QGM6163- CSM- PROJECT PAPER - DEVELOPING AVON PRODUCTS INC. IN A
GLOBAL PERSPECTIVE
QGM6163- CSM- PROJECT PAPER - DEVELOPING AVON PRODUCTS INC. IN A
GLOBAL PERSPECTIVE
AVON PRODUCTS INC. - DEVELOPING IN A GLOBAL PERSPECTIVEAvon
Products, Inc. is the worlds largest direct selling organization
and merchandiser of beauty and beauty related products. From
corporate offices in New York City, Avon marketed product lines to
women in 112 countries through 1.6 million independent sales
representatives who sold primarily on a door-to-door basis. Total
sales in 1992 were $3.8 billion. The company work force of 29,900
employees staffed divisions of product management, manufacturing,
and sales and service, worldwide.Avon entered the international
marketplace in the 1950s. In 1954, Avon opened sales offices in
Venezuela and Puerto Rico to cultivate the Latin American market.
Avon expanded into the European market in 1957 through its United
Kingdom subsidiary, Avon Cosmetics, Ltd. The company entered the
Asian market in 1969, by way of Japan. In 1990, it became the first
major cosmetics company to manufacture and sell products in China.
That same year, Avon became the first American beauty company to
enter East Germany. Sales of Avon International, in 1992, were
$2.25 billion, compared to Avon U.S. sales of $1.41 billion. More
than three-fifths of the firms direct selling sales and earnings
came from outside the United States and the proportion was
growing.Internationally, the companys product line was marketed
primarily at moderate price points. The marketing strategy
emphasized department store quality at discount store prices.Avon
divided the world into four geographical divisions: The United
States, Europe, The Pacific, and The Americas. In most of
international markets, the primary operating arrangement in each of
these divisions was direct ownership by Avon of the foreign country
subsidiary. Joint ventures with foreign firms were used when the
culture and the ways of doing business were significantly
unfamiliar to Avon management.By 1991, Avon management felt that it
was time to re-evaluate and map out the long-term future of the
firms beauty businesses on a global level. Senior management knew
that the traditional Avon system of door-to-door house calls worked
wonderfully in developing nations.Avon then tried to develop its
own global perspective. In developing the market globally, Avon
Management identifies three avenues of growth which are geographic
growth, leveraging distribution channels in emerging and developing
markets, and marketing in developed industrial areas.The first area
was geographic growth. Enormous growth opportunities existed in
countries with huge populations such as China, Indonesia and India.
In Eastern Europe, management was excited about the potential in
Poland, Czechoslovakia, and Hungary. In the Pacific Rim area,
countries like Vietnam, Cambodia, and Laos were targeted as market
opportunities.The second area of growth was to continue to
emphasize direct selling in the emerging and developing markets of
Latin America, the Pacific Rim, and other areas. In those markets,
the retail infrastructure was undeveloped, especially in the
interiors of those countries. The Avon representative provided
consumers with an opportunity to buy a wide range of quality
products at acceptable prices. In some developing markets, where
access to quality goods was particularly prized, Avons direct
selling method opened up unprecedented prospects for women.The
third area of international growth was marketing in the United
States and other developed industrial areas like Canada, Western
Europe, and Australia. New programs were designed to complement the
existing network of sales representatives and image-enhancing
advertising and promotion programs worldwide to make customers
aware of Avon products and the purchase options available such as
on the website and retail outlets.Avons strong presence in the
market globally intends to satisfy their customer demand around the
world and shows that Avon has step into the market in a global
perspective and vary from country to country and market to market
internationally. This helps Avon in developing its own image in a
global perspective and in achieving their mission of being the
Global Beauty Leader.
AVON PRODUCTS INC. IntroductionDavid H. McConnell founded The
California Perfume Company (CPC) in 1886 with the first office
located in New York. In 1906 the San Francisco earthquake destroyed
CPCs California office however, before long the company reopened.
CPCs first office outside United State was opened in 1914 in
Montreal, Canada. In the 1920s CPC sales doubled to $2 million
during this time there were more than 25,000 representatives in the
United States. The Companys name was change to Avon Products Inc.
after the British town Stratford-upon-Avon in 1938. Avons sales
increased to about $16 million and in 1946 the company was
announced publicly with advertising campaign such as Avon Calling.
Avon expanded overseas to countries such as Puerto Rico, Cuba and
Venezuela. In the 1970s U.S sales top $750 millions and the first
Avon Asian business was opened in Japan. Avon also acquired the
Jeweler Tiffanys during this period of growth. It was the first
major U.S. cosmetics manufacturer to permanently end animal
testing.Avon adopted five core values which are Trust, Respect,
Belief, Humility and Integrity which are evident in the mission
statement to be a Global Beauty Leader, womens choice of buying,
premier direct seller, the best place to work, largest women
foundation and the most admired company. Avon success lies within
it channel of distribution, it is the worlds largest direct seller
with 5.4 million Avon representatives in over 100 countries.
Additionally, it is the largest micro lender to women and it among
the world top global brands. The company increased its investment
in 2007 by over $120 million which aided in the development of new
sales leadership opportunity, improved training, technology tools
and changes in commission structure.There are three product
categories which Avon distributes, they are beauty, fashion and
home. In 2008, Avon changed its marketing approach of concentrating
mostly on a homey image and is now including celebrities as a part
of their promotions. The company advertising cost increased from
$136 million in 2005 to $249 million in 2006 and $368 million in
2007. Reese Witherspoon is the Avon Foundation first global
ambassador and honorary chairwoman who appear in advertisement for
Avon make up, skin care products and fragrances. Spotlight the new
fragrance was launched in 2009 with celebrity Courtenay Cox as the
face of the brand. Avons largest manufacturing plants, Brazil,
China and Poland received the ISO 14001 certifications in 2008.
Various awards were granted during this period such as the Clean
Industry Certificate to the manufacturing plant in Mexico. During
the same period Avons revenues increased 7.5 percent and net income
increased by 65 percent. Avon Products Inc. closest competitors are
Revlon, Inc and Mary Kay Inc. Mary Kay Inc uses the same approach
as Avon which is direct marketing approach which Revlon sells its
products through cosmetics counters in department stores are
pharmacies. Avon revenues far exceed that of its competitors in
2008 Avons revenue was $10.37 billion compared to Mary Kay $2.40
billion and Revlon $1.35 billion. Avon implemented reconstructing
programs in 2009 which included closing two manufacturing
facilities. In addition, there is heavy investment in online search
engines and internet carrier sites to help increase Avons revenue.
Andrea Jung is the Chief Executive Office who is leading the
management team of thirteen to achieve its goal.Vision Statement
(Actual)To be the company that best understands and satisfies the
product, service, and self-fulfillment needs of women globally.
Mission Statement (Actual) The Global Beauty Leader - Avon build a
unique portfolio of Beauty and related brands, striving to surpass
their competitors in quality, innovation and value, and elevating
the image to become the Beauty company most women turn to
worldwide. The Womens Choice for Buying - Avon become the
destination store for women, offering the convenience of multiple
brands and channels, and providing a personal high touch shopping
experience that helps create lifelong customer relationships. The
Premier Direct Seller - Avon expand the presence in direct selling
and lead the reinvention of the channel, offering an
entrepreneurial opportunity that delivers superior earnings,
recognition, service and support, making it easy and rewarding to
be affiliated with Avon and elevating the image of beauty industry.
