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For the exclusive use of A. Saxena, 2021.

9- 522 - 004 JULY 13, 2021

ELIE OF EK K. SHELETTE STEWAR T JULIA KELL EY

Mary Kay Inc.: Enriching Women’s Lives while Embracing Change When you reach an obstacle, turn it into an opportunity. — Mary Kay Ash1 In December 2020, Mary Kay Inc.’s Chief Marketing Officer Sheryl Adkins-Green was preparing for a meeting with CEO David Holl and the marketing team to discuss the upcoming launch of a new digital tool called Suite 13. Founded in 1963 and based in Dallas, Texas, Mary Kay Inc. (Mary Kay) was a direct sales company that aimed to empower women to be successful entrepreneurs by providing them with the products, tools, and education to run their own beauty businesses. Since its founding, Mary Kay’s global network had grown to include approximately 3 million Independent Beauty Consultants (IBCs). They sold skincare, makeup, fragrance, and related beauty products to end consumers in nearly 40 countries. IBCs typically hosted face-to-face meetings and multi-person “parties” to demonstrate product use to end-users. However, when the coronavirus (COVID-19) pandemic limited in-person gatherings, IBCs’ adoption of Mary Kay’s various digital tools accelerated. The newest of these tools would be Suite 13, a three-dimensional (3D) “virtual showroom” that could be experienced on device screens or with virtual reality headsets, simulating the experience of walking through a physical space. Suite 13 would first be rolled out to IBCs in Mexico, followed by Argentina, Peru, Brazil, Spain, Colombia, the United States, and Canada during the spring and summer of 2021. Adkins-Green’s main objective in the upcoming meeting was to show a demo of Suite 13 and discuss its rollout, but she knew that Holl would have additional questions for her, including around product, packaging, and sampling opportunities and challenges. As she prepared for the meeting, she thought about how Mary Kay could best equip its IBCs to thrive in the post-COVID-19 world, and how to make sense of the evolving competitive landscape in light of economic and beauty industry trends. Adkins-Green and her team had also discussed how to engage the next generation of digitallynative end consumers. She believed that Mary Kay’s core values appealed to this demographic, but the company had to assess the best way to communicate these values to them and ensure the brand

HBS Professor Elie Ofek; independent researcher K. Shelette Stewart (Stewart Consulting, LLC); and Case Researcher Julia Kelley (Case Research & Writing Group) prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2021 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

This document is authorized for use only by Arunabh Saxena in Marketing Management BUSI 5034 Fall 2021 taught by ASAD AMAN, Lakehead University from Sep 2021 to Dec 2021.

For the exclusive use of A. Saxena, 2021. 522-004

Mary Kay Inc.: Enriching Women’s Lives while Embracing Change

resonated. Could Suite 13 alone keep IBCs competitive and relevant? Should Mary Kay expand its product offering? Should the company invest in a U.S.-focused mass marketing campaign or continue to rely on IBCs as the primary brand vehicle? Finally, how might the team accomplish its goals while honoring Mary Kay’s rich philosophy, heritage, and legacy?

Mary Kay Inc. History Born in 1918 and married at 17, Mary Kay Ash was a stay-at-home mother until her 1945 divorce, at which point she became a sales representative for a direct sales company in Texas. 2 Such companies typically earned revenue by selling inventory at wholesale to independent sales representatives, who made a profit margin when selling the products to consumers at the retail price. Ash excelled at the person-to-person nature of direct sales and eventually became a national sales director who trained other sales representatives. However, in 1963 Ash quit her job after a male coworker, whom she had trained, was promoted to a role above hers and made twice what she did. 3 She later said, “I was constantly being told, ‘Oh, Mary Kay, you’re thinking female.’ And inevitably, no matter how well I did my job, I still found myself reaching a golden door marked ‘Men Only.’” 4 On Friday, September 13, 1963, she founded her eponymous company at the age of 45. 5 Ash aimed to give women an opportunity to be successful on their own terms and endeavored to create a company with a business model that let IBCs work on their own schedules. This was something that appealed to many stay-at-home mothers and homemakers. 6 Mary Kay also sought to provide women with a strong sense of personal fulfillment. An IBC who joined Mary Kay in 1967 explained, “I was very happy being [a] wife and the mother of my children, but I needed a self-identity.”7 In addition to offering a product line aimed at women, Mary Kay designed its training and programming to be women-focused. Mary Kay quickly reached $1 million in sales and started to expand internationally.8 The company was public on the New York Stock Exchange from 1976 to 1985. 9 A charismatic leader well-known for her sharp sales acumen, Ash served as Mary Kay’s chairman until 1987, when she became chairman emeritus. 10 Over the following decades, Mary Kay continued to expand to countries around the world. By 2000, annual revenues exceeded $1 billion, and Mary Kay operated in 37 different countries. 11 After Ash passed away in 2001, her legacy at the company remained strong, with Mary Kay often using Ash’s quotes and likeness in company materials. By 2020, Mary Kay was a multi-billion-dollar business, operating in nearly 40 countries worldwide. Its largest markets included the U.S., China, Mexico, Brazil, Russia, Germany, and Malaysia.

