Mary Kay Cosmetics

1.Why has MKC not been as successful as Avon in penetrating international markets? There are a number of good reasons that explain why Mary Kay Cosmetics (MKC) had not been able to penetrate the international markets as well as Avon did. The head of MKC’s Curran Dandurand identified a number of reasons for this phenomenon, according to this case study. Dandurand’s analysis concluded that mainly MKC’s limited international success was due the following reasons.

Marking strategy- MKC made a very big mistake in their international marketing strategy. MKC had mistakenly applied its U.S. marketing strategy to different foreign markets without making strategic marketing decisions based on local customs and the general behavior of the customer and seller pool. The first mistake in this aspect was the application of its U.S. style one-on-one, very personal, and direct selling strategy to countries outside the U.S. This did not necessarily work well because it did not fit local culture and customs. In this this regard Avon pulled ahead and was successful in their integration in international markets as they adapted their sales “training” to work well with the culture of the international markets. They took the time to understand and respect the customs and the method of interactions of their customer and seller base. Moreover, they hired local managers in order to increase their knowledge about the specific locations Pricing-

MKC’s overseas pricing strategy was an exact replicate of its U.S. pricing strategy without much consideration of the local market condition such as the income level and buying power of the customers living in those less developed countries. They failed yet again to take the time and consider the markets they wanted to enter. I feel (and so does the case study) that if MKC would have taken a more considerate approach, to allow the consumers the opportunity and ability to afford the MKC products(this is of course assuming that MKC would still be making a profit from these international prices), the introduction of these products into these international markets would have been met with more success than there was in reality. Yet again in this regard Avon took the time to consider the buying power of the markets they were entering and priced their products accordingly and had

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Products-
MKC’s product line had a relatively narrow product line, consisting of just 225 SKUs (stock keeping units) while Avon boasts 1500 SKUs. MKC didn’t take the time to consider the type of skin type and preferences of Asians as opposed to Americans. Americans for example bought a lot of makeup-type products in the color pink, which in Asia, was generally looked upon as being a childish color and not one for Adults. Another difference is the difference in skin tone between Americans and Asians, the Americans go for a darker look and the lightening makeups that provided a light finish were purchased heavily by the Asians. MKC provided limited selections for its overseas customers to choose from. Avon had over six and a half times the amount of a selection for the Asian and international markets, they took the time to consider the needs and preferences of their customers, and heavily profited from this initial investment of time and money. Brand awareness-

MKC had a poor image overseas. Dandurand blamed the company did not provide sufficient marketing resources to develop its brand. According to the case, a market research conducted in 1993 indicated that “MKC was perceived by some Canadian consumers as out of state” (Quelch & Laidler, 2009, p. 4). Also, their low international brand awareness made that consumers didn’t know about the firm and MKC didn’t have enough marketing resources in order to increase their brand awareness. 2. What criteria should MKC use in deciding how to prioritize foreign market entry opportunities?

In order to decide where to go internationally for their foreign market entry, MKC should make their decisions based on Porter’s Five Forces. The five forces are the threat of new competition, the threat of substitute products, the bargaining power of customers, bargaining power of suppliers and the competitive rivalry in the industry. The threat of new competition is very real for MKC as in every single foreign market, there is the ability for someone else who is possibly a local firm to produce the same products for cheaper and maybe more sustainable in the long run and that could be very dangerous for MKC. The threat of substitute products is another problem for MKC, as there are thousands upon thousands of substitute products flooding every foreign market. The danger is that if a substitute product is priced lower and is seen as an equal to MKC’s product, in most the consumer would rather buy the cheaper product if they believe they are getting the same “service”. The bargaining power of the customers goes hand in hand with the threat of substitutes, as if there are other products that offer the same “features” as MKC’s product, the consumer will most likely buy the cheaper product and this would give them the “power” to have MKC lower their prices in the foreign markets to compete with lower priced substitutes. Another factor is the bargaining power of the supplier, if MKC charges a higher price than other makeup wholesalers, the suppliers will have the power to cause MKC to lower their prices or they will threaten to start using other makeup wholesalers.

And last but definitely the most dangerous of all the five forces is the competitive rivalry. MKC has to take a close look at each of the Companies that are already in the market or ones that are planning on entering soon, and they have to understand if they have a competitive advantage. Does MKC have a line of products that this foreign market will perceive as a product produced for them, or if not for them it has to be a “luxury foreign brand”, is this a company that will have return customers and produce sustainable sales. MKC has to see this as being the only way to really make it in a foreign market. In addition, they should use the SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) and the PESTEL analysis (Political, Economical, Social, Technological, Environmental and Legal framework of the new market) in order to evaluate the internal and external analysis and to have a good knowledge of the new country where they want to enter. The SWOT analysis is especially important here to understand where the MKC company has to develop a foreign attitude in their company and realize what the consumers want form a product line of this sort. In understand their strengths and weaknesses they could take their product line and adjust it to the strengths they have and really overpower the competition, and minimize their weaknesses.

