American and European manufacturers. It handled marketing and distribution in-house and paid for all related expenses, including advertisement production and media placement costs, product launch expenses, and public relations fees.

While the SaSa brand would continue to be the anchor brand in the mass product segment, the company also expanded into the mass health food market with the launch of a Chinese herbal health supplement, Yuerong Beauty Preserver, in March 2001. To complement its mass product strategy, the company planned to launch a second line of health and spa clubs to provide health and beauty services to mass-market customers. It started a “click and mortar” strategy with the launch of Sasa.com in December 2000. The website extended SaSa’s retail concept to a wider audience and offered an extensive selection of branded and niche products at competitive prices.

In June 2001, SaSa expanded to China via a joint venture arrangement with Ebeca, a leading Chinese cosmetics retailer with strong brand recognition and a solid customer base. Ebeca distributed its own brand of cosmetics products through 140 retail outlets in over 40 cities in China. With the joint venture, SaSa gained immediate access to Ebeca's existing extensive sales and distribution network in China.

Statement of Objective:

To find a way to increase SaSa’s growth & profitability while ensuring that its core competence is preserved. It can be done in two ways
By Increasing Sales
By Cost Management

Problems Identified
If there were still pieces missing in SaSa’s business model. They can focus on 3rd tier brands (Ponds and Revlon) which can relate to low end consumers. They should go for aggressive promotion efforts, including print advertisements, public relations activities and online advertising at sasa.com. They can improve their relationship with agents so that they can increase their bargaining power. They need to introduce Trendy products to compete with Bonjour. After studying the balance sheet from the exhibit, it can be inferred that there has been a reduction in the value of intangible assets. This indicates that the brand image is falling due to competition.

Eg: Bonjour provides a trendy range of products which SaSa fails to do. Were the initiatives taken in the recent years adding value to SaSa’s business? Partnering with Ebeca for promotion of the brand SaSa was one of the steps that they have started which lead to an increase of audience. Through co-branding, joint promotion and a loyalty program, customers of both SaSa and Phillip Wain could enjoy more comprehensive beauty and health products and services, thus strengthening SaSa's position in Asia. Products were categorized into four groups: skincare, cosmetics, fragrances, and hair care and accessories. They were placed in different sections either by brand or product category depending on their price points for customer convenience.

Centralization of all transactions- In order to process transactions efficiently and avoid long lines at the cashier, handheld electronic registers were set up at the counters throughout the store, making shopping experience great for customers. Introduction of Flagship store and Self Service stores giving a feel of Supermarket. Three free-standing La Colline stores were opened in 2000 and 2001 to initiate SaSa’s entry to the premier product market. Since the opening of the stores, sales of La Colline products had increased 20%, contributing7% of SaSa’s annual turnover What else could SaSa do to better leverage its core competence, further improve profitability, and maintain the phenomenal growth it once demonstrated in the past? Some strategies that can be followed by SaSa:

A) Marketing strategies
Having its own brands or exclusive brands can build strong customer loyalty However, the promotion of these exclusive brands tend to be not enough and mainly focus on a very few selected brands -affecting the sales of niche brands and new brands. Adopt different marketing strategies in different markets i.e. Differentiated marketing strategies with different pricing, promotion strategies to target distinctive market segments (e.g. offer exclusive brands for high to middle-class segments) -can prolong product life cycle and high profit margin. Develop more of flagship stores.

Further strengthen its on-line business and support with good customer service e.g. delivery and after-sale service. Enhance the corporate image e.g. reinforce its commitment to social responsibilities and environmental protection Can work with local distributers for the wholesale business -can help sharpen the market penetration Aggressive promotion efforts, including print advertisements, public relations activities and online advertising. B) Staff Motivation Strategies

Bonus system
Let staff understand the corporate goals and the ways they can contribute Enhance communications with staff and nourish a caring culture of the company Review remuneration on regular basis
All these above mentioned points can be proved from the figures indicated in the consolidated profit and loss account showing an increase in the staff cost. C) Operations Management
Improve logistics flow through organization reengineering
Enhance quality assurance through the development of quality engineering mechanism Keep minimal idle assets through careful asset planning to avoid loss due to obsolete stock. When the competitors adopted the discount policy of SaSa, the supply chain management problem arised which resulted in an increase in inventory as indicated in the figures displayed in the balance sheet.

SWOT Analysis
Strength
Pioneer in selling beauty products at high discount.
Took the advantage of governance policy of no import tariff on beauty products. Product range varies from with more than 600 international and 90 house brands. In 1999, SaSa created their Flagship store and this concept was highly liked by the customers. Wide range of house brands will drive SaSa’s future stand in the market. Diversified its reach through acquisition of Top entities in the emerging market. Aggressive response from new market.

They have a large network of retail stores to reach the customers more easily. Well trained and knowledgeable staff.
All items were stocked as per the market demand
Weakness
Prices after discount were no more attractive to customers.
Low availability of trendy products when compared to competitors. Declining assets of company is of great concern for listed company. Advertising is not much up to the brand level.
Promotional offers were not given on regular interval.
Losing the trained staff to the competitors.
Opportunities
Introducing trendy products from house brands
Focussing on non-premier customers.
Consultancy sector can be explored as different segment.
Beauty salon is a great option to build brand image. It will also enhance the sale of house brands. Survey was conducted on 515 females between 15-64 years of age by phone for Approximately 30 minute each.

