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Mary Kay Cosmetics: Sales Force Incentives (A) 190-103
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All of these trends had contributed in driving up the cost of the VIP program. The cost
increase was further magnified by the decline in car “tenure”: an increasing proportion of the
consultants who had qualified for VIP cars were unable to maintain the required sales and recruiting
levels for the 24month period. As a result, MaryKay often was forced to reclaim cars that were
substantially less than two years old. The newer a car when Mary Kay reclaimed it from a consultant,
the greater the disparity between the car’s unamortized book value and the (much lower) resale price
that Mary Kay received for it. In short, the company absorbed larger losses on cars that were in
service for shorter periods of time.
The CurrentChallenge
Mary Kay’s top management was seeking a broad solution to the rising costs—and
corresponding diminishing returns—of its incentive plan, the VIP car program in particular.
According to Richard Wiser, vice president of Financial Planning and Analysis:
Over the last several years, we’ve watched the cost of the car programs and
of commissions creep up relative to sales. [See Exhibits 6and 7.] Car expenses in
particular have really jumped up since 1985.
In the past, we’ve always gone for incremental cost savings. We took a
negative approach: we simply raised the program qualification requirements when
we wanted to reduce the cost of the program. Now, we want to be more creative.
We have Finance, Marketing, and Sales all working together to identify innovations
that wouldsave money for us but, at the same time, keep the sales force morale up
and boost the effectiveness of the incentives.
We haven’t been getting a bang for our buck from all VIP consultants.
Unless they are trying to qualify for directorship, many feel no motivation to increase
their sales and recruiting efforts above the level needed to maintain the use of their
cars. We’re not tapping theirfull potential because we’re not rewarding them for
achieving it.
President Dick Bartlett continued:
Richard is right. In fact, those VIP consultants who really do want additional
income and recognition may rush into directorship prematurely. They may qualify
before they have a large, strong team base and sufficient experience. That’s bad for
everyone. The consultant must fight a frustratinguphill battle to retain her director
status. And from our perspective, her unit’s size and performance may deteriorate.
A weak director hurts unit morale and development. The problem trickles down:
when a weak or negligent consultant loses a customer, it’s a lost sale for Mary Kay.
Customers can’t buy our products in retail stores and the customer is not likely to
seek out another consultant.Bartlett and his management team summarized the objectives of the Marketing Plan
modifications they sought:
• To improve profit margins by reducing overall beauty consultant compensation
(particularly the costs associated with the car programs) as a percent of sales—a
ratio that had been escalating yearly.
• To enhance the beauty consultants’ career path with more distinct milestones
andforms of reward. Bartlett was particularly concerned about two issues that
had adversely affected many top-performing VIPs:190-103 Mary Kay Cosmetics: Sales Force Incentives (A)
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1. Many had worked extra hard to achieve director status but were ill-prepared
for the extra demands of continuing director-level performance.
2. Many had stagnated at a “maintenance” sales level simply to retain theirVIP
cars.
• To make cost reductions elsewhere in the Marketing Plan while preserving sales
force morale and motivation.
• To minimize the cost to the firm of maintaining low-performing consultants, i.e.,
those with very few recruits and no indication of ambitious growth goals.
At the conclusion of their interview with the casewriters, the managers reemphasized the
extreme sensitivity of...