EXECUTIVE SUMMARY Mary Kay, a corporation created and run by women, sells cosmetics and skin care products worldwide. The impact on the skin care and cosmetic industry has proved to be impressive at US $2. 5 billion on an international level in 2010. Mary Kay’s headquarters and primary manufacturing facility is located in Addison, Texas. The corporation operates on a multi-level marketing structure, while implementing direct selling methods through hired beauty consultants.
Mary Kay has enjoyed global expansion over the past 25 years in countries throughout Europe, South America, and Asia (Mary Kay, 2011). The proposed market in Italy has much potential for several reasons. First of all, Mary Kay is already located in several European countries, such as Germany and Spain. Therefore, the concept of a planned expansion to Italy is not entirely foreign. Additionally, the Italian cosmetics industry is growing in terms of natural and organic products, which has already been one of Mary Kay’s leading unique selling propositions (USP).
The Italian market is expected to be very attractive to Mary Kay for several reasons stipulated in this report, including but not limited to a developing interest of non-traditional segments, such as men, children, and the elderly in the products of the skin care industry. This trend is very likely to open up further growth opportunities for Mary Kay. Given the success of Mary Kay’s business model around the world, the company is well advised to enter the Italian market by simply implementing the already proven strategy of multi-level marketing.
Conceptually, the mode of entry is defined as licensing, since local independent Beauty Agents (licensees) will be licensed by Mary Kay (licensor) to acquire new customers and sell the company’s products through direct marketing. In terms of product adaptation, Mary Kay does not have to put much effort in reengineering its product line for the Italian market. This is because of the high quality and excellent tolerance regarding Mary Kay’s products and the benefit from the “EU common market advantage” from a regulatory point of view.
Due to the cost efficient distribution strategy and foreign exchange benefits, Mary Kay is able to pursue a reciprocal pricing strategy, i. e. the company delivers high quality to a relative lower price than its competitors. ————————————————- ECONOMIC ENVIRONMENT Italy’s economy is the 7th largest in the world, with a GPD of $1. 77 trillion (2010 estimate adjusted for purchasing power parity). The U. S. and Italy share a friendly trade relationship; Italy serves as the 7th largest U. S. export market, and the U. S. erves as Italy’s 10th largest supplier (United States Department of Commerce, 2010). Italy’s economic beginnings were as that of an agricultural state, with a very slow rate of industrialization, but the country has grown constantly into an industrialized nation ever since. However, to simply recognize the country’s status as industrialized would be to ignore the blatant fragmentation of Italy’s economy into dual parts. The country’s economy is considered to be divided into two distinct parts due to stark regional differences in productivity and employment characteristics.
The northern part of the country has a highly-developed and industrialized economy, which is driven by privately-held – and often family-owned – companies. Southern Italy’s economy remains predominantly agriculturally-based, and suffers from a markedly higher rate of unemployment than that of its northern counterpart (The World Factbook, 2011). The size of Italy’s economy suggests that it is large and dense enough to support interest as a target market for Mary Kay.
However, Mary Kay must be cautious to recognize the country’s pronounced regional differences in deciding how to enter the Italian market, as well as defining market segmentation objectives. Economic growth in the country has come at a very slow pace, with the country’s economy experiencing an overall growth of less than 1% per year in the time period of 2001-2007, and ultimately transitioning into the global economic downturn in 2008. In 2008, as a result of the strain from the global economic recession, Italy suffered an economic decrease of 1. % and followed in 2009 with a further decrease of 5. 2%. Meekly entering a phase of economic recovery, Italy recorded a growth in GDP of 1. 3% in 2010. Economic forecasts for future growth anticipate that Italy will continue to recover, albeit very slowly, and at a rate that is less than that of growth expected in the rest of the EU (U. S. Department of State, 2011). One must add, at this point, the most recent developments in the European debt crisis, particularly affecting Italy, are creating additional uncertainty for these assumptions.
Mary Kay must consider whether Italy’s historical growth trends, as well as sluggish economic forecasts for the future, are significant enough in terms of sales and profit potential to warrant entry into this market. The business model, which relies on direct-selling to consumers, requires constant growth in order to garner continued interest from potential Independent Beauty Consultant candidates. The ability of Italy’s economy to produce enough wealth in order to allow for consumers to direct discretionary income towards purchasing Mary Kay’s beauty products is a vital component in the success of the company.
Italy has been engaged in a constant struggle with a large budget deficit and high public debt, with the country surpassing the budget deficit limit of 3% set by the European Union. The issues with the budget deficit were exacerbated by high government spending and reductions in exports due to the global economic slowdown in 2008, as well as the country’s classically slow economic growth trends. Italy recorded a budget deficit of 5. 4% in 2009 and 4. 5% in 2010 (119% of GDP).
The burdened country is aiming to reign in the budget deficit and is targeting a level of 3. 9% for 2011, and hopes to ultimately fall within the acceptable range of less than 3% by 2012 (U. S. Department of State, 2011). The high level of public debt must be taken into consideration by Mary Kay, as high levels of public debt are shown to exhibit a direct negative impact upon a country’s ability to produce sustained economic growth (“The Impact of High and Growing Government of Debt on Economic Growth,” 2011).
