Minicases and Applications

Digital Marketing

Lush UK Abandons Social Media

Lush Fresh Handmade Cosmetics UK sells handmade premium beauty products such as body
washes, bath bombs, and face masks through 950 cosmetics shops around the globe. Lush
previously engaged customers with captivating Instagram posts, which contributed to its
massive following of more than 570,000 people. Therefore, people were surprised when the
company announced it was abandoning social media because it inhibited the firm’s ability to
engage with fans and because Lush does not pay for advertising, including paid social media
posts. Lush mentioned difficulties associated with talking directly to customers and the
challenges of changing social media algorithms the firm had to fight to appear in customers’
newsfeeds. Social media platforms order posts by relevancy rather than chronology, which
makes it harder for many brands to appear in consumers’ social media feeds without paying
to be there. “We want social to be more about passions and less about likes,” says Lush.

2-9. Evaluate the rationale behind Lush’s decision to discontinue its social media channels.
Do you think followers understood Lush’s choice? Why or why not? (AACSB:
Written and Oral Communication; Reflective Thinking)

Answer:
Student opinions will vary. The firm is abandoning a large following that values the
unique content posted on social media platforms. However, its customers may want a
meaningful community outside social media. Therefore, students may speculate about
how the loss of a social media presence affects customer relationships and revenues.

2-10. As Lush UK implemented the change, how could it measure the effects of leaving
social media on the achievement of its marketing goals? (AACSB: Written and Oral
Communication; Reflective Thinking)

Answer:
As part of the marketing control process, Lush UK captures metrics and compares
progress to its goals. It may have gained engagement (comments and likes) because of
the buzz from its announcement. The firm can measure number of person-to-person
interactions, brand loyalty, and sales as part of the control process.

Marketing Ethics
Pharrell Williams’s Humanrace Brand

In 2020, Pharrell Williams launched an all-gender, all-race skincare line called Humanrace,
sold exclusively through its website (www.humanrace.com). The skincare line had three
vegan and sustainable products sold in Japan-inspired green packaging made with 50 percent
post-consumer recycled landfill plastic with braille writing for the visually impaired. The
signature recyclable and refillable green packaging includes what a consumer needs for a
three-step, three-minute facial: a cleanser, an exfoliant, and a moisturizer. The sustainable
packaging is one major source of differentiation for the product.
Despite the brand’s goal of accessibility to all, its prices were expensive relative to those of
competing products. When launched, the cost of the three-product set was $100. One reason
for the high price was the quality of the ingredients. Another reason was fit with the brand’s
positioning as a high-quality product that really works. Even so, Humanrace’s prices raised
questions about whether it really offered skin care for all humans. Still, Pharrell Williams was
applauded for associating his celebrity with a position related to inclusivity.

2-11. Humanrace’s focus on reusable, recyclable plastics; high-quality, vegan ingredients;

and skincare products that work for all humans seems to go against the traditional
segmentation and targeting process. Defend this market segmentation strategy. Is it
ethical to characterize the Humanrace product line as skin care for all? (AACSB:
Written and Oral Communication; Ethical Understanding and Reasoning)

Answer:
Student responses will vary, but they should discuss how the Humanrace skincare line
is positioned and should reflect an understanding of how segmentation, targeting, and
positioning are typically linked in strategic marketing. The question about whether it
is ethical to characterize the product line as skincare for all, when the products may
not be ideal for all consumers with less discretionary income or with different skin
types, may also result in differing opinions. There may be comments related to the
brand’s values as it attempts to produce products that are better for skin and minimize
the harm to the environment.

