Strategy analysis: Direct Sales Beauty Industry Presented by Marie Osako Ngoie DBA Candidate Argosy University-Chicago
Mar 29, 2015
Strategy analysis:
Direct Sales Beauty Industry
Presented by
Marie Osako NgoieDBA Candidate
Argosy University-Chicago
A. Direct Sales Beauty Industry Why did I choose this industry?
Let’s say I understand that Beauty industry believes that beauty
is more than just the way a woman looks. Beauty is an assemble of
different factors such as (1) the products that a woman uses to
enhance her natural beauty; (2) an expression of how she feels; (3)
the characteristics that make her unique and unforgettable; (4) the
way she touches the lives of those around her, etc... As a matter of
fact, all women are beautiful both inside and out; they just have to
understand the expression of their own sense of beauty, get someone
who will guide them and help them feel confident and they will stop
complaining!
1. Definition and origin
A direct sales business in a beauty industry is defined as a
direct selling and marketing of products and services directly to
consumers without fixed retail store or location. Khera
communications (2007) highlighted in their paper that direct sales
went through important changes in the United States. It first
started with Yankee peddlers who were selling their products to
the colonies. When new business forms started emerging, peddling
declined, and retail outlets came into existence.
Though, manufacturers were not satisfied with this
retail form of business, so they introduced direct sales into
their sales force to promote their goods and services.
Modern direct selling includes sales made through the party
plan, one-on-one demonstrations, and other personal contact
arrangements as well as internet sales. Direct selling took
over the retail market on the basis of their product
advantages, convenience to the customer, and because they
had specialized knowledge of their distributors.
Definition and origin (2)
2. Difference between direct selling and direct marketing
Direct selling involves individual sales agents/representative
who are reaching and dealing directly with clients; while direct
marketing is about business organizations trying to establish a
relationship with their customers without going through an
agent/consultant or retail outlet. Direct selling uses both self- and
multi-level marketing (salesperson agent/representative is paid for
selling and for sales made by people he recruits or sponsors) rather
than single-level marketing (where salesperson/consultant is paid
only for the sales he makes himself).
3. Revenue In 2011, Direct selling News reported that direct selling
companies generated over $132 billion in revenue in 150
countries through more than 75 million men and women who
are changing lives serving others.
4. Marketing Strategy: Direct Selling The Direct selling companies within the beauty industry market
their products through the (1) person-to-person method, (2) away
from retail locations, (3) through a network of independent sales
representatives.
5. The benefit of direct sales industry The direct sales industry gives an opportunity to individuals who are looking
for a full or part-time job to earn or increase they household income. These
people are used as a network of independent sales representatives who serve and
offer customers seeking for an alternative to regular method of shopping.
According to the Industry representative, the World Federation of Direct
Selling Associations (WFDSA), consumers benefit more from direct selling
because of the convenience and service it provides, including personal
demonstration and explanation of products, home delivery, and generous
satisfaction guarantees. In contrast to franchising, the cost for an individual to
start an independent direct selling business is typically very low with little or no
required inventory or other cash commitments to start.
6. Inconvenience of the direct sales
industry
Due to the reliance of the industry on direct-selling
through representatives, many companies not only compete for
the end consumer but also for representatives that are
knowledgeable about the industry and about beauty products.
The company’s dependence on the productivity and profitability
of the representative direct-selling model exposes it to cost and
litigation risks. Direct-Selling Business Model is exposed to
Regulations in the Global Market
B. Direct Sales Beauty Company I chose to be a face of “Avon Product” company
1. Business Summary
Avon Products Inc. engages in manufacturing and marketing beauty
and related products in worldwide. Its beauty products consist of color
cosmetics, fragrances, skin care, and personal care; fashion products
include fashion jewelry, watches, apparel, footwear, accessories; and
children's products; and home products consists of gift and decorative
products, housewares, entertainment and leisure products, and nutritional
products. Avon Products Inc. markets its products through direct selling
and independent representatives, as well as through distributorships. The
company was founded in 1886 and is based in New York, New York.
