Case Study 1: Avon Products Inc.

ABSTRACT
Avon is one of the diversified cosmetics company in USA and they have implemented several strategy in order to attract more customers for their products. They have the best strength i.e. channel of distribution, loyal customers and the marketing segment which contribute more on the success of sales. However, they have certain problems such as bad-debt, new trend for green products and their not so good homey image. Avon need to implement the strategic plan laid out in this study if they are going to remain relevant to their loyal customers and simultaneously keeping a good reputation and making their name synonymous with glamorous image and good quality products.

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TABLE OF CONTENTS 1. 2. 3. 4. 5. 6. 7. 8. 9. Abstract Background Internal Operations Cosmetics Industry Analysis Competitors SWOT Analysis Strategic Plan Conclusion Bibliography 15 16 9 10 13 1 3 4 9

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1.0.

BACKGROUND

Avon Products Inc. founded by David H. McConnell in 1886 under the name of The California Perfume Company (CPC). Its first office located in New York. By 1906, CPC had 10,000 representatives and selling 117 articles in 600 styles and package sizes. Starting 1914, CPC expanded its business to outside USA i.e. Montreal, Canada. In 1937, David Jr. became the president of the company and he changed the name to Avon Products Inc. in 1938 after the British town, Stratford-upon-Avon. Among the earliest products offered under the brand name Avon were a toothbrush, talcum and a vanity set. Now, the company home office moved to Fifth Avenue, New York. Since then, after 1950s, the company had expanded its business to Puerto Rico, Venezuela and in 1970s, expanded to Japan. In 1979, Avon purchased the jeweler Tiffanys to add varieties to its line of products. In 1990, Avon became the first manufacturer company to stop using animal testing in its products. Now, Andrea Jung has become the first woman to be Chairman in 2001 and CEO of Avon since 1999.

Avon Products Inc. is a cosmetics, accessories, and home products manufacturer and marketer. It has a greatly expanded product line that includes jewelry, wearing apparel, and home decor items. It now operates in North America, Latin America, Europe, the Middle East, Africa, the Asia Pacific, and the People's Republic of China. It has sales operations in approximately 100 countries and distributes products in approximately 44 countries. Avon Products Inc. is traded on the New York Stock Exchange under ticker symbol AVP.

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Case Study 1: Avon Products Inc.

In addition to its corporate pursuits, the Avon Corporation is involved in philanthropic causes. The Avon Foundation for Women, an accredited public charity, is the largest corporate-affiliated philanthropy for women in the world. Avon is committed to helping women achieve their highest potential of economic opportunity and self-fulfillment by empowering them through scholarships and support of other forms such as educational and occupational training and advancement. Women's empowerment continued to be the focus through the early 1990s when Avon began to increase its philanthropy with a new emphasis on breast cancer; the Avon Foundation still awards scholarships for Avon Sales Representatives and their families, as well as for the children of Avon associates. The Avon Foundation is currently focused on two key causes: breast cancer and domestic violence. The five values of Avon are: Trust, Respect, Belief, Humility, and Integrity.

2.0. 2.1.

INTERNAL OPERATIONS Vision Statement

To be the company that best understands and satisfies the product, service and self-fulfillment needs of women globally.

Proposed: To be the solution to our customers all around the world who are searching for ultimate beauty, health and self confidence.

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2.2.

Mission Statement

1. The Global Beauty Leader - We will build a unique portfolio of Beauty and related brands, striving to surpass our competitors in quality, innovation and value, and elevating our image to become the Beauty company most women turn to worldwide. 2. The Womens Choice for Buying - We will 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. 3. The Premier Direct Seller - We will expand our 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 our industry. 4. The Best Place to Work - We will be known for our leadership edge, through our passion for high standards, our respect for diversity and our commitment to create exceptional opportunities for professional growth so that associates can fulfill their highest potential. 5. The Largest Womens Foundation - We will be a committed 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. 6. The Most Admired Company - We will deliver superior returns to our shareholders by tirelessly pursuing new growth opportunities while

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continually improving our profitability, a socially responsible, ethical company that is watched and emulated as a model of success.

Proposed: The Most Technologically Advanced in Online Sales (eCommerce) - We want to offer a wide selection of products and services through dedicated and knowledgeable intermediaries and through a secure,

innovative and user friendly web site where customers are comfortable to exchange information with us.

2.3.

Channel Of Distribution

Avon uses both door-to-door sales people (also known as "Avon ladies", primarily women and a growing number of men) and brochures to advertise its products. The company delivers its products via distributorships and through a combination of direct selling and marketing by independent representatives. The company, originally known for its door sales of cosmetics, was transfused by women networking at the workplace. Avon sells its products to its representatives on credit therefore becoming the largest micro-lender to woman where minimal start cost to start business is needed. Since 2006, it has expended a great deal of time and money to improve its representative earnings and selling experiences by giving new sales leader opportunity to improve themselves, provide improved training to the new representatives, made changes in commission, and funded new web-based and mobile-tech tools.

2.4.

Marketing

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Avons three main product categories are: Beauty products, fashion and home products which contributed more than 30% of consolidated net sales. This can be shown from the Table 1 below.

