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Marketing Strategies - Internationalizing

By Bhaskar C on November 22, 2009 12:30 AM | 3 Comments | No TrackBacks

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This was a case study I did for my International Business, and as usual I wrote the paper the day before the due date. The paper was due at 6 PM

Monday, and I started working on it Sunday 9 PM. I worked on the paper all through night and until 5:00 AM. I woke up at 6:30 AM, and then got ready for work. I worked on the paper on and off and day throughout work (not proud of it), and then got finished about barely 15 mins before class. I ended up getting a good grade, but I was deeply disappointed in myself as I could have done a much better job. The paper is about Mary Kay Cosmetics, and how they weren't successful in internationalization of their firm. I discuss various reasons for this, and possible things they could do to rectify their current problem. One thing I would like to mention is that this is a Draft paper. As such, there are bound to be a lot of grammatical, spelling, and other errors. I lost the final copy that I submitted to the professor, so I only have this draft paper. There were also many changes that have been made in the final version, and sadly I have lost that copy. These are some other papers you might find useful : Cultural Icons, Group Dynamics, Corporate Culture, and Organizational Culture. Author: Bhaskar Chitraju Mary Kay Cosmetics has been quite successful in reaching the target audience i.e. the women in the domestic market. In the United States, Mary Kay Cosmetics has annual sales of around $890 million, out of the estimated $5 billion direct selling cosmetics industry - a 17% market share. The company achieved this success by positioning itself as an organization that embodies ideals and values that women can aspire to become. The company basically personified itself as a woman that is caring and successful role model for women. This strategy has been particularly successful in increasing sales and establishing presence in the domestic market, but Mary Kay Cosmetics has not been able to transfer this success to international markets. The company has been selling products overseas for over 15 years, and the share of international sales have been at a dismal 11% of total sales compared to its rivals. The failure of Mary Kay Cosmetics in replicating its domestic success in foreign markets is the primary issue that will be addressed in this case. The analysis of this case will help us understand the process Mary Kay Cosmetics took to internationalization of the firm, reasons why the approach the company took to internationalization hasn't worked, and why its competitors are more effective in foreign markets. The case will also evaluate the processes and strategies companies need to consider

and implement while internationalizing the firm which would ensure that that they are entering the right market. One of the advantages of Mary Kay Cosmetics is that it espouses a very strong entrepreneurial culture. Mary Kay Cosmetics attracts women who are not only interested in looking glamorous and teaching others on how to take care of their skin, but also those who are interested in being independent, successful, and having their own businesses. Mary Kay provided them platform to be a successful role model along with having unlimited opportunities. This philosophy of self-improvement, selfesteem enhancement attracted an active number of "beauty consultants" that allowed Mary Kay to reach its current success in domestic market. The issue facing Mary Kay Cosmetics is that it hasn't been able to successfully transplant its domestic success to foreign markets. In 1992, foreign sales represented only 11% of the company's sales, while Avon Products Inc. - the company's chief competitor derived 55% of its $3.6 billion sales from overseas markets. There are a number of variables that have inhibited the success of Mary Kay Cosmetics in internationalization of the firm. These variables include lack of adaptation of Mary Kay Cosmetics strategy, pricing, mode of selling, etc. to local markets, entering markets without proper demographic, psychographic, and macro analysis of various countries. Avon, one of the primary competitors of Mary Kay approached internationalization by giving increased autonomy to its subsidiaries. It allowed its subsidiaries to modify products according to local needs, provided them with significant decision making authority. Since the company provided them with strategic direction and profit responsibilities along with decision making authority, its subsidiaries were able to set goals and operate independently without having to constantly look at headquarters for assistance. In addition, Avon sales managers were also salaried managers thereby assuring that their commitment to the company was significant. One of the primary reasons that Mary Kay Cosmetics wants to internationalize is because it faces a mature domestic market with growing competitors in direct selling cosmetics industry. In addition to that, the company reached a maximum historical penetration in some areas of the United States. As such increased revenue generation from the existing product line in the domestic market is limited. Internationalization is seen as a way to reach a larger untapped market which could lead to increased revenue generation. Although internationalization is seen as key to increased sales, the firm hasn't

