Elizabeth Arden Day Spa Current

Elizabeth Arden Day Spa

Current situation

Elizabeth Arden Red Door Spa is the largest branded luxury day spa chain in the United States. Red Door has a vision of "enhancing the lives of its guests." It aims to achieve this, with its spa service, through its stated mission of delivering impeccable customer service, expertise and the finest quality products" (RedDoorSpas.com, 2010). The chain operates 31 spas around the country. The spas operate with a differentiated strategy, targeting upscale and upper-middle clientele. Because it is a chain, Red Door also trades on its brand, which includes both the Red Door and Elizabeth Arden marques. These marques are associated with luxury and high quality of service. From the marketing perspective, Red Door backs up these associations with premium pricing and timelessly stylish but low-key imagery.

The company emphasizes direct marketing, used in conjunction largely with new media. The current customer service emphasis is on building relationships. In the spa business, referrals are an important source of new customers and repeat customers are vital to the ongoing survival of the business. The direct marketing strategy at Red Door incorporates a number of different strategies. The company builds a database of its customers, gathering information when they visit. Typically, if a customer needs to be enticed to provide this information, a sweetener is offered. Once the customer information has been captured, it is then used in a number of ways. The first is that the customer information is held for future bookings. This allows the staff to understand the history that has been built with the customer to that point. Services can be tailored if need be, but more importantly this knowledge provides the staff with cross-selling opportunities.

In addition to cross-selling, the database allows Red Door to target its customers for promotions and to generate repeat visits. This can work in a number of different ways. If the customer has not visited the spa in a given period of time, a communication can be sent reminding the customer about the spa or offering one of the current deals in the hopes that the customer can be enticed back. For all customers, the database affords the spa the ability to announce promotions. In addition, the spa can push referrals, often with the aid of a sweetener, to its existing customer base. For example, a current offer announced on the company's Facebook page shows offers 20% off on a customer's next visit for any referral they bring that makes a purchase. This helps to draw in new customers, who in turn will be asked for their referrals.

The company facilitates its marketing efforts through the use of a marketing dashboard. The company uses the dashboard to identify on a customer-by-customer basis who drives the most profit. This helps the dashboard to better target its promotions and direct marketing. In doing so, Red Door has seen significant improvement in its direct marketing campaign results. Prior to implementing the dashboard, the company had gathered 2.7 million names and addresses; the dashboard allowed the company to segment that list by visits and revenue-generated (Fletcher, 2009).

The company already had the identification part of the IDIC process complete. Its database provided a broad measure of the company's target market, for example, and what markets were unlikely to emerge as viable target markets that management may otherwise have assumed to be good target market options. The dashboard system allowed Red Door to better differentiate its customers, not just by demographics but by the actual revenue and profit that they brought to the company. This revenue could be measured both in terms of direct revenue and indirect revenue through the referrals that the customer generated.

Interaction with the dashboard took roughly the same form as before, except that in the time that the dashboard has been in place Red Door has expanded its social media presence -- a coincidence but it has combined with the dashboard to change some of the company's interaction processes. Red Door utilizes social media to communicate with some of its customers, but this is a small portion of the customer base (just 5900 fans on Facebook, for example). The direct marketing campaigns driven by the dashboard are far important. Today, Red Door is able to tell quickly whether or not a promotion is working. This allows the company to scrap failed promotions and to recycle or retool successful ones in the future. The result is increased customer interaction and more importantly, more customer interaction of the types that the customer prefers.

It is this customization that has driven the Red Door spa in the past couple of years. Customers can now be easily segmented on the basis of their preferred products and services. Promotions can be customized, either to those products and services (driving repeat visits) or to those products and services combined with others (cross-selling). The success of the past couple of years with the marketing dashboard is the result of being able to respond quickly to customer reaction to the promotions offered and give the customers only those promotions that drive firm profitability the most.

2. Re-design the customer service policies and strategies

Given that the current customer service program at Red Door has delivered excellent results, it would not make sense to suggest a complete overhaul. In this case, however, there are some key adjustments that could yield meaningful results. These are to leverage the fact that Red Door is a chain by providing chain-wide promotions; and to introduce a loyalty program that ties in all of the direct marketing elements that the company currently employs. These tactics both work within the IDIC framework. The loyalty program will be outlined in Question #3.

