Mary Kay Cosmetics

WRITTEN ANALYSIS OF CASE

Mary Kay CosmeticsAsian Market Entry

COURSE: MARKETING STRATEGY

PRESENTED TO: MR. YASSER HAMAYUN

PRESENTED BY: SHAHBAZ SHOUKAT021157- MBA

Institute of Management Sciences (Pak-Aims)

SYNOPSIS OF CASE In February 1993, Curran Dandurand, senior vice president of Mary

Kay Cosmetics Inc. He was reflecting on the company International Operations. MKC products had been sold outside the United States for over 15

years and by 1992. MKC 1992 retail sales were $ 1 Billion. MKC sold a range of skin care, personal care, and cosmetic

products through approximately 275,000 independent sales people worldwide.

Company offer unlimited opportunities of women in business.

Virtually all the company products were manufactured in a single plant near Dallas.

Four basic levels of independent contractors were included in MKC sales force.

MKC developed programs and manuals for its sales force. Mary Kay Ash’s charisma, philosophy, and motivation were

likely appeal to women throughout the world. Company had 100% subsidiaries in nine countries. The first two market entry was not chosen for strategic

reason but for approach to company from local entrepreneurs. In 1992, MKC initiated an organizational change that result

in the formation of global resource group to support sales subsidiaries worldwide.

1993 research indicated that MKC was perceived by some Canadian consumers as out of date.

Direct selling method backed by advertising, catalog sales and buying club sales was successful in Australia.

Brand image and awareness was positive after four years in Mexico.

Good sales position in Taiwan and in future it will grow.

MKC established subsidiaries in Germany. Great teacher strategy to differentiate MKC from other retail

and direct selling companies in 1993. Decision evolving entries in fastest growing region of Asia. Finding out the critical success factor for entries into Japan

and China. Evaluating new distribution method for both countries. Learning from company own and its competitor’s

international operations. Better understanding of consumer preference and demand

and development of new products for different region of the world.

In 1992, MKC conducted a focus group in China. Sending lengthy product for approval to Ministry of Health

(Japan).

INTRODUCTION Mary Kay Cosmetics incorporated in Texas (United States) in 1963 by Mary Kay Ash. MKC was a direct selling cosmetics company and by 1992 international sales represented only 11% of the $ 1 billion total. Where as one of its competitor Avon Products Inc derived over 55% of its $3.6 billion sales from international market.MKC sold a range of skin care, personal care, and cosmetics products through beauty consultants. The company powerful culture was based on offering unlimited opportunities for women in business, also company defined its mission as promoting business opportunities for women, teaching women how to care for their skin and use cosmetics and offering skin care systems and personal services to its customers.In 1992 MKC manufactured 225 SKUs including color shades and virtually all MKC products manufactured in a single plant (A most efficient cosmetic production facility in world) near Dallas. Company involved its sales force in product policy decisions by sending samples to them for evaluation. MKC sales force included the four basic levels beauty consultants, sales directors, senior sales director, and national sales directors and promotions were made on the basis of performance. Virtually all beauty consultants were female and they bought MKC products at a 40% to 50% discount off the retail selling price, depending on volume also 15% of sales force have to attend seminar in Dallas. Sales people received 4% to 12% margins of wholesale prices of the products. MKC has also developed manuals, sales training ads for its sales force. MKC facing a mature market and penetration of U.S. cosmetic direct selling companies in 1993. Also competitors of the company were successful in international market also MKC executives believed the company culture could be transferred internationally and motivation, philosophy were likely to appeal to women throughout the world.In early 1993, MKC products were sold in 19 countries and new organization structure is shown in Exhibit 4. The global marketing group, headed by Dandurand, providing subsidiaries with product development, marketing support,

advertising, public relation and consumers promotion materials. For future International expansion regional sales headquarters were established for Asia/pacific, Europe, and Americas (excluding the U.S.). For future international expansion a “Great teacher” Strategy is identified in 1993. Taiwan subsidiary by 1992, become profitable and promised good future sales growth. MKC future expansion company considering both Japan and China markets. Company has conducted focus groups and considering which plans and marketing mix options would be more effected in both countries.

PROBLEM STATEMENT

The key issue right now is that how MKC could expand its international operations and which elements of MKC’s culture, philosophy, product line and marketing programs are transferable. Critical success factors and marketing strategy for future international expansion need to be defined. Currently company was evaluating two market entry opportunities and those are Japan and China. Company will face these kinds of market and situations:

o Japanese market was a mature but lucrative market. o Chinese market was a rapidly growing and changing but

relatively unknown market with substantially lower individual purchasing power.