The Best Place to Work - Avon is known for leadership edge, through
the passion for high standards, respect for diversity and
commitment to create exceptional opportunities for professional
growth so that associates can fulfill their highest potential. The
Largest Womens Foundation - Avon committed a global champion for
the health and well-being of women through philanthropic efforts
that eliminate breast cancer from the face of the earth, and that
empower women to achieve economic independence. The Most Admired
Company Avon deliver superior returns to their shareholders by
tirelessly pursuing new growth opportunities while continually
improving their profitability, a socially responsible, ethical
company that is watched and emulated as a model of success. The
five values of Avon are: Trust, respect, belief, humility, and
integrity.Slogan (Actual)Avon is the company for womenProposed
Vision StatementTo be the leading provider of home, fashion and
beauty products that will satisfy customers while preserving the
environment.Proposed Mission Statement Avon is committed to being
the leading global provider of home, fashion and beauty products
that will enhance the lives of customers. Avon will utilize latest
technology and will pursue new growth opportunities that will bring
about wealth for all stakeholders. At Avon they firmly believe in
respect: respect for people and respect for the environment.
Proposed SloganAvon: the company for everyone committed to the
enrichment of lives
Analysis:The vision statement was improved to include customers
instead of women, since the company is now offering products for
women, men and children. Additionally, in light of the fact that
the world is going green, it was prudent to include the environment
to emphasize the responsibility to society as we all work towards a
sustainable future. The proposed mission statement incorporates all
nine components that are essential to a good mission statement. The
essential elements are customers, products and service, markets,
technology, concern for survival, growth and profitability,
philosophy, self-concept, concern for public image, and concern for
employees. The proposed mission statement also speaks to the
companys core values of trust, respect, belief, humility, and
integrity. The old slogan for Avon states the company for women we
have decided to change this slogan to Avon: the company for
everyone committed to the enrichment of livesINTERNAL
ASSESSMENTFinancial Ratios AnalysisRatio200820092010
Current Ratio0.751.151.22
Quick Ratio1.10.930.88
Operating Profit Margin0.090.091.25
Net Profit Margin0.050.050.08
Return on Stockholders Equity0.600.751.29
Total Asset Turnover1.671.731.76
Debt / Equity Ratio5.62%7.03%7.99%
Earnings Per Share2.602.874.72
Avon Product Inc. Current ratios have increased from 2008 to
20010 which states that they may not face complications in
liquidating its assets, if needed in the short term. Profitability
ratios have seen an increase which is a clear indication that Avon
Products Inc. is much more well in terms of profitability in 2010
than in previous years. Additionally, more operating income means
that more projects can be undertaken which is in synchronization
with strategic management processes. Total Asset Turnover ratio has
steadily increased over the period which shows that the business is
generating sufficient volume for the size of its asset investment.
Debt/equity ratio has increased from in 2010 compared to 2008 and
2009 which indicates that Avon Products Inc holds much more
financial leverage in terms of debt and equity financing.Marketing
Positioning Map and Analysis
Customer Service (High) Avon
Revlon
Mary Kay
Quality (Low) Quality (High)
Customer Service (Low)
Analysis:The top-to-bottom approach was used to narrow down two
important variables, customer service and quality of products. The
key feature of a market positioning map is that only key or
immediate competitors should be plotted. The competitors of Avon,
Revlon and Mary Kay are well-established firms with Revlon plotted
with higher quality products (Cosmetics). Avon was strategically
plotted to show that they lead in customer service. However, when
compared to cosmetics quality Revlon and Mary Kay are leading far
away from Avon.Superior customer service compared to rivalsAvon has
gained an outstanding reputation as the best direct seller of
beauty products. Through the continued efforts and achievements of
its Sales Representatives Avon is now known worldwide. Avon's core
competence has mainly been through direct selling, knowing this
Jung and the management team implemented a Sales Leadership program
in its ten largest markets and provided these markets with
incentives to acquire, train, motivate, and retain the number of
active Sales Representatives it needs to sustain significant
growth.Analysis of Marketing StrategiesSuperior Customer
ServiceAvon has gained an outstanding reputation as the best direct
seller of beauty products. Through the continued efforts and
achievements of its Sales Representatives Avon is now known
worldwide. Avon also has a Representative development program that
focuses on the professional training of Representatives, which
enables them to provide valuable information on Avon brand
products. Avon also keeps its superior customer service in other
ways of distribution such as the Internet and in the department
store sales by having a timely and correct order delivery, one on
one information exchange and sincere professional advice and
service in department sales.Wider Geographic Coverage Avon's
management team decided to achieve growth in revenue by expanding
its customer base into international markets, while continuing to
compete based on their reputation as the leading direct seller of
beauty products. Avon brand products are now recognized all over
the world due to the success of their international campaign. The
company is in great position to take advantage on growth in new
global markets because of the demand for quality products. Avon now
has operations in 50 different countries outside of the United
States, and continues to reach new markets. Quicker
Design-to-Market Times The ability to develop and release new
products more quickly than rivals will give Avon the first mover
advantage and further associate the name with quality and
innovation and hopefully increase the company's market share in the
CFT industry. Product innovation will continue to be a key factor
of sales growth in the future. New product lines such as "Avon
Wellness" and "Becoming" and the most recent "Anew" will attract
new consumers, which will also help to increase revenue growth.More
Attractive Product Line Avon's history as a beauty product
distribution only enhances their credibility as a company and
quality beauty product distributor. With Avon's ability in research
and development they will be able to develop more new products and
introduce them to the Avon product line more quickly than rivals.
New products with the symbol of Avon quality and state-of-the-art
technology will only increase brand image and hopefully sales while
acquiring a more loyal customer base by establishing and providing
a more attractive product line. Improved E-Commerce and Internet
Sales CapabilitiesAvon's executives realized the company needed a
more efficient method to communicate with its independent sales
force, because current newsletters and brochures were not keeping
up with the demands of the sales force. The Internet brings instant
global reach, with thousands of products and prices that can be
updated constantly at any time. Stronger Brand Name than
RivalsAgain Avon's history is a big player here because it gives
the company credibility and name recognition. Avon continues to
strengthen its image of core beauty products and international
brand product line. In the past few years the company has made
several upgrades in imaging and formulations, packaging, and
customer service and the accuracy and speed of order delivery have
also been improved. Avon's development of quality global brands
gave them a chance to deliver a consistent beauty image around the
world, as well as improve relationships with suppliers and become
familiar with the most efficient way to get foreign sales.Stronger
Global Distribution and Sales CapabilitiesAvon's ability to produce
and distribute products in multiple countries enables them to have
a significant amount of international sales. Avon continues to
drive their products into new markets and have always been looking
for ways in which they can improve their distribution channels. Map
Locating Avon Operations in WorldwideAvon Products, Inc. markets
its products to women in over 100 countries through over 5 million
independent Avon Sales Representatives. This is one of their
strategies in developing Avon in a global perspective. The map
below shows the six geographic regions where Avon products are
marketed and sold.