approached this in a cohesive and well-defined manner. The firm entered foreign markets without carrying out proper research, including what kind of foreign markets it should enter, and if it does choose enter a particular market, would it be through a completely owned subsidiary or a joint-venture with a domestic or other international firm, and the strategy that will be adopted by the firm to compete in the foreign market. Particularly, Mary Kay Cosmetics hasn't taken into account whether the firm has necessary resources to partake in internationalization of the firm or if the firm is ready as an organization to move abroad. In order to internationalize the firm needs implement a globalization strategy that would articulate company's global vision, conduct macroanalysis of various markets, define the segments it wants to target, determine the size and potential of those segments in those markets, possible market share in that segment the company believes it could capture, and accounting of the financial resources that would require in partaking such a global strategy (for example, conducting various capital budgeting analysis). In the markets that Mary Kay Cosmetics already has a presence, it doesn't appear that the firm carried out any of these qualitative and quantitative research that would assist the firm internationalizing. Simply put, there doesn't seem to be a rationale behind the company's entry into various foreign markets. Mary Kay Cosmetics entered Australian and Argentinean markets because it was approached by local entrepreneurs there, the Mexican market although profitable seems to be headed by a husband-and-wife team, and further there is no explanation given on why the firm is contemplating entering markets of nations as culturally distinct as United Kingdom, Japan, Portugal, Italy, and China. Mary Kay Cosmetics sees itself as an organization that provides unlimited opportunities for women in business, along with being a caring and a successful role model. The earlier mentioned statement can be considered as the company's vision along with telling women they can achieve whatever they want, making them believe in themselves, and giving them caring and respect. One of the criteria Mary Kay Cosmetics should use to while selecting foreign markets are places where firm's visions of empowering women are readily accepted by the society. Since the majority, if not all employees of the firm tend to be women, the firm is well advised to enter markets where presence of women in workforce, independence, and entrepreneurship are positively seen. This would ensure that the company's vision matches with the values of its target market. Essentially the company has to perform a psychographic analysis

of each market it is interested in entering, and see which market is most receptive to the company's vision. A psychographic analysis allows the firm to see which country's values, lifestyles, and consumer behaviors are receptive to company's vision. For example, according to Hofstede's Dimension's of Culture, countries like Denmark, Finland, Netherlands, Norway, and Sweden are countries where the gender differences between male and female are quite minimal. That means women have the same opportunities as men for the most part, and as such have equal opportunities in terms of employment, upward mobility, and in other social variables. These countries would appear to be a perfect match for Mary Kay Cosmetics idea of empowered women who believe in themselves and are successful. Even though in terms of values, these nations might seem a good, problems could lie in the fact that Mary Kay Cosmetics relies on women feeling empowered, successful, and having unlimited opportunities. This might not exactly appeal to women in these countries because they are already successful and independent, and as such would not need Mary Kay's products to assert themselves or have a higher self-esteem. In addition, having equal opportunities as men allows most of these women to hold jobs with equal pay opportunities as men, and as such reducing any need for having an additional part time job to supplement lower wages. In these countries Mary Kay Cosmetics could instead sell its products through general distributorships, and instead of appealing to women's self-esteem or need to feel successful or independent, it could instead position its product as an extension of confident women. Mary Kay Cosmetics could also target countries that have cultural values similar to that of the United States, and countries where women are moderately free, upwardly mobile, and independent but still have a few gender disparities. This would allow Mary Kay Cosmetics to penetrate the market on the basis of appealing to women's self esteem and empowerment. For example, it could target Anglo-Saxon countries such as Canada, Great Britain, Australia, and New Zealand since these countries are historically and culturally linked and as such will have shared or similar values. By focusing on these target countries, Mary Kay Cosmetics would be better positioned to leverage its competitive advantage to a maximum degree. The company also needs to perform macro analysis of various countries to see which nations are most attractive to enter. Doing this involves assessing attractiveness of each nation's markets by determining their market size and growth rate, evaluating trends like demographic, social, cultural, legal, and political values that might affect the demand of company's products and the market in general, and the competition the

company will face in each of these countries that might affect its future prospects. For example, a macro analysis of China shows that the country has a population 1.3 billion in 1992 and a projected population of 1.5 billion in 2020. The country is expected to have its GDP grow by 10% in 1993, 9.5% in 1994, and significant growth in years to come. It also has a current per-capita of $325, and is expected to have a middle class of 41 million households with an annual per capita income of over $18,000. Although a population of 1.3 billion might seem like a market with huge opportunities, the per-capita income shows that the average consumer might not be able to afford Mary Kay Cosmetic's products. Even though these two are important variables, while selecting a foreign market for entry Mary Kay Cosmetics should further segment the population of China to find the right target audience for its products. For example, Mary Kay Cosmetics should find the number of middle-class people that have a comfortable disposable income and are able to afford Mary Kay Cosmetics products. For the sake of discussion let's assume annual household income of $18,000 fits the criteria of a middle class, and these households compose 5% of Chinese population in 1992. This results in a population of 65 million people (Assuming only 2 people live in a household). Since Mary Kay Cosmetics products are catered to women, that leaves a population of 32.5 million women (It needs to taken into consideration that male to female ratio is significantly skewed towards male population due to historical preference for boys over girls). The 32.5 million women represent a female population that has the disposable income to afford Mary Kay Cosmetic's products. This number can be further segmented into the number of women that would be receptive to purchasing products through direct-selling method (this is if Mary Kay chooses direct-selling method to distribute its products instead of opening its own stores or forming a joint venture with a local firm). If 40% of the women are receptive to direct purchasing, that would leave a market of 13 million women that would readily buy products by Mary Kay Cosmetics, and as such represent the market size. The 13 million women market size is under the assumption that Mary Kay is likely to grab the entire market and faces no competitors which is highly unlikely. Considering its strong position in US, if the assumption was made that Mary Kay Cosmetics would have a market share of 17.8% in China in the first few years, this would leave Mary Kay Cosmetics with a possible customer base of 2.34 million women. The 2.34 million women represent a market through which Mary Kay Cosmetics could derive its revenue from, and the 13 million women represent possible revenues for Mary Kay Cosmetics if it were able to increase its market share. With the target

market in hand, Mary Kay Cosmetics needs to evaluate how these key population changes in the future. As stated in the project, China is expected to have a population of 41 million households by the year 2001; this represents a positive variable for Mary Kay Cosmetics while evaluating the Chinese market. The Chinese population could also be segmented in many other ways to find the appropriate target market including those based on provinces, geo-demographics, age groups, life styles ("fashionistas", business executives, housewives, etc.) By finding a homogenous population that it could segment and position its products, Mary Kay Cosmetics would be able evaluate foreign markets much more accurately. Although Mary Kay Cosmetics is interested in increasing its foreign market share, it needs to take into consideration whether it is ready to internationalize in the first place. It needs to know whether it has enough capital to fund its international ventures, and if it doesn't how it is going to raise - whether it is through selling equity, or borrowing funds. Once it does successfully establish itself in these countries, it needs to figure out if it has the resources to produce enough goods that would satisfy the demand of its products. Even though the company's facility in Dallas is considered the most efficient in cosmetics industry, Mary Kay needs to evaluate the benefits of opening of a factory in a lowwage country like China, and the savings it would realize versus having a plant in Dallas (even though highly efficient). The company needs to have the resources and be ready as an organization to achieve its vision. China presents a number of advantages and risks for Mary Kay Cosmetics. For starters, the opening of the Chinese economy along with significant economic reforms has to lead a high GDP growth rate, increased percapita income, and awareness of western products. Along with a younger population and increased of assertion of rights and entrepreneurial values among women makes China a very favorable demographic target market. The opening of Chinese economy allows Mary Kay Cosmetics to operate "freely" in China which it was previously unable to do so, the company would be able to set the price of its products and sell them. A higher GDP growth rate means a larger middle class, and with a larger middle class you will have a population that would have a higher disposable income. A higher disposable income means that the company's target market is forecasted to grow further thereby ensuring a profitable market for the foreseeable future, and increased future revenues. As a country that has a low labor costs, Mary Kay Cosmetics will also have lower overhead costs, and it could also use the country as a manufacturing hub and thereby reducing its manufacturing costs and

increasing its competitive position against rivals. Chinese women are perceived to be highly entrepreneurial and seeking empowerment which fits with company's vision. Foreign competitor's accounted for only 3% of the Chinese cosmetic industry and as such presents Mary Kay with an opportunity to expand its market share without having to compete aggressively with other larger foreign companies. Aggressive expansion in China would allow the company to have increased brand awareness, and a strong presence in the China would solidify its presence for the present and the future. Like Japan, foreign (western) products are seen as status products and as such Mary Kay's products are likely to be well received by the Chinese consumers. Threats of investing in a Chinese market include the possibility that U.S. and other industrialized nations might impose sanctions on China, which would jeopardize any possible investments as China is a communist country. Since it's a communist country and there is a struggle between reformists and conservatives on the path the country is taking, future economic reforms could be in jeopardy or the economy could be completely closed off again if conservatives managed to usurp power from reformists. Due to being a recently closed economy, the control of bureaucracy will be significantly higher, and as such Mary Kay Cosmetics and other international firms will have to go through lengthy process to obtain licenses or bribe officials to operate in the country. Some of these restrictions could involve Mary Kay Cosmetics having no choice but to set up a joint-venture with a local Chinese company in order to be able to operate. This would bring its own risks, as joint-venture could transfer company's competitive advantages to the foreign entity, which could eventually be used against Mary Kay. The standard of living in China is much lower, with a lower per-capita income and a cosmetics market of $825 million. As such, gross margin on products would be lower and the time it takes for the company to break even would be even longer thereby increasing risks to the company. The party-planning method which is the primary method through which Mary Kay Cosmetics sold its products is untested in China. Since China has a large population, and a higher population density, homes in China are likely to be much smaller and as such it might not be possible to hold parties. As party planning is one of the primary modes of selling cosmetic products, a failure of this method could prove costly to the company. There are numerous advantages of entering the Japanese market. The per-capita income of Japan in 1992 stood at $31,190, which means that the market has a population with a large disposable income, and as such the company doesn't have to significantly alter it product pricings or

lower it reach a wider audience. Since Japan is a democracy with a capitalist system, Mary Kay Cosmetics is less likely to have problems related to political instability. Being a democracy, its relations with US and other industrialized powers are not likely to worsen, and therefore the company wouldn't have to fear significant political risks. Direct selling method, and especially party plan methods are already an accepted way of selling products in Japan and as such Mary Kay Cosmetics wouldn't have to take any risks in implementing its own party plan method. The perception of foreign goods as high status products, and the desire of Japanese women to emulate western women allow Mary Kay Cosmetics to be readily accepted in the Japanese market. Women earned lower wages than men in Japan, and as such women were more likely to participate in part-time job opportunities. This provides Mary Kay Cosmetics with a large pool of "beauty consultants". Due to pay and gender disparities, Mary Kay Cosmetics could appeal to women's need to feel empowered, be successful, have higher pay, and the opportunity to advance into upper management based on their ability. Besides the presented advantages, entering the Japanese market also carries with it numerous risks. For example, the primary reason for considering Japan as a market for entry was under the assumption that failure of an entry into the market would impact company's position in Asia. No reason is presented on why the company's position in Asia would be jeopardized if the company didn't have a presence in Japan or China. The statement can be construed as an assumption that Asia (even East Asia) is a homogenous region, which is highly inaccurate. The Japanese market is already a highly mature market with numerous competitors. Due to this, Mary Kay Cosmetics would be competing with already established players who are well versed with customer tastes and consumer behavior. If Mary Kay Cosmetics enters Japans, it would be expected to compete with not only established domestic players, but also other international firms such as Avon who have been far more successful in competing in foreign markets than Mary Kay Cosmetics. Essentially, Mary Kay Cosmetics would be fighting an uphill battle to establish presence in Japanese market. Besides being a mature market, the Japanese cosmetic market is also growing at a slower rate of 3% compared to America's 4.4%, and therefore the company would be better off investing its resources in United States. Skin lightening creams represent a significant portion of Japan's skin care industry, and since these products are not marketed widely in US, Mary Kay Cosmetics would have to make considerable investments to produce these products which would further delay the company's entry into the Japanese market. In addition, producing skin lightening creams itself could pose a dilemma

for the Mary Kay as the firm projects itself as an organization that prides itself for being a successful role model for women that offers them unlimited opportunities and increased self-esteem. A skin-lightening cream might be seen as a direct attack on those values, as feminists and others might attack the firm for profiting on Japanese women's lack of self-esteem regarding their skin tone and emulation of western women. This could possibly damage company's image of empowering women in the domestic market and result in loss of customers and eventually revenue. The Japanese government also laid numerous rules regarding the ingredients that could be used in cosmetic products, and as such Mary Kay would have to replace ingredients with acceptable ingredients according Japanese regulations, and then await a lengthy approval process which would lose the firm valuable time. Since Japan has high per-capita income, over-head costs and marketing costs in Japan are also likely to be significantly higher. The party plan method was the primary way Mary Kay Cosmetics sold its products, but the recent trends in Japanese psychographic information suggest that consumers are moving away from direct-selling method to purchasing cosmetic products at drug or pharmacy stores. Door-to-door methods witnessed a decline of 7.6% from 1985-1990, while drug and pharmacy stores saw an increase of 9.6% during the same timeline. What this suggests is that some of the strongest competitive advantages of Mary Kay Cosmetics - such as providing customers with individual analysis of their skin type, ongoing advice and service from a trained expert, advanced training in using of skin care, and other value added services that further education through high quality brochures and newsletters are being eroded. It is my opinion that Mary Kay Cosmetics is better off focusing its investments on China than Japan. Japan is already a highly mature market with numerous competitors - both domestic and foreign, along with lower growth prospects in the cosmetic industry compared to United States. As such Mary Kay Cosmetics is better off focusing on United States where it already is familiar with the market and has a strong competitive advantage in the field than investing in Japan. China presents a much better alternative because it is a country that has significant future growth prospects. If Mary Kay Cosmetics were to become an established player in the cosmetics industry in China, it would have a stronger competitive advantage in comparison to other foreign companies and new entrants to the cosmetic industry. Mary Kay would also be well advised with entering China through Shanghai province since this province is the cultural and commercial capital of China, and any acceptance of Mary Kay Products in Shanghai is likely to find acceptance in other Chinese provinces as well, thereby allowing for national

expansion without having significant fear of having the product rejected elsewhere. Since Shanghai would be the geo-demographic region that would pave way for Mary Kay's entry into China. Mary Kay should evaluate all variables before being fully committed. Mary Kay needs to segment the population of Shanghai into various homogenous groups. This would allow Mary Kay to use the appropriate marketing program, strategies, and product positioning for that segment to realize profits. Mary Kay also needs to evaluate which distribution system is most effective in having its products reach the target audience. It could conduct focus group tests to see if Shanghai populace is receptive to party planning method. If the company finds that its target audience lives in larger homes than the average Shanghainese, a party planning method could be used as a method of distribution. The benefits of having dedicated salaried country managers versus performance based positions need to be evaluated as well. If salaried managers lead to consistent strategic generation and profits, a salaried upper management would be ideal. The company could introduce its products by having Dallas style seminars in Shanghai in which popular Shanghai socialites and celebrities, demonstrate the use and benefits of Mary Kay's products thereby establishing brand recognition and credibility among the consumers. Since products that prevented freckles and promoted cleanliness were preferred by the Chinese consumer, Mary Kay needs to evaluate its product line and adapt it to the local conditions. A strong local responsiveness would allow the company to have a product mix that would greatly maximize its profit generation. Although we have stated that lack of success in internationalization of Mary Kay Cosmetics firm is the key problem of the case, it is also imperative to consider if internationalization at all is necessary for the firm. The firm already has a 17.8% market share in the domestic market, and it could focus on achieving increased market share or it could branch out by aggressively pursuing new product-market opportunities that leverage its already existing strengths including over 232,000 beauty consultants. The failure f Mary Kay Cosmetics in replicating its domestic success in foreign markets has been due to the fact that it entered foreign markets without conducting proper macro analysis of various countries. It didn't set a proper global strategy, vision, and strategic intent through which it would be achieve its visions and goals. For the firm to achieve international success, Mary Kay cosmetics needs to not only set its vision, but also needs to establish criteria or methods it would take to achieve

its vision. By evaluating markets based on their current and future target market, competitive position the company will be in against domestic and foreign rivals, the fit of company's vision with the respective countries values or culture, and pro-active adaptation of strategies to match local needs instead of assuming universal acceptance of its vision and message would allow the company to realize greater success in foreign markets. In regards to the choice of entry into China or Japan, Mary Kay would be better off investing in China as it provides a market with less competition, increased future growth prospects, low-cost labor for shifting manufacturing facilities and thereby lowering company's cost of goods sold, and an large population with increasingly high disposable income. Along with China, the company should also evaluate possible investments in Anglo-Saxon, Scandinavian (or Nordic) countries, and countries where male-female gender disparities are not significantly different, but different enough to allow for Mary Kay cosmetics to appeal to women based on their need to assert themselves, be more independent, and feel empowered. By targeting above cluster of nations, Mary Kay can find a target market that is receptive to its vision of women being strong, independent, charismatic, and successful. Marketing Strategies - Internationalizing Developing a Global Brand Internationalization - Business Strategy and Structure International Business Theories

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3 Comments
ishita | December 5, 2009 11:05 PM | Reply

amazing article...thanks alot for your help through this article as i too have an assignment and a presentation on the same tomorrow.You surely are an intelligent guy!
ishita | December 5, 2009 11:07 PM | Reply

and please even put references in your further articles...thanks alot again
Bhaskar C replied to comment from ishita | December 6, 2009 12:31 AM | Reply

Well, thanks for the compliment! :). Well, best of luck with your paper and presentation and don't forget to cite me, or you might be penalized

for plagiarism. In regards to your second comment, I will see if I can post references in my future articles (I intentionally do not post them - reason being that my work is going to get plagiarized, but without a full list of references its hard for them to show my work as theirs). I think for this paper, Hofstede was one of the references I used. I remember my professor spent an entire class (3 hours) devoted to how different cultures perceived things. Now that we are talking about references, please don't forget to cite me :). It's always nice to see professors from different universities checking my paper from the reference list.

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