Entries into these markets would further extend its international expansion.

CASE ANALYSISIn 1993, MKC was facing a mature U.S. cosmetics market also increasing number of competing direct selling organization, and potentially maximum historical penetration in some areas of the United States. Also competitors of the company such as Avon and Amway had been very successful internationally. Due to these factor company executives thinking way MKC also not more successful like their competitors. For this Curran Dandurand (S.V.P) of global marketing group considering the market entry opportunities of Japan and China for Asia/Pacific region, on the basis of marketing strategies which will best suit for each country? Both the countries market has potential for the skin care cosmetic products. As compare to Japan, Chinese market is rapidly growing market with lower individual purchasing power. But on the other hand in Japanese market cosmetic marketing and direct selling were well known and accepted.

Critical success factors for each market in term of market size, distribution channels, competition and barriers to entry.

All these factors were most important factor for both markets and can be addressed by comparing both countries skin care market.

Comparison of Skin care market of Japan and China )

Skin Care market in Japan

Japanese market was mature but lucrative.

Proposed Marketing Plans for entering Japan

Market Size

Target market = 5 Million

Preliminary Estimates of the First Year Economics of Market Entry: Japan and China

JapanAverage retail unit price US$ $25.00Average MKC wholesale unit price 1250Cost of goods 2.30Freight and duty 0.75Gross margin 9.45Product development costs/year 1.9MPromotion and advertising costs/year 3.0MManagement overhead/year 0.4MStart-up investment costs 10.0M

In takes 4-5 years to earn a good profit Japan.

Mission/Vision

Deliver high quality products and Mary Kay Ash’s Charisma, motivation and philosophy for successful entry into Chinese market and deliver best job opportunities.Marketing ObjectiveA successful entry into Japanese market for the further growth of international expansion.

Marketing Mix

Product DesignProducts should be designed according to the standards of the Japanese consumers.

Brand NameMKC should use its own brand name because foreign products were highly appreciated.

ProductsSkin lotions, face wash and cleansing products, and few Makeup products.

Product PriceAll the product prices should be charge by considering domestic and foreign competitor’s products prices and compensation plans.

Place Growth areas of Japanese market.

PackagingProduct should be packed in attractive jars or containers. Label should be applied to jars in a attractive way carries both English and Japanese copy. Instruction paper should be included in the packing in both languages..

Advertisement On popular TV channels, print media like magazines.

Product Differentiation/Competitive AdvantagesDeliver high quality and varieties of skin care and makeup product with a image of best suited for Japanese consumers.

Consumer BehaviorIn year 1990, a increasing percentage of Japanese women were going for further education and working outside the home and 25.9 million of Japanese women over the age of 15 were employed. In year 1992, they spend on average $400 on cosmetics. Forty percent of all cosmetics sales were to women in their 20s and 30s (13.468 million) 4.668 million (of 30s). The heaviest users were 8.8 million women aged between 20 and 29 and these were less price sensitive and interested in high quality cosmetics. Skin care products accounted for 40% of all cosmetic sales. From facial and shaded makeup users, forty-four percent and forty percent purchase all or some of their product from direct selling companies also nineteen percent and twenty percent from the direct salespeople. The average Japanese women spent almost three times more on skin care than the American women, but the price difference covers both the countries annual expenditures and Japanese consumer emphasis on visual appeal of product packaging. Japanese consumers believed that they have sensitive skin and pink color was more appropriate for children and teenagers. Also in Japan several different cleansers and moisturizers were typically used in a single skin care region as compare to 3 in United States.MKC should consider all these point specially the color of the product and is visual appealing of the product also sensitive skin believe of the Japanese consumers.

Distribution ChannelsProduct distribution can be done by using three main channels in Japanese Market and those were:

Franchise system also knows as a chain store. Distribution company is also involved and almost forty percent of cosmetics sale through this channel by 1992.

Retailer obtained full range of product from manufacture’s distribution company. Beauty consultant provide by

Manufacturer Distribution Company Retailer

manufactures to deliver better service to customers and maintain control over the selling process. A variation of franchise system called direct selling franchise in which company Contact directly to retailer without the distribution company.

This effort supports the foreign company face to face counseling and limited number of shops and departmental stores.

General distribution was the conventional channel and almost thirty percent of cosmetics sale through this channel by 1992.

