Company Profile• Incorporated in Texas in 1963 by Mary Kay Ash• A direct selling cosmetics company• Offering Skin care system as opposed to individual product• Products: Skin care, Personal care, Cosmetics• 2,75,000 independent salespeople worldwide known as “Beauty Consultants”• Unlimited opportunities for women in business with distinctive compensation & recognition plan
Background• In 1992,MKC’s international sales represented 11% of the $1 billion retail sales• In contrast, Avon products derived over 55% of its $ 3.6 billion retail sales• Formulation of critical success factors for MKC internationally• Evaluation of two market entry opportunities: Japan- mature but lucrative market China- rapidly growing but relatively unknown market
Cosmetics and Direct Selling Industries• MKC competed in both cosmetics and direct selling industries• Top four companies in US cosmetics market in 1992 were Procter & Gamble Estee Lauder Avon Revlon• L’Oreal, subsidiary of Nestle dominated the world market with $5.9 billion in retail sales• Two approaches to direct selling: Repetitive person-to-person method Party plan method
International Operations• Australia and Argentina not chosen for strategic reasons• Challenges MKC faced internationally: Canada Market research indicated that MKC was perceived as outdated Australia- In 1992, MKC had low brand image Mexico- Brand awareness was high, brand image was positive Taiwan- Rapid expansion had generated $3.3 million in sales
Contd.• Factors inhibiting growth include: Direct application of U.S. marketing strategy without modification in local markets Low consumer brand awareness Insufficient marketing resources Cultural barriers impeded use of party plan
MKC in ASIA• Taiwanese subsidiary became profitable and promised good future sales growth• Asia had evolved as one of the fastest growing and dynamic regions of the world• GDP was expected to reach 32% by the year 2000 as compared to 24% in 1988• MKC’s long term market position depended on competitive advantages to develop a market entry strategy
Market Environment of China & Japan• In 1992 Japan was the largest direct selling market in the world with an estimated $19.2 billion retail sales• 1,120,000 women engaged in direct selling in 1992• 1993 might prove to be an opportune time for MKC to launch in Japan• Economic recession created more demand for part time employment
Market Environment of China & Japan• China covered 3.7 million square miles and was divided into 22 provinces, 3 municipalities and 5 autonomous regions• The Chinese population was predicted to grow up from 1.1 billion in the year 1992 to 1.5 billion in the year 2020• Out of 310 million of urban population 156 million were female• “Open Door Policy’’ indicated a series of wide ranging economic reforms
Consumers• In 1992 over 50% of 51.8 million Japanese women aged over 15 years were employed (on a part time basis)• Annual cosmetic expenditure in Japan was above $ 260 per household in 1992• In Japan 40% of cosmetics were sold to women aged between 20 to 30 years• Consumer habits in China varied by region: Northerners were more concerned with clothing and appearance Southerners preferred household products and customer electronics• Brand name were highly appreciated by Chinese consumers who would pay up to four times to avail a foreign brand than a local brand• 87% of Chinese women were employed
Products• Skin care products accounted for 40% of all cosmetics sales in 1992• Products tailored to the Japanese market included Whitening products and wet dry foundation cakes.• Kao and Shiseido dominated Japan’s skin care market.• Foreign manufacturers were successful in selling make-up products.• Products in China were mainly segmented into 2 parts: Skin Care Category Make Up Category
Competitors• Top five domestic cosmetics manufacturers in Japan in the 1992:Shiseido, Kao, Kanebo, Pola, Kobaysashi Kose• Foreign competitors in China and Japan in 1992 were: Avon Johnson & Johnson Kao Unilever L’Oreal Procter & Gamble Revlon Shiseido
Distribution• Distribution in Japan: Franchisee System General Distributorship Door-to-Door Sales• Distribution in China:• 280000 outlets accounted for 40% of all consumer product retail sales.• Cosmetics display in stores tendered to be confusing.• In department stores imported brands were sold in separate cases.• Shelf space were taken for rent in departmental stores.
Advertising• In 1992 advertising expenditure was less than $1 but was expected to grow.• Newspapers were rarely used for print advertising.• Regional TV channels were more popular than single national TV channel.• Advertisement on national channel was liable to censorship.• For a foreign importer the cost of 30 second prime advertisement on Chinese national television was $4000.
Marketing Mix of Mary Kay Cosmetics for AsiaProduct:• MKC emphasized on “teaching skin care and glamour”.• MKC wanted to enter market with both skin care and make up product.• Developing a product line in Japan would require three times as much resources as compared to developing a line for Chinese market.• MKC believed that there current product line was already global in appeal.
Positioning:• MKC’s product positioning muddled up between glamour provider and skin treatment.• Confused about the basis of differentiation and which age group to target.• Communication strategy: Level of emphasis to place in MKC’s communication
Pricing:• Product sold in Japan would be twice as high as for corresponding products sold in China.• Start-up cost in China would be lower.• Chinese market entry was expected to break even within 24 months as opposed to 3-5 years for Japan.• MKC product should be priced in relation to both domestic and foreign competitors.
Promotion:• Consultant recruitment programs have to be developed.• Print advertising, public relations and service workshop have to be developed.• In Japan MKC thought of establishing a toll-free number, developing travelling showroom in suburbs, etc.• MKC’s advertising expense in Japan would cost around $3 million/year, whereas in China it might require $100,000/year for the first three years.