Tatcha Case Study

TATCHA

Q) What suggestions do you have for the company? Which part of the value chain you use to create value for customers?

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Company Overview:

In September 2009, Victoria Tsai launched Tatcha – a luxury skincare product line inspired by Geisha Beauty Rituals. Their first product was a pack of oil-blotting papers, namely ‘Aburatorigami’. From selling at over 200 top prestige skin-care retailers to booking atleast $10million sales within a year, Tatcha received its first acquisition offer in May 2010. Tsai turned down the offer and focussed on laying the roadmap for the next line of skincare products. While shortage of fund stood as the main constraint, the second acquisition offer knocked Tatcha’s doors.[pic 4]

Market Analysis @ Beauty Industry:

In 2010, with sales of $330 billion worldwide, global beauty industry was led by Loreal and P&G with collective market share of 25%.

• Emergence of Masstige brands – attracted both cost-conscious and traditional luxury oriented customers
• Skincare - largest and fastest growing
• Increased demand of natural ingredients and high-performance scientifically proven beauty products
• Growing importance of East Asian Beauty Markets
• Low entry barrier industry[pic 5][pic 6]

Tatcha’s Value Chain Analysis:

• Inputs: High demand for natural ingredients – authentic raw material
• Manufacturing: Authentic product sourced from Japan. This block engulfs Marketing and IT initiatives – Tatcha’s online presence (e-commerce)[pic 7]
• Distribution: Ruled by distributors and prestige retail segment, without a boutique brick and mortar shop
• Beauty Services: In the commodity space. Not forayed into Salons or other beauty services
• Consumers: Consumers want to be associated with niche luxury brands[pic 8]

Unique Value Proposition:

“Less is more” approach along with authenticity strengthened the original brand concept of Tatcha and increased its global appeal.

• Authentic aburatorigami, sourced directly from Japanese gold-leaf artisans
• Tatcha’s ingredients research was based on Geisha’s 200 yr old beauty rituals as documented in the Beauty Bible[pic 9]

Challenges Faced:

• With neck deep debt of $800000, Tsai required additional funds to put the skincare line into production
• Financing for consumer products businesses, especially in beauty e-commerce was scarce
• Barneys turned down Tatcha twice
• Unlike other luxury brands, Tatcha lacked extensive physical distribution, advertising, heavy PR and celebrity sponsorships

Proposed Action Plan:

• Create and Capture Customer Value:

• Tatcha’s USP is its authentic natural and novel ingredients. Meant to be a prestige niche brand, Tatcha needs to build its brand image around this novelty factor
• Earn customer’s trust to build on ‘Word of Mouth’ channel of viral marketing

• Create Brand Value and Recognition:

• Inspired by Geishas, establish Tatcha as a Skincare ritual brand with its foundation standing on 200 yr old authentic and proven beauty secrets.
• Respond to the inclusion of ethnic diversity in the west
• Target Fashion Industry – direct B2B consumer for blotting paper –> promote bulk sales –> facilitates celebrity sponsorship -> opens doors of Barneys

• Raise Funds:

• The business value has not matured yet. Access to the “Beauty-Bible” is a treasure that Tatcha needs to capitalize on through its skincare product line. Hence, Tatcha is not ready for acquisition offers
• Reach out to internal partners and private equity investors for sale of 20-25% stocks[pic 10]

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