As a country saddled with both a large budget deficit and high public debt, Italy’s realized future economic growth rate may be sluggish, or flat at best. If Italy is unable to reign in government spending and reduce its debt obligations, a worst-case scenario includes a possible contraction in growth. Such considerations are critical to Mary Kay in examining whether to enter Italy or not. As the Italian economy is in a recovery phase, growth is expected to continue slowly, at a projected rate of 1. 5 percent in 2012.
The growth rate, which is below the EU average, is due to a host of factors, which include among them a slow recovery from increasing rates of unemployment between 2007 and 2010 as well as the effects of the swelling and large underground component of Italy’s economy (The World Factbook, 2011). Italy’s underground economy is noticeably pronounced in the country’s southern region, and accounts for a sizeable portion of Italy’s GDP with estimates ranging from 15% to 27% of GDP (U. S. Department of Commerce, 2011).
Northern Italy’s structured and well-defined economy combines a higher level of production along with a higher level of employment. As such, Mary Kay would be well advised to focus its entry efforts in northern Italy. It is important to note the demographic make-up of stakeholders in the Italian economy. The country has a population of 61,016,804 (July, 2011 estimate), with a slightly higher ratio of males-to-females in the adolescent-to-adult age range. However, the ratio reverses in favor of females as members of the population reach higher ages (The World Factbook, 2011).
These demographics suggest two notable implications for Mary Kay. As a number of women near a natural retirement age, many may wish to pursue business undertakings that exist outside of traditional work environments – these women are ideal candidates to become Independent Beauty Consultants for Mary Kay as they are likely to have well-established social circles, and will appreciate the freedom of self-reliance and accountability provided by Mary Kay’s business model.
Furthermore, Mary Kay can derive an additional benefit from a higher ratio of females at advanced ages as they reach a stage in their lives when maintaining one’s appearance becomes increasingly critical. Italy’s workforce is represented by a number of 24. 99 million workers (2010 estimate), and is segmented by occupation into three main categories: agricultural – 4. 2%; industrial – 30. 7%; and services 65. 1% (The World Factbook, 2011). Italy’s strong service sector workforce provides a viable source from which Mary Kay can recruit Independent Beauty Consultants.
Italy’s unemployment rate rose to 8. 5 percent as a result of the global economic slowdown. The divided nature of Italy’s economy is once again represented here, as unemployment is lower in the industrialized northern part of the country and higher in the agricultural south. Unemployment is expected to remain high for 2011 and 2012, however, it is notable that the country is currently at its lowest national unemployment rate since 1992 (U. S. Department of State, 2011). Despite a large influx of omen into the workforce, women continue to face a higher unemployment rate than men in Italy (United States Department of Commerce, 2011). This topic will be further stipulated in a later section covering Italy’s cultural environment. Mary Kay’s business model features a large degree of direct-to-consumer selling and traditionally employs a large number of women as independent local beauty consultants; the firm may benefit from the increased number of women entering the Italian workforce if it can capture a portion of these new workforce entrants and train them as Independent Beauty Consultants. Currently, the U. S. s in the midst of several disputes with the EU regarding proposed restrictions on genetically-organisms, biotechnology, and nanotechnology (United States, 2011). In the past decade, the cosmetics industry has placed a significant amount of research into incorporating the use of ‘biologically derived’ products of marine and vegetable origin (Biotechnology, p. 3). These products are likely to be incorporated into many of Mary Kay’s cosmetic products in the form of waxes or dyes. Strict regulations in this area may impede Mary Kay’s ability to penetrate the Italian market with a desired level of diversity in their product offering.
Furthermore, Mary Kay may be forced to conduct additional research or pursue different sourcing for certain ingredients used in products offered in Italy, in order to satisfy regulation criteria. These possibilities, if realized, will lead to an increased cost of doing business in Italy. The currencies involved with this business model are primary the US Dollar (USD) as the company’s home currency and the Euro (EUR) as the local currency. According to the IMF Classification of Exchange Rate Regimes, the USD is a monetary system with a market-determined exchange rate and therefore an independently floating currency (De Facto, 2006).
The EURO makes part of the Classification of Exchange Arrangements with no separate legal tender (De Facto, 2006). As a member of the European Currency Union (ECU), Italy shares the same legal tender with the members other members of the ECU and has therefore no direct control over domestic monetary policy. When we look at the current developments in Greece, this might be an issue also for Italy, since the local monetary authorities cannot apply individual monetary policies (Europe’s, 2006) – such as Quantitative Easing or adjustments of interest rates – to stimulate the country’s economy and/or control inflationary developments.
Mary Kay is advised to take this fact into consideration, when evaluating the current foreign exchange risk. The most recent developments in Italy make it difficult to give a reliable prediction of the future direction on the part of the new Italian government regarding Italy’s financial recovery. In the worst case scenario Italy will be forced to leave the Eurozone in order to address its debt issue properly. The consequences for Mary Kay are not foreseeable because there is no official “drawback-plan” for current ECU members in place.
The EUR and the USD are independently floating against each other and their exchange rate is determined by the market as defined above. Historically the EUR has constantly increased in value against the USD. In fact, since its introduction in 2002, the EUR has gained over 53% in value compared to the USD, as it is shown in Exhibit 1. Nonetheless, due to the perturbing debt crises faced by many European countries (and so Italy) since 2008, the trust in the stability of the EUR has suffered great detriment which is shown by a nervous and high volatile development on the FX-markets (Europe’s, 2006).
Under the given uncertain circumstances, a profound prediction of the EUR-USD development is not possible. Expectations are substantially influenced rather by a person’s level of optimism than by a professional analysis. Many experts see the performance of the EUR pegged to the European Union’s ability to solve its debt and bank crisis – acute in Greece (Saraiva, 2011). Spain and Italy are under enormous pressure not because their finances have suddenly become worse. Investors all around the world are suddenly afraid of seeing such important economies being forced to default – like it is happening in Greece.
The progressing decrease in value of the EUR is mostly a result of a loss in confidence in the ability of the European Council, to find an efficient and, most of all, sustainable solution for the European debt issue. Over the past months, politicians across all Europe have repeatedly called a Greek default unacceptable. In fact, the decisions in Brussels during the past weeks have shown that the opposite is most likely to happen (Mallard, 2011). Nonetheless, the vast majority of opinions maker expect the EUR to weaken over the short period but finally not to collapse.
According to Barclays Capital, despite an additional depreciation of the EUR because of the mentioned structural problems in Europe, the EUR is not likely to fall below USD 1. 20 (Mallard, 2011). In consideration of the above premises, the value of Mary Kay’s profits gained in Italy denominated in USD is expected to be unfavorable, since the EUR seems continuing its depreciating development – at least in the short run. The medium-term forecast is more favorable since the EURO is expected again to appreciate against the USD. Important is the effect of the currency development on the company’s business model.
Since Mary Kay is running a Multi-Level marketing strategy based upon local independent Beauty Consultants, a weak EUR may cause higher procurement cost for the latter and negatively influence the purchasing power of the ultimate consumer in Italy. This is where a competitive advantage of locally producing (within the ECU) competitors may arise. Mary Kay would be well advised to include this fact into its pricing strategy. ————————————————- POLITICAL ENVIRONMENT According to the “Freedom House” rankings, Italy is a politically completely free state with a Political Rights Score of 1 (Country, 2011).
Nonetheless, the political environment in Italy is well known as being very complicated, sometimes not fully transparent and definitely not stable – since 1945 there have been more than 60 government turnovers (U. S. Department, 2011). In fact, just a few days ago the government under Berlusconi has lost a vote of confidence and another new government has been presented. Regarding the political stability, Mary Kay is well advised to consult the U. S. Bureau of Foreign Affairs, which might be able to provide a more accurate estimation on how Italy’s political future will look like.
The progressing integration of the members of the European Union (EU) has led to more continuity among its members, and so also in Italy. So have decentralization and federalism been substantial drivers for innovation and a general business-friendly environment over the last years (Organization, Regulatory Quality). Although the gap is narrowing, Italy has still been one of the slowest growing countries among the members of the European Monetary Union (EMU) and it also attracts low levels of Foreign Direct Investment (FDI). This is mainly caused by the lack of a deep and structural regulatory reform (Organization, Regulatory Reform).
But since the government is currently occupied with ensuring Italy’s financial future, a complex and sustainable regulatory reform is not likely to be launched. As a result, Mary Kay is not likely to benefit from any financial incentives when entering the Italian market. Furthermore, in Italy, as a member of the European Union (EU), not only national regulatory issues have to be faced. Most of the legal framework regarding business regulations is harmonized within the EU (U. S. Export, 2011). Such EU-wide regulations may cover issues of commercial transactions as well as consumer protection and product safety regulations.
At this point it is important to note that the EU is currently overhauling its legislation for consumer protection. Since Mary Kay has incorporated a sensitive business model, such as direct marketing, the progress of this revision should be well observed. Currently, the U. S. is in the midst of several disputes with the EU regarding proposed restrictions on genetically-organisms, biotechnology, and nanotechnology (United States, 2011). In the past decade, the cosmetics industry has placed a significant amount of research into incorporating the use of ‘biologically derived’ products of marine and vegetable origin (Biotechnology, p. ). These products are likely to be incorporated into many of Mary Kay’s cosmetic products in the form of waxes or dyes. Strict regulations in this area may impede Mary Kay’s ability to penetrate the Italian market with a desired level of diversity in their product offering. Furthermore, Mary Kay may be forced to conduct additional research or pursue different sourcing for certain ingredients used in products offered in Italy, in order to satisfy regulation criteria. These possibilities, if realized, will lead to an increased cost of doing business in Italy.
