WRITTEN ANALYSIS ANALYSIS OF CASE
Mary Kay Cosmetics Asian Market Entry
COURSE:
MARKETING MARKETI NG STRATEGY STRATEGY
PRESENTED TO:
MR. YASSER YASSER HAMAYUN
PRESENTED BY:
SHAHBAZ SHOUKAT 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. 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to support sales subsidiaries worldwide. 1993 research indicated that MKC was perceived by some Canadian consumers as out of date.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 incorpor ated in Texas Texas (United States) State s) 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 force included the four basic levels beauty beaut y 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 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 Taiwan subsidiary by 1992, become b ecome 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 PROBLE M ST STA ATEMENT The key issue right now is that tha t how MKC could expand its international operations and which elements of MKC’s culture, philosophy, product line and marketing mar keting 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 o
Japanese market was a mature but lucrative market. 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 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 ve ry successful internationally. internationally. Due to these factor company executives thinking way MKC MKC also not more successful like their competitors. For this Curran Dandurand Dandura nd (S.V.P) (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 an d barriers to entry. 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
Average retail unit price US$ Average MKC wholesale unit price Cost of goods Freight and duty Gross margin Product development costs/year Promotion and advertising costs/year Management overhead/year Start-up investment costs
Japan $25.00 1250 2.30 0.75 9.45 1.9M 3.0M 0.4M 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 be cause 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. 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 the ir 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 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 Com an
Retailer
Retailer obtained full range of product from manufacture’s distribution company. 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 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 off ered 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 a nd 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 hi na Mark Ma rket et Sel Select ec ting in g Re Reas ason on If we compare China Market with Japan then the result would be that Competition is weak, Market with size: Growth rate is high, high, Develop Development ment possibil possibility ity:: It will will be high 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 Beijing
Shop selling
Guangzhou
High
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 Total market size should be targeted. = 13.5 million.
Consumer Behavior There was growing difference for Urban Urb an 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 wh at 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 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. 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 1,732,673 units
(gross
margin)
=
Target production volume (for 2 years) 1.7M/2 years = $0.87M units
Total Sales 0.8 .87 7M uni nits ts * $ 4.5 (who (whole lesa sale le unit unit price) = $ 3,915,000 = $3.9 Million
Starting expenses for entry in Chinese market Average retail unit price US$ Average MKC wholesale unit price Cost of goods Freight and duty Gross margin Product development costs/year Promotion and advertising costs/year Management overhead/year Start-up investment costs
$9.00 4.50 1.20 1.28 2.02 0.1M 0.4M 0.25M 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 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 be cause foreign product were highly appreciated. Products Wrinkle removing products. Skin Snow whitening products. Skin Treatment products. p roducts. 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 att ractive glass or plastic jars with color caps. Label should be applied to jars or stumped and carries both English Eng lish and Chinese copy. 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 organizational change resulted in the formulation of global resource resource group to support s upport 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. as sistance. Acquisition of direct selling companies increase company sales and image worldwide. Sales force (Beauty consultants, sales people) increase due to offering job opportunities. Production 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 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 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 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. behavior. Price should be adjusted according to market and consumer buying behavior. behavior. Build strong relations in countries, which would help the company to t o find the best joint venture ven ture company. company. To To meet the diverse needs of the global g lobal 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 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 Pr Products
New Pr Products
Ansoff Matrix
Existing Markets
MKC in China MKC in China New Current focus would be Markets for further future goals
SWOT Analysis Strength
Product Quality Operating in many countries 100% owned subsidiary in fee countries. Superior educated Staff Sales force
Weakness
Opportunity
Entries into growth potential markets. Foreign nation brand Preference.
Only in cosmetic market Limited resources
Threat
Foreign national competitors Rule and regulation by other countries Political instability in some countries.
Porter Model: evaluation of Industry Forces The The Porte Porterr Compet Competiti itive ve Model Model serves serves to better better illust illustrat rate e the factor factors s that influence the cosmetics cosmetics industry. industry. It focuses on the five forces 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
Bargaining Power of Suppliers
Intra-Industry Rivalry Multinational Companies i.e. P&G, Amway, Avon, Shiseido, Nu Skin International All direct selling com com anie anies. s.
Bargaining Power of Buyers
Price negotiators Low Substitute Services
New product lines i.e Lipsticks, fragrance, perfumes
Characteristics of Three Principal Regional Markets in China: 1992
Location Population Region characteristics Foreign companies Consumer characteristics
Guangzhou South (100miles north of Hong Kong) 6 million = city 25 million = province Low-cost manufacturing base for Hong Kong. Most flexible for business approvals and hiring. Avon, Colgate, P&G, and Amway. Unrefined. Main interest is food and family. But more interested in glamour.
Typical wage level
Beijing North (China’s capital) 4 million = city 11 million = province Government ministries. Second-largest retail center and strong Industrial base.
$200/month, highest consumer goods Spending in China. Flooded by foreign consumer goods.
Shiseido, L’Oreal
Shanghai East Coast by Yangtze 13.5 million = city 60 million = province 8.5% of China’s industrial output Cultural and commercial capital. Johnson & Johnson, Unilever
Rigid, bureaucratic. More cerebral.
Elegant, vain, tough negotiators, seek quality.
$80/month but rising level of affluence in the last two years.
Over $100/month. Highest spending on clothing, cosmetics, Jewelry. (Estimates = 30% disposable Income.)
Currently market comparison of China and Japan
Size of the present market Buying power Econ Econom omic ic grow growth th rate rate Political stability Legal element
Entry cost
Foreign nation brand ratio Competitive foreign nation brand Direct sale ratio Consumer propensity
China Population 1,139million Urban population 27% Per 1st person GNP $325, It is increasing rapidly Econ Econom omic ic grow growth th rate rate 10%, 10%, With conservatism person political quarrel of reform Ron sleeping field economic reform delay possibility Direct sale method regulation possibility existence The price is low relatively market advance head expense, With the fact that the running cost will be low in Japan forecast
Japan Population 124million, Urban population 77% Per one person GNP $14,311, growth rate Econo conomi mic c grow growth th rate rate 2~3% 2~3%,. ,. The stability the possibility of seeing it is not but compares in China, stable Public welfare sincerity hard Satisfy regulation existence It is high
3%
23% (production 18% + incomes 5% inside Japan of foreign nation enterprise)
It is few
It is many
3%
19% Varies; greatly; excessively; very It will compare in Japan and it will take much; awfully; terribly; remarkably; the side extraordinarily.