In 2001, sales from overseas operations contributed an aggregate of 20% to its annual turnover. Threats
Competitors following the parallel importation model.
Listing of “Rainbow” in Hong Kong Stock Exchange in 2001. Diminishing intangible assets
Analyzing the Exhibit
Exhibit 13

The graph below represents a comparison between SaSa, Bonjour and Rainbow

Chart A SaSa, Bonjour and Rainbow’s relative performance in the Real Spender Market Segment.

The graph above represents the (preference driver) i.e. what the customer wants and the left side of the graph indicates the various preference criteria’s. Real Spenders are those consumers who are Professionals, owners & higher level managers and have a higher level income they are the high end consumers.

The first thing what a high end customer wants is a Trendy Product, Broad Brand Choices, and SaSa scores a negative on this, based on its comparison with Bonjour thus it needs to focus on more trendy products based on consumer demand and it must stock a wide variety of products Moving down the preference line we see that customers want a continuous promotional offers and lowest price but in this also SaSa fails, and Bonjour is far ahead in this category also. In those categories in which SaSa is ahead of Bonjour, those are least preferred by the consumers i.e. they have less significance

Chart B SaSa, Bonjour and Rainbow’s relative performance in the Best Overall Value Market Segment

The graph above represents the (preference driver) i.e. what the customer wants and the left side of the graph indicates the various preference criteria’s. Best Overall Value buyers are those consumers who are middle level managers, students; they have an average income level and constitute the major target consumers.

The first thing what a high end customer wants is a Trendy Product, Broad Brand Choices, and SaSa scores a negative on this, based on its comparison with Bonjour thus it needs to focus on more trendy products based on consumer demand and it must stock a wide variety of products Moving down the preference line we see that customers want a continuous promotional offers and lowest price but in this also SaSa fails, and Bonjour is far ahead in this category also. In those categories in which SaSa is ahead of
Bonjour, those are least preferred by the consumers i.e. they have less significance

Chart C SaSa, Bonjour and Rainbow’s relative performance in the Convenience Seeker Market Segment

The graph above represents the (preference driver) i.e. what the customer wants and the left side of the graph indicates the various preference criteria’s. Convenience seekers are those consumers who are housewives, part-time workers & blue collars. They have lower income and spend less than others.

The first thing what a customer wants is many outlets, convenient location and SaSa scores a positive on this, based on its comparison with Bonjour

Moving down the preference line we see that customers want a continuous promotional offers and lowest price but in this also SaSa fails, and Bonjour is far ahead in this category.

Interpretation
The consumers mainly focus on trendy products, variety of the products, the price of the product i.e. lowest price and continuous promotional offers, but SaSa fails to understand the pulse of its consumers and does not focus on these core issues. Thus SaSa can take these as an opportunity to increase its sales by catering to the consumer needs in a more systematic manner and plan its activities based on the market research.

54% of Sales are for skin-care products, followed by Fragrances at 20%, Cosmetics 16% and Hair care at 10% As skin care products had higher price points that’s why they were given retail space allocation of 30% , followed by Fragrances at 20%, Cosmetics 30% and Hair care at 20%.

Interpretation
SaSa should focus mainly on skin-care products and fragrances and provide them more shelve space and reduce the space for cosmetics as its sales is very less as compared to other products and space provided to it thus it could help SaSa to focus on those products which have maximum sales.

Recommendations and conclusion

Decision Criteria:

1. Provide Membership cards and loyalty coupons.
2. Mini-parlor with professional beautician in each store.
3. Ayurveda cosmetics
4. Celebrity signature products.

Analysis:

More Variety + Ayurveda Cosmetics:
Bringing in more variety of products into the store like Ayurvedic products will attract more customers who are looking for better and healthy cosmetic products. This can increase the market share of SaSa and get a lot many more customers to shop here.

More Variety + Celebrity Signature Products:
Getting a celebrity to name a range or line of products on their name and selling it exclusively in Sa Sa stores can also bring a lot of demand for these goods in our stores. It will build brand value and also help is getting customers to come only to our stores in order to get these products.

Better services + Membership points:
By providing customers with Membership Cards, we can ensure that they visit us again and again. The cards can hold points with each purchase that the customers can use to use up on their next purchase. Members can also be informed of offers and the availability of new products in the store. Giving additional benefits to members such as more discounts or notices for sales etc. can ensure more customers would want to becomes members and hence be loyal to the company.

Better services + Mini-parlor:
Having a mini-parlor in every store can really bring in a lot of customers who would like personal advice regarding cosmetic products or customers who would like help with application of products. They can also get a personalized opportunity of interacting with a professional beautician for tips or advice. This can also give the customers a way to see how the particular product looks on them before purchasing it so that they can get a better outlook on what suits them and what they should buy. The ladies can interact with each other and discuss cosmetics in the privacy of the parlor.

We would suggest SaSa to try and improve upon their service quality and loyalty program for customers so that they can retain their existing customers and also attract new customers who are currently looking at other retailers for their demand requirements. We would recommend SaSa to distribute membership cards to build loyalty among its customers. This can also be used as a tool to advertise offers that are given out by SaSa as well.