Products In 2020, Mary Kay’s product lines included skincare, makeup, body and sun, fragrance, and men’s products. Mary Kay positioned its offerings as upper mass-market or “masstige” (a portmanteau of “mass-market” and “prestige”), similar to L’Oréal or Clinique. In the U.S., the suggested retail price for most of Mary Kay’s skincare products ranged from $14 (face wash) to $70 (anti-aging serum), while most of its makeup ranged in price from $14 (blush) to $25 (foundation) (see Exhibits 1a and 1b). Mary Kay tailored its product line by market. The U.S., for example, had more than 500 stock-keeping units (SKUs), while Russia had about 300. Mexico’s selection included a higher proportion of fragrance and color cosmetics, while China’s portfolio had a higher proportion of skincare products and included nutritional supplements. 2 This document is authorized for use only by Arunabh Saxena in Marketing Management BUSI 5034 Fall 2021 taught by ASAD AMAN, Lakehead University from Sep 2021 to Dec 2021.

For the exclusive use of A. Saxena, 2021. Mary Kay Inc.: Enriching Women’s Lives while Embracing Change

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Mary Kay’s manufacturing was mostly done in-house and focused on maintaining high product quality and efficacy. Chief Operating Officer Deborah Gibbins noted, “We have great science behind our products and I think we’re trusted when it comes to our efficacy claims. If we say it reduces the appearance of fine lines and wrinkles, it really does reduce fine lines and wrinkles.”

Independent Beauty Consultants Mary Kay enabled IBCs to sell to people within their social circles. Consumers who wished to purchase Mary Kay products had to buy them through IBCs. Even end-customers interested in purchasing products through Mary Kay’s website were required at checkout to select and purchase from an IBC’s personal website. As of 2020, 22% of IBCs were based in North America, 33% in Latin America, 23% in Europe, and 22% in the Asia-Pacific region. To become an IBC, an individual signed an Independent Beauty Consultant Agreement with Mary Kay and purchased a starter kit. In 2020 the kit included digital marketing materials, access to Mary Kay’s virtual apps and IBC portal, one year of free access to a payment processing tool, educational materials, and an assortment of full-size and sample products. The full startup kit with products and samples cost $130 in the U.S.; the price varied across markets. Mary Kay’s U.S. market also launched a digital-only option for $30 in 2020. In 2019, Mary Kay invested in a new learning management system (LMS) that provided new IBCs worldwide with module-based training about products and best sales practices. IBCs bought Mary Kay products at wholesale cost from the company and typically sold them to their customers at 100% of the suggested retail price, though IBCs were free to set their prices and to offer discounts, premium pricing, giveaways, or bundling promotions. Many purchased and stored inventory to get products to customers quickly. In recent years, Mary Kay U.S. had introduced an option to allow IBCs to have products shipped directly to their end-customers using Customer Delivery Service (CDS), with IBCs covering the associated shipping costs. Gibbins said, “Traditionally, Mary Kay Ash taught that, ‘You can’t sell from an empty wagon.’ But the world’s a little different now. Today, I don’t think people starting up a business expect to invest $2,000 or $3,000 to have every product ’in-stock’ and have a spare room for their Mary Kay inventory. And there are some instances where women are doing this for the social aspect, the fun, and the discount.” To stay active and continue receiving the wholesale discount, U.S. IBCs had to order $220 of merchandise per quarter. Mary Kay encouraged IBCs to build initial customer bases through their networks. The expectation was that, over time, the initial base would recommend the services of their IBC and influence others to buy, and some might be inspired to become an IBC themselves. IBCs demonstrated Mary Kay products for customers at one-on-one consultations or larger parties with multiple attendees. Adkins-Green said, “The IBCs are the best marketing and advertising force that I could ask for. We believe that the wordof-mouth credibility that comes from someone you know is powerful.” Each IBC could have a personal website that interfaced with Mary Kay’s website, where she could customize her profile page information and offer promotions. Mary Kay taught IBCs to provide a highly personalized customer experience. Adkins-Green explained, “The IBC knows when my son’s about to graduate from high school. She’ll say, ‘Do you want waterproof makeup for that day?’” President of the North American Region Nathan Moore recalled when he and his wife went on a ski trip and realized that his wife had forgotten to pack her favorite skincare product. Through Mary Kay’s website, they contacted a local IBC, who handdelivered the product to the ski resort, asked them if they needed guidance on how to use it, and invited them to reach out if they required anything else while in the area. Moore said, “You can order a product online from Sephora or Ulta, but the delivery person is not going to ask you if you know how to use 3 This document is authorized for use only by Arunabh Saxena in Marketing Management BUSI 5034 Fall 2021 taught by ASAD AMAN, Lakehead University from Sep 2021 to Dec 2021.

