MARY KAY: Hot or NOT? (Part 2)
July 15, 2008 by Sean Kelly
Filed under Business
(FranchisePick.Com) This is the second of a series of guest posts on the Mary Kay cosmetics business opportunity by David Shepherd, publisher of the Balanced Mary Kay blog. Thanks to David for taking me up on the invite to guest post.
Are you a Mary Kay consultant? Ex-consultant? Customer? Ex-customer? Please share you experience and opinion with a comment at the bottom of this post.
Also read: MARY KAY: Hot or NOT? (Part 1)
Mary Kay Cosmetics: Hot or Not? (Part 2) by David Shepherd
Advertising Dollars.
Advertising is a very expensive and highly speculative proposition. Although TV stations, newspapers, and other outlets as well as the agencies that represent them would like you to believe that placing your advertising with them will produce excellent results, the truth of the matter is that it is a crapshoot.
- What message will people respond to?
- What are the people I want to reach looking at?
- How can I guarantee that the money I am spending will get enough of a response to make it worthwhile?
These are all very subjective questions and questions that major companies spend millions of dollars to try to figure out. For instance, in the U.S. alone, Proctor and Gamble spent $5.2 Billion in advertising dollars in 2007. AT&T, Verizon and GM each spent just over $3 Billion in 2007. (Source: Advertising Age | Data Center June 23, 2008)
Mary Kay, on the other hand, spends very little on advertising. (I do not have numbers, but it is well known that you do not often see commercials or ads for Mary Kay.) Instead, they elect to offer the money they would have spent on TV, Radio, Newspaper, Magazine, etc… to their sales force and consumers.
From what is known as a “personal use” consultant who does little more than buy the product at 50% of retail (provided she purchase the minimum of $200 wholesale per year) to the career style consultants, their strategy is to “get the word out” about Mary Kay in a grassroots, word of mouth manner. In essence, they are saying, “you find people to buy our product and we will give you a cut of the profit”. You can’t say that to a TV station. All you get from a TV station is how many dollars you have to pay them to put your message on their airwaves. And it is (typically) not based on how well your message performs.
Naturally, critics of this concept will point out that by not advertising, they are making it more difficult for the consultant to reach people that may be interested in the product. This is a very difficult position to defend though, because the 50% being offered is essentially the advertising strategy. The consultant IS the advertising. If they advertised, the consultant would become an employee and most likely get paid an hourly rate to stand behind a counter. Both strategies have their strengths and weaknesses, and some might feel strongly that one is better than the other, but practically speaking, this is a strategy discussion and not a moral or ethical dilemma. In other words, neither strategy is inherently evil. They are business decisions and aligning yourself with one or the other is, as they say, “just business”.
Low entry cost and “I need HOW much inventory?”
Probably one of the most contentious aspects of this business opportunity is the cost of involvement. It is not difficult to guess at the reasons that Mary Kay sets the “cost of joining” so low. For just $100 (plus tax and shipping) you are “in”. There are very few people that can’t afford to drop a Benjamin on a venture such as this. This means more people out there talking to friends, family and other acquaintances about the company’s products. From the company’s point of view, there can not be “too many” consultants. From the consultant’s perspective, this is desirable because they are being offered the opportunity to earn a commission as a company representative for a very nominal startup cost.
Detractors point out a number of problems with this element of the Mary Kay opportunity. And, arguably, this one facet creates a quandary of epic proportions. Accusations fly about recruiters promising all sorts of magical outcomes from this little $100 investment. Many former consultants have complained that they were given the impression that their hundred dollar investment was literally all they would have to do. The rest would just fall into place for them and they would soon be counting their untold riches and going on fabulous vacations without a worry in the world. While this premise is laughable to most rational adults, and is not at all supported by any of the official company literature, it seems to play well to the greedy or desperate side of many and becomes a source of great disillusionment when they are not immediately ushered into the ranks of the uber-affluent.
Further generating frustration regarding the startup cost, many who were sold on the absurd “$100 =guaranteed success” notion are led to believe that they “can’t sell from an empty cart” so if they really want to be successful, they need to stock up on a full inventory.
If you have a client base and move a lot of product inventory IS a very good investment, but the impression they are sold on is that somehow, magically, the very act of obtaining inventory will bring customers to you, and as before, you will be whisked away to that utopian place where all the billionaires hang out and count their money. This is not the Mary Kay that the company tries to promote. You won’t find these sentiments, spelled out or implied, in any of the official company literature. Nonetheless, as with any industry or company, when a persuasive con-artist meets a greedy or desperate individual “official company literature” is rarely brought into the conversation.