Door to door bypass the costly complex retailing network and almost nineteen percent of cosmetics sale through this channel. Due to staying at homes direct selling companies finding difficulties attract sales personnel. Some direct selling companies had started marketing its products to variety shops, aesthetics, and salons and by mail order.MKC being a direct selling companies use Franchise system and general distribution channels for its product distribution and not consider door to door at this time because product distribution using this channel had decrease. Also Use party plan methods as well.

Competition

MKC would face high competition from top five companies of Japan including some foreign companies. Japanese Manufacturing companies spend almost 4% of their sales on research and development which is double to the foreign manufactures.Some of the foreign companies pursued selective distribution through limited number of prestige departmental stores. Exhibit 10 and Table D provide the

Manufacturer Retailer

Wholesaler RetailerManufacturer

data of some domestic and foreign cosmetic manufactures and direct selling cosmetics companies of Japan. Pola was leading one by 1990.All of these companies offered high commission margin (25% to 30%) and also give bonuses as well. Also most of the percentages of their sales were facial skin care and makeup products. Most of their employee attends the training classes as well, which was an important factor as compare to U.S. cosmetics companies.Due to highly competitive it will take 3-5 years for the company to turn into profit and take shares of the other companies. Success to this market will lead the company into further into countries of Pacific Rim.

Barriers to EntryMKC would be a late entrant in mature, complex, fragmented and highly competitive market.Also Japanese people believed that that they have sensitive skin and only local manufactures can understand this key fact better than the other foreign countries. Consumer attitude toward the local cosmetic manufactures is more than the foreign manufactures. Exhibit 7 summarizes Japanese consumer buying behavior.Japanese ministry of Health give approval for the products and it take time as well as product quality which suit for the Japanese people. Also MKC will face high competition from domestic manufactures and foreign companies. Point which company face:

Japanese Government policies and rule and regulation for foreign Cosmetic manufactures also import tariff can be changed by the Japanese Government.

To reach Economies of scale it will take time for company it manufactures in Japan. Input cost would be high.

Capital requirements would also be a problem for the company as women were staying home or finding sale personnel.

Due other domestic manufactures Brand identity would take time for the company.

Access to distribution channel is also not controllable factor due to mature complex, fragmented and highly competitive market. Language problem.

New product needs approval from the Ministry of Health of Japan.

Skin Care market in China

China Market Selecting Reason If we compare China Market with Japan then the result would be that Competition is weak, Market with size: Growth rate is high, Development possibility: It will be high when It was analyzed with Japanese market.

I strongly consider MKC entry into China Cosmetic Market and company should target the Shanghai cosmetic consumers.

Principle regional market of China

In term of price, direct selling and shop selling

GuangzhouBeijing

Shanghai

Price low

High

Direct selling

Shop selling

Proposed Marketing Plans for entering China

Mission/Vision

Deliver high quality products and Mary Kay Ash’s Charisma, motivation and philosophy for successful entry into Chinese market and deliver best job opportunities.Marketing ObjectiveA successful entry into Chinese market for the further growth of international expansion.Market SizeThree principles of regional markets of china characteristic are given in Table E.Guangzhou, Beijing, Shanghai.Among there Shanghai is best suited for entering into china: Shanghai’s population Shanghai from inside most It is a big city with a commerce Culture. It is a central place.

13.5 million = City.60 Million = Province.

Total market size should be targeted. = 13.5 million.

Consumer BehaviorThere was growing difference for Urban and Rural Areas. Eighty seven percent of the Chinese women worked and many held two job one state job and other independent. The three principle regional markets have different characteristics.

Guangzhou has most flexible for business approval and hiring. Consumer characteristics were unrefined, main interest is food and family but most interested in glamorous.

Beijing is capital of china and living people in this region are rigid, bureaucratic,

Shanghai consumer are elegant, vain, tough negotiators as compare to Beijing and Guangzhou. Also they seek quality or consider quality more than others.

MKC Cosmetic product good in quality and that’s what the shanghai people wanted.

Competition

MKC will face competition from foreign companies like Johnson & Johnson and Unilever and some of the domestic cosmetics manufacturing companies in Shanghai. All the foreign companies combine sales accounted for 3% of the Chinese market. In other regions Avon and L’Oreal, Revlon, and Shiseido were presents.

Barriers to Entry Finding the best Joint ventures company.

Negotiation also involved some government bodies.

In depth market and feasibility study.

Competition likely to be increase in future from foreign companies.

Due to increasing in population, for meet the demand required a manufacturing plant that cost at least 20 million and take 2 years of time.

