Case Study on Mary Kay Cosmetics: Asian Market Entry Executive Summary Mary Kay Cosmetics Inc’s (MKC) was facing challenges of increasing number of competing direct selling organizations in the US cosmetics market and was not satisfied with their sales revenue generated from international sales. They believed MKC culture could be transferred internationally and that Mary Kay Ash’s charisma, motivation and philosophy were likely to appeal to women throughout the world. MKC management would like to expand their coverage to some other Asian countries – Japan and China.
With evaluations of both markets through PESTEL framework and their own market attractiveness, there are proven potentials in developing MKC in these markets. Successful entry to these markets would definitely assist MKC on further expansion to other developing Asian countries and the rest of the world. Background In 1993, management from Mary Kay Cosmetics Inc’s (MKC) global marketing group was reflecting lower international sales of the overall sales in 1992 compared to their competitor, Avon Products Inc. , which is 11% of $1 billion versus 55% of $3. 6 billion.
The management believed they could achieve increased sales, brand awareness and business stability by entering a new market, especially with their past successful international experiences. Aside from choosing which markets with the most potential MKC should enter? The choice of mode of entry, its STP and marketing programs favored to chosen markets. PESTEL Analysts Expanding business to Japan and/or China is a decision the management has to make and to further develop a market entry strategy that fit with the MKC culture and the local market environment.
Some market environment factors are crucial in eciding the vitality of entry into these markets: Political Situation A closer cooperative relationship has been going on in Japan and the US with the election of Prime Minister Yasuhiro Nakasone, this political stability favors MKC investment in Japan. Political instability has been going on after the retirement or death of China’s conservatives and reformers. Another issue was the Chinese government not allowing its people political freedom corresponding with their increasing economic freedom.
Economic Situation The economy of Japan was one of the largest in the world in 1992, with Gross Domestic Product (GDP) of $3,370 billion and it is estimated with 2. 3% and 3. 2% GPD growth in 1993 and 1994 respectively. Specifically looking at the cosmetics industry, there were increasing numbers of shipments to and from United States and local production by foreign firms. Back to late 70s, China has undergone several economic reforms due to “Open Door Policy’: free market pricing and more liberal foreign exchange conversion were introduced and foreign investment became more acceptable.
These reforms had great impact on coastal provinces to facilitate foreign investment. And now, though China’s GDP is Just 10% of Japan, that is, $371 billion in 1992, it has a fast-growing economy with 10. 1% and 9. 5% GDP growth in 1993 and 1994 respectively. It was estimated that 41 million household would have incomes of $18,000 per annum by the year 2000 and saving rates at 35%. Foreign companies importing finished goods into China faced high tariffs and likely devaluation of Renminbi which would add up the retail prices of their products.
In the 80s, cosmetics and toiletries became an important part in China’s light industry with 6 times increment between 1982 and 1990. The Chinese Ministry of Commerce an foresee the potential in this industry and initiated professional training programs for two million cosmetics staff on selling skills and beauty knowledge. Social-cultural Situation There is an increasing percentage of Japanese women going on further education and working outside the home, predominantly on a part-time basis. The mothers can raise their children, be involved in activities outside the home and to supplement household incomes.
Major consumers of cosmetics were women in their 20s and 30s (26% of all Japanese women over the age of 1 5) and which they considered foreign-made cosmetics as igh-status products. These heavy users were less price sensitive and more tend to high-quality cosmetics. The working women even spent 25% more on cosmetics than women who did not work outside the home. The growing sales of skincare products are fueled by the belief of real beauty to Japanese women (owning a fair complexion and fine-textured skin) and the increasing average age of Japanese population.
These women were more willing and spent almost three times more than the average American women, but they had a for their delicate skin (skin care regimen involved seven-stage process). When comes o makeup products, they are usually associated with status, image and dreams and Japanese women tend to aspire to look like Western women on foreign brands cosmetics ads. Japanese concerned a lot on product packaging, they have their own color preference and which pink was seen as a color more appropriate for children and teenagers to them. China, it was predicted to grow to 1. billion by the year 2010 with eighty percent lived in the eastern half of the country. There were trends towards urbanization and a shift of population from agricultural to the service sector, which was estimated 1 56 illion female population living in urban areas. Consumer habits were so different for northerns and southerns – more concerned with clothing and appearance versus favored more on household products and consumer electronics. Featuring anti-aging, acne healing and smooth snowy-white skin skincare products and foundations were best-selling items in the Chinese cosmetics market.