Another important issue, which has to be addressed before entering a foreign market is corruption. Italy is not ranked the best among the EU members but most corruption in recent years has involved government procurement or bribes to tax authorities (U. S. Export, 2011). In both cases Mary Kay is not likely to be directly affected because the company is operating in the private sector and according to its business model, every independent Beauty agent is responsible for her own taxation. Furthermore, corruption in Italy is mainly concentrated in the Southern part of the country, including Sicily, Campagna and Puglia.
Since Mary Kay is planning to operate in the Northern part of the peninsula, it further reduces the risk of exposure to corruption. Regarding the legal system, as in most of the members of the European Union (EU), Italy’s jurisdiction is based on Civil Law (or Code Law). Such a legal system may provide more encompassing and precise laws than a Common Law System, as we can find it in the US. Therefore a US company such as Mary Kay entering a country with different legal system must be prepared to face new challenges when it comes to contract negotiations, arbitration or even in the event of litigation (Global, ch. ). One must add, the Italian jurisdiction is known as one of the slowest proceeding organs in the EU. To conclude a civil lawsuit in the first instance, Italian courts take as much as 960 days on average. The risk of a potential business holdup and the high costs of time consuming lawsuits are important issues Mary Kay has to be aware when entering the Italian market. ————————————————- CULTURAL ENVIRONMENT One aspect of the culture that may affect Mary Kay’s marketing decisions is the Italian emphasis on maintaining a low-trust society.
This implies that Italians only extend trust to immediate family members, and furthermore, Italians prefer doing business with people they know. Italians are relationship-oriented, and this is point is easily proven in the commercial sector of the country. The Italian economy has a greater percentage of small and medium sized, family-run businesses than any other European state, proving that they find it difficult to trust people outside of their inner circle of family and close friends.
Thus, if Mary Kay wants to open stores or production facilities in Italy and need to rent the space to do so, it will be essential to use contacts and networks to find people to do business with (“Doing Business in Italy”, 2011). It is also important to note that reliance on an inner circle limits the amount of venture capital available and implies that family money is often the only resource used to start up businesses in Italy. Additionally, there are important business norms to consider when doing business in Italy.
Italian companies tend to have a higher degree of hierarchy, but job titles are not necessarily indicative of who makes the decisions within the company. Decision making power is, in reality, determined by the network of relationships within the company. It is more about whom you know and how informed you are, rather than the position you hold (“Doing Business in Italy,” 2011). This relates back to the foundation of Italian culture being relationship-oriented, and it is clear how this shapes the business norms within Italian companies as well.
Another important norm to note within Italy is that it has a polychronic culture. It is common in business meetings for Italians to bend agendas, interrupt and interact often, and run slightly behind schedule. Although punctuality is desirable, it is not emphasized as much in Italy as it is in other countries. Meetings are generally informal, and in many cases, final decisions have already been made prior to the meeting.
Much time can be wasted trying to influence or persuade Italians with less power in business decisions only to later discover that the decision will be made elsewhere by higher management without consulting anyone in the company. This is applicable to Mary Kay’s business plan because when meeting with potential vendors, suppliers, or even customers, it is important to keep these cultural norms in mind. Meeting with top management will prove to be important because it is evident that they hold most, if not all of the decision making power.
It is also essential to remember norms of the culture to be successful as well. For example, not interrupting in a business meeting could be seen as disinterest and ultimately lead to a missed opportunity, so it is important to understand these cultural aspects when doing business with people in Italy (“Doing Business in Italy,” 2011). Another important cultural characteristic to note about Italy is that there is a cultural divide between the North and the South. In general, the North is known for being hard working, paying their taxes, and abiding by the law.
Southern Italy, on the other hand, is seen as much more traditional, less hard working, and in a sense, financially supported by the Northern Italian citizens. This cultural divide is essential for Mary Kay to acknowledge because the two regions may need to be marketed and approached differently. For example, Southern Italy is much more traditional, conservative, and hesitant toward new products and brands. Thus, Mary Kay will have to be aware of this cultural difference and expect it to take much more time for the South of Italy to recognize Mary Kay as a top brand with high quality products.
It will take more time for Mary Kay to earn their trust, and possibly more direct and personal selling techniques should be used as well (Micali, 2011). Another issue that may contribute to the cultural divide between the North and the South is industrialization. Northern Italy has become more technologically advanced over time, while Southern Italy has remained agriculturally based. This has allowed companies in the North to become much more productive and efficient and has increased the separation between the two regions even more.
Considering these differing trends, it may be more profitable for Mary Kay to focus its entry on Northern Italy. This is because the North is more technologically advanced and has the type of customers Mary Kay will be targeting, which are people who want high quality at lower prices. However, Mary Kay should not count out the South altogether because they are growing in terms of productivity, and there is certainly potential for opportunity all over Italy in the future (Micali, 2011). As a whole, the cosmetics industry is largely run and driven by women, so it is important to understand their role and place in the Italian work force.