Albania Armenia Belarus Bulgaria Czech Republic Estonia Finland
Georgia Hungary Kazakhstan Kyrgyzstan Latvia Lithuania Macedonia
Moldova Montenegro Poland Romania Russia Serbia Slovakia Slovenia
Ukraine
United States Canada Puerto Rico Dominican Republic Aruba
Antigua & Bahamas Barbados Bermuda Curacao Dominica Grand
Cayman Island GrenadaGuyana JamaicaSt. Kitts & Nevis St. Lucia
St. Maarten St. Vincent Suriname Tortola Trinidad & Tobago
Virgin Island
Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El
Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru
Uruguay Venezuela
Australia Hong Kong India Japan Malaysia New Zealand Philippines
South Korea Taiwan Thailand Vietnam
Botswana Cyprus Dubai Egypt France Germany Greece Iceland Israel
Italy Jordan Kuwait Lebanon Lesotho Luxembourg Malta Mauritius
Mozambique Morocco Namibia Netherlands North Cyprus Norway Oman
Portugal Reunion Island Saudi Arabia South Africa Spain Swaziland
Switzerland Tunisia Turkey Turkmenistan Uganda United Kingdom
Zambia
Internal Assessment: Avon Strengths1.Avon is a Global Market
Leader2.Committed and dedicated workforce - 5.4 million Avon
representatives in over 100 countries making Avon the largest sales
force.3.Worlds Largest Micro lender for women - extending some $1
billion in product and credit each year to help women start their
own entrepreneurial businesses4.Channel of distribution worlds
largest direct seller5.Manufacturing operations match ISO 14001
standards6.Avon owns its major manufacturing and distribution
centers7.Increased in revenue in most geographic area, improve e
commerce and sales capabilities.(Revenues increased 7.5% from year
2008 to 2009)8.Avon is one of the worlds top global brands. Avon
has major brand names such as Anew, skin-so-soft, Avon Color etc
with 90% recognition worldwide.9.First cosmetic to permanently end
to animal testingInternal Assessment: Avon Weaknesses1.Decrease in
North American Sales Revenue by 129.4 million2.Weak Brand
Image3.High advertising costs Companies advertising spending went
from $136 millions in 2005 to $249 million in 2008 to $368 million
in 2009 and 14% higher in 20104.Poor brand loyalty and Does not
target urban trendsetters6.Beauty Sales in the first quarter 2009
were 12% lower compared to sales revenue in previous year
20107.Avon lagged behind seven of their cosmetic companies in
customer loyalty
Internal Factor Evaluation (IFE) Matrix Key Internal
FactorsWeightsRatingWeighted Score
Strengths
1. Global Market Leaders0.0940.36
2. Committed and dedicated workforce - 5.4 million Avon
representative in over 100 countries0.0830.24
3. Revenues increased 7.5% from year 2008 to 20090.0640.24
4. Channel of distribution worlds largest direct
seller0.0540.2
5. Award winning company worldwide0.0530.15
6. Worlds Largest Micro lender for women0.0630.18
7. Worlds top global brands 90% recognition
worldwide0.0630.18
8. Excellent promotional strategies0.0840.32
9. Manufacturing operations match ISO 14001
standards0.0830.24
10. Announced permanent ending to animal testing0.0740.28
Weaknesses
1. Brand Image0.0610.06
2. High advertising costs0.0520.1
3. Misleads representatives0.0320.06
4. Avon seems like a commodity0.0520.1
5. Avon lagged behind seven of their cosmetic companies in
customer loyalty0.0920.18
6. Revenue decreased in North America by 129.4
million0.0420.08
Total1.002.97
Ratings: 1- major weakness, 2-minor weakness, 3-minor strength,
4-major strengthAnalysis:The overall weighted score of Avon
Products Internal factor Analysis (IFE) is 2.97 which indicated
that the internal functions and roles are strong at Avon Products
Inc.
EXTERNAL ASSESMENTSAvon Major CompetitorsMary Kay and Revlon are
considered two major competitors of Avon Products Inc. in the
cosmetics industry. Avon Product Inc. is seven and half times
larger than Revlon and approximately eight times larger than Mary
Kay. Although the majority of Avon's competitors distribute their
products to resellers such as department stores, drugstores, or
cosmetic stores, Avon sells its products solely through its
direct-selling channel of independently-contracted Active Sales
Representatives and through its online website. In contrast to
Revlons marketing strategy of selling through cosmetic counters in
department stores and pharmacies, Mary Kay rivals with Avon Inc. as
they both use direct marketing approach. In 1983 Mary Kay Cosmetics
was founded in Dallas, Texas, by Mary Kay (now Mary Kay Ash). This
company is known for providing women with exceptional opportunities
for professional achievement and economic success and rewarding
women for their success. In 2009 sales of Mary Kay products reached
$2.6 billion in wholesale worldwide. There are more than 37,000
women across the world who has become Independent Sales Directors.
Mary Kay spends millions of dollars and conducts more than 300,000
tests to ensure that Mary Kay products meet the highest standards
of quality, safety and performance. Mary Kay products are expensive
versus Avon which is comparable to store products. Mary Kay seems
to be targeting older women while Avon is branching out to attract
women of all ages with quality affordable makeup, jewelry, shoes,
purses and childrens items. Mary Kay has stayed in touch with the
internet age; each independent beauty consultant can buy his or her
own website to sell clients over the internet. In fact 90% of the
companys revenue is now generated through online orders. Avons
revenues far exceed both major competitors. Their revenue is almost
four and half times that of Mary Kays and seven and half times
Revlons. Avons revenue exceeds Ten Billion Dollars (B$10).
Revlon was founded in 1932, by Charles Revson and his brother
Joseph, along with a chemist, Charles Lachman, who contributed the
"L" in the Revlon name. In the 1990's, Revlon revitalized its
cosmetics business and strengthened its industry leadership role.
Revlon Sales to Wal-Mart accounts for 23% of the company's total
sales. The company earned $1.3 billion in sales and $950K in net
income in 2009. Net sales fell 3.7% to $1.29 billion. Sales in the
US fell 4.4% while sales international fell by 2.9%. The company
attributes the loss to the weak global economy. The net sales in
2009 were approximately $1.3 billion, a decrease of approximately
$51 million or 3.8% versus 2008.Revlon has a more focused product
offering than some companies and when one considers only color
cosmetics sales they are much more comparable. Revlon is the second
largest color cosmetics company in the United States. Competitors
Estee Lauder and Avon get the majority of their revenue outside the
United States.Major Competitors Pie Chart
Analysis:From the pie chat above, it shows the overall sales for
Avon and its major competitors in 2009. Avon gains $10.83 billion,
follow by Mary Kay $ 2.6 billion and Revlon $1.3billion.PEST
Analysis Political FactorsEconomic Factors
Tax policiesEmployment lawsTrade restrictions and
tariffsPolitical stabilityEconomic growthInterest ratesExchange
ratesFluctuation in oil and gas prices
Social FactorsTechnology Factors
Emphasis on safetyNo animal testingGreen
EnvironmentPhilanthropic Issues
AutomationTechnology incentivesRate of technological
changeTechnologies Adaption
Analysis:Based on the PEST analysis of Avon Products, the
company looks into the specific issues that relates and drives them
in penetration in the international market and grows globally.
