The \$23 Million Bonus For Mary Kay

Why change all the color cosmetics at Mary Kay Inc. Wasn’t the platinum packaging nice? Wasn’t it hip? Didn’t our customers like it?

Apparently not. In 2008, Mary Kay Cosmetics decided to make a massive change to all of the color cosmetics. Mary Kay insisted that the change to black compacts and new pans for eye color and cheek color were in the best interest of the consultants! They were trying to be “on trend” and “fashion forward.” They were trying to help you get more sales.

WRONG. The company was trying to get itself more sales.

Millions of dollars of inventory was already sitting in basements and garages, collecting dust. There is little hope of it ever being sold. Consultants and directors alike each had thousands of dollars of product that they couldn’t sell, but they were going to be ordering more because they have to have the new stuff that’s in the catalogs.

So how much do you think these new products mean to Mary Kay? Well let’s just look at the initial purchases that Mary Kay consultants and directors might make. I’m trying to estimate how many they’ll each purchase, and I think I’ve been pretty conservative with the numbers.

Here’s how it works out just for the lipsticks:

14,000 sales directors buy 3 of each new lipstick (1 to try, 1 to show, 1 to sell)… and there are now 32 shades. Some will try fewer, some will stock more, but this is a conservative estimate of what each one will buy. I venture that many will actually buy more.

14,000 directors x 32 shades x 3 of each = 1, 344,000 tubes of lipstick sold just to sales directors

1, 344,000 tubes of lipstick x \$6.50 wholesale cost = \$8,736,000 wholesale sales total

If just 1/10th of the U.S. consultants get on the bandwagon and buy one of each… the numbers look like this

70,000 consultants x 32 shades x 1 of each = 2,240,000 tubes of lipstick sold to U.S. consultants

2,240,000 tubes of lipstick x \$6.50 wholesale cost = \$14,560,000

Add the directors and consultants together, and in total, Mary Kay will get something on the order of a \$23,296,000 windfall in one quarter. (And don’t forget – this is in addition to the regular drek orders MK would normally get.)

And people wonder why the company has an incentive to change packaging? It’s definitely not about the consultants. New packaging means new sales to consultants, period.