In terms of women finding a job in Italy, it is largely dependent on her level of education. Approximately 80% of women in Italy who have university degrees go on to find employment in the job market in Italy. This is typical for a European developed country, and Italy is continuing to make strides toward even more women entering the work force. However, Italy still has a relatively low female employment rate compared to other EU countries. In 2010, women had an employment rate of only 49. 5 percent, while the EU average was at 62. 1 percent (“Eurostat”, 2011).
But there is an upward rising trend of women entering the workforce in Italy and leaving their traditional roles of being strictly house wives and mothers, so this is important for Mary Kay to note and is indicative that there is much room for potential growth and opportunity in the Italian market for cosmetics (“Women’s Rights in Italy”, 2010). When considering the cultural factors involved in entering the Italian market, the upward rising trend of women in the Italian workforce seems to be an advantage for the Mary Kay business model due to the cultural tendencies of Italians.
As previously mentioned, Italians have a low-trust society and often have a difficult time trusting outsiders. Thus, having more Italian women in the work force, potentially working as consultants for Mary Kay, may prove to be a positive trend simply because it will be easier for Italian women to gain the trust of their fellow Italian peers. The native women of Italy can relate to one another, influence each other’s purchasing decisions, and persuade each other that Mary Kay has the best line of products on the market.
They have a common cultural background, lifestyle, and similar consumer behavior, which is why having more Italian women in the work force should be an advantage for Mary Kay when entering the Italian market. Due to the fact that Mary Kay’s business model is primarily centered around direct marketing, it is crucial to develop a full understanding of the dynamics of direct selling in Italy before assuming this same business model when entering the Italian market. In Italy, there are approximately 256,000 people involved in the direct selling channel, the majority of them being women.
Many of the women working as direct selling agents are mothers looking to provide additional income for their families but must be on a flexible schedule. There is an upward rising trend of direct selling in Italy over the past decade, which can be seen in Exhibit 1. This positive trend will be an advantageous force for Mary Kay because a growing number of Italian women will have direct contact with potential consumers and will be able to use their common background and a sense of familiarity to gain their trust through such a direct channel (“Direct Selling in Italy”, 2011).
Despite recent economic uncertainty in Italy, direct selling continues to benefit from a strong consumer base and was not impacted as dramatically as other sectors of the economy. This is in part due to the constant interaction between the selling agent and the Italian consumer, who often takes advice from the agent, particularly when it comes to clothing and cosmetics (“Direct Selling in Italy”, 2011). As seen in Exhibit 3, the cosmetics industry in Europe holds the highest proportion of direct sales among all other industries, which is a positive for Mary Kay when entering the Italian market as well.
However, as the economy begins to improve, the direct selling channel in Italy may suffer as a result. This is because competition will begin to increase alongside economic growth, especially in the Internet retailing sector, which may make direct selling a less popular purchasing channel. It is important for Mary Kay to pay close attention to the economy and monitor their direct selling success rates over time. This way, they will not be surprised by the uprising trend of online sales and can make changes, if necessary, when the challenge arises.
However, until this occurs, direct marketing in Italy’s low-trust, relationship-oriented society is the direction Mary Kay should plan to take in order to be most successful (“Direct Selling in Italy”, 2011). An additional aspect of the cultural environment that Mary Kay must be knowledgeable of is the culture and growth of the Italian cosmetic industry. As a whole, natural products are becoming much more popular in the Italian market. Italians enjoy the idea of products being made from natural ingredients, and the cosmetics industry is undergoing a trend focusing on health and wellness.
Another important characteristic of the cosmetics industry market is that 32% of sales are hair and body care products. Specifically for U. S. companies, facial care, make-up, and body hygiene products are most successful in terms of sales in Italy (“Italy – A Success Story”, 2010). This shows the importance that Italians place on their appearance, specifically on products that improve their health and appearance simultaneously. Therefore, these are key product areas that Mary Kay should plan to focus once they have established their brand name in the Italian market.
There is also potential for non-traditional products due to the rise in health and wellness. Such innovative products include facial creams for wrinkles, cellulite treatments, sun block, and related protection from the environment, and enriched lipsticks. The majority of these products have dual functions beyond simply enhancing the appearance, and this change in product interest is a result of the Italians becoming much more health-conscious as a culture (“Italy – A Success Story”, 2010).
Not only is there potential for non-traditional products but for non-traditional market segments as well. Many people believe that the cosmetics industry as a whole only serves and focuses on women, but the industry is now evolving and targeting a broader range of customers. These new segments include men, children, and the elderly, and the newer health-focused products are an easy way for Mary Kay to appeal to these new targets in the future (“Italy – A Success Story”, 2010). One last characteristic to examine in terms of the cosmetics industry culture is packaging. It is important for U. S. ompanies entering the Italian market to appeal to Italian tastes, and packaging is an area where Mary Kay will have to somewhat adapt its product to the Italian culture preferences. Mary Kay should maintain the same packaging they use worldwide, except for translating the language to Italian. With this method, they can maintain their overall brand image and consistency around the world. ————————————————- COMPETITIVE ENVIRONMENT Local competitors pose a threat to Mary Kay because of their intimate connection to Italy. The leading local competitors are Pupa, Kiko Makeup, nd NOUBA Professional. These companies have an advantage over May Kay because they are native to their market. They establish a unique brand loyalty for their products merely because of their existence in their own country. They know the needs of the Italian market better than any other company does because they essentially are the market. These local competitors operate on a much smaller scale than Mary Kay and other international companies, therefore pose as Mary Kay’s indirect competitors. Due to their smaller funds, these companies do not have a large global following, which some consumers find appealing.