For the exclusive use of A. Saxena, 2021. 522-004

Mary Kay Inc.: Enriching Women’s Lives while Embracing Change

the product.” President of the European Region Tara Eustace added, “People can go to their pharmacy to buy lipstick or skincare. If they’re buying it from a Mary Kay Independent Beauty Consultant, they want that human touch.” Director of Global Marketing and Digital Strategy Jamie Schott said, “What’s great about beauty is that it is very personal, and people value advice. There are a lot of tutorials online, but many people don’t even know where to start. That’s where I think direct selling’s value is—it doesn’t work in all industries.” Some IBCs worked their Mary Kay business full-time, but approximately 80% treated it as a parttime job or a secondary source of income. Adkins-Green commented, “From meeting so many women, I can say that this opportunity can work for anybody and everybody, and that it works in proportion to that individual’s goals and how much time they want to put into it.” The opportunity was often even more appealing to those living in places with fewer economic options. Chief Investment Officer Ryan Rogers noted, “Over the last two decades, we’ve seen the value of the business opportunity play out in emerging markets where the standard of living isn’t as great as the U.S. People really need the opportunity in those places to make extra income.” IBCs had the option to qualify for more senior titles, such as Independent Sales Director and Independent National Sales Director (see Exhibit 2). To do so, they had to meet certain sales volumes and recruit a certain number of IBCs, referred to as their “team” or “unit” members (often called “downlines” in the direct sales industry). Rogers noted of the existing structure, “We’re not full-on multi-level marketing, and we’re not single-level marketing where there’s really no way to move up and make a career out of it. We’ve sort of created a hybrid model.” In the U.S., Mary Kay had approximately 9,000 Sales Directors and 170 National Sales Directors. Senior IBCs and Sales Directors offered guidance to their downlines and received a commission on their sales, paid out by Mary Kay. Adkins-Green noted, “Senior consultants do not direct. They inspire, encourage, and motivate. But most importantly, they are mentors. It’s really about having a mentor to listen and help you be your individual best, and that’s very much as Mary Kay Ash taught.” In addition to the money IBCs earned by the retail sale of products, other incentives motivated and rewarded success. U.S. National Sales Directors, for example, could earn a pink Cadillac Career Car. Each year prior to COVID-19, Mary Kay held Seminar, a large convention to recognize and award prizes to top IBCs, which tens of thousands of women traveled to Dallas to attend. At the 2016 U.S. Seminar, for example, Mary Kay celebrated the accomplishments of Gloria Mayfield Banks, a Howard University and Harvard Business School graduate who had recently become the first African American Independent Elite Executive National Sales Director, the highest salesforce achievement.12

