[E-marketing] Case3 Mary Kay -- Question 1

1.     How would you evaluate Mary Kay’s situation from the demand side and supply side? (Mary Kay is to be entitled as MK)

Ans:

First, we need to specify the demand side refering to MK’s customers; the supply side means the company MK and its independent Beauty Consultants. And we discuss the demand side—customers first.

 

Customers  

   The typical direct sales consumers are middle-class women. However, MK’s sales started to level off since 1994. Many industry observers attributed the decline to the changing lifestyles and shifting buying habits of the company’s consumers. The demographic and social changes in the 1980s intensified throughout the 1990s. The following are the details:

 

(1)  In 1998, almost 60 percent of women over 16-year-old worked outside the home, compared with 37.7 percent in 1960. Managing full-time jobs along with the greater part of child-rearing and housekeeping responsibilities, women were becoming increasingly time-impoverished. Many of them no longer had time for the cosmetics parties and other face-to-face social interactions that had driven sales in previous years. Some of them sent product requests to MK consultants late at night to their personal email accounts.

 

(2)  The MK target market was growing older and older.

 

(3)  The MK consumers were more sophisticated than they had been 20 years earlier in their make-up choice, purchase, and use. Cosmetics counters were providing the type of counsel that MK consultants had always offered. Women now knew how to apply make-up, so there was less need for the intensive education that skin-care classes used to provide.

 

(4)  The Internet was becoming more widely used. More and more Americans were using the Internet to do their shoppings. Forrester Research even estimated that online health-and-beauty sales would leap from $509 million in 1999 to $6 billion by 2003.

 

As for the supply side, we divide it into two parts: a) Mary Kay itself and b) the relationship between MK and its Independent Beauty Consultants.

Mary Kay

(1) Favored high-touch approach instead of high-tech

Founded on a kitchen table in 1963, MK had been a relatively low-tech operation which was built on personal relationships. Technology had never been a driving force to the company. Most of their executives considered the high-tech approach to be at odds with the high-touch approach. MK’s guiding principle was enriching the lives of women in the independent sales force. The loyal relationship between the firms and the distributors was a unique attribute of the direct selling model at its best. The concept of direct selling, also known as network marketing organization (NMO),  didn’t have retail storefronts, nor did they advertise extensively. Rather, they relied heavily on their distributors to sell their products and build brand equities through their social networks. NMO helped MK save the costs of storefronts, and each distributor is like a storefront who sold products to people with whom they interacted in their daily lives. It was a good way for viral marketing, which also save costs of advertisements. And the loyalty of consumers for distributors and MK’s products based on NMO tended to be long lasting and prominent.

 

(2) Launched its purely informative website

In 1996, MK launched its corporate website. The site was purely informative, providing data on MK products and career opportunities. Because of its guiding principle, MK did not rush to build a website to market to its end consumers.

 

(3) Outdated internal systems and processes had caused the following problems:

(a) Time-consuming monthly sales reports

It took 3 weeks to generate, print, and mail monthly sales reports to sales force members, which was too late for them to react and attempt to reach next sales goals. As a result, in 1996, MK developed a simple, low-cost soft program with the capacity to send electronic sales reports to independent Sales Director-level consultants.

 

(b)Unable to support the increased off-hour phone call loading

Outdated technology system was unable to handle increased off-hour calls; so orders were lost because beauty consultants could not get through.

 

(c)Supply chain problems

Inventory stock-outs were common with new, limited-edition products launches. And backorders were common during new promotions.

 

Relationship between MK and Independent Beauty Consultants

(1) Part-time consultants

Increasing number of women were entering the workforce affect not only MK consumers but also its consultants. 70 to 75 percent of MK independent Beauty Consultants were working at jobs outside MK, juggling a full-time job, a sales network, and her family.

 

(2) Increased off-hour calls

Many consultants worked other jobs from 9:00 a.m. to 5:00 p.m., increasing number of consultants were attempting to phone in their product orders after 5:00 p.m., but some of the calls were blocked due to the outdated technology system.

 

(3) Half of the orders were received at the end of the month

With approximately 50 percent of orders being received by mail during last week of the month, it was time and cost-prohibitive to check with the consultants regarding substitutions. As a result, consultants didn’t always get the products they needed. The sales force’s frustration level was growing and this had an impact on retention: doing business with MK was taking more effort than some part-time beauty consultants were willing to extend.

 

(4)  Consultants started their own websites

By 1996, a handful of MK consultants had started their own websites, some containing outrageous claims about product performance and results. Rather than forbidding its beauty consultants from having an online presence, MK introduced the Internet Personal Page Program which helped MK maintain control of the MK brand online.