In order to compete with these local companies, Mary Kay needs to interview and surround themselves with the Italian culture. Catering aspects of Mary Kay’s business model to this country will ultimately aid in the effort to compete with local companies. Large international companies and their subsidiaries dominate the cosmetic industry market. These global competitors account for over half of the entire industry’s sales. L’Oreal, Avon, Estee Lauder, and Revlon are the global competitors in the cosmetic market. Research and development is essential in gaining a competitive edge.
A major advantage for these global companies, is that they have funds to set aside for R&D. They have also been present in the Italian market longer and know what has worked or failed. These companies have a significant amount of knowledge regarding their target markets, and thus are able to quickly recognize what changes needs to be made to their individual product lines. As we enter the market, we will need to understand consumers in order to compete with these established groups. The way Mary Kay conducts selling is unique when comparing the company to leading competitors.
Mary Kay’s use of direct selling provides strength when entering the market by offering consumers a unique buying experience outside of the traditional retail environment. Simultaneously, it enables lower priced products because expenditures on advertising, promotion, rent, and intermediaries are reduced. Though large international companies have the appropriate funds for R&D, Mary Kay’s use of direct selling will provide the consumer with a unique experience. Furthermore, Mary Kay’s reduced expenditures will provide extra cash to compete more aggressively in the market.
Avon’s business model is very similar to Mary Kay’s in regards to target markets, business models, and direct selling. They are Mary Kay’s direct competitor. We have to figure out a way to separate ourselves from a company with such a similar business model, who has already been established in the market. Avon was established 125 years ago to empower women in a once male dominated business industry. Since their formation, Avon has been improving direct selling methods, partnered with celebrities, and supported the Breast Cancer Awareness Foundation.
Avon also offers products for women, men, and children (Avon, 2011). Avon has had no direct competitors present in Italy, thus Mary Kay will be their first. In order to compete with them in Italy, Mary Kay must tap into the Italian culture and strategically market to their consumers. Mary Kay can catch Avon off guard by continuously being innovative with their business model and offer something new and exciting compared to what Avon has been doing all these years. Mary Kay can expect a country-of-origin advantage.
US based companies already have a leading presence in the Italian market including Avon, Revlon, and Estee Lauder. The Italian consumer will recognize the American connection between Mary Kay and these existing companies, establishing an initial trust in Mary Kay products. The US has the second largest presence of 30 % in the industry following Europe. ————————————————- MODE OF ENTRY We propose that Mary Kay should enter the Italian market by licensing the use of the Mary Kay brand name, and Mary Kay promotional material to Italian citizens.
Licensing fees are collected from women who wish to become sales agents – known as Independent Beauty Consultants – for Mary Kay. These fees are paid in exchange for a “start-up kit” supplied by Mary Kay, which allows the prospective Independent Beauty Consultants to begin conducting business as independent business owners. Typical fees for a Mary Kay “start-up kit” are in the cost range of approximately $75 USD. The “start-up kit” includes instructional materials on how to begin conducting business as a Mary Kay Independent Beauty Consultant, as well as promotional materials, and numerous cosmetic samples (Mary Kay, 2011).
The kit helps new consultants get acclimated to Mary Kay’s product. The ideology behind this strategy is based on the premise that an Independent Beauty Consultant should not only be familiar with Mary Kay products, but also be a consumer of Mary Kay products as well. With this unique relationship Mary Kay is able to turn Independent Beauty Consultants into satisfied customers who believe in the products, and therefore desire to be advocates for Mary Kay’s products, in exchange for performance-based compensation.
As an Independent Beauty Consultant, one can work at their own pace, as well as work in their own style without the cumbersome managerial structures often imposed by typical employer-employee relationships. As each Independent Beauty Consultant truly is her own boss, she is able to set a schedule that meets her needs, as well as her clients’ needs. Independent Beauty Consultants typically will begin by soliciting orders for Mary Kay cosmetics from her immediate circle of friends and family.
Business is expected to grow via word-of-mouth, with clients meeting Independent Beauty Consultants at “make-up parties” where clients are exposed to Mary Kay product offerings in an informal and relaxed atmosphere where building excellent rapport with Independent Beauty Consultants is all but guaranteed. Compensation to Mary Kay Independent Beauty Consultants can be as high 50% of the value of each product sold. This per-product compensation is often coupled with other incentives that are based on the aggregate total of product each Independent Beauty Consultant sells within a specified period of time.
