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Canadian consumers as out of date.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:
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.
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
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:
Competition
Direct selling
Shanghai
Price low
Guangzhou
Beijing High
Shop selling
Proposed Marketing Plans for entering China
Mission/Vision
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.
Competition
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.
Break even
Initially two years Expense $3.5 Million
Total Sales
0.87M units * $ 4.5 (wholesale unit
price)
= $ 3,915,000
= $3.9 Million
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:
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
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
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.