Victoria's Secret Advertising Case

OVERVIEW

Victoria's Secret is an American retailer of women's wear, lingerie and beauty products. It is the largest segment of publicly-traded Limited Brands with sales surpassing $5 billion USD and an operating income of $1 billion in 2006. Victoria's Secret is known for its fashion shows and catalogues, which feature top fashion models.

Victoria's Secret consist of three business divisions; which are Victoria's Secret Beauty, Victoria's Secret Direct and Victoria's Secret Stores. The organization can be viewed briefly below on Table 1.

As we can see above, it shows that on Direct Division, the website and catalogue are put together in the same division; while both of its characteristics are different. Catalog seemed to incur huge costs while website is cost less. The company would like to reduce costs on catalogue but they are afraid they would loose some potential market there. Victoria's Secret would not want to repeat the mistake that Land's End do on cutting costs for catalogue into two-third of it and loose some potential market that results declining in their stock prices. Victoria's Secret need to analyze properly on cutting costs and whether keeping catalogue or not.

HOW TO CUT COSTS?

Victoria's secret has three divisions which are Beauty, Direct (Catalogue and website), and Store; which is showed briefly in Table 1 below. The problem mainly stated in this case is incurring huge costs in direct division, especially the catalogue. Here we would like to analyze how to cut costs to reach better performance.

Our first main focus on eliminating costs is in direct division. Direct division directly sells the products into end user. The method used is by sending catalogue and website. Catalogue has been Victoria's secret characteristics for a long time. And then, as the technology develops, the company use website to support its performance. To support the website infrastructure, Victoria's secret adds one department which is New Media Department. This department responsible for handling and developing websites and had budget more than $ 10 Million. Although it has huge budget, Weil as the Head of New Media Department said that they do the "online thing" internally and use third party on broadcasting live (partnered with Yahoo! Broadcast) to eliminate cost.

Although the cost of website is lower than catalog, it only contributes 30% of sales for direct division. Website's fulfillment cost is cheaper than catalogue orders ($3-$4 more for catalogue sales than website sales); website's ordering cost is $80 to $10 less and its net profit is $1 to $2 for web transactions. Although it has lower costs, website only had 10% fewer returns than catalogue. This is why contribution from websites is not too significant on direct division. There is no need to eliminate cost on website as it already incur low cost and manage the budget on website maintenance efficiently.

The condition above makes us difficult to cut costs from catalogue. It is stated that 15% cost has already taken out of direct division, but it seems that it can be cut more without hurting the image of the brand and company's income. Catalogue costs more than website. The mail costs on sending catalogue to customers have increased $0.60 per catalogue. For that matter, the company needs to anticipate this condition. Victoria's secret can wisely cut costs on sending catalogue by selecting the perfect timing on sending the catalogue to the right consumers. For example: instead of sending catalogue once a month; Victoria's secret can send it once in three months (eliminating the frequency of sending the catalogue). The advantage on sending more frequently is consumer will always have the brand in their mind which can direct them into purchasing; while if it is not too frequent, the consumer will forget about it. To anticipate it, catalogue encouraged them to always look at the website so that website can inform about the products all the time. While website gives the information, Victoria's secret will also send catalogue; although it is not too frequent; it shows that Victoria's secret keeps in touch with customer more close and personal. To add this eliminating cost recommendation, based on the statement of customer that sent Victoria's secret catalogue on the blog says:

It shows that Victoria's secret needs to do deeply research to know the right time to send the catalogue. To conclude it all, Victoria's secret still keeps the catalogue because it has potential market that can contribute more to its sales performance; but eliminating costs