Lappeenranta University of Technology
Course: 9201 Business in China
Case: Mary Kay China: Shanghai market entry
Student name: Thoralf Czichy
Student number: 10956
Student email: email@example.com
Table of Contents
1 The Negative Image of Direct Sales*
1.1 Overcoming the Negative Image of Direct Sales*
1.2 Direct Sales or Using Retail Stores*
2 Cultural Dimensions*
2.1 Chinese Values and Direct Sales Method*
2.2 Evaluating the Research by Mary Kay*
3 The ‘Party Plan’*
1 The Negative Image of Direct Sales
Mary Kay Inc. uses all around the world the same method to distribute its products. So, of course, based on their experience in over 20 countries they would like to do the same in the PRC. But, still being a socialist country with its own habits and beliefs this method of sales has a very negative image in China.
There are two questions Mary Kay's managers have to obey. First do they want to use the direct sales method to enter the Chinese market or do they want to sell their products using an already established distributor (e.g. state-owned department stores), which is on the first view the easier and less risky way to do. The second question, in case Mary Kay's management decides to enter the market using a direct sales method, is concerned with finding a way to overcome the negative image of this method of distribution.
1.1 Overcoming the Negative Image of Direct Sales
Direct sales as a method of distribution does not have a good image in the Chinese society. This method is often compared to fly-by-night operators that sell everything from foot massagers to magic health potions to Chinese customers. This market is well-established in China, especially hundreds of Chinese companies are operating in this business, trying to make some money for living and often selling low-quality products for high prices. This is made even worse, by state media that have compared the direct-sales operations to "religious sects." This selling approach is also often compared to illegal pyramid scams, which of course have a negative image of having a bad influence on society.
Of course the direct sales approach Mary Kay is using is completely different. Offering money-back guarantees and a "cooling-off" period during which unsatisfied customers can return their products is proper way to overcome this image. They could try to regain a trustworthy image of this selling-method. Establishing a long-lasting connection between customer and sales force is necessary to convince the Chinese people of the advantages (e.g. expert advise) of the direct sales method in this business.
Selling high-quality products and premium prices is of course difficult to do in a country where the average urban household has an income of 335 RMP (ca. 37 USD). But concentrating on the small group of people who can afford these luxury goods (1%) and who also have a need for these goods it is maybe more easy to overcome the bad image of direct sales. Although this building of a satisfied customer base will take some time, once done, it will help to get in contact with new customers, using the old ones as a role model and also as a reference group of happy customers.
1.2 Direct Sales or Using Retail Stores
Direct sales has, especially regarding to the necessity of counsel, some advantages over the use of wholesalers and retail stores. It guarantees a constant quality of marketing for your product. Another way is the use of retail stores which can guarantee a certain quality level. One way is to get access to the state-owned department stores, because only these can guarantee a certain level of tidy rooms and qualified personal. Another way is to use the emerging private owned department stores. The number of these stores is expected to increase rapidly. Both ways seem to be possible, but of course they would oppose the strategy, followed in all other countries around the world – the direct sales approach.
Despite all its disadvantages I would still favor the direct selling approach, because first of all Mary Kay could use all its experience it already got with this approach in other countries. So, e.g. Mary Kay already established branches in other Asian countries like Thailand, Singapore and especially Taiwan. On the other hand the Mary Kay has to be very careful and keep an eye on the government's attitude towards this method of distribution (MOFTEC, BIT, SAIC), because the government in the PRC has certain tendency to influence the economic development, by changing policies quite often and in an unpredictable way.
2 Cultural Dimensions
2.1 Chinese Values and Direct Sales Method
The beliefs and major Chinese values are mainly based on the great history of China. Chinese people are proud of their history. During its history China didn't had to much contact with foreigners, and even if so, these contacts were more of a negative kind (e.g. Opium war, Japanese occupation). This results in a sometimes suspicious relationship to foreign products and brands. I think that this attitude has been made even stronger by the Chinese government throughout the years of the cultural revolution.
But nevertheless young people did not grew up with this attitude and are expected to be more open towards western style of life and western products. There are several factors, which characterize Chinese people and which are likely to have an influence on the marketing of cosmetic products.
2.2 Evaluating the Research by Mary Kay
The research done by Mary Kay can only be used to get an idea of the Chinese market. There is still a lack of data and studies about Chinese consumer behavior. Especially the study by Dazheng Marketing Research lacks a theoretical base because it is only based on statistical small group of customers (28). But it gives an idea to evaluate selling prices for the products. Obviously the prices estimated by the future customers are definitely lower then the actual planned prices.
This supports the fact, that the average Chinese is not willing to pay the high prices for Mary Kay's products. This can only be handled, if the products are made cheaper or Mary Kay tries to establish an even better image of its products through heavy investments in marketing (commercials, advertisements).
The study also reveals, that the Chinese habit of bargaining can be satisfied by offering five set pieces of cosmetics. Furthermore Chinese people seem to prefer skin care products and are more willing to buy these than, e.g. make up.
Another interesting issue is, that Chinese people obviously have no problem seeing, that direct sales people are earning their income, by selling cosmetics. This is even seen in a positive way, because it helps people in times of unemployment to get a new job.
3 The ‘Party Plan’
The 'Party Plan' is based on the idea, that a host - the beauty consultant - is giving a party at her home and during this party she is presenting the products giving council and finally asks the participants to buy products.
On the one hand there are factors which support the idea to proceed like that in China and others which oppose this idea. First of all the relative poor housing conditions would not fit to the superior quality image Mary Kay is trying to transmit. This could be overcome by holding these parties in other places, like restaurants. It is also quite common in China to invite people for diner or for tea. So it would not be to unusual, if someone is inviting people to these kind of parties. The fact, that it is not common to invite strangers could be overcome by using ones Guanxi network to get in contact with people. This would also establish a feeling of trust between customer and sales person, which would be abundant, with complete strangers.
Influenced by socialist ideas Chinese people are very aware of living in a collective society. Every person belongs to a group. This affiliation to a group and the tendency to reinforce social identity within a group by using certain products and brands can be used to get access to people, who would otherwise never get in contact with Mary Kay's products.
The tradition of giving gifts and expecting favors can also be used. Therefore Mary Kay should try to establish its product line by giving many small gifts, like samples of products to its future and also present customers during these parties.
As seen in the previous chapters it is very difficult to say, whether Mary Kay should invest in a direct sales force or if they should rely on the established distribution channels. Each of these modes of distribution has its own advantages and disadvantages.
The cosmetics market is growing market. Although competition in growing markets is still hard, it is not as hard as in already well-established markets. It is still possible to gain market share for a new company (like Mary Kay) whereas in the same time all sellers are increasing their sales.
The idea to use the direct sales approach in China is supported by several Chinese habits and cultural ideas like:
The decision to start its business in Shanghai, which is the trend-setting city in china has been a good decision. First there are a lot of potential customers (young women with disposable income) and once this market is conquered Shanghai can be used as a reference group to transfer the positive image of Mary Kay's products over the whole PRC.
On the other hand establishing good relations with the local government seems to be important. The decision to build a manufacturing plant in china could help to create an image of Mary Kay as a good employer within the government. On the other hand there is always the risk of giving away recipes and know-how, when building a manufacturing plant in China. The advantage of reduced import tariffs has also to be seen, although these are expected to be removed in 1997.