This is really an insight into the opportunity and threat rolled into one, as they come to be more knowledgeable in their product line and its integration into the foreign market MKC should come to understand where their products excel and where they need to strengthen the line. This is the criteria that MKC should use when deciding how to prioritize foreign market entry opportunities. What are the arguments for and against MKC entering (a) Japan and (b) China? The key issue that MKC had to deal with was how could they expand their international operations and which elements of MKC’s culture, philosophy, product line and marketing programs were transferable to these foreign markets. Critical success factors and marketing strategies for future international expansion need to be clearly defined. MKC company was evaluating two market entry opportunities. These two opportunities were Japan and China. As a very superficial overview MKC will face these kinds of market and situations: Japanese market was a mature, yet quite a lucrative market.

Chinese market was a rapidly growing and changing, yet was a relatively unknown market with substantially lower individual purchasing power. The Argument for MKC to enter Japan was that in 1990, an increasing percentage of Japanese women were going back to school to achieve higher education and working outside the home and 25.9 million of Japanese women over the age of 15 were employed. In 1992, these women spent on average $400 annually on cosmetics. Forty percent of all cosmetics sold were to women in their 20s and 30s (which totaled 13.468 million). The biggest users of cosmetics were 8.8 million women aged between 20 and 29. These women were less price sensitive and interested in high quality cosmetics, and were willing to pay the price. Skin care products accounted for 40% of all cosmetic sales in Japan. Of these facial and shaded makeup users, forty-four percent purchased all or some of their product from direct selling companies and nineteen to twenty percent from direct salespeople. The average Japanese women spent almost three times more on skin care than the average American women. Japanese consumers view pink as a color more appropriate for children and teenagers. Additionally in Japan, they believe that they have very sensitive skin and use several different cleansers and moisturizers were typically used in a single skin care regimen as opposed to in United States. MKC had to consider all these points in addition to the color of the product and that the packaging is visual appealing.

If MKC entered Japan they would face high competition from the top five companies of Japan including some foreign companies. Japanese Manufacturing companies spent almost 4% of their sales on research and development which was double that of foreign manufactures. Some of the foreign companies sold their product through selective distribution through limited number of prestige departmental stores. All of these companies offered high commission margin (25%to 30%) and gave bonuses on top of the commission. Of the percentages of their sales, most were facial skin care and makeup products. Most of their employee attended the training classes as well, which was an important factor for MKC to compare to U.S. based cosmetic companies. MKC’s analysts projected that to due to a highly competitive market it would take 3-5 years for the company to turn a profit and take market share from the other companies. Success for MKC in this market would eventually lead the company into further into countries of Pacific Rim. A few arguments against MKC for entering Japan would be that they would be a very late entrant in mature, complex, fragmented and highly competitive market. Also Japanese people believed that that they have sensitive skin and perhaps only local manufacturers can understand these key facts and beliefs better than foreign entries. Japanese Ministry of Health need to give their approval for products sold in Japan and it would take time as well as product quality which would be suitable for the Japanese market.

MKC would face high competition from the domestic manufactures and foreign companies. Japanese Government policies, rules and regulations for foreign Cosmetic manufactures were very high and also import tariffs were controlled by the Japanese Government. For MKC to reach Economies of scale it would take time for the company, if it would manufacture the products in Japan. Capital requirements would also be a problem for the MKC as more women were staying home, and they needed sales personnel. This might be the biggest hurdle for MKC, due other domestic manufactures brand identity it would take time for the company to really gain a foothold in the Japanese cosmetics market. The access to distribution channel that MKC desperately needed was also not a controllable factor due to mature complex, fragmented and highly competitive market.

China- If we compare China Market with Japan then the result would be that competition in China is weak. Growth rate is high, and the development possibility is almost endless. I would strongly urge MKC to consider entry into the China cosmetic market and the company should target the Shanghai cosmetic consumers. The mission of MKC was to deliver high quality products and Mary Kay Ash’s charisma, motivation and philosophy (to the saleswomen) for a successful entry into Chinese market and to deliver the best job opportunities(which would come with the proper training). There were three principle regional markets to enter Guangzhou, Beijing and Shanghai. There was growing difference between the urban and rural areas. Eighty seven percent of the Chinese women worked and many held two job one state job and the other independent. The three principle regional markets had different characteristics. Guangzhou- was the most flexible for business approval and hiring. Consumer characteristics were unrefined, and the main interest of their disposable income spending was on food, family and entertaining. Yet they were also interested in being glamorous, and were described as being flashy and ostentatious. It was believed that there economy would soon merge with Hong Kong’s, as they were very similar. Beijing- is the capital of China and the people living in this region were viewed as rigid, bureaucratic, conservative and serious. They were less concerned with appearance than other regional customers, and spent less on clothing and personal care.