From what I have been able to observe, evidence that this sort of manipulation happens – more than in isolated situations – is anecdotal at best. While it is obvious that there are some that outright claim these kinds of magical results from just spending money, and far more that imply the same, it also seems that there are a great deal that simply “hear what they want to hear” (great potential, unlimited earning potential, flexible schedule) and “ignore what they don’t want to hear” (hard work, takes time to build) and far more that knew they would get out of it (earnings) what they put into it (effort and energy) and are satisfactorily adjusted to their position (personal use/hobby level, part-time, or career level). While it is true that few make it to the “executive income earning” level (and as such, this should not be held as a “selling point” to a prospective recruit anymore than the starting salary of the CEO of Best Buy should be “pitched” to an applicant at that company) “executive income” is not (or at least should not be) the reason for joining Mary Kay.
What do you think? Share a comment below.
David Shepherd is an account executive at a multicultural marketing and advertising agency in LA. His wife sells Mary Kay and he blogs about it at Balanced Mary Kay.
Read David Shepard’s series Mary Kay: Hot or NOT? (Or, as I lovingly call it, The Kaybot Manifesto)
MARY KAY: Hot or NOT? (Part 1 of 4)
MARY KAY: Hot or NOT? (Part 2 of 4)
MARY KAY: Hot or NOT? (Part 3 of 4)
MARY KAY: Hot or NOT? (Part 4 of 4)
If anyone would like to print a rebuttal or offer an alternative article, please email Sean at info[at]ideafarm.net
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It is easy for David to say that some of the promises are not on company literature. But when you are a new consultant it is hard to see where the company literature ends and the director’s begins. You believe your director. If she gives a printed page, you don’t question if this is her’s alone or if it is from MKC. If she tells you something from experience, you believe her. If she says you need to buy inventory because . . . Then you believe her since she has gone thru it all before. You don’t realize, until you’ve been burned, that her commission check is solely relying on how large an order you place. It doesn’t matter if she is lying, embellishing, exagerating, etc.
Read David Shepard’s series Mary Kay: Hot or NOT? (Or, as I lovingly call it, The Kaybot Manifesto)
href=”http://www.franchisepick.com/mary-kay-hot-or-not-part-1/”>
MARY KAY: Hot or NOT? (Part 1 of 4)
MARY KAY: Hot or NOT? (Part 2 of 4)
MARY KAY: Hot or NOT? (Part 3 of 4)
MARY KAY: Hot or NOT? (Part 4 of 4)
If anyone would like to print a rebuttal or offer an alternative article, please email me at info[at]ideafarm.net
” In essence, they are saying, “you find people to buy our product and we will give you a cut of the profit”. ”
I thought the commission on sales was pay for the work you did? The consultant is independent, therefore absorbs 100% of all costs associated with selling the product for Mary Kay. What company asks their sales force to pay out of pocket to advertise their products for them? Product to market should be a result of demand… mostly created by the company.
I don’t agree with this statement. Contrary ato Mary Kay the company, very few consultants get to sell their product for the full 100% profit (i.e., buy for $1 sell for $2.) because they are giving product away as hostess gifts, at discounts (because of a multitude of reasons, such as, in many instances, being discontinued,) etc. IMO, Mary Kay gets their 100% on the sale, very rarely taking a hit. They should be the ones to warm the market not the consultant.
Ex-Consultant,
I will reiterate my response to this critique.
“The consultant IS the advertising. If they advertised, the consultant would become an employee and most likely get paid an hourly rate to stand behind a counter. Both strategies have their strengths and weaknesses, and some might feel strongly that one is better than the other, but practically speaking, this is a strategy discussion and not a moral or ethical dilemma. In other words, neither strategy is inherently evil. They are business decisions and aligning yourself with one or the other is, as they say, “just business”.”
Perhaps you can clarify for me… It seems you are contradicting yourself.
You say:
“Product to market should be a result of demand… mostly created by the company. ”
And then:
“I don’t agree with this statement.”
I am assuming that you are not contradicting yourself, but I am not sure which statement you don’t agree with!
You say:
“very few consultants get to sell their product for the full 100% profit” – and I assume that you mean they do not get to sell their product at 100% retail price…
What do you base that statement on?
I will bring this back to the fact that it is a business decision that YOU as an individual need to make. If your personality is one that tends to give discounts and make exceptions for everyone… and you can’t (or don’t want to) change that, this is probably not the right business decision for you. It doesn’t make you weak, it does not make the ones that CAN do this evil.
As far as the company “creating demand” and “warming the market”, again, that is YOUR side of the contract (in this scenario), if you don’t want that responsibility, don’t work for that company. Work at the beauty counter of a major department store or “popular” chain store.