The current program is focused on individual spas, for two reasons. The first is that customers tend to patronize a single spa, rather than spreading their business through the chain. The other is that each spa has its own unique look and feel, and there is variability in the pricing structure. By streamlining the price and service offerings, Red Door can continue to deliver a luxury level of service, but can also cross-market across branches. The current customer base has already been identified. Red Door also knows which customers are strongest in referrals, a key point of differentiation for this strategy. The interaction in this case will be focused using the top referring customers to generate referrals for each of the different spas. These upwardly mobile women will know friends and family all over the U.S. The referrals can be generated on a chain-wide basis, with discounts and other sweeteners offered to the referrer for each new referral. By using the existing direct marketing architecture to build business in multiple cities simultaneously, capacity utilization at Red Door spas across America can be improved. This direct marketing strategy is especially important when Red Door opens a new spa in a city and needs to reach capacity as quickly as possible.

With respect to segmentation customers will be segmented in a matrix fashion, based on both the number of referrals generated and the location of referrals. For Red Door to target its referral promotions best, it needs to know which customers do the most referring, but also if those customers refer only within one city or if they have the capability of generating referrals in multiple metro areas. The matrix would have the following elements. On the geography side Local Scope, Regional Scope, National Scope and on the frequency side would be Star Referrer, Occasional Referrer, and Non-referrer.

The metrics that can be used to measure the success of this program are the number of referrals generated. For this we are seeking 20% improvement over the past year's rate of referrals. The dollar value of the transaction for the first referral is something we also need to measure. There is no target for this but this information will be used to set a baseline for future targets. The third metric will be the number of repeat visits for the new referrals in their first six months as a customer. We need to test the stickiness of our service for new members. The total dollar value of these transactions will also be measured. Again, we do not have specific targets but these results will be used in future programs because we will want to improve on the dollar value of the first transaction, the number of subsequent transactions and their dollar value when we enhance our referral program further in a year or two to allow it to add greater value. The sweeteners we will give for these referrals will be valued in the $50-75 range, so the break even will be revenue from the new referral of $100-$200 depending on the profit margin on the service or product the referral purchases (this is why we need to measure how much the referral spends -- so we can use that in setting our sweetener value going forward).

3. A large number of customer loyalty programs can be implemented. It is recommended that Red Door adopt a buffet-style loyalty program. The customer can choose from a menu of different loyalty plan options, each with a different value proposition. The different plans can help to differentiate the types of customers further, based on their preferences by identifying their preferences. For example, a customer may choose as a reward for their plan a high-end treatment they would not normally buy without the discount offered in the plan. This tells Red Door what that customer really wants, but has yet to regularly pay for. At present, Red Door mainly collects information about what the customer buys, not what the customer wants.

This interaction provides Red Door with new data on the customer. From that data, promotions can be customized to focus on those services and products that the customer wants. The customer may decide, after a few discounted high-end services, that they can no longer live without that high-end service. The loyalty plan would otherwise function as any other -- the company is using a sweetener (service or product) to entice loyalty. The difference in this case is that by asking the customer to choose their own sweetener, the interaction with the customer works in reverse and Red Door learns something new about the customer that can be used in future direct marketing.

This loyalty strategy takes a slightly different approach to segmentation. Red Door's current marketing dashboard system essentially segments customers based on their purchasing patterns. These segments can be analyzed for demographic trends but it is an important distinction that the customer drives his or her own segmentation. This strategy has worked brilliant over the past couple of years for Red Door. The loyalty program continues that strategy, with the underlying premise that the company will gain more from listening to the customer than from dictating to the customer. By giving the customer the choice of reward, Red Door learns what segment the customer should or could be in, in addition to the information the company already has with respect to what segment the customer is currently in. By eliminating any gaps in the appropriate segment and the actual segment, Red Door can more effectively maximize the revenue per customer, the referrals per customer and the repeat visits per customer. Segmentation in this case would be very specific with each segment being a single product/service category (face, massage, body, nail, hair, wax, makeup, gentlemen, and packages).

There are three metrics for this new loyalty program. One will be the number of new loyalty program members. We would like to increase the number of current customer visits by loyalty customers by 20% by signing up new members. The second metric is the new members -- we would like to double our loyalty program membership in a year. The third metric is the revenue generated from the marketing we engage in as the result of the information we gather here. This will be for informational purposes -- we need to know if this program pays for itself or not. The sweeteners in the buffet will depend on what the customer normally purchases. The value will be no more than triple the usual purchase, and that for 10 purchases. At that level, given Red Door's margins, the program is expected to break even. Ideally, it would generate sufficient additional revenue that it does more than break even.