Newly-minted Independent Beauty Consultants will have access to ongoing and continuously updated training materials and strategies made available to them primarily from Mary Kay’s headquarters in Addison, Texas. Mary Kay’s business model seeks to provide a maximum level of support for its Independent Beauty Consultants while at the same time imposing the lowest level of constraints regarding how and how often each Independent Beauty Consultant makes use of training materials. For this reason, Mary Kay schedules national conventions and seminars throughout the year, many of which are free for Independent Beauty Consultants to attend.
Furthermore, smaller scale seminars will be held in Mary Kay’s locally-based administrative office in Milan. The office will provide a base of operations for 2 Mary Kay Independent Sales Directors and 10 Senior Independent Beauty Consultants, who will recruit and train new Independent Beauty Consultants, as well as maintain communications with the headquarters in Addison, Texas. Training topics for Independent Beauty Consultants will include: basic and advanced product knowledge; how to administer Mary Kay products; techniques for increasing sales; techniques for booking appointments; and direct-marketing trategies. As a foreign company entering a new market, Mary Kay will aggressively aid the growth of its roster of Italian Independent Beauty Consultants by eliminating start-up costs for a limited-time basis, or until such time as Mary Kay deems that institution of fees is prudent and feasible based upon analysis of brand awareness and product demand in Italy for Mary Kay products. ————————————————- TARGET MARKET By appropriately targeting our markets, we will be able to reach our consumers through media with messages specifically designed for them.
We concluded that our core markets should be men and women of average to higher incomes. From this point, we created two segments within the women market based on age. The younger demographic will consist of women from ages 16-25. Women 26 years old and above will be in our second women’s segment. The benefit with this segmentation is that it is almost identical to the model in place in the United States. When starting business in Italy, Mary Kay will not have to adapt too much when it comes to target markets.
When determining our target markets, we considered demographics, psychographics, and our product offerings. (1) Demographics played large role when determining our market. The gross national income for an Italian citizen in dollars is $35,150. We plan to target the average to high-income consumer, which includes incomes of $30,000-$50,000, just as we do in the United States (Gross, 2011). Because $35,150 is the average income, we establish a target income bracket encompassing twenty thousand US dollars beginning at $30,000 to account for any outliers in the average.
Given the percentage of the Italian population this pertains to, we will adjust the range to find one that suits the proper percentage. This however requires costly research, thus falls into “Unanswered Questions. ” We will keep the income level consistent between male and female segments, as we do not wish to shift the image of the brand across genders. Men and women are our core markets. Women obviously make up a larger percentage of cosmetic consumers, so to better accommodate that larger percentage, we divided this market into two segments (1) women ages 16-25 and (2) women above age 25. 2) Next, we considered psychographics. Italy is known for its interest and presence in the fashion industry. Many consider cosmetics an extension of fashion; nonetheless, appearance is a growing trend for the Italian population. We are seeing an increase in male interest in the industry as more products catered to males are introduced. Skin cancer awareness has played a major role in the demand for anti-aging and sun protecting products for both men and women. However, this demand mainly comes from the 25 year old and above segments (Global Insight, 2011).
Makeup and cosmetics are used by women to enhance their appearance while converging to the ever-changing fashion industry. Luckily, makeup has been rather constant in scale when comparing it to fashion. However, levels of cosmetic confidence are seen as the main difference between the young and older female. Younger women tend to experiment with bolder makeup, while older women stick with the natural, subdued look (Cosmetics Business, 2010). This is another reason for splitting the female target market into two age groups. 3) Lastly, we consider the products we currently offer to correctly market to our consumers. For men, we offer skin care products to help prevent the signs of aging, shave foam, sun care products and fragrances. For women, we offer body care products, sun care products, nail polish, all types of makeup, cleansers, fragrances, moisturizers, and age-fighting serums for all areas of the face (Mary Kay, 2011). Mary Kay clearly offers more products for women than men. For this reason, we decide to target men as a whole. Once we begin to produce differentiated products, we can segment that market.
However, because so many women’s products are offered we have segmented the market by age. Younger women do not have a need for anti-aging serums, while older women typically do not have a need for bold colored makeup or nail polish. ————————————————- PRODUCT & SERVICE ADAPTATIONS Due to a mostly uniform Western market for cosmetic products, Mary Kay does not have to put much effort in reengineering its products for the Italian market. The high quality and excellent tolerance of Mary Kay’s products on the U. S. market are almost a guarantee of success also in Italy.
Furthermore, Mary Kay is already present on the Spanish and on the German market and can therefore benefit from the “EU common market advantage”. By European law, once an imported product has successfully passed the application process in one EU member state, and therefore proved to meet regulations on product safety and consumer protection, this product can be exported to any other country within the EU without further adaptations regarding its consistence. Of course, the labeling of the products has to be adapted to the Italian language. The relabeling is most likely to be executed in Mary Kay’s main production facility in Texas, USA.