2. Business Segments
Avon's revenues come from three main categories:
Beauty (79.0% of net sales): cosmetics, fragrances, and
personal care products.
Fashion (17.0% of net sales): jewelry, watches, apparel and
accessories.
Home (11.0% of net sales): Home products and decorative
products.
3. Competitors According to Direct Selling News, the largest direct selling beauty
companies, by revenue in 2012 within the USA are Avon Products,
Amway, Herbalife, Mary Kay, Tupperware, Oriflamme, Nu-Skin
Enterprises, Forever Living Products, and Malaleuca.
Avon Company has competitors all around the world. For this analysis, the
competition will be limited to direct sales companies within the USA. In
the U.S., Avon competes on two levels: first, with the major cosmetic
companies such as L’Oreal, Revlon, Bare Escentuals, Elizabeth Arden &
Estee Lauder companies; and second with the direct sales beauty
companies mentioned previously.
Companies’ names Year of
foundation
Distributo
rs
2012
Revenue ( $)
Compensation Products Employe
es
1. AVON 1886 6.2
Million
$11.3 Billion S & M level B; F; J; and A 42,000
2. AMWAY 1959 3 Million+ $ 10.9 Billion M-level P C; B; & H C 1 3,000
3. HERBALIFE INC. 1980 2.1
Million
$ 3.5 Billion M-level N S; H/F; S/H
C; W M P
43,000
4. MARY KAY 1963 2 Million $2.9 Billion S & M-level S C P & C C 5,000
5.TUPPERWARE 1946 2.6
Million
$2.6 Billion S & M-level B & P C ; S &
S P
13,500
7. NU SKIN 1984 800,000 1.7 Billion M-level P C & N P 1,200
6. FOREVER
LIVING XTS.
1978 Not
available
1.4 Billion M-level S C & C P; A-
V D; & N S
9.3
Million
8. MALALEUCA 1985 N/A 750 Million S-level P C P & C; C
S; and V
1,200
Symbols:
P C: Personal Care A: Apparel
C C: Colors Cosmetics B: Beauty
H/F: Health/Fitness F: fashion
S/H C: Skin/Hair care H C: home Care
N S: Nutritional Supply S P: Supplement Products
S C P: Skin Care Products P C P: Personal Care Prod.
S & S P: Storage & Serving Products C: Cosmetics
A-V D: Aloe-vera drinks C S: Cleaning Supplies
S C& C P: Skin Care & Cosmetics Products V: Vitamins
W M P: Weight Management Products
Avon challenge Looking at the cosmetic’s competition, most of the Avon’s
major competitors such as Revlon, L’ Oreal, Bare Escentuals,
Elizabeth Arden and Estee Lauder companies distribute their
products to resellers for example drugstores, department stores, or
cosmetics stores; whereas Avon sells its products solely through
its direct selling channel of independent sales representatives and
on its websites. The Avon company is facing a challenge; due to
the dissatisfaction of the sales representatives and the global legal
restrictions, Avon direct selling business model is at risk for
incurring more cost.
Avon challenge (cont.)
However, the Avon company rely on its direct-selling
business model, therefore earning potential, satisfaction of
its Representatives and maintaining its business model are
essential for the company's success in global markets.
Which strategic market should the Avon Company
consider in order to protect and retain its independents
sales representative within a tough economy with such
high competition?
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.
Avon challenge (cont. 2)
Similar situations may arise in Avon's other emerging market
segments, which would negatively impact Avon's revenue growth
globally.
What can be a preventive marketing strategy if this scenario
has to be repeated in the United States or else where in the world
where Avon has established its direct selling business model?
Avon challenge (cont. 3)
Reference
These information were retrieved from these web sites:
1. http:/ / www. directsellingnews. com/ index. php/ site/
global_100_listing/ dsn_global_100_2012_ranking
2. http://finance.yahoo.com/q/is?
s=AVP+Income+Statement&annual
3. http://www.wikinvest.com/wiki/AVP