2-12. From an ethics standpoint, discuss Humanrace’s focus on sourcing high-quality,

vegan ingredients and post-recycled, reusable packaging instead of developing
products that keep costs down. Discuss the challenges Humanrace faces as a brand
that is positioned as accessible to everyone but not affordable for many. (AACSB:
Written and Oral Communication; Reflective Thinking; Ethical Understanding and
Reasoning)

Answer:
Student responses will vary, but they should discuss ways Humanrace’s choice of
ingredients and its price points affect suppliers, distributors, and customers. The
genderless, convenient skincare solution creates value because of its ingredients, its
efficacy, and its reusable packaging. The idea that it is appropriate for all skin but not
everyone with skin can afford it may raise questions about whether targeting is taking
place that is not central to the messaging about the brand and whether it is ethical to
withhold the information.

Marketing by the Numbers

Facebook versus Google

Facebook and Google are both giants in the tech industry. However, if you compare sales and
profits, you would think that Google is a far better marketer than Facebook: Google’s sales
last year were more than double Facebook’s sales, and its profits were 38 percent higher.
Sales and profits provide information to compare the profitability of companies, but between
these numbers is information regarding the efficiency of the marketing efforts in creating
those sales and profits. Appendix 2: Marketing by the Numbers, Marketing Performance
Measures discusses other marketing profitability measures beyond the return on marketing
investment (marketing ROI) measure described in this chapter. Review the appendix to
answer the questions using the following information from the two companies’ incomes
statements (all numbers are in thousands):

Facebook Google
Sales $85,965,000 $182,257,000
Gross Profit $69,273,000 $97,795,000
Marketing Expenses $13,616,250 $21,748,500
Net Income (Profit) $29,146,000 $40,269,000

2-13. Calculate profit margin, net marketing contribution, marketing return on sales (or
marketing ROS), and marketing return on investment (or marketing ROI) for each
company. Which company is performing better? (AACSB: Written and Oral
Communication; Analytic Thinking)

Answer:
Profit
Profit Margin = —————
Net sales
$29,146,000
Profit MarginFacebook = ————— = 0.3340 = 33.40%
$85,965,000

$40,269,000
Profit MarginGoogle = ————— = 0.2209 = 22.09%
$182,257,000

Net Marketing Contribution (NMC) = net sales − cost of goods sold − marketing expenses

Because Gross Profit = net sales − cost of goods sold, students just need to subtract
marketing expenses from gross profit:

NMCFacebook = $69,273,000− $13,616,250 = $55,656,750

NMCGoogle = $97,795,000− $21,748,500= $76,046,500

net marketing contribution

Marketing ROS = ———————————
net sales

$55,656,750
Marketing ROSFacebook = ———————— = 0.6474 = 64.74%
$85,965,000

$76,046,500
Marketing ROSGoogle = ————————— = 0.4172 = 41.72%
$182,257,000

net marketing contribution

Marketing ROI = ———————————
marketing expenses
 $55,656,750
Marketing ROIFacebook = ————————— = 4.09 = 409%
$13,616,260

$76,046,500
Marketing ROIGoogle = ——————— = 3.49 = 349%
$21,748,500

Although Google has larger absolute sales, gross profits, expenses, and net marketing
contribution, Facebook is performing more efficiently as measured by the profit margin,
Marketing ROS, and Marketing ROI. While other factors besides marketing, such as
research and development, are likely driving Google’s profit metrics down, this analysis
suggests that Google is not getting as great of a marketing return, albeit still very good, for
the investment it has made in marketing compared to Facebook.

2-14. Go to Yahoo! Finance (http://finance.yahoo.com/) and find the income statements for
two other competing companies. Perform the same analyses for these companies that
you performed for the previous question. Which company is doing better overall and
with respect to marketing? For marketing expenses, use 75 percent of the company’s
reported “Selling General and Administrative” expenses, as not all of the expenses in
that category are marketing expenses. (AACSB: Written and Oral Communication;
Analytic Reasoning; Reflective Thinking

Answer:
Students’ answers will vary. The information used in the previous question can be found
at:
Facebook: https://finance.yahoo.com/quote/FB/financials/
Google: https://finance.yahoo.com/quote/GOOGL/financials/

The information students need is: Total Revenue, Gross Profit, Selling General and
Administrative (use 75% to represent marketing expenses), and Net Income.