Chinese preferred basic packaging, Just products in plastic or glass Jars with decorated or colored caps will do. Technological Situation Japan, being the second-biggest spender on R;D behind the United States and specially strong in industrial technologies, MKC can take advantage of such skills in both production and research. Environmental Situation Japan has 4 distinct seasons and relatively mild and temperate climate, with exception of Hokkaido to the north and subtropical area of Okinwa to the south. Same to China, it varies from bitter cold in winter to unbearable heat and humid in summer.
Northern regions such as Beijing may experience temperature of -20C, dry and even snow storms in winters. And in the south, as in Guangzhou, temperatures can rise to around 38C in summers and miserably wet and cold, with rain or drizzle n autumns and springs. Factor of Legislation Ministry of Health in Japan has strict regulations governing imports and lengthy approval processes for manufacture of cosmetics. It happened that, common ingredients approved for use in cosmetics outside Japan were prohibited by Ministry of Health, and required reformulations of the products.
To enhance the economic, the Chinese government was more welcomed to foreign leading to multiple times of increment in household earnings, saving rates and retail sales. The Chinese government took consideration for female workers, they passed out the Period Employment” system which women could choose to take three months maternity leave at 100% pay and/or up to seven years off at 70% of basic pay to aid in childraising. Entry Mode Strategy Both external environment and internal resources are crucial in determining the market entry strategy.
External Environment The Japanese cosmetics market was well-matured and being the largest direct selling market in the world. These provided opportunities to MKC’s direct selling approach – party plan approach. Based on mentioned environmental factors, exporting is chosen to start in the Japanese market. Direct exporting is more favorable, as more control over its international operations (including other MKC international markets) and which might lead to significant sales [profit return.
A subsidiary in Japan will then established and hire strong local nationals as country manger, giving them specific strategic direction and clear profit-and-loss responsibility. Same methodology cannot be used in Chinese market since high tariffs are charged on import goods, and this would further increase retail price of the goods. Local companies do received advantages from the Chinese government, it was beneficial to stablish a Joint venture with experienced local corporation and more helpful if one of the partners had relationships with the Chinese government officials and start its own manufacturing plant.
Internal Resources, Assets and Capabilities In order to reduce any risky investment, human and financial resources should be tightly controlled. In early stage, aside from hiring strong local nationals, one or two experienced employees from headquarters and MKC Taiwan will be transferred for short-term attachment and they are there to assist newly-hired local direct selling xpertise in achieving target sales and accelerate recruitment of beauty consultants. Performance scorecard from each market is required to submit to regional office for better control and support allocation.
Marketing Mix (7Ps) Decisions Focusing on marketing objectives (to enter MKC products in Japanese and Chinese markets and keep their steady growth, to maximize the availability of MKC’s party plan approach, to offer unlimited opportunities to women in business and increase brand awareness and to recruit new consultants), some marketing decisions are recommended: Product Decision Due to high safety standards in Japan, product team has to double check with the list of prohibited ingredients and decides if reformulation is required for the forbidden products (if necessary).
Registration for chosen products entering Japan has to start earlier as government has long product approval process. The very popular whitening products can be developed to meet Asian’s standard of beauty. Careful selection of products is required in China and it is based on locations of entering cities. People from the north and the south may demand different skincare solutions due to different weather conditions. Aside from the product itself, its packaging was an issue to the Japanese.
A global packaging redesign might please the Japanese and also appeal to US customers. Price Decision Price adjustments are needed, according to the level of customer buying power in both markets and in par with other similar quality standard foreign brands. Place Decision MKC should considered Tokyo or Osaka in launching stage, these cities already had well-developed distribution system and With different government regulations happened in different provinces in China, MKC should kick-start their business in one of the Tier 1 cities.