External Assessment: Avon Opportunities1.A growing trend in the
cosmetics industry is the introduction of green products. More than
sixteen percent of beauty products launched in 2008 were certified
organic, ethical, or all natural.2.Eye makeup market3.The cosmetics
industry tends to be countercyclical. This means that those are
industries for which the demand is either not correlated with the
business cycle. The demand for their products is not much affected
by availability of current income, but by other personal, social or
economic factors. The recession also contributes to the industry
being counter-cyclical. There is an upsurge in people joining the
industry in the past six or eight months and there's absolutely no
doubt that this is because of the recession and the effect on
employment.4.Aveda cosmetics found that sixty eight percent of
consumers will remain loyal to a company that has a social and
environmental commitment.5.Urban Trendsetters markets6.Geographic
growth enormous growth opportunities existed in countries with huge
populations such as China, Indonesia and India. 7.Demand for
cosmetic products normally remains constant and unaffected by
economic distress8.The baby boomers are aging and they are more
conscious on their appearance, beauty and also improving their
looks.9.Emphasize direct selling in emerging and developing
marketsExternal Assessment: Avon Threats1.Competition such as Mary
Kay and Revlon2.Rejection of internet selling by sales
representative3.Global economic climate stifled new product
development, innovation and sustainability programs in 2009.4.In
terms of color cosmetics, environmental International Inc.
predicted that many of these markets will see slowdown in volume
demand.5.Inflation rate and Rising cost of
commodities7.Direct-selling becoming more popular - Amid the
financial crisis Aussie mums are increasingly turning to direct
selling and at-home product parties to supplement their household
income.8.They are a multilevel based company that sells inferior
quality with a higher price tag than what it is worth.9.Avon
products outpaced by jazzier products to women who favored more
exciting product lines10.Decreased earning opportunitiesExternal
Factor Evaluation (EFE) Matrix Critical Success
FactorsWeightsRatingWeighted Score
Key External Factors
Opportunities
1. Organic (Green) Products
0.0940.36
2. Eye makeup market
0.0730.21
3. Increase Internet Presence
0.0840.32
4. Urban trendsetters market0.09
40.39
5. Cosmetic industry tends to countercyclical
0.0730.21
6. Geographic growth
0.0940.36
7. Demand for cosmetic products normally remains constant and
unaffected by economic distress0.0530.15
Threats
1.Competitors0.0820.16
2. Rejection of Internet Selling by sales representative
0.0730.21
3.Economic Downtown0.0920.18
4. Market Slowdown0.0830.24
5. Inflation Rate0.0730.21
6. Rising cost of commodities0.0720.14
Totals13.14
Ratings: 1= the response is poor, 2= the response is average, 3=
the response is superior, 4= response is superiorAnalysis:The table
of external factors evaluation shows the opportunities that are
available and factors that threaten the success of Avon in driving
the business globally.Competitive Profile Matrix
(CPM)AvonRevlonMary Kay
Critical Success FactorsWeightRatingWeighted ScoreRatingWeighted
ScoreRatingWeighted Score
Price competitiveness0.1030.3040.4020.20
Global Expansion0.0930.2740.3620.18
Organizational Structure0.0420.0840.1630.12
Employee Morale0.0720.1440.2810.07
Technology0.1040.4020.2030.30
Product Safety0.1040.4030.3020.20
Customer Loyalty0.1020.2040.4030.30
Market Share0.0720.1440.2830.21
Advertising0.1020.2040.4010.10
Product Quality0.1020.2030.3010.10
Product Image0.0530.1540.2020.10
Financial Position0.0840.3230.2420.16
Total1.002.803.522.04
Ratings: 1 Poor, 2 Average, 3 - Above Average, 4 Superior
Analysis:The table above shows the Competitive Profile Matrix of
various areas of the major competitors of Avon which is Revlon and
Mary Kay. The table shows the competitive edge in the cosmetic
industry. Leading by Revlon with a total of 3.52, followed by Avon
in the second position with 2.80 and Mary Kay with 2.04. Avon has
to improvise in certain factors such as employee morale and product
image to take them further in the international markets to be a
global player in the cosmetic industry. This can be achieved as
Avon is financially strong and working on the Global Expansion
Organization Structure with adaption of new technologies.
SWOT Matrix SWOT MATRIXSTRENGTHSWEAKNESSES
1. Global market leader2. Largest sales force3. Worlds largest
micro lender to women4. Worlds largest direct seller5. ISO 14001
certification for largest manufacturing plants.6. Avon owns its
major manufacturing and distribution centers.7. Increase in revenue
in most geographic area due to increase in internet presence.8.
First cosmetic manufacturer to end animal testing.
1. Decrease in North American Sales Revenue.2. Weak brand
image3. High advertising/budget costs4. Poor brand loyalty5. Does
not target urban trendsetters.6. Beauty sales in the first quarter
2009 were 12% lower compared to sales revenue in previous year
2008.
OPPORTUNITIESSO STRATEGIESWO STRATEGIES
1. Organic (Green) products2. Eye makeup market3. Increase
internet presence 4. Urban trendsetters market5. The cosmetic
industry tends to countercyclical.6. Demand for cosmetic products
normally remains constant and unaffected by economic distress
1. Increase sales by increasing internet presence. (S7, O3)2.
Maximize on revenues in the makeup market through advertising and
the sales force. (S2, O2)3. Manufacture and distribute more
products that are eco-friendly.(S6,S4,S2,O1)1. Increase awareness
of efforts to protect the environment. (W2, O1)2. Increase market
share by positioning products to attract urban trendsetters
(W5,O4)
THREATSST STRATEGIESWT STRATEGIES
1. Competitors such as Mary Kay and Revlon2. Rejection of
internet selling by sales representatives3. Economic downturn 4.
Rising cost of commodities
1. Educate employees on the benefits of increasing internet
presence.2. Improve marketing strategies to new and existing
customers by repositioning the brand, coupons, billboards, new
packaging. (S4,S6,S7, T1, T3)1. Discount products that are not
earning substantial revenue and then faze them off the market in a
timely manner. (W6,T3)
Analysis:Based on the SWOT matrix table above, Avon have to
improvise and realize that brand repositioning in the form of
packaging is necessary, in order for Avon to create a stronger
brand image and improve customer loyalty in international markets.
Through an aggressive market penetration Avon will be able to
increase revenue, further their strength and gain more competitive
edge and increase profitability mostly in the North American
region.
Strategic Position and Action Evaluation (SPACE) Matrix FSY
6
Conservative5Aggressive
4
3
2
1
CAIS
-6-5-4-3-2-1123456
X
-2
-3
-4
-5
DefensiveCompetitive
-6
ES
Strategic - aggressive
(0.8)-y
(1.20)x
Internal Strategic PositionExternal Strategic Position
Financial Strength (FS)Environmental Stability(ES)
Return on Investment 3Leverage 2Liquidity 5Working Capital 5Cash
Flow 5Competitive Pressure -4Unemployment -4Technological Changes
-3Barrier to Entry -4Price elasticity of Demand -1
FS Average 4ES Average -3.20
Competitive Advantage (CA) Industry Strength (IS)
Market Share -3 Product Quality -3Customer Loyalty -2 Control
over Suppliers and Distributors -3 Technological Know-How -3 Growth
Potential 5Profit Potential 4Financial Stability 4Productive
Capacity Utilization 3Resource Utilization 2
CA Average -2.80IS Average 3.60
Financial Strength + Competitive AdvantageY axis=FS (4) +ES
(-3.2) = .08X axis=CA (-2.8) +IS (3.6) =1.2FS & IS +1(worst) to
+6 (best)ES & CA -1(best) to -6(worst)
Analysis:According to the diagram above Avon has a strong
competitive position in the market with rapid growth. Avon is using
their internal strengths to:(1)Maximize on external
opportunities(2)Minimize internal weaknesses(3)Avoid external
threatsAvon should improvise on their strategies of market
penetration, improve research and development to develop a full
line of green products, reposition the brand in terms of packaging
and forward integration. These are all attainable strategies that
Avon have to proceed with in to the near future to be a global
player in the cosmetic industry.Both the SPACE and SWOT matrix
revealed possible strategies to implement in order to further grow
our customer base create brand loyalty and further extends its
competitive advantage and market leadership status. It also acts as
a guide to the areas where more emphasis, financing and allocation
of valuable resources is necessary. Allocation of resources and
commitment by all stakeholders to the outlined objectives are
pivotal keys to the success of Avon to be in the international
market.While the SWOT and SPACE matrix identifies numerous
strategies that Avon can implement in order to increase brand
loyalty, product development and increase internet presence. To
become a global player in the cosmetic industry, Avon should work
on issues that relate to brand loyalty.
The Quantitative Strategic Planning Matrix (QSPM)Quantitative
Strategic Planning Matrix (QSPM) for Avon Inc
STRATEGIC ALTERNATIVES
123
Improved marketing strategies (packaging, coupons, online bill
boards, discountsImprove R&D to introduce more green
productImprove employee empowerment through regional training and
development
Key External FactorsWeightASTASASTASASTAS
Opportunities
1. Organic (Green) products0.1610.164.642.32
2. Growth in eye makeup market0.094.363.273.27
3. Increase internet presence0.130.310.12.20
4. Urban trendsetters market0.0530.1530.1520.1
5. The cosmetic industry tends to
countercyclical0.130.330.330.3
6. Demand for cosmetic products normally remains constant and
unaffected by economic distress0.1130.3320.2210.1
Threats
1. Competitors0.130.330.310.1
2. Economic downturn 0.12.2010.11.1
3. Rising cost of commodities0.09
4. Rejection of internet selling by sales
representatives0.120.2010.1030.20
SubTotal12.302.181.69
The Quantitative Strategic Planning Matrix (QSPM) for Avon
Inc
STRATEGIC ALTERNATIVES
123
Improved marketing strategies (packaging, coupons, online bill
boards, discountsImprove R&D to introduce more green
productImprove employee empowerment through regional training and
development
Key Internal Factors
Strengths
1. Global market leader0.1230.3630.3630.36
2. Largest sales force0.1140.4430.3340.44
3. Worlds largest micro lender to women0.140.440.440.4
4. Worlds largest direct seller0.1540.640.640.6
5. ISO 14001 certification for all manufacturing
plants.0.0530.1530.1530.15
6. Avon owns its major manufacturing and distribution
centers0.0640.2440.2430.18
7. Increased in revenue in most geographic area. Due to increase
in internet presence.0.0540.230.1540.2
8. First cosmetic manufacturer to end animal
testing.0.0540.230.1530.15
Weaknesses
1. Decrease in North American Revenue.0.0530.1530.1530.15
2. Weak brand image0.0820.1620.1640.32
3. High advertising budget/ costs0.05
4. Does not target urban trendsetters.0.05
5. Poor brand loyalty0.0540.230.1540.2
6. Beauty sales in the first quarter 2009 were 12% lower versus
the prior year period.0.03
Grand Total15.404.874.69
Analysis:Based on the analysis of the QSPM matrix it reveals
that improved marketing strategies is the most attractive strategy
along with improvement in research and development to introduce
green products for Avon to reach the international markets in a
global perspective. Avon has implemented some new strategies to
overcome the existing strategies to boost up their level in the
international markets to be the global player in the cosmetic
industry.New Strategies1)To increase revenue total revenue by 10%
all market segments- This will be achieved through improved
marketing strategies (product placement, mail in discounts,
coupons, online and bill boards ) to benefit both new and existing
customers.2)To increase and further develop the green product line
by 10% - this will be done through investment research and
development in order to develop such products.3)To improve brand
image and brand loyalty- Through repositioning the Avon brand in
terms of product packaging to differentiate the product from being
just being another commodity. Existing Strategies1)Direct Selling/
Network Marketing2)Increase internet presence3)Employee
Empowerment
Proposed Strategic Alternatives in the Quantitative Strategic
Planning Matrix (QSPM)An improved market strategy (market
penetration) This is an excellent way to boost sales and promote
the brand. Avon is already the market leader and people are aware
of the brand. However, to be a global player in the cosmetic
industry, Avon has to go through more aggressive advertisement
campaigns, sales promotions, mail-in discounts/coupons, increase
internet presence and bill boards. Avon will be able to further
heighten brand awareness, build customer loyalty and create appeal
for their products by new and existing customers. This is an
important strategy for Avon to be in the international market to
reach the global perspective. Avon looks to achieve this over the
first two years with an estimated amount of 10 million dollars.
With 5 million dedicated to further increase internet presence and
the remaining 5 million to cover the other activities.Improve
research and development to introduce more green products. This
will be achieved through investment in research and development; to
develop these eco-friendly products through means which are more
environmentally friendly. The demand for green products appears to
be a very viable market as consumers and distributors are becoming
more conscious about protecting the environment. Thus creating a
demand for these products, this also presents the opportunity to
increase brand loyalty. This will be done over the next three years
at an estimated cost of 10 million dollars.To improve brand image
and brand loyaltyBeing that Avon lagged behind its major
competitors in terms of brand loyalty; and the assertion by CEO of
Brand Key Robert Passikoff that Avon is not associated with
anything and Avon seems to be more like a commodity. Avon has
decided to reposition the brand in terms of packaging and labeling
of Avon products. Avon seeks to make the Avon logo more pronounced
on the products. It is believed that consumers will support and be
loyal to brands that they can be identified with. Avon will
actively pursue this over the next three years at an estimated cost
of 10 million dollars.To implement the proposed alternative
strategies of Avon to be a global player in the cosmetics industry
a total cost of $ 30 million is estimated. The three new
alternatives of quantitative strategic planning matrix that has
been proposed for Avon will develop a brand new image for Avon from
the existing major competitors to compete through a competitive
edge and strengthen their base to be a leader in the cosmetic
industry in developing Avon in reaching the global perspective.
FINANCING OPTIONSBased on the proposed alternatives given in the
quantitative strategic planning matrix, the recommendations can be
implanted on a phase basis over the next three years for Avon. The
financing options that will be recommended for Avon for the next
three years will be as below:EPS/EBIT Analysis for Avon Product
Inc.Amount needed: $30 millionStock Price:$31.90Tax
Rate:35%Interest rate: 5%# of shares outstanding: $427.5
million
Common Stock FinancingRecessionNormalBoom
EBIT773.831018.21287.8
Interest000
EBT773.831018.21287.8
Taxes249.17327.86414.67
EAT524.66690.30873.13
# Shares428.4428.4428.4
EPS1.221.612.04
Debt Financing
RecessionNormalBoom
EBIT773.831018.201287.8
Interest1.51.51.5
EBT772.331016.71286.3
Taxes248.69327.4414.2
EAT523.64689.3872.1
# Shares427.5427.5427.5
EPS1.221.612.04
Combination Financing (Debt 30%/Stock 70%)
RecessionNormalBoom
EBIT773.831018.21287.8
Interest.45.45.45
EBT773.41017.81287.4
Taxes249.03327.73414.5
EAT524.4690872.9
# Shares428.1428.1428.1
EPS1.221.612.04
Combination Financing (Debt 70%/Stock 30%)
RecessionNormalBoom
EBIT773.831018.21287.8
Interest1.051.051.05
EBT772.781017.11286.75
Taxes248.84327.5414.3
EAT523.9689.6872.5
# Shares427.8427.8427.8
EPS1.221.612.04
Analysis:Based on the four tables above, the common stock
financing, debt financing, combination financing of debt and stock
shows that Avon has chosen Equity for financing the business. This
is because if recession continues and Avon does not make any profit
they are not obligated to pay any dividends. With equity there is
the existence of capital gains for Avon.
Avon Projected Financial StatementBelow are the tables of
Projected Financial Statement which is income statement and balance
sheet statement made for Avon based on the financial options and
recommendation of the strategic analysis that has been proposed for
Avon through the quantitative strategic planning matrix for the
next three years.
AVON'S PROJECTED INCOME STATEMENT FOR 2010-2012 IN MILLIONS
2009201020112012
Revenue 10,284.70 11,313.17 12,444.49 13,688.94
Other revenue Total 98.10 113.17124.45 136.90
Total Revenue 10,382.80 11,426.27 12568.94 13,825.84
Cost of Revenue total 3,888.30 4,227.72 4,650.51 5,115.56
Gross Profit 6,396.40 7,198.55 7,918.43 8,710.28
Cost and Expenses
Selling/General/Administration/advertising 5,389.80 5,347.50
5,907.40 6,433.80
Research and Development 66.70 71.70 74.70 76.70
Depreciation/Amortization - - - -
Interest Expense (Income)----
Unusual Expense (Income) 561.00 21.71 23.90 26.27
Other Operating Expenses, Total - - - -
Operating Income 1018.2 1,757.64 1,912.43 2,173.51
Interest Income (Expense), Net Non Operating - - - -
Gain (Loss) on Sale of assets - - - -
Other Net (7.10) (9.00) (8.00) (7.40)
Income before Tax 926.50 1,058.80 1,131.20 1,244.30
Income tax total 298.30 297.00 260.40 170.40
Income after tax 628.90 761.80 870.80 1,073.90
Minority Interest (2.40) (2.00) (2.00) (1.60)
Equity Interest00 - -
US GAAP Adjustment$0.00$0.00$0.00 -
Net Income before Extra. Items625.8759.8 868.80 1,072.30
Total extraordinary items00 - -
Net Income625.8759.8 868.80 1,072.30
AVON'S PROJECTED BALANCE SHEET FOR 2010-2012 IN MILLIONS
2009201020112012
ASSETS
Cash and short term investment1338.41356.41364.441368.4
Total Receivables net1219.91119.91169.91219.9
Total Inventory1067.51174.251291.681420.85
Prepaid Expense122.8120.5110.7122.8
Other Current Asset440.7443390.7440.7
Total Current Asset4189.34214.054228.384572.65
Property/Plant/Equipment total net1529.61529.61529.61529.6
Goodwill, net224.8231.8233.8234.8
Intangible, Net125.8131.8134.8135.8
Long term investment'49.849.849.849.8
Note Receivables-Long term0000
Other Long Term Assets, total713.4713.4713.4713.4
other Assets total0000
Total Assets6832.76870.456889.787236.05
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts Payable754.7754.7754.7754.7
Payable Accrued0000
accrued Expenses1247.31247.31247.31247.3
Notes Payable/short term debt 0000
Capital Leases138.1138.1138.1138.1
Other current liabilities total134.7241.9358.88488.05
Total current liabilities2274.823822498.982628.15
Total long term debt2307.82357.82360.82360.8
Deferred Income Tax173.8173.8173.8173.8
Minority interest40404040
Other liabilities, total763.7713.7710.7710.7
Total Liabilities5560.15667.35784.285913.45
Redeemable Preferred stock0000
Preferred stock - non redeemable, net0000
Common Sock186.1204.1212.1216.1
Additional Paid in capital 1941194119411941
Retained Earnings (Accumulated
Deficit)4383.94383.94383.94383.9
Treasury - Common-4545.8-4587.45-4733-4525.8
Other Equity-692.6-738.4-698.5-692.6
Total Equity1272.61203.151105.51322.6
Total liabilities & Shareholders
Equity6832.76870.456889.787236.05
Project Financial RatiosRatios
201020112012
Current Ratio1.841.81.7
Quick Ratio1.31.21.2
Operating Profit Margin0.150.150.16
Net Profit Margin0.070.070.07
Return on Stockholders Equity0.630.790.81
Total Asset Turnover1.661.821.91
Debt/Equity Ratio4.7%5.2%4.5
Earnings Per Share3.74.15
Analysis:The current ratio and quick ratios show that Avon is in
a good position to meet its short term obligations even without
relying upon the sales of its inventories The operating profit
margin shows that Avon is improving in its efficiency which will
result in greater profit productivityThe net profit margin shows
that profitability will improve thus shareholders can expect
greater return The ROE shows that the return on equity is improving
The total asset turnover shows that the return on the asset
investment is goodThe Debt/Equity ratio shows that Avon is using
more equity to finance operationsEPS shows that Avon is becoming
more attractive to investors
EVALUATION BALANCE SCORE CARDBalance Score CardBalance Scorecard
is the strategic planning and management system that provides a
frame work for measuring performance and assisting managers
identify what it is needs to be measured and completed, while
enabling executives in the execution of these strategies
constitutes the makeup of the balance scorecard for the
business.There are four fundamental perspectives from which
organizations using this system can implement their vision and
strategies include:1) Financial Performance Perspective This
element is showing how viable a business appears to shareholders in
order to achieve financial success.2) Customer knowledge
Perspective Highlights the importance of satisfying customers while
focusing on the achievement of the organizations vision.3) Internal
Business Processes Perspective Refers to the internal aspects of
the business, wherein managers can analyze the overall operations
of the business to see how well the provision of its goods and
services and its ultimate impact on achieving total customer
satisfaction.4) Learning and Growth PerspectiveIncludes the
training and continuous upgrading of employees knowledge, skills
and abilities that necessitates the advancement of being
technologically savvy.Avon Products Inc. uses the Balance Score
Card system to implement the essential link between
business-planning strategies and people plans for greater
productivity. This is to ensure that Avon can achieve increase
growth in revenue, increase market share, ensuring the delivery of
quality and timely services, providing the appropriate training and
development of employees, delivering improved services by linking
business strategies to people plans. Forecasting customers need by
anticipating changes and adopting various technologies is high
demand on the priority list of the Avon to develop them as a
cosmetic leader changing towards a global player in the cosmetics
industry.AVON BALANCE SCORE CARD
EVALUATIONObjectivesMeasure/TargetTime ExpectationPrimary
Responsibility
FinancialChief Financial Officer
To succeed financially,Lower customer acquisition
costs.Shareholders valueContinuous
how we appear toDouble digit sales growthGrowth in revenue
our shareholdersIncrease market share for on-line products
Increase profitability
Target 10% return on investment.Market share
Achieve at least 10% on net profit in 1st year of new productNet
profit on percentage sales
CustomersOperations
How to achieve ourEnsure on-time delivery always Percentage of
on- time delivery.Continuous
vision, the importance of
Increase customer retentionNumber of customers, email addresses,
time duration between purchases
satisfying our customersReward customer loyaltyPercentage on
returnConversion rate
Internal BusinessOperations
To analyze operations and see how products and services achieve
Supply chain excellence in order confirmationQuick turnaround on
the delivery of orders Continuous
total shareholder and customer satisfaction, Adoption of some
social servicesIncorporating and engaging quality, talented
skills
What business process must we excel at?Generating
revenueOperations - measures of quality, products and costs
Learning & GrowthHuman Resource
To achieve continuous training and upgrading Ensure managers are
exposed to People - employee retention, training and
skillsContinuous
of employees skills and abilities.market changesSuccessful
penetration of new markets
Always keeping abreast of new technologyOnline service
innovationContinuous improvement in CRM
Advancing change and self-improvementImplement a succession
planIncrease value in Knowledge management system
Analysis:The main aim to evaluate Avon based on Balance Score
Card is to enables Avon to meet their strategic objectives by
identifying the various means of improving workforce productivity.
