1 TABLE OF CONTENTS I. Executive summary 3 II. Situation analysis 3 Industry 4 Internal 4 Customer 5 Competition 6 Macro 7 SWOT 7 III. Primary Research and Key Findings 7 Focus groups 7 Personal interviews 8 Beauty Parties 8 Consumer Online Shopping Survey 8 Job Survey 11 IV. Consumer Decision Journey Process 12 Target Markets 12 Market Segmentation and Personas 12 Strategy Overview 13 Goals 14 Consumer Decision Journey Model 14 Mary Kay IBC Journey 16 Positioning Statement 16 Messaging 17 V. Consumer Experience 17 VI. Millennializing the Job 19 VI. Measurement and Evaluation 21 VII. References 23 VIII. Appendices 24 2 Executive Summary The goals of the Mary Kay Case Challenge are to “reimagine, reinvent, and revolutionize the Mary Kay personal beauty experience and beauty party, and develop an integrated marketing plan that will increase the number of Mary Kay IBCs and also sales among next generation non-users, ages 18-24.” To address this challenge we took a data-driven approach relying on secondary data, along with personal interviews, focus groups, and two surveys. We also hosted a Mary Kay party, attended an IBC meeting, and met with Rebbecca Evans: a Mary Kay National Sales Manager. All of this information was used to develop a plan to improve the millennial perception of the Mary Kay brand and the Mary Kay employment opportunity. We propose that Mary Kay change both the way it interacts with its customers and its IBCs. We are proposing that Mary Kay go back to its beginnings and focus on the individual customer and the individual IBC. Mary Kay needs to build mutually beneficial relationships between them and their customers, between them and their IBCs and between the IBCs and their clients. The end goal is to have IBCs and customers connect to the Mary Kay brand and consider it as their brand. To do this we have developed a plan/campaign called “My Mary Kay Experience” So what does the “My Mary Kay Experience?” It is a series of personalized interactions between Mary Kay and its customers and IBCs. To accomplish this we are proposing a fresh approach to the direct selling model with a new Social Media platform, a new approach to the party experience and a new brand extension, MYNE by Mary Kay, a line of products targeted at the millennial audience. Situation Analysis: Beauty Industry Analysis According to the Consumer Market Outlook report, the beauty industry is part of the beauty and personal care industry. The beauty industry is divided into six sub-markets: skin care, hair care, color, fragrance, toiletries, and personal hygiene. Mary Kay participates in the cosmetics, skin care, and fragrances sub-markets. Together these submarkets were valued at $26.8 billion and have experienced 2.15% growth in the past three years. Overall, this is a mature industry with slow growth potential. Over the past three years, the cosmetics market has been a bright spot with revenue increases of 4.4% annually, and is expected to grow at 4.5% annually over the next three years. The key takeaway is that of the markets in which Mary Kay participates, only the cosmetics market is forecasted to grow by more than 4% annually. Mary Kay cannot rely on industry growth to fuel their future sales. Revenues in the U.S. Beauty and Personal Care Industry Cosmetics Skin Care Fragrances Beauty Total Industry Total Rev (in Ann. % Rev (in Ann. % Rev (in Ann. % Rev (in Ann. % Rev (in Ann. % $mil) change $mil) change $mil) change $mil) change $mil) change 2014 7,176 14,125 4,439 25,740 58,103 2015 7,452 3.80% 14,133 0.06% 4,618 4.00% 26,203 1.80% 61,298 5.21% 2016 7,803 4.70% 14,399 1.90% 4,647 0.60% 26,849 2.50% 62,494 1.91% 2017 (est.) 8,124 4.10% 14,381 -0.10% 4,672 0.50% 27,178 1.20% 64,427 3.00% 2018 (est.) 8,480 4.40% 14,386 0.04% 4,707 0.70% 27,574 1.50% 66,595 3.26% 2019 (est.) 8,845 4.30% 14,366 -0.10% 4,735 0.60% 27,946 1.30% 68,788 3.19% 2014-16 627 4.37% 274 0.97% 208 2.34% 1,109 2.15% 4,391 3.78% 2016-21 (est.) 1,042 4.45% -33 -0.08% 88 0.63% 1,097 1.36% 6,294 3.36% Sources: Consumer Market Outlook 2017 and IBISWorld Industry Report According to IBISWorld some key success factors include: word-of-mouth recommendations, having an experienced workforce, attractive product presentation, and the production of goods currently favored by the market. As a result, the Mary Kay IBCs are crucial to the future success of the company. There has been a significant shift