On job leave facilities for women and benefits.Distribution ChannelsState owned departmental stores with 280,000 outlets present in china accounted for 40% of all consumers’ product retail sales. Also collectively owned stores (1.2 million) accounted for 32 % of sales and 8 million individual owned stores accounted for 20% of the sales. Rests of sales were made through 330 joint venture stores (5% of the sales) and direct selling companies (3%).Chinese distribution system was accessible to U.S companies than the Japanese system but however it is more fragmented.

Imported foreign products had sold at a higher price even at 8 time more than the china manufactured brands and 15 time those of Chinese local brands.Most of the foreign products were distributed by using a joint venture company and licensed distributor.

MKC should find a good joint venture company distribute its product into Chinese market and use some modified party plan method (basis of focus group findings).Like other foreign companies MKC should rent some cosmetic cases and few shelf spaces from the departmental stores.

Financial data2 years expected sales would be 3.9 Million to reach its breakeven. Break even

Initially two years Expense $3.5 Million

BEP (Production volume)

$3.5M/$ 2.02 (gross margin) = 1,732,673 units

Target production volume (for 2 years)

1.7M/2 years = $0.87M units

Total Sales 0.87M units * $ 4.5 (wholesale unit price) = $ 3,915,000 = $3.9 Million

Starting expenses for entry in Chinese market

Average retail unit price US$ $9.00Average MKC wholesale unit price 4.50Cost of goods 1.20Freight and duty 1.28Gross margin 2.02Product development costs/year 0.1MPromotion and advertising costs/year 0.4MManagement overhead/year 0.25MStart-up investment costs 2.0M

Company will attain its BEP in short-term time within the period of 2 years.Unit margin on sold would be lesser than the product sold in Japan.

But startup cost, office overhead and advertising expenditures could be somewhat lower in China than Japan.

Marketing Mix

Product DesignProducts should be designed according to the standards of the Chinese consumers.

Brand NameMKC should use its own brand name because foreign product were highly appreciated.

ProductsWrinkle removing products. Skin Snow whitening products.Skin Treatment products. Makeup products.

Product PriceAll the product prices should be charge by considering domestic and foreign competitor’s products prices and compensation plans.

Place Shanghai, China

PackagingThe entire Product should be packed in a attractive glass or plastic jars with color caps. Label should be applied to jars or stumped and carries both English and Chinese copy. Instruction paper should be included in the packing.

Advertisement On regional and provincial television channels and use some print media (popular Magazines) and in departmental stores (broachers, skin treatment books). PromotionOffer a toll free number. Organizing carrier opportunity seminars.

Brand awarenessFor brand awareness it would require $ 100,000.

Product Differentiation/Competitive AdvantagesDeliver high quality skin care and makeup product according to demand of the Chinese consumers Also training of sales personnel for competitive advantages.

MKC Successful International Market Entry(Based on company own experiences and its Competitor Avon)

In early 1993, MKC products were sold in 19 countries and company had 100% owned subsidiaries in nine countries:

The following points will describe what MKC had learned from in its international operations:

International market entry is strongly based on personal contacts. Separate international division operation helps the head quarter for

further international operations. 1992 organizational change resulted in the formulation of global

resource group to support sales subsidiaries worldwide. This also consolidated the human resources, legal, finance,

manufacturing and marketing functions. Marketing and product development, quality controlled support by

global marketing group. Worldwide Subsidiaries support function and assistance. Acquisition of direct selling companies increase company sales and

image worldwide. Sales force (Beauty consultants, sales people) increase due to

offering job opportunities. Production facilities increase due to international expansion. U.S marketing strategy is best for products and communication to

subsidiaries. Entries into new countries cosmetics markets and studied the

behaviors of competitors and local manufactures. In time entry decisions are highly valuable.

Form its competitors Each country subsidiary run by a country manager. Decision authority must be on the basis of agreed upon performance

objectives. Emphasize of merchandising is import for marketing campaigns. Event should be addressed properly in effective manners by using

brochures. Sales consultant should have limited SKUs to overcome the complex

problems. Lower product line turnover ought to be permitted. International marketing programs have considerable importance.

Price setting should be according to individuals buying power in individual countries.

Hiring of local national is important and giving them some directions. Training of employee is most important factor to give them a better

understanding of company vision/missions.

Recommendation and Suggestions

Entry into Chinese market would be successful because competition from foreign competitors is low as compare to Japan.Also Chinese cosmetic market entry is easy as compare to Japanese cosmetic market. Chinese population is almost ten times more than the Japan and growth rate is also high.Point to be considered

MKC can extend its further international expansion in Asia/Pacific region after the successful entry into Chinese market.