Yet Beijing being the home for the Party officials, this elite group was very interested in purchasing luxury goods and designer labels. They were perceived as people that were receptive to advertisements that were truthful, yet they also seemed to be willing to try new products. In regard to this new brand launches were often initially more successful in Beijing than in Shanghai. Shanghai- consumers were elegant, vain and were tough negotiators as compared to Beijing and Guangzhou. They spent a large portion of their disposable income on clothing, jewelry and personal care. Also they were looking for quality and considered quality a major factor in purchases more than other factors. MKC Cosmetics were product of high quality and that’s exactly what the people of Shanghai wanted. They were considered to be the most influential market in China and was believed that a successful launch in Shanghai would have the ability to be extended to the rest of China, whereas a marketing program for Beijing or Guangzhou might not necessarily work in Shanghai. Arguments against MKC’s entry into China would be that they would face competition from foreign companies like Johnson & Johnson and Unilever and some of the domestic cosmetic manufacturing companies in Shanghai. All the foreign companies combined sales accounted for 3% of the Chinese market. In other regions Avon and L’Oreal, Revlon, and Shiseido were present. Among some of the hurdles MKC needed to overcome was to find the best firm to partner up with in a Joint Venture. Another difficulty was that negotiations tended to have an involvement of government agencies, so MKC would need help in that aspect. And also due to the increasing population of China, to meet the demand projected, they would have to build a manufacturing plant that would cost 20 million dollars and take around two years to build, which would set them back in their ability to compete in the market.

In China lots of local companies had on site facilities, long leaves of absence for pregnancy and lots of benefits, and for MKC to compete on the sales side, to attract employees they would potentially have to offer something that would mirror what they Chinese were already being offered. Another interesting factor that MKC had to look into was the distribution channels that they would use for their products. State owned departmental stores with 280,000 outlets present in China accounted for 40% of all consumer product retail sales, collectively owned stores accounted for 32 % of sales and 8 million individually owned stores accounted for 20% of the sales. The remainder of the sales were made through 330 joint venture stores and direct selling companies. Chinese distribution systems were more accessible to U.S companies, as compared to the Japanese system but however it is more fragmented. Imported foreign products in general at that time sold at a higher price, sometimes at 8 times more than the Chinese manufactured brands and 15 times those of Chinese local brands. Most of the foreign products were distributed by using a joint venture company and a licensed distributor. For MKC to succeed the first step would be to find a good joint venture company to introduce and distribute its products into the Chinese market and use some modified version of the partyplan method. And like other foreign companies MKC should rent cosmetic cases and shelf space from the department stores to directly compete with other foreign cosmetic companies. What marketing mix recommendations would you make to Dandurand if she decides to enter (a) Japan and (b) China? The marketing mix recommendations I would make to Dandurand if she decides to enter China would start with the Product Design- The products should be designed according to the standards of the Chinese consumers, and not just assume that something that works in the U.S. will work in China. Next would be the Brand Name- MKC should use its own brand name because foreign product are more highly appreciated, and considered as a luxury item.

Next would be about the Product Line- The line should include wrinkle removing products, skin whitening/lightening products skin treatment products and of course makeup products. Next would be the Product Price- All the product prices should be computed by considering the domestic and foreign competitor’s products prices and the purchasing power of the consumers. Next would be the Place- The place to start the marketing of the product line would be Shanghai, China, and the reason is because it was seen as the most influential market in China, and if it worked there then it would carry over to other regions. Next would be the Packaging Design- The entire Product should be packed in attractive glass or plastic jars with colored caps. Label should be applied to jars or stamped directly onto the container and both English and Chinese instructions should be included in the packaging. Next would be the Advertisement- The advertisements should be on regional and provincial television channels and also there should be some sort of advertisement in the printed media (popular Magazines) and in department stores( including brochures and skin treatment books). Next would be the Promotion- Offer a toll free number if they were to have any questions regarding the products. Organize career and opportunity seminars for anyone interested in the sales of these products. Next would be Brand Awareness- For brand awareness it would require at least $ 100,000 in investments according to the figures. Next would be Product Differentiation and Competitive Advantages- To deliver high quality skin care and makeup product according to demand of the Chinese consumers. Also the training of sales personnel to gain and keep their competitive advantages. This is the marketing mix I would recommend to Dandurand for the entry of MKC to China The marketing mix I would recommend to Dandurand if she entered Japan would be to start with the Product Design- Products should be designed according to the standards of the Japanese consumers, that they should take the time to understand the Japanese customer and design the product per these standards.

Next would be Brand Name- MKC should use its own brand name as foreign products are highly appreciated, and considered a luxury product, and holds special value. Next would be the Product Line- The product line should consist of skin lotions, face washes, cleansing products, and of course MKC’s specialty, makeup products. Next would be the Product Price- All the product prices being charged should be priced by considering domestic and foreign competitor’s products prices and consumer purchasing power. Next would be the Place- Growth areas of Japanese market would be the place to market the product line of MKC. Next would be the Packaging- The products should be packed in attractive jars or containers. The labels should be applied to jars in an attractive way and written in both English and Japanese. Instructions of use should be included in the packaging in both languages. Next would be the Advertisements- Advertising should take place on popular TV channels, and in printed media which include fashion and non-fashion magazines. Next would be the Product Differentiation and Competitive Advantages- The product differentiation should be to deliver high quality products which include a number of varieties of skin care and makeup products with an image of best suited for Japanese consumers. It should reflect an image that the Japanese look up to or respect, this will help the sales of MKC products and help with the differentiation and advantage. This is the marketing mix I would recommend to Dandurand for MKC’s entry into Japan.

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