Natalie,
This is definitely a problem inherent with the “freedom” that Mary Kay offers its recruiters in their recruiting methods.
We recently had a discussion about this over at the Balanced Mary Kay Blog.
One of the weaknesses of blogging is that really great conversations can get lost amidst the silly or trivial.
You can read the particular conversation here.
Particularly read the exchange between myself and “enesvy”.
I believe that the back and forth we had and the conclusion we came to is a great response to the concern you expressed here.
Let me know whether that sort of a solution would also help resolve the problem you point out here.
For me, the fact that a Director gets to profit from their recruit’s purchasing of inventory leaves a sour taste in the mouth.
Knowing David as I do, I know that someone like him had a high level of integrity and would coach someone properly, knowing that he would profit in the long run from being transparent and ethical.
Other directors, however, could well be tempted to make the quick buck.
Obviously this is the same for any mlm, or indeed any business, but it is these short-sighted people who ‘con’ others to a degree who give their business a bad image.
Exc Scam, with the 90% buyback opportunity, if a director brings someone in with a large inventory and gets that commission, if the consultant can’t sell it and returns the product to the Company, the director must return the commission. So… it would be wise for the director to #1 – not load a consultant with too much product, #2 not overload a consultant with product that she can’t move, and #3 encourage that director to assist the consultant in moving the inventory so she doesn’t end up getting a chargeback and having to return the commission to the Company.
Doing it wrong will eventually catch up with a director, all the more reason to do it right.
mk4me:
I’m aware of the 90% buyback opportunity, however, I would have to ask if there are any conditions attached to that guarantee?
If you have purchased too much stock is it easy to get a refund?
Scam, you get 90% back. Period. If you’ve been in MK more than a year, it is based on the AMOUNT purchased within in the last calendar year. All you have to do is package up products that equal that amount. The products themselves do not have to have been purchased in that last year. You get 90% of what you ordered in that last calendar year. ;)
Oh, and you contact MK, Inc. and they send you a form to fill out to send in with the returned products.
FYI
Mary Kayers should check out this post by our favorite tax attorney:
http://www.franchisepick.com/mary-kay-business-or-hobby-what-the-irs-thinks/
Yes, it is that easy, and it is not restricted to one year from date of starting, it is a moving year window so the 90% buyback stays with the consultant her entire Mk career.
And the tax laws that are quoted apply to all small business, not just direct sales.
Can you also return section 2 stuff that a director said “you absolutely must have”?
Call the product repurchase department of Mary Kay and they will tell you exactly what you can or can not return, amounts and dates.
The same rules apply to any small business, sole ownership, not just direct sales, I am sure that many get carried aways with what they try to take as expenses. The IRS allows “reasonable” expenses, if you start a MK business and go out and charge office furniture, copiers, computers, hire an assistant, etc… and don’t do more than take a few orders a year, and do the same, year after year, I would hope IRS would have a problem with it.
If any business shows a loss but the expenses are in line with the profits, the IRS can still allow it.
And a very common mistake is inventory is not a business expense. Inventory is an assest. With many of the common mistakes made, it is highly possible that Brenda Konchar’s expenses were so out of line, that the IRS had every reason to disallow them.
I agree with MK4ME. My accountant tells me what I can and cannot write off based on what my activity was during the year. You have to show that you profited a certain amount in order to justify the expenses your are writing off.
Hey Dave, me again!
Okay, I think I’ve figured out what bugs me about the whole MLM, “my expectations” versus “their (corporate’s) expectations” thing is.
As a consultant you “own” your own business. So they say. What bugs me about this, is that “I” don’t get to sit at the table and have a say as to what the packaging will look like, how much R&D $$ will be spent on new product, what the new product will be, when it will launch. Simply put, “I” don’t get a say.
But I have to do all the donkey work at the other end in order for the product to be successful? And absorb 100% of the cost.
When has Mary Kay ‘ever’ asked the sales force their thoughts, opinions, etc., etc. on any product, it’s performance, needs for improvement. Whether it’s a favorite of their customer base and whether their general population actually purchasing the product will be upset if it’s discontinued???? They never ask for any upward feedback. The sales force are stakeholders in the business. Their opinions and input do count. They’re the ones at the front line. Not the NSDs. The NSDs haven’t sold since Christ was a cowboy (in many instances).
See that’s what rubs me wrong. It’s not “my” business if I never get a say about anything except how much I finally end up selling the product for. I say that, because I’m very much controlled in how I am “allowed” to advertise my business, right down to where and when.
Theoretically, it all sounds good. But for a lot of girls, when you execute [it] it just doesn’t work out that way.