Once the products for the Italian market are labeled in Italian, there are no further obstacles to a direct export to Italy. ————————————————- PRICING STRATEGY The image of Mary Kay as a producer and distributor of high quality cosmetic products in the USA is the ideal base to enter the Italian market. Italian customers are known for their high demand in quality, especially regarding products of toiletries. Furthermore, Italian consumers are very fashion-conscious and willed to spend more money if they can expect to receive higher quality in return.
This attitude is favorable to Mary Kay, since its products are of excellent quality and at the same time relatively convenient due to the company’s business model. The distribution over multi-level-marketing enables Mary Kay to reduce fix costs by avoiding a capital intensive establishment of a retail store chain throughout the host country. In fact, the successful strategy of the direct distribution from independent Beauty Agents to the final consumers of Mary Kay’s products has shown to be cost efficient and therefore generate a competitive advantage in other countries such as the USA.
In addition, the relatively strong host currency (EUR) is likely to boost the price effect, since the production is located in the USA. When entering the market in Italy, Mary Kay is well advised to pass benefits from foreign exchange along to the consumers, in order to generate price incentives and therefore boost the initial sales volume. ————————————————- PROMOTION & DISTRIBUTION STRATEGY As previously mentioned, Mary Kay’s distribution strategy in Italy is quite simple, and relies heavily upon the Independent Beauty Consultant’s ability to solicit orders for Mary Kay’s beauty products.
As mentioned previously in Mary Kay’s mode-of-entry strategy, Independent Beauty Consultants may choose to host “make-up” parties where Mary Kay product orders can be taken, and previously ordered product can be hand-delivered. In this scenario, the Independent Beauty Consultants should face little to no difficulty in reaching clients with product orders, as Italy has a highly-developed infrastructure comprised of multiple modes of transport. Mary Kay product can also be ordered online; clients have merely to enter their preferred Independent Beauty Consultant’s agent number into the website.
Once this agent number is entered, clients have access to Mary Kay’s website, within which they are able to view, select, and order beauty products to be shipped directly to their place of residence. Mary Kay eschews traditional mass-media modes of promotion in favor of more intimate modes of promotion. This allows the company to benefit from a significant cost-savings reaped from avoiding the purchase of expensive billboard, radio, and television advertisements. Promotion is conducted largely through word-of-mouth and at the previously-mentioned “make-up” parties.
These settings provide an environment of intimacy and due to the fact that typical attendees are friends and family members, lend themselves to building a strong relationship of trust between Independent Beauty Consultants and their clients. Furthermore, such a relationship lends itself to stronger brand loyalty. ————————————————- CORPORATE RESPONSIBILITY The Mary Kay Foundation currently supports two main causes: “Woman and Cancer” along with “Woman and Violence. These two issues are common to cultures located anywhere around the world, so it would be best for Mary Kay’s global image to maintain these same corporate responsibility foundations. There are three main factors in Italy that may contribute to a positive response to these corporate responsibility themes: the upward rising trend toward women entering the workforce, the cosmetics industry as a whole being geared toward women, and the fact that Italy is a low-trust society.
Thus, having a focus on empowering women through corporate responsibility will earn Mary Kay goodwill, gain the trust of Italian consumers, and increase positive word of mouth marketing for the company (Mary Kay, 2011). ————————————————- UNANSWERED QUESTIONS What percentage of the Italian population occupies the income range of $30,000-$50,000? This is needed in solidifying our target market income range. The information was on Datamonitor, however was too costly to purchase. What does the economic future of Italy and the EU look like?
Due to the recent events related to the debt crisis in Europe, it is difficult to make accurate assumptions regarding Italy’s economic developments in the future. Expectations for the foreign exchange markets and the future of the EURO are related to this topic. How is the revised legislation regarding consumer protection affecting the multi-level marketing regulations in Italy? Since the revision of the consumer protection laws in Italy is still in progress, there was no accurate information about this topic available. ————————————————- APPENDIX Exhibit 1
Source : Oanda Website, 2011 USD/EURO Historical Development (5 years) Exhibit 2 Source: “Direct Selling Is Doing Well in Europe,” 2009 Exhibit 3 Source: “Direct Selling Is Doing Well in Europe,” 2009 Annotated Bibliography ————————————————- Economic Environment Biotechnology Impacting Cosmetic Science: Altering the Way Cosmetics are Perceived?. (pp. 1-3). Allured Books. Retrieved from http://www. alluredbooks. com/sample_pages/biotech_sample. pdf Checherita, C. , & Rother, P. (n. d. ). The Impact of High and Growing Government Debt on Economic Growth.
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Retrieved November 10, 2011, from Oanda website: http://www. oanda. com/ ————————————————- Political Environment Country Report. Freedom House, (2011). Retrieved from, http://www. freedomhouse. org/ template. cfm? page=22&year=2011 Gillespie, K. Global Marketing. (3 ed. , p. Chapter 4). Organization for Economic Co-operation and Development, Italy: Ensuring Regulatory Quality Across Levels of Government. Organization for Economic Co-operation and Development, Regulatory Reform in Italy. U. S. Department of State, Bureau of European and Eurasian Affairs. (2011).
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