This is an effective tool in maximizing Avon resources and building
capacity in a structured and planned way. It helps Avon to
improvise based on the performance measurement and key indicators
which has been stated. The department officers are responsible in
meeting the targets which leads to Avons objectives. A continuous
time expectation is needed to ensure that the structured and
planned targets to be achieved. These plans not only look at the
strategic and operational components for Avon to succeed, but also
consider the people factor in developing and delivering Avon
business in the international markets to be the global player in
the cosmetics industry.AVON IN GLOBAL PERSPECTIVEAvon Being
GlobalFrom a global perspective, three avenues of growth were
identified by Avon management which are as below;1.Geographic
Growth2.Leveraging distribution channels in emerging and developing
markets3.Marketing in developed industrial areas.The Global Product
Management Group The new multinational Global Product Management
Group was an essential factor in the new organization. The group
would support the entire company with Centers of Excellence to
increase Avons competitive advantage in the marketplace. With a
global scope and multinational staffs, the centers would be located
around the world, wherever the appropriate expertise existed. The
Global Product Management group would be responsible for product
management, global brands, global sourcing (raw materials) and
logistics, worldwide manufacturing, product research and
development and certain global aspects of sales and customer
service support.
The Global Planning And Development In addition to the above,
the responsibilities of the Global Planning and Development group
were expanded to include new business development. The group would
manage Avons emerging market ventures in China, Eastern Europe,
Russia, and other parts of the former Soviet Union, as well as
other new market ventures. Advantages Of A Global Organization The
new slimmed-down global organization will make Avon more responsive
to local markets while providing economies in such areas as global
manufacturing, purchasing and research and development. Avon will
also be able to better exchange best practices, growth initiatives
and competitive information more rapidly from market to market and
become the embodiment of the phrase, Think global, act local.The
new market-oriented organization was expected to speed
decision-making, eliminate unnecessary levels of management, allow
sharing of successful business practices by previously autonomous
divisions, and reduce overhead by centralizing such functions as
purchasing and manufacturing. It would concentrate on discovering
what buyers wanted in each individual market and provide consumers
with products in a way that would enable Avon to achieve its long
run growth objectives. Avon Global DirectionAvon forces to engage
the entire company in becoming more customer-oriented and more
market driven. The task forces established the following targets to
guide management in objective setting and strategy development: 1.
Improve consumer attitudes toward the attractiveness and
accessibility of Avon and its products, and begin to develop a
global image for the company; 2. Improve the quality of the product
line, in bringing new products to market and in weeding out weaker
or inappropriate items; 3. Introduce global product planning and
the extension of global sourcing (finding the most appropriate
source of raw materials); 4. Improve customer database management
and market segmentation; and 5. Establish new ways for customers to
shop Avon, and improve in the speed at which customers and sales
representatives could order and receive products. Having
implemented a regimen of operating strategies, financial controls,
organizational changes, innovative leadership, and market-based
targets over the past four years, Avon now favorably positioned to
enjoy a period of growth. In a worldwide corporate climate of
abrupt changes and discontinuities, of newly emerging forces and
dangers, and of unforeseen influences at home and abroad, Avons
leadership could well ask the unanswered question, Will the
internal organizational and other changes that have been made
reposition Avon so that it can compete successfully in the global
marketplace.AVON STRATEGIC PROBLEMS, TRENDS & FORCESWhat to do
about new product linesIt would be a good idea for Avon to research
into launching new products in different lines than they are
currently in but keep them similar in the industry. In order to
continue growing and obtain bigger cash flows and profits you have
to spend before you get a payoff. With Avon's new research and
development plant they should be able to quickly design and market
new product lines without many problems. Having new product lines
will help maintain growth and internal expansion.How to maintain
growthAvon has been growing globally for decades to continue to do
this Avon needs to be aware of what it will entail. They have taken
care of research and development with their new facility but there
are many other factors that could inhibit them. Reluctances to
expand internally will hold them down as well as finances. Avon may
have to look into selling totally new products, which is consistent
with what was before mentioned.
How to continue cutting costsThroughout Avon's business
transformation they have done an incredible job cutting costs
mostly thanks to Kropf. How to continue to cut costs may rise a
problem because they have launched new cosmetics that are selling
well, put millions into research and development, and do not want
to upset loyal customers by retiring old products that have a loyal
customer base. Some customers may be hooked on a classic product
such as Skin-so-Soft and just happen to by other products every
once in a while when they reorder their Skin-so-Soft. Cutting this
product out of the line will not only result in a loss of sales due
to the product but all other little buys that each customer may
order in the process. Avon's business transformation may have to
look elsewhere at every part of its value chain to try and cut out
expensive virtually unneeded parts to try and cuts costs.Internal
ExpansionSome may say that there is no room for internal expansion
because Avon has done such a good job in international markets and
that it is not needed. I believe that the CFT market is so big that
internal expansion within the company should be a must. I think
Avon should continue to grow within and outside the United States,
create more jobs and look into developing more new product lines in
the men's shaving and baby care areas. Avon's strategy wants to
diversify and penetrate new markets and what better way to do it
than with new products. Developing alliances with department stores
and more Internets selling will also help with internal
expansion.Direct-Selling Model Dependent on Earnings from Active
Sales RepresentativesIn both domestic and global markets, Avon's
sales largely come from direct selling through its Active Sales
Representatives. The 6.2 million Representatives that Avon employs
are independent contractors that receive a percentage commission
for their sales but do not enjoy employee benefits. The idea behind
the direct-selling model is that if Avon can eliminate the
middle-man (department and cosmetic stores) and get its products
directly to consumers, they will be able to cut costs and increase
profits. One of the goals of the 2005 Turn-around Plan to increase
the number of Representatives paid off in 2007 when the company had
a 13% increase in net sales as a result of the increase in the
number of Representatives. Due to its reliance on direct-selling
through representatives, Avon not only competes for the end
consumer but also for representatives that are knowledgeable about
the industry and about beauty products. Avon's dependence on the
productivity and profitability of the representative direct-selling
model exposes it to cost and litigation risks. In 2004, four Avon
representatives filed a class action lawsuit against the company
for alleged "channel stuffing," where Avon supposedly shipped
products representatives without an order and held representatives
responsible for payment for the unordered shipments. It is likely
that AVP will incur future costs through litigation and resolution
of the lawsuit, which may include terms that would increase costs
and decrease profits for Avon.Multi-year Cost Restructuring
Initiative May be Unable to Reduce Costs and Support Increased
AdvertisingIn late 2005, Avon launched a Turn-around plan that
included several strategic initiatives to realign costs, improve
products, and increase market share through brand competitiveness.
Avon expects annualized savings of more than $430 million when the
plan is fully implemented in 2011-2012. However, with the global
economic downturn and slowing demand for non-essential personal
care products, Avon may not be able to achieve its savings target.
For example, Avon has dropped its prices so far that at the end of
Q2 2009, 70% of its products were prices less than $5. Falling
short of its savings targets would be detrimental to Avon's
profitability as it would no longer be able to support its
increased advertising spending. In 2009, Avon decreased advertising
costs by 10% which was in contrast to the 48% increase in 2007 and
83% increase in 2006 - a sign that the company was cutting back due
to the economic downturn to support new product launches and
improve brand recognition as part of the turn-around plan. Although
Avon does not want to reduce advertising spending, which means
success of the turn-around plan is vital to supporting Avon's
increased advertising costs as well as costs incurred by the
company's entry and expansion in new global markets, the economic
downturn has forced the company to cut back on advertising. At the
end of 2009, the company revised its turn-around plan and now hopes
to save $200 by 2011-2012. Direct-Selling Business Model Exposed to
Regulations in the Global MarketAvon has become synonymous with the
direct-selling business model - the process by which the company
hires independent contractors, called Active Sales Representatives,
and pays them percentage of commission to sell Avon products
directly to customers. By removing the need for a middle
distributor, such as a department or cosmetic store, Avon hopes to
eliminate costs and increase profits. In 1998, the Chinese
government banned direct-selling in response to abuses perpetrated
by some corporations. The company's business in the region was
crippled in the short-term and strongly disadvantaged in the
long-term as the company was forced to abandon its direct-selling
strategy and had to open its own retail stores in order to sell
products. Not until 2006 did China re-licensed Avon for
direct-selling, which allowed Avon's revenues from China to
increase rapidly from 2006 to 2008. Total revenue from China rose
from $212 million in 2006 to $353 million in 2009. Similar
situations may arise in Avon's other emerging market segments,
which would negatively impact Avon's revenue growth globally. Large
Presence in Global Market Exposes Avon Products to Currency
Fluctuation Risks80% of Avon's sales revenues come from markets
outside of the United States, making the company very sensitive to
currency fluctuations and the strength of the dollar. A weakening
of the dollar against foreign currencies would allow Avon products
to become more competitively priced in global markets, thus
positively affecting sales revenue from foreign markets; however, a
weak dollar would also mean higher costs for products manufactured
overseas. AVON KEY SUCCESSKey success factors concern the product
attributes, competencies, competitive capabilities and market
achievements with the greatest bearing on company profitability.
These are the things that the company does well and helps them
obtain profits.Ability to get new products out of R&D and into
the marketWith all the money and time Avon has put into the
Research and Development part of the company it has paid off. In
2002 Avon spent $100 million on a new state-of-the-art research and
development facility. This provides researchers with the materials
they need in an easy work environment, which in turn improves
efficiency in every aspect of the process. Having this facility
enables Avon to have their new products out in the market very
quickly compared to other rivals such as Revlon and Estee Lauder.
This skill gives Avon an image of superior technology and quality
and provides them with the first mover advantage in many cases as
well.Internet CapabilityIt was only in the past decade that Avon
became familiar with the Internet. When Jung took over she saw that
e-commerce was on a fast rise and that Avon was not capitalizing on
this sales opportunity. It was only a matter of time before Avon
had their own website that now has all kinds of e-commerce
activities. Avon's website enables customers to order products,
read on the most recent developments by Avon, informs them of sales
and clearances as well as free gift giveaways and the top ten
selling items. Customers can shop by product or category and check
on their account status, review the most frequently asked questions
or get assistance all at the click of a mouse. By making their web
site easy to navigate and perform multiple tasks, Avon has helped
reduce ordering costs and increase sales.Managerial
ExperienceAndrea Jung, Avon's Chief Executive Officer, has been
with Avon since 1994. Before working for Avon, she graduated from
Princeton and joined Bloomingdales where she rose to second in
command before the age of thirty. When she joined Avon she entered
as the President of United States product marketing and continued
to impress her upper management. Her bold decisions made her stand
out and she was named CEO in 2001 at the age of forty. Susan Kropf
who has been with Avon since the early 90's moved and Executive
Lieutenant, to Executive Vice President and President of North
American operations. Kropf has worked alongside Jung and was key in
the Business Process Reengineering efforts that achieved great
success in 2001, with savings of more than $150 million. The
experience and success of Avon managers is un-teachable,
irreplaceable and are definitely a huge factor on why Avon is where
it is today.Accurate Filling of OrdersOnly six years ago you would
hear customers complain about the inaccuracy of Avon's mail orders.
This is a rare complaint today. New training programs and the
implementation of the Avon website has enable the company to fill
orders fast and accurately. The days of human error with direct
selling have almost become obsolete with the new initiatives taken
place to eliminate such error. Incentives implemented by the sales
leadership program have also made Avon give consistent quality
service.CONCLUSIONAvon management has re-evaluated and map out the
long-term future of the firms business to develop them in the
international market and be a player in cosmetic industry on a
global level.By Customizing Marketing Internationally based on
geographical areas, Avon tries to satisfying the subtleties and
intricacies of customer demand around the world meant that the
firms business would vary from country to country and market to
market. To reach a wider target in the geographical area over the
globe, Avon developed Avon Select, a direct marketing program, to
enable customers to buy Avon products in various settings.
Customers could order products via any one of four methods: through
their Avon representative, by mail though special Select catalogs,
by the 1-800-FOR-AVON telephone, or by FAX which were offered
worldwide. This indicates that Avon is playing a major role as a
cosmetic leader in a global perspective.Other than that, new
programs were designed to complement the existing network of Avon
sales representatives to reach a wider coverage in developing
global direction. Avon spent 2 to 3 percent of annual sales on
image-enhancing advertising and promotion programs worldwide to
make customers aware of Avon products and the purchase options
available. Even retail stores were not ruled out by management as a
viable alternative for the distribution of Avon products.It was not
easy for Avon in the process to develop a global organization. It
affected the firm in a number of different ways. The product line
was rationalized by strengthening and developing a certain number
of global brands that were important and sold on a worldwide basis.
Sourcing of raw materials and the logistics system took advantage
of Avons strong presence in many markets in terms of efficiencies
in the supply chain. A changing environment which encouraged lower
duty rates suggested that it was no longer necessary to manufacture
products in the countries where they were sold. Underutilized
manufacturing plants, from a capacity of view, could now be
consolidated with others plants were also an affecting issue for
Avon in being global.By implementing a regimen of operating
strategies, financial controls, organizational changes, innovative
leadership, and market-based targets has favorably positioned Avon
to enjoy a period of growth in worldwide. The internal
organizational and changes that have been made reposition Avon so
that it can compete successfully as the Cosmetic Leader in Global
MarketplaceREFERENCES1. David, Fred, R Strategic Management
Concepts and Cases 12ed. Prentice Hall 20092.Retrieved December 3,
2010 www.avon.com3. Retrieved December 3, 2010
www.wikinvest.com4.Avon Calling For Help Business Month April,
2010.5.Avon Calls At 50 Times Earnings, Business Month November,
2006 -2009.6.Avon Products, Inc., Annual Report, New York, N.Y.,
20107.Avon Products, Inc., Annual Report, New York, N.Y., 20098.How
Avon Rings Their Chimes, Sales and Marketing Management, November,
20099.Avon Products, Inc.: DEVELOPING A GLOBAL
PERSPECTIVE10.Retrieved December 2010 www.yahoo.com/images
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