Christopher S.

Bennett Szu-jung Chen Li-ting Yen MAR 6158 Summer 2012 Case Summary: Mary Kay Cosmetics: Asian Market Entry Mary Kay Cosmetics Inc. (MKC) is a direct selling cosmetics company that was founded in Texas, United States, in 1963 by Mary Kay Ash. As of early 1993, MKC was, for all intents and purposes, a multinational company with products being sold in 19 countries and the company having 100%-owned subsidiaries in 9 countries: Argentina, Australia, Canada, Germany, Mexico, Taiwan, Spain, Thailand and Russia. The company recorded strong revenue and operating-cash-flow growth over the 7-year period, 1986-1992 (compounded annual growth rates of 16% and 17% respectively). As of 1992, MCKs estimated retail sales stood at $1 billion with net company sales of $ 624 million cost of goods sold of $148 million and earnings before interest and taxes of $110 million. However, in spite of having an international presence for 15 years as of 1992, MKCs international revenue performance had been lackluster, contributing a paltry 11% to the companys $1 billion total. By way of comparison, Avon Products Inc., one of MKCs competitors, generated over 55% of its $ 3.6 billion sales (at wholesale prices) from international operations as of 1992. Also, Amway and Tupperware, two of the other large international direct selling organizations enjoyed international sales of 60% and 75% of total sales volume respectively. Amway sold a variety of household and personal care products with aggregate of sales of $3.5 billion in 1992. Similarly, Tupperware, which sold household products through the party plan method, boasted total retail sales of $billion. As MKCs senior vice president of global marketing group, Curran Dandurand, contemplated the companys anemic international performance in February 1993, it became apparent that MKC needed to expand it overseas operations. An international expansion was
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critical to MKCs growth strategy. As of 1993, the company was confronting a mature domestic cosmetic market wherein an increasing number of direct- selling competitors operated and there existed a potentially maximum historical penetration level in some areas of the United States. Notably, competitors like Avon and Amway had been successful internationally and MKCs executives were convinced that their company had the potential to do the same. But there were crucial questions that needed to be answered: How could MKC expand international operations and which elements of the companys culture, philosophy, product line, and marketing programs were transferable? Also, what were the critical success factors for MKC internationally? Further, what is the optimal marketing strategy for future international expansion? Dandurand thought of expanding into the Asian market with specific focus on either China or Japan. Asia was evolving as one of the fastest growing and most dynamic regions in the world and was projected to contribute 32% to world GDP by year 2000, up from 24% in 1988. China showed strong growth potential but it was a relatively unknown market with substantially lower individual purchasing power. Japan, on the other hand, was a mature but lucrative market where cosmetics marketing and directing selling were well-known and accepted. MKC had two critical deciding factors regarding which markets to enter and in what order: 1) was the acceptability of its product and 2) the potential success of MKCs party plan approach to sales in the two markets. Cosmetics companies used two approaches to direct selling: the repetitive person-to-person method, used by Avon, in which a salesperson regularly visited customers in their homes and sold products one to one; and the party plan method, in

which a salesperson presented and sold products to a group of customers attending a party or show in one of the customers homes. Mary Kays business model was based on the party plan approach. In terms of the key market entry decision criteria, both markets (Japan and China) presented advantages and disadvantages. As far as the acceptability criterion, the Japan market was more suitable. In Japan the party plan model, which was pioneered by Tupperware, was well received and successfully used by a number of companies. But Japans cosmetics market was mature and the business environment was fiercely competitive and highly regulated. In China, on the other hand, as of 1993, there existed no company who had employed the party plan selling approach. Notwithstanding, a focus group conducted by MKC in 1992 around the acceptability and potential success of the party plan model indicated that this selling approach would be embraced by the Chinese market. Another potential drawback for the China entry regarding the party plan model was the fact that most homes in China were small , and in Shanghai in particular, living condition were such that people were not comfortable entertaining in their home. On the positive side, the results suggested that consultant recruiting would be successful since Chinese women were entrepreneurial, placed emphasis on learning and self-development and welcomed flexible financial opportunities that would enable them to augment their state salaries. In addition, the focus group results signaled that Chinese women had strong interest in cosmetics and would be eager to learn more about products and how best to use them. Dandurand believed that MKC could implement a successful party plan operation in China with adequate resources geared toward explaining and communicating its product concept to both potential consultants and consumers.
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