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WRITTEN ANALYSIS OF CASE

Mary Kay Cosmetics


Asian Market Entry

COURSE: MARKETING STRATEGY

PRESENTED TO: MR. YASSER HAMAYUN

PRESENTED BY: SHAHBAZ SHOUKAT


021157- 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Canadian consumers as out of date.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 ANALYSIS
In 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

Japan
Average retail unit price US$ $25.00
Average MKC wholesale unit price 1250
Cost of goods 2.30
Freight and duty 0.75
Gross margin 9.45
Product development costs/year 1.9M
Promotion and advertising costs/year 3.0M
Management overhead/year 0.4M
Start-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 Objective
A successful entry into Japanese market for the further
growth of international expansion.

Marketing Mix

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

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

Products
Skin lotions, face wash and cleansing products, and few
Makeup products.

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

Place
Growth areas of Japanese market.

Packaging
Product 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 Advantages
Deliver high quality and varieties of skin care and makeup
product with a image of best suited for Japanese consumers.
Consumer Behavior
In 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 Channels
Product 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.

Manufacturer Distribution Company Retailer

Retailer obtained full range of product from manufacture’s


distribution company. Beauty consultant provide by
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.
Manufacturer Retailer

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.

Manufacturer Wholesaler Retailer

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 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 Entry
MKC 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

Direct selling

Shanghai

Price low
Guangzhou
Beijing High

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 Objective
A successful entry into Chinese market for the further growth
of international expansion.
Market Size
Three 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 Behavior
There 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 Channels
State 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 data
2 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$ $9.00


Average MKC wholesale unit price 4.50
Cost of goods 1.20
Freight and duty 1.28
Gross margin 2.02
Product development costs/year 0.1M
Promotion and advertising costs/year 0.4M
Management overhead/year 0.25M
Start-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 Design
Products should be designed according to the standards of
the Chinese consumers.

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

Products
Wrinkle removing products. Skin Snow whitening products.
Skin Treatment products. Makeup products.

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

Place
Shanghai, China

Packaging
The 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).

Promotion
Offer a toll free number. Organizing carrier opportunity
seminars.

Brand awareness
For brand awareness it would require $ 100,000.
Product Differentiation/Competitive
Advantages
Deliver 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.
Existing Products New Products Ansoff Matrix
Existing
Markets

MKC in China
MKC in China
New Current focus would be
Markets for further future goals

SWOT Analysis

Strength Weakness

 Product Quality
 Only in cosmetic market
 Operating in many countries
 Limited resources
 100% owned subsidiary in fee
countries.
 Superior educated Staff
 Sales force
Opportunity Threat

 Entries into growth potential  Foreign national competitors


markets.  Rule and regulation by other
 Foreign nation brand Preference. countries
 Political instability in some countries.
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.

Potential New Entrants Existing companies


Foreign Companies
New domestic manufactures
Contractors
Shipping Companies
Banks
Joint venture companies

Intra-Industry Rivalry
Multinational Companies
Bargaining Power of i.e. P&G, Amway, Avon, Bargaining Power of
Suppliers Shiseido, Nu Skin Buyers
International
All direct selling
companies.
Price negotiators
Low

Substitute Services

New product lines


i.e Lipsticks, fragrance,
perfumes
Characteristics of Three Principal Regional Markets in China: 1992

Guangzhou Beijing Shanghai


South (100miles north of North (China’s
Location East Coast by Yangtze
Hong Kong) capital)
6 million = city 4 million = city 13.5 million = city
Population
25 million = province 11 million = province 60 million = province
Low-cost manufacturing Government ministries. 8.5% of China’s
Region base for Hong Kong. Second-largest retail industrial output
characteristics Most flexible for business center and strong Cultural and commercial
approvals and hiring. Industrial base. capital.
Foreign Avon, Colgate, P&G, and Johnson & Johnson,
Shiseido, L’Oreal
companies Amway. Unilever
Unrefined. Main interest
Elegant, vain, tough
Consumer is food and family. Rigid, bureaucratic.
negotiators, seek
characteristics But more interested More cerebral.
quality.
in glamour.
Over $100/month.
$200/month, highest
Highest spending on
consumer goods $80/month but rising
Typical wage clothing, cosmetics,
Spending in China. level of affluence in
level Jewelry. (Estimates =
Flooded by foreign the last two years.
30% disposable
consumer goods.
Income.)

Currently market comparison of China and Japan

China Japan
Size of the present Population 1,139million Urban Population 124million, Urban
market population 27% population 77%
Per 1st person GNP $325, It is Per one person GNP $14,311,
Buying power
increasing rapidly growth rate
Economic growth rate Economic growth rate 10%, Economic growth rate 2~3%,.
With conservatism person political The stability the possibility of
Political stability quarrel of reform Ron sleeping field seeing it is not but compares in
economic reform delay possibility China, stable
Direct sale method regulation Public welfare sincerity hard
Legal element
possibility existence Satisfy regulation existence
The price is low relatively
market advance head expense,
Entry cost It is high
With the fact that the running cost will
be low in Japan forecast
23% (production 18% + incomes
Foreign nation brand
3% 5% inside Japan of foreign nation
ratio
enterprise)
Competitive foreign
It is few It is many
nation brand
Direct sale ratio 3% 19%
Varies; greatly; excessively; very
It will compare in Japan and it will take
Consumer propensity much; awfully; terribly; remarkably;
the side
extraordinarily.