That’s my experience and there’s nothing out there (re corporate involving its salesforce in R&D and product developement, etc.) to say that reality contradicts that.
Scam, the repurchase option is for a rolling calendar year. So whatever you bought in the last 12 months (not just from your starting date to 365 days later) but literally whatever you ordered in the last 12 months, nothing before and nothing after (well after hasn’t happened yet!) is yours to return for 90% buy back. That includes the tax you prepaid on the inventory, MINUS your free product you earned for your package, MINUS any gifts you received.
Section 2 items are NOT returnable. Sell them on ebay or Craigslist…. after you have terminated your Mary Kay agreement.
Any other product that falls outside of the 12 month parameter, you can sell to a liquidator if you want or on ebay. That’s provided you can’t sell it in a fire sale. Why not? Why give it away and get nothing for it? You can’t sell on-line when you’re active, but there’s nothing saying you can’t when you’ve terminated your agreement.
Go to pinktruth.com if you need help locating a liquidator.
Personally I used anneszoo. There is Touch of Pink as well.
The Company does survey sales members before they launch a product, I have participated in some of the tests. The Company has also brought back products that were discontinued and the public outcry was loud. I know I had several clients that used Bisque Ivory Cream Foundation, it was discontinued so many people complained, they brought it back.
Whenever I have a client that has a complaint about a discontinued product, I always ask them to call 1-800-MaryKay and let them know, they do listen.
At the Seminar at Expo, you can talk to the Product Development staff and they are very willing to listen.
When the Company discontinues a product, they look at the volume of purchases from the consultants, if the volume is low, it may discontinued, if the volume is high, it won’t.
As far as advertising, there are many, many legally approved ad slicks that we can use to advertise, the Company does pay to advertise in publications and have now even started advertising on tv. The only thing we aren’t free to do is design our own ads. For the protection of all of us, I am actually glad we have certain standards to adhere to. I have scene some facial boxes in different establishments that look like a second grader put them together, that is not the image I want someone to have of my business and products.
So I guess there are two sides to every coin.
If one doesn’t like the parameters we are asked to follow then we don’t need to be a part of it.
For the most part, I feel I run my business as my business – even franchises have certain rules they must adhere to.
Hi ex, (I hope you don’t mind me abbreviating)
You said:
“What bugs me about this, is that “I” don’t get to sit at the table and have a say as to what the packaging will look like, how much R&D $$ will be spent on new product, what the new product will be, when it will launch. Simply put, “I” don’t get a say.”
Were you promised any of these things? This is not an inherent part of joining any organization.
I am sure that Sean (who has much more knowledge of franchises than I) would agree that if you bought a franchise (much more “ownership” there I believe) you would not get many of these things you are asking for.
If you wanted to have the kind of ownership you are talking about, you are going to need to start your own product line. Then you get to have a say in research and development and things like product launch time lines.
Otherwise, you are simply signing up to sell someone’s product for them. I think most people see this part of the business (the part you are complaining about) as a benefit. You don’t have to worry about the research and development (a very costly endeavor as I understand it) but you get to benefit from their effort of doing it. If the product they are turning out, the rate they are changing things over, or ANYthing about the company is “not you”, then you should find something that “is you” and be a part of that.
I think mk4me spoke pretty well to the advertising aspect.
****
Now, having established that what you experienced (no involvement in product research and development, etc) is the standard… It is the way things are. It is in fact, typically a selling point. The question is not whether or not this is the way Mary Kay is, but whether or not this is what was offered you.
Did someone tell you that you were going to get to make these kinds of decisions? Or did you hear “own your own business” and translate that to mean that you would have a hand in everything?
If you were given the impression that you would be involved on such a large scale, why did you not question that? Did it really not occur to you to ask in what way you would be contributing to all these aspects of the company? Were you not at all curious about whether it would involve sitting in on board meetings, conducting nationwide surveys, extensively testing various new formulas (and on and on)? I can’t fathom how that would work logistically.
The angle “we will do all the ‘back end’ work so you are free to just sell the product” just makes a lot more sense.
Another thing besides the research and development issue and the fact that much of the ads in our legalease are designed to protect us as consultants, another aspect because of the way we are set up, is if a client returns a product to me, I am able to do a product return with the Company and the replace the retail value of the product that a client returned to me. – if I was solo, I would be out the retail value of the return.
Also, when I do a certain level of work, I can earn prizes from MK (key word -EARN) – ontop of the money I make. If I were solo, it would simply be the money, the prizes from Mk are a perc.
So, I must follow some rules but for me, the trade off’s are well worth it. If they weren’t worth it – I simply wouldn’t continue on as a consultant.
HOT!!!!