MKC should design their product according to the standards of the Chinese consumer behavior.

Price should be adjusted according to market and consumer buying behavior.

Build strong relations in countries, which would help the company to find the best joint venture company.

To meet the diverse needs of the global consumer, Mary Kay customizes its color product lines by region.

Provide Whitening Essence and Powdery Foundation by region because only few companies providing in Asia/Pacific Rim.

For further MKC launch some fragrance products Labor charges are cheaper in China than Japan. It take 2 years to reach BEP in china as compare to

Japan where it will take 4-5 years to earn a good profit.

Foreign nation brand Preference in china is important factor.

Shanghai Consumers Outward appearance would let the company to introduce new products and its features.

Company also focuses Research and development of new product for different region according to consumer’s preference.

Company also focus on some other direct selling techniques like other its competitor had done.

Company builds its image in the mind of consumers for caring them best and follows Mary Kay Ash’s charisma and philosophy for successful international operations.

Company also start mail order system E-Shopping website as well.

Organize carrier opportunity seminars. Use some modified party plan methods because

simple party plan would be not as much feasible because houses are small in Shanghai, China.

Ansoff Matrix

SWOT Analysis

Strength Weakness

Product Quality Operating in many countries 100% owned subsidiary in fee

countries. Superior educated Staff Sales force

Only in cosmetic market Limited resources

Opportunity Threat

Entries into growth potential markets.

Foreign nation brand Preference.

Foreign national competitors Rule and regulation by other

countries Political instability in some

countries.

  Existing Products New Products

ExistingMarkets

NewMarkets

MKC in China

Current focus would be

MKC in China

for further future goals

Porter Model: evaluation of Industry Forces

The Porter Competitive Model serves to better illustrate the factors that influence the cosmetics industry. It focuses on the five forces that affect any given company: Supply, demand, alternatives, risks, and the direct competition of the firm.

Existing companiesForeign CompaniesNew domestic manufactures

ContractorsShipping CompaniesBanksJoint venture companies

Price negotiatorsLow

Bargaining Power of Suppliers

Bargaining Power of Buyers

Potential New Entrants

Intra-Industry RivalryMultinational Companiesi.e. P&G, Amway, Avon, Shiseido, Nu Skin InternationalAll direct selling companies.

Substitute Services

New product linesi.e Lipsticks, fragrance, perfumes

Characteristics of Three Principal Regional Markets in China: 1992

Guangzhou Beijing Shanghai

LocationSouth (100miles north of

Hong Kong)North (China’s

capital)East Coast by Yangtze

Population6 million = city

25 million = province4 million = city

11 million = province13.5 million = city

60 million = province

Region characteristics

Low-cost manufacturing base for Hong Kong.

Most flexible for business approvals and hiring.

Government ministries.

Second-largest retailcenter and strongIndustrial base.

8.5% of China’sindustrial output

Cultural and commercial capital.

Foreign companies

Avon, Colgate, P&G, andAmway.

Shiseido, L’OrealJohnson & Johnson,

Unilever

Consumer characteristics

Unrefined. Main interestis food and family.

But more interestedin glamour.

Rigid, bureaucratic.More cerebral.

Elegant, vain, toughnegotiators, seek

quality.

Typical wage level

$200/month, highestconsumer goods

Spending in China.Flooded by foreignconsumer goods.

$80/month but risinglevel of affluence inthe last two years.

Over $100/month.Highest spending onclothing, cosmetics,

Jewelry. (Estimates =30% disposable

Income.)

Currently market comparison of China and Japan

China JapanSize of the present

marketPopulation 1,139million Urban

population 27%Population 124million, Urban

population 77%

Buying powerPer 1st person GNP $325, It is

increasing rapidlyPer one person GNP $14,311,

growth rateEconomic growth rate Economic growth rate 10%, Economic growth rate 2~3%,.

Political stabilityWith conservatism person political quarrel of reform Ron sleeping field economic reform delay possibility

The stability the possibility of seeing it is not but compares in

China, stable

Legal elementDirect sale method regulation

possibility existencePublic welfare sincerity hardSatisfy regulation existence

Entry cost

The price is low relativelymarket advance head expense,

With the fact that the running cost will be low in Japan forecast

It is high

Foreign nation brand ratio

3%23% (production 18% + incomes

5% inside Japan of foreign nation enterprise)

Competitive foreign nation brand

It is few It is many

Direct sale ratio 3% 19%

Consumer propensityIt will compare in Japan and it will

take the side

Varies; greatly; excessively; very much; awfully; terribly;

remarkably; extraordinarily.