in the retail channels through which skin care and cosmetics products are sold. Over the past five years the three channels with the largest percentage gains were Internet retailers with a 14% annual growth, beauty specialty stores such Sephora and Ulta with 7% growth, and department store sales with a 3% growth. Direct selling sales have been stagnant due in part to increased competition from beauty specialty stores, department stores, and e-commerce. U.S. Beauty & Personal Care Revenues (2011 vs. 2016), by Distribution Channel Grocery Beauty Mass Dept. Internet Direct All Retailers Drugstores Specialists Merchants Stores Retailing Selling Others 2011 Rev (in $mil) 12,828 8,349 6,635 7,796 5,474 3,096 3,705 7,409 2016 Rev (in $mil) 13,436 9,062 8,937 8,437 6,187 5,249 3,812 7,374 Annual Change 2011-16 1% 2% 7% 2% 3% 14% .5% -0.1% Sources: Fung Global Retail & Technology; Euromonitor 3 Three beauty industry trends are prevalent and need to be mentioned. First, to be competitive going forward in the beauty industry it is crucial to embrace the Internet and utilize digital selling platforms (IBISWorld, 2017). The Internet has made it possible to market and sell beauty products to customers in new and innovative ways. Second, there is a growing demand for organic beauty products and products manufactured from natural ingredients. The Global Cosmetic Industry found that natural beauty product sales in the U.S. increased by 9.2%, from 2015 to 2016 while the industry growth overall was 1.9%. This is the way that many niche cosmetic companies have differentiated themselves and their products in this crowded marketplace (Lopaciuk and Miroslaw). The third key trend is the growth in the luxury beauty market. According to Jean-Paul Agon, Chairman and CEO of L'Oreal, the beauty industry has witnessed a significant growth in the demand for luxury beauty products growing by nearly 9%. The Direct Selling Industry Mary Kay’s business model places it in the direct selling industry. The Direct Selling Association and IBISWorld report that this is a $35.5 billion dollar industry in the U.S. However, IBISWorld predicts declining revenues in this industry over the next five years, due mostly to increased competition from online retailers. To be competitive in direct selling business in the future, firms and individuals will need to embrace the integration of the Internet into their selling platforms, including an emphasis on “Social Selling.” The Direct Sales Association reports that the U.S. beauty/personal care retail direct sales have grown by $900 million over the past five years, but declined by $300 million last year. The same online competition faced by the market in general is negatively impacting this segment. The beauty and personal care market has quickly become a digital business and to be competitive in the future direct selling firms need to embrace social selling strategies. It is important to note that direct selling sales via group/party approach has declined by 9.9% over the past five years. This suggests a paradigm shift in how direct selling companies will need to adapt to the digital economy to be successful in the future. U.S. Beauty and Personal Care Direct Sales in the United States 2011 2012 2013 2014 2015 2016 5 Yr. Change US Direct Retail Sales (in $bil) $29.87 $31.63 $32.67 $34.47 $36.12 $35.54 $5.67 Sales % change 5.9% 3.3% 5.5% 4.8% -1.6% 3.8% U.S. Beauty/Pers. Care Dir. Sales (in $mil) $5,300 $5,600 $5,500 $6,000 $6,500 $6,200 $900 Sales % change 5.7% -1.8% 9.1% 8.3% -4.6% 3.4% % sold by Party Plan 30.9% 27.1% 22.5% 22.4% 20.4% 21.0% -9.9% % sold Person to Person 64.9% 68.3% 70.2% 71.5% 71.0% 72.0% 7.1% Source Direct Selling Association Internal Analysis Founded in 1963, Mary Kay has inspired millions of women to pursue their professional goals. Today Mary Kay is a leader in the beauty industry with global revenues of $4 billion and U.S. revenues of $1.678 billion. The table below summarizes their vital metrics. With Mary Kay’s Independent Beauty Consultants (IBC’s) are the lifeblood of their company and are directly related to revenues. The number of active, registered Mary Kay U.S. IBCs has declined from 370,000 in 2011 to 325,000 in 2016. Mary Kay’s U.S. revenues have grown by $235 million, or 3.26% annually, with most of that increase occurring between 2011 and 2014. Over the past two years, sales have slowed to 1.38% annually.