Dior Lip Maximizer has been with me for 15 years since university. It is my forever favorite pink lip gloss, which I always have in my make-up bag. The other day, I placed an online order through the official Dior Beauty website, and the math behind the brand's expenses was impressive.
So, how much does Dior Beauty spend to process a £33 online beauty order, and what are the ways to cut expenses?
1. Packaging: £0.50 for box, gift bag & envelope
Packaging materials for shipping (e.g., box, tissue paper)
The order itself comes in a Dior-logo eco box. You can also choose a gift box (or I would rather say an additional paper bag for the items). In this case, there is an option to add a gift message. Both packaging options are complimentary for the customer.
Apart from the packaging, the invoice and return shipping label are included in a separate envelope featuring the Dior logo.
2. Shipping: £6.30
Shipping cost for sending the item to the customer
Costs for any tracking and insurance services if included
Dior.com offers free next-day, Saturday, and Sunday delivery for all beauty orders. While there may be reduced fees for business delivery, the express service still adds a significant margin on top.
Since the lip gloss is £33, the insurance is likely already included in the shipping cost, with no extra charge for the item's value.
The usual minimum DPD service in the UK for next-day delivery - the service used by Dior - is £9.00 (including VAT) for private customers. For business deliveries, this fee might be at least 30% lower.
3. Accompanying Items (Samples): £2 for 2 (incl. paper packaging, and textile bag)
Cost of manufacturing or acquiring samples
Packaging for samples (if different from the main product)
The samples were additionaly packed to individual paper box each and 1 textile bag.
4. E-commerce Platform Fees: 2.5%, or £0.825
Per-transaction fee charged by the e-commerce platform
Payment processing fee for the transaction
These fees depend on servise provider and usually lie in between 1.5% to 3.5%. We'll use a median 2.5%
5. Customer Service and Fulfillment Costs: £2.00
Pro-rated cost of customer service for handling inquiries related to this particular order
Pro-rated cost of warehousing and fulfillment for picking, packing, and shipping the specific item
Total Operational Expenses: £11.625, or 35.24% of the lipgloss order value
£0.50 + £6.30 + £2.00 + £0.825 + £2.00
Thinking that Dior Lip Maximizer is a brand bestseller, we can easily scale these costs to thousands of units sold per month across the UK. Let's consider where Dior may cut operational expenses without disappointing customers.
While placing a beauty order online, a customer's main expectations are:
Reliable standard shipping
Simple, protective packaging
Accessible customer service
User-friendly website
Clear product descriptions and reviews
If we consider a luxury beauty brand, the expectations may slightly transform and also include:
Premium packaging
Excellent customer service
Sustainability (eco-friendly packaging and transparent practices)
Luxury beauty online shops generally includes all of the following options. They also often offer free 1-2 samples at checkout. This practice helps enhance the customer experience and stimulate additional sales.
The expectation which is not crucial is free express delivery. Usually online shops offer either free standard delivery and express option with a small fee or free delivery starting with a minimum order of 30-50 pounds.
To make its policy more cost efficient instead of offering free next-day, Saturday, and Sunday delivery for all orders, Dior might consider two other scenarios. Let's project them to 1000 orders of Dior Lip Maximizer.
Scenario #1: Free Standard Delivery and Paid Express Delivery
Details:
Standard Delivery: Provided at no cost to customers.
Express Delivery: Available for a fee of £5, which customers will pay.
Cost Breakdown:
Standard Delivery (70% of Orders):
Number of orders: 700
Delivery cost per order: £3.15
Total cost for standard delivery: £2,205
Express Delivery (30% of Orders):
Number of orders: 300
Cost per order: £0 (covered by customer fee)
Total cost for express delivery: £0
Total Shipping Cost: £2,205
Total savings compared to current shipping costs
£6,300 - £2,205 = £4,095 (or 65%)
Percentage savings of total operational costs for processing 1000 orders:
£4,095 / £11,625 x 100 = 35.2%
Advantages:
Enhanced customer choice: Allows customers to select express delivery if needed
Cost reduction: Significant reduction in shipping costs with the customer covering express delivery fees
Disadvantages:
Potential customer frustration: Some customers may feel disappointed that express delivery incurs an extra fee
Scenario 2: Free Delivery for Orders Over £50, Paid Delivery for Orders Under £50
Details:
Free delivery: For orders of £50 or more
Paid delivery: A fee of £5 for orders below £50
Cost Breakdown:
Free Delivery (50% of Orders):
Number of Orders: 500
Cost per Order: £3.15
Total Cost for Free Delivery: £1,575
Paid Delivery (50% of Orders):
Number of Orders: 500
Cost per Order: £0 (covered by customer fee)
Total Cost for Paid Delivery: £0
Total Shipping Cost: £1,575
Total Savings Compared to Current Shipping Costs:
£6,300 - £1,575 = £4,725 (or 75%)
Percentage savings of total operational costs for processing 1000 orders:
£4,725 / £11,625 x 100 = 40.7%
Advantages:
Increased order value: Encourages customers to spend more to qualify for free delivery.
Cost reduction: Significant savings with the majority of orders benefiting from free delivery.
Disadvantages:
Order value threshold: May deter some customers who do not meet the £50 threshold, potentially reducing the number of smaller orders.
Both scenarios present substantial opportunities for cost reduction:
Scenario 1: Offers a balanced approach by providing free standard delivery while charging for express delivery. This strategy could be appealing to customers who prefer flexibility but involves a lower overall savings compared to Scenario 2
Scenario 2: Provides the greatest savings by offering free delivery for higher-value orders and charging for lower-value ones. This could increase average order value and result in the highest cost savings, but might impact the frequency of smaller orders