Shanghai, being the manufacturing center of China and other positive preferences from people in the city – customer acceptance on foreign brands, buying power and recognition of goods manufactured in the city as best in China. In general, homes were small and poor housing conditions that people found difficult to entertain friends in their homes. Chinese are more conservative and not likely to visit strangers’ homes. Free meeting rooms could be reserved at local office or large- scaled training sessions in hotel ballrooms in promoting through MKC’s party plan approach.
Promotion and Communication Strategies To differentiate from other retail and direct selling competitors, MKC can identify themselves as “great teachers” Media advertising is necessary in both new markets, in objective to reach a large amount of potential customers. In par with competitors in Japan, newspaper ads, magazine ads and television commercials have to be kick-started. A different media strategy will be used in China as newspapers were small and fragmented and rarely channels were more popular.
Inviting local celebrities for each local market as spokespersons and share their personal sharing with MKC products which enhanced its global brand awareness nd as campaign gimmick. On the public relation aspect, MKC might be able to sponsor skin care course and sell products to the enrolled students and/or secure product endorsements from medical schools. Process Strategies People Strategies MKC emphasis was on “teaching skin care and glamour” to consumers and therefore beauty consultants had to be taught how to teach.
Training sessions covering product information, customer service, business organization, money management and beauty knowledge have to be carry on to both newly recruited and existing consultants in these new markets. A deeper discount and/or a revised commission scheme can be shared, aside from these, a reward scheme can be developed to encourage consultants to achieve target sales and new recruitments. Majority of Chinese women worked in factories or workshops with provided government-subsidized housing unit, medical, transportation plus midday meals and took control on household income.
Chinese women had great interest in learning and to be productive and which perfectly matched with MKC’s values and missions – offer opportunities for women in business, skincare and cosmetics knowledge and further extend their network. MKC’s party plan can still be carried on and other forms of gatherings and training programs can be held at hotel ballrooms/ restaurants and local offices instead of ones’ homes.
Awareness programs can also be held, like sponsorship to colleges and universities or even corporations on skin care courses, that would further the sales income and some achievement on branding. Advertising might be needed in the Chinese market as urban population was not as concentrated and noise can be created by promoting its product benefits or even beauty consultant recruitment. female American-Japanese could be hired as country manager to manage and train beauty consultants.
She could help brainwashing the perceptions and Judgment of these conservative Japanese women. A fair complexion and fine-textured skin were considered hallmarks of beauty in Japan or majority of Host Market Conditions Size (current/future) Development stage Five forces & competition SWOT Export: direct vs indirect Contractual arrangement Direct investment OV vs WOS) Though both countries are very close geographically, they had distinct market needs and situations. While China was a speedily growing and changing but relatively an unknown market with lower buying power.
With the universal appeal of all women love to be pretty, it was Just a matter of how the local people consider and the level of beauty should be. It would definitely be a success for MKC to enter both countries (with minimal local modifications applied). Though it would be a bit late to enter such a highly competitive market or no big money can be made, it can still gradually increase market share and acted as a test market for further invasion to other Asian developing countries. Other marketing mix including price, people and promotion are to be concerned too.
Wages of workers in China are relatively low, adjustment have to be made in order to meet customers’ affordability. And as several direct competitors had already kick- started in China, promotions, extensive training programs, discounts in strengthened the sales team, since competitors were experiencing difficulties in recruiting consultants or mainly shifting to other direct marketing firms after all trainings. MKC should create an atmosphere of family and friendly sharing among consultants and etained them by offering loyalty programs. t was stated that there were so much opportunities and sales revenue can be generated from them even though each country had its own market situation, consumers’ preferences and environmental factors plus some amount of local modifications were required to fit in markets’ actual needs. Choice of Joint venture with other local corporation(s) would eliminate some obstacles while dealing with the government in setting up the business. Other competitors like Shiseido had established a Joint venture company, Shiseido Liyuan Cosmetics Co. , with Beijing Liyuan in late 80s.
Buying powers and buyer behavior were different across the regions of China – The Shanghainese were known as the best dressed and smart looking with large proportion of disposable income on clothing, Jewelry and premium-priced products, and they were proud of the historical European and Western influences on their city. The Beijingese were conservative and serious, with less concerned with appearance officials, it had and elite group of people interested in luxury goods. http://www. china-travel-tour-guide. com/about-china/climate. shtml http:// www. Jei. org/AJAclass/FDlinJ. pdf