Mission, Values, Brand, and Tradition Many of Mary Kay’s core values and traditions traced back to Ash. In 2020, employees and IBCs still regularly referenced her philosophies and teachings, such as her mantra of “God First, Family Second, Career Third,” her adherence to the “Golden Rule” of “do unto other s as you would have them do unto you,” and her belief in making everyone around her feel important. Inspired by Ash’s passion for supporting women, Mary Kay’s core mission was to empower women to be successful. Gibbins noted, “So many companies have to figure out their ‘why.’ We have a ‘why.’ We started this company to provide an earning opportunity for women, period, full stop.” Mary Kay supported women’s causes—specifically, ending domestic violence and finding cures to cancers that impacted women. Since 1996, the Mary Kay Foundation’s contributions to organizations aligned with these causes exceeded $80 million. 13 On brand activism, Holl said, “We’re not big enough to have a shotgun approach and hit everything. The vast majority of our dollars are going to go to those 4 This document is authorized for use only by Arunabh Saxena in Marketing Management BUSI 5034 Fall 2021 taught by ASAD AMAN, Lakehead University from Sep 2021 to Dec 2021.

For the exclusive use of A. Saxena, 2021. Mary Kay Inc.: Enriching Women’s Lives while Embracing Change

522-004

two causes, though we will support other things along the way.” The company had recently spearheaded efforts with the United Nations to promote women’s entrepreneurship globally. Mary Kay’s brand identity was shaped by the company’s core mission and values. Vice President of Brand and Design Stephen Webster noted, “We used to be more focused on creating a separation between our brand messaging for consultants and our brand messaging for consumers. That hasn’t completely changed, but I’ve learned that the same values resonate with both groups.” Mary Kay’s brand focused on three core values: connected, beautiful, and confident. Webster explained: Connected has so many meanings—the ability for us to enable connections through the digital environment, from every possible device you can think of. But there’s also the human side. A big part of what powers the business is the connections that consultants can make in their communities. One of the less spoken-about benefits of having a Mary Kay career is that sense of connection and shared purpose. Beautiful is a little bit obvious because we are ultimately a beauty company—it’s what we sell, and we are proud of our products. But I think the idea we’ve always had is that it is more about unleashing inner beauty. Many people say that if they feel good about the way they look, if their skin is healthy and glowing, they feel better about themselves. We’re more about feeling beautiful versus just surface beauty. Confidence is ultimately the most important of the three words. Now, more than ever, we have to have confidence in ourselves. People aren’t trusting institutions, products, or brands anymore, so we aim to boost a personal sense of confidence and confidence that people are interacting with a purpose-driven company, a good citizen of the Earth. On the importance of confidence, Adkins-Green added, “A big part of Mary Kay Ash’s belief system was that if you believe it, you can achieve it. She knew the power of someone believing in you. This opportunity works for our IBCs because it gives them a community and builds their confidence. The next thing you know, the once-shy ‘tomboy’ is up on stage being recognized in front of thousands.” Mary Kay had a strong culture that emphasized long-standing company traditions, such as the pink Career Cars earned by top Sales Directors. While such traditions were important to employees and IBCs, they could also make it harder to embrace change. Moore said: There’s a tendency to confuse heritage with tradition. Right before the pandemic, I was telling my team, “We have two choices: we disrupt or we get disrupted.” We have the ability and power to be disruptors. We’ve got to stay true to who we are—our heritage, our principles, our values. That should never change. But tradition is how you do who you are, the practices you follow to act on your heritage, and that can change with the times. Yet it’s hard for a company that’s as old as we are because many people confuse the two. They say, “Well, you can’t change that.”

Industry Background Direct Sales Direct selling, also sometimes referred to as multi-level marketing or peer-to-peer sales, had existed in some form for centuries. Traveling merchants and door -to-door salespeople had long helped bring in-demand goods to buyers in more rural areas. Before the 20th century, most direct sales 5 This document is authorized for use only by Arunabh Saxena in Marketing Management BUSI 5034 Fall 2021 taught by ASAD AMAN, Lakehead University from Sep 2021 to Dec 2021.

For the exclusive use of A. Saxena, 2021. 522-004

Mary Kay Inc.: Enriching Women’s Lives while Embracing Change

representatives were men. Women began to enter the space in significant numbers beginning in the 1940s and 1950s with the rise of women-focused businesses such as ...