Sephora ($EPA:MC) is one of the largest cosmetics retail chains in America with just under a thousand stores nationwide. It is home to dozens of beauty brands, including its own lines and celebrity-owned brands such as Fenty Beauty by Rihanna.
According to a Groupon study, the average woman spends $312 on her appearance per month. With a wide range of products at Sephora, ranging from budget blushes to expensive eyeliners, are people buying expensive products because other consumers review them positively?
According to alternative data, not exactly. Because we have access to thousands of product reviews in Sephora's e-commerce catalog as well as pricing information, we wanted to understand if there are any correlations between how much someone pays for costmetics and how much someone loves those cosmetics.
Here's what we found:
With a confidence level of 50%, there is a .10 cent change in price for every one percent increase in average rating. On the surface, one could conclude that price to rating ratio exists.
But a 50% confidence rating is, in layman's terms, not great.
It writes out the statistical significance between average price and average rating. Because of this, we can conclude that there is no correlation between the average price of a beauty product and how well it is perceived by the public in terms of its quality.
This makes perfect sense if we bring this insight to other industries; think of that ultra-fancy restaurant and its online reviews. While the quality of the food may be top-notch, some may review the restaurant negatively because it just wasn't "worth it." Why pay $100 for a steak when the restaurant down the block cooks one that is, in your opinion, just as delicious for $20?
Essentially, those who buy some more expensive products at Sephora may feel negative about it as they could've gotten a similar product for less. People want value in beauty products, as they only have so much money to spend on all the various pieces of makeup they need to look to their personal standard of beauty.
And at Thinknum, we're all about seeking value and alpha, as well as the beauty within it.
For those who are curious about the data, here it is plotted out in a double bar chart: