MARY KAY: ADOPTING A GLOBAL MIND-SET
Byline: Kim-Van Dang
NEW YORK — Every journey, it is said, begins in the mind.
Mary Kay’s first fragrance in five years, a sheer floral called Journey that is set to launch in mid-August, began in the minds of nearly 600 women in focus groups around the world.
If their collective thoughts are on target, the two-year process that yielded the final product could become the blueprint for future Mary Kay ventures. Journey is expected to generate $50 million at wholesale its first year.
Moreover, success of the project would validate a strategy advanced by several marketing executives to reinvent the 33-year-old, Dallas-based, direct-sell beauty company.
This is a critical juncture for Mary Kay. Even as it celebrates having smashed through the $1 billion barrier in annual wholesale volume last year, it is facing mounting competition from a growing number of direct-sellers.
They include Provo, Utah-based NuSkin International, which has an estimated annual wholesale volume of $500 million; Carrolton, Tex.-based BeautiControl Cosmetics, which does more than $75 million at wholesale a year, and Lancie Inc., a New York firm that entered the direct-sales fray this year and hopes to generate $3.5 million at wholesale.
Mary Kay is also confronting comparisons with Avon, the direct-sales leader that’s in the throes of its own image update. With more than $4.5 billion in sales, Avon in February launched a print, television and outdoor ad campaign with tag lines such as, “Dare to change your mind about Avon.” For the year, the beauty giant plans to spend $28.8 million on advertising.
With only $1 million earmarked for advertising this year, Mary Kay executives are deploying creative measures to show they are not behind the times.
The decision to develop a fragrance based on consumer input grew directly out of the marketing team’s endeavor to establish Mary Kay’s long-term viability, especially in the international arena. Besides stepping up consumer research, it is:
Reorganizing key departments to address issues from a global perspective.
Imposing new internal procedures to insure the universality of company products.
Building factories and storefronts abroad to service foreign markets.
Supporting its army of consultants with a vast array of samples and visual aids.
Diversifying its rewards portfolio for sales consultants to include more practical items, in addition to so-called “Cinderella gifts” such as jewelry.
Going after a younger, hipper customer base even as it tries to hold onto the more traditional set.
“We’re moving quickly here,” said Tim Wentworth, president of Mary Kay’s international operations. “Today’s market is very dynamic. We have to move quickly.”
That doesn’t mean losing sight of the company mission statement, as proclaimed by its founder, Mary Kay Ash, now in her late 70s. A single mother who struggled most of her life to make it in a salesman’s world, Ash is fond of saying: “I want to give women opportunities I never had.”
A seven-minute video the company uses to recruit consultants worldwide echoes the theme. It’s called, “Creating Beautiful Futures for Women Around the World.”
“We don’t want to walk away from our heritage,” said Curran Dandurand, Mary Kay’s executive vice president of global marketing. “We’re more contemporary now that we’re in 1997, but our core values haven’t changed.”
Wentworth, who spends 40 percent of his time on the road, describes his job as hard-wiring new company strategies with Mary Kay’s international subsidiaries.
“We are working to be global from the beginning,” he said. “There are country differences we have to deal with. In Japan, women want face-whitening cream. We do that where we have to, but, largely, it doesn’t work that way anymore. Now, each market presents us with a business plan along with an annual budget, and we decide whether it’s appropriate.
“I have to say I’m struck by the similarities of women around the world,” he continued. “They are incredibly resilient and entrepreneurial. When you run a household, you’re running a mini-economy. And women are mutually supportive, one of our key success elements.”
International sales account for more than 20 percent of the company’s volume, Wentworth said.
“The [international] division will do over $300 million at wholesale this year,” he said. “It is growing at a rate of 40 percent a year. Operational challenges are greater than any competition we face on the international front now.”
Mary Kay counts Russia, China, Mexico and Taiwan among its biggest markets. The company now operates in 25 countries with some 475,000 independent beauty consultants.
“I see fastest growth in the Far East, Central and Eastern Europe,” Wentworth said. “In the short term, we’re going into the Czech Republic in the second half of this year and into Brazil in early 1998. What we have to do is recruit a sales force and determine the product line, pricing, commissions, a public relations plan and set up buildings. We opened Beijing this month. New regions in China and Russia are also targets.”
In Russia, where the company has had a presence since 1993, there are 45,000 Mary Kay consultants.
“It’s our largest international sales force,” Wentworth said. “The focus is in Moscow, and we have an outpost in St. Petersburg, but we sell throughout the country. We do at least $100 million a year there, shipping from the U.S.”
Eighteen months ago, the company opened a factory in Hangzhou, China. It currently supplies only that country.
“The Chinese market will eat up its capacity for the foreseeable future,” Wentworth said. “China has a sales force of 10,000 women and should do $25 million at wholesale this year.”
To establish even more of a physical presence there, the company is opening storefronts.
“We’re testing home delivery, but right now, our consultants place orders, pick up products and receive training from these centers,” Wentworth said.
Mary Kay is also starting a factory in La Chaux-de-Fonds, Switzerland. The first items roll off its production line this month, and it will supply most of Europe, including Russia. Wentworth said it should be fully operational by the end of the year.
“We’re looking to enter Poland, Hungary and Romania,” he said. “A strong Czech operation could lead us into those territories. A strong Chinese operation could help us spill into South Korea and the Phillipines.”
Dandurand discussed how the company weighs potential new markets.
“We have developed a model for assessing countries,” she said. “We use government data. We hold focus groups to get primary information. We gauge our chance for success based on our current plan and product line.
“And then we ask: How entrepreneurial are the women in this country? We ask them a series of questions: ‘Are you satisfied with your current job? Does the Mary Kay image appeal to you?’ We assess women’s willingness to take risks.”
Taking risks can bring rewards, of course, and Mary Kay is built on that premise. While company-supplied pink Cadillacs still purr through many American neighborhoods, the firm now offers its top salespeople other incentives.
“Rather than ‘Cinderella gifts’ such as jewelry or cars, women can earn computers, fax machines, even funds for their kids’ college education these days,” Dandurand said.
“We’re always studying the effort-to-reward ratio,” Wentworth said. “Pink cars would be a pain in China so we offer prepaid pink cellular phones instead. We have pink Mercedes in Germany. In Russia, we give away black Saabs or Volvos. We’re not married to pink. It’s really about the mind-set behind the car. Women who sign up with us know that they can set a goal and get rewarded if they achieve it. Everyone can be a winner.”
Recognition is a form of reward at the company. Throughout its Dallas manufacturing plant, there are “walls of fame” festooned with color photos. On one recent afternoon, the production operations wall featured a group shot of a team that managed to produce 31,608 tubes of lipsticks during a 10-hour shift.
Such achievements are constantly bettered at Mary Kay, which now manufactures more than 200 products in nine categories: skin care, color cosmetics, nail care, hair care, body care, sun protection, fragrances, men’s skin care and nutritional supplements.
According to company data, its U.S. sales for calendar 1996 registered a 7 percent increase over the previous year. Mary Kay’s U.S. color category, which includes products for eyes, lips and cheeks but not nails, was up 14 percent last year to $325 million at wholesale. Its U.S. skin care business was up 8 percent to $250 million at wholesale.
There are more than 20 million U.S. Mary Kay consumers — by the company’s count — who purchase approximately 150 million units of its products each year.
Most of them are produced by some 700 factory workers who work in two daily 10-hour shifts at a 275,000-square-foot factory down the road in Dallas from the firm’s original 250,000-square-foot office complex.
Mary Kay’s headquarters since late 1995 is several miles away in a 600,000-square-foot granite high-rise off the North Dallas Parkway. Built by a savings and loan that went under in the late Eighties before construction was completed, it now houses 900 Mary Kay corporate employees on 13 floors.
The company considers 13 its lucky number. Mary Kay Ash founded her namesake beauty empire on Sept. 13, 1963.
“In its first 10 years, this was a sales-oriented company,” Dandurand said. “It was an opportunity primarily for housewives. In 1979, Mary Kay was featured on ’60 Minutes.’ Here was a woman with a radical vision. That fueled a period of new growth.
“In the Eighties, when the company was publicly held, it became about a sales force and innovative products. In 1985, we went through an LBO [leveraged buyout]. We had not spent as much attention on product and marketing as we should have, so we revamped, retooled, repositioned. As a result, we have almost tripled our sales in the past eight years.
“The Nineties are about being global,” Dandurand said. “We were decentralized before. John Rochon became chairman of the board in 1990, and at that point, we restructured. Key departments such as marketing became global. Before, there were separate marketing people for the U.S. and global divisions.”
The marketing department also assumed control of sales force education, previously a function of the sales department.
“The sales department was too product-oriented,” said Cheryl Halpern, vice president of global product marketing. “We wanted to move away from giving our salespeople personal makeovers during training sessions. We concentrate on doing business makeovers. We want to help women map out strategies to expand their sales.”
Skin care became the company’s first global undertaking.
“It is a category we feel we have equity in, and it was a logical place to start, as opposed to color, which varies so much from region to region,” Dandurand said.
Last year, Mary Kay did tackle the color category and launched a global lipstick palette from which foreign subsidiaries picked regional shades. In mid-August, the final piece of the puzzle will fall into place with Journey.
“Now, up front, we think globally. We have category managers with cross-functional teams. They come up with the essence of a concept, brief [personnel in key countries on it and get input at the staff level. Then, they take the concept out to sales forces and consumers in different regions and hold focus groups.
“They find out what is global and what is local and modify the formula. Then, we make the product and test it globally, blindly. We test it for economies of scale and uniform image.”
Increasingly, the image is geared to a consumer in her 20s.
“We’re skewing younger,” Dandurand said. “We’re using color cosmetics to attract a younger crowd with shades and market positioning. Last June, we started a Web site geared toward Generation X. We get 20,000 hits a day. It’s an information source, a marketing tool and a way for us to do soft-sell recruiting. Half of our sales force is under 35 years old.”
The marketing team now supplies them with printed materials to hand out to potential customers. Collaterals include brochures devoted to nail care and skin wellness, and Beauty on Call, a 100-odd-page booklet crammed with real-women makeovers, detailed information about makeup application, model looks and answers to often-asked beauty questions. There also is a quarterly brochure, called In, featuring home decorating ideas, healthy recipes and a sprinkling of product shots.
Then, there’s the big gun: Beauty Magazine, a Mary Kay venture with Hachette Filipacchi’s custom publishing division. Printed twice a year, the $2.95 magazine hits 40,000 newsstands. It is also distributed by the sales force and boasts a circulation of 500,000.
The company provides its consultants with videos, too. Titles include “Confident About Color,” which imparts application techniques for using concealers, choosing and applying foundations and powders for a flawless finish, cheek color application, creating beautiful brows and taking a look from day to night, as well as secrets to selling color.
Consultants are armed with samples of most company products.
“We’ve always sold through demonstration and sampling,” Dandurand said. “In the last five years, we have intensified the effort to include virtually every item in the line. Plus, we’re using innovative sampling vehicles like lipstick bubbles and mini pencils. We offer bulk demo tubes for classes and single-use foil [sample packettes] for one-on-one sessions.”
While newness is important, it isn’t the company’s primary objective.
“In this business, it’s easy to get caught up in innovation for innovation’s sake,” Halpern said. “We want constant change, but we want to pace it, build on past successes. Every new product should replace an existing product. One of our credos is to under-promise and over-deliver. Onetime sales is not what we’re about.”
“Direct-sell is a channel that’s proven its resilience over the years,” Wentworth said. “Twenty years ago, it used to be a fly-by-night world. Today, if you don’t get the quality right, you’re not going to exist. Our face-to-face, high-touch approach will not go away because of the Internet, either.”