(For the year ended December 31) 2008 2007 2006 Beauty 72% 70% 69% Fashion 18% 18% 18% Home 10% 12% 13% Table 1: Avons net sales by product categories (Source: Avons 2008 Form 10K)

In 2008, there is a 9.6% increase in revenues in the beauty segment but there is a 3.2% decrease in revenues in Avons home segment as shown below. 2008 % 2007 Beauty $ 7,603,7 +9.6 $ 6,932.5 Fashion $ 1,863,3 +6.2 $ 1,753.4 Home $ 1,121.9 -3.2 $ 1,159.5 Total $ 10, 588.9 7.5 $ 9,845.2 Table 2: Avons Revenue by Product Segment (in millions) $ $ $ $ 2006 6,019.6 1,562.7 1,095.0 8,677.3

In 2008, Avon has changed its marketing strategy from creating a homey image to suburban housewives to creating a new glamorous image for urban trendsetters and implementing strategy to continue growing its universe of celebrity and designer beauty alliances by using popular actress such as Reese Witherspoon, Lauren Conrad, Gemma Arterton, Courtney Cox etc. They are known as Avon Lady.

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2.5.

Manufacturing and Logistics

The strength of Avon is that it practices quality manufacturing as since 2008, 60 percent of its products were produced in plants where ISO140001 certified such as Brazil, China, Poland and the Philippine. By 2008 also, Avon owned two distribution centre for primary use in North American operations; five manufacturing facilities and ten distribution centres in Latin America; and four manufacturing facilities in Europe for Western Europe, Middle East and Africa, and Central and Eastern Europe.

2.6.

Financial Overview

Table 3 showed that revenue increased by 7.5% and net income increased by 65%. However, from the Table 4, Avon had high goodwill and USD1.4 billion in long-term debt which are considered not good for the company advancement in future. Period Ending 31 December 08 31 December 07 Total Revenue $ 10,690,100 $ 9,938,700 Gross Profit $ 6,741,000 $ 5,997,500 Operating Income or Loss $ 1,339,300 $ 872,700 Net Income $ 875,300 $ 530,700 Table 3: Overall Income Statement (All numbers in thousands) 31 December 06 $ 8,763,900 $ 5,329,300 $ 761,400 $ 477,600

Period Ending Total Current Assets Goodwill Total Assets Total Current Liabilities Total Liabilities Total Stockholders Equity

31 December 08 $ 3,556,900 $ 223,500 $ 6,074,000 $ 2,912,200 $ 5,399,100 $ 674,900

31 December 07 $ 3,515,400 $ 222,200 $ 5,716,200 $ 3,053,400 $ 5,004,600 $ 711,600

31 December 06 $ 3,334,400 $ 5,238,200 $ 2,550,100 $ 4,447,800 $ 790,400

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Case Study 1: Avon Products Inc.

Total Liabilities & SE $ 6,074,000 $ 5,716,200 Table 4: Overall Balance Sheet (All numbers in thousands)

$ 5,238,200

3.0. 3.1.

COSMETICS INDUSTRY ANALYSIS Demand for cosmetics products remains constant and unaffected by economic distress.

3.2.

New trend for green products which has been practiced by Avon since 2008 when it produced 60 percent of the products from plants which are ISO140001 certified.

3.3.

Avons consumers has been regarded as loyal consumers since the company has contributed for philanthropic causes for women around the world.

4.0.

COMPETITORS

Avon is always in front of its competitors as shown in Table 5. Employees Worldwide Revenue Channel of distribution Table 5: List of Comparison Avon 42000 USD10.37 bil. Direct marketing Mary Kay 5000 USD2.4 bil. Direct marketing Revlon 5600 USD1.35 bil. Cosmetic counters

5.0. 5.1.

SWOT ANALYSIS Strengths 1. The company is the worlds largest direct seller with 5.4 million Avon representatives in over 100 countries. 2. Avon has a strong brand image.
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Case Study 1: Avon Products Inc.

3. 4.

Minimal startup costs for an Avon business representative. The brand has been found to have 90 percent recognition worldwide and is listed as one of the worlds top global brands gives power to attract new customers.

5.

In

2007,

the

company

increased

its

investment

in

representatives by over $120mil. 6. Steady revenue growth: The Beauty division had a 9.6% increase in revenues. 7. 8. Has gained huge consumer loyalty throughout the years. Pricing power Avon has the ability to increase the price of their products. 9. Latin America contributes more revenue and profit for Avon than any other area. 10. 11. 12. 13. Many locations of the company is ISO14001 certified. Differentiated business model to merge as a prominent player. Avon has a strong Research & Development unit. Unique products help Avon to compete with other beauty companies. 14. 15. 5.2. Economies of scale help with R&D and distribution cost. Technology and product innovation help Avon to compete.

Weaknesses 1. Avons business model needs the company to sell products to its representatives on credit; so that for the most part, the representatives do not pay the company until they get paid by

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their customers. inventory is sold. 2.

This requires outlay of inventory until the

Avons Home segment had a 3.2 percent decline in revenues in 2008 so therefore their home products are not popular among the customers.

3.

The companys advertisement spending keeps increasing very year. It went from $136 million in 2005 to $249 million in 2006 and $368 million in 2007. Avons advertisement budget for 2008 was 14 percent higher than the year before.

4.

Beauty sales in the first quarter 2009 were 12 percent lower versus the prior year on the same period.

5. 6.

Avon is suffering the declining of North American operations. Avon has a poor supply chain where they rely heavily on the representatives who might not rake in any profit for months.

7.

The

company

has

weak

management

team

Bad

communication between the layers of workers. 8. High staff turnover within the company.

5.3.

Opportunities 1. The cosmetics industry tends to be countercyclical so this situation provides an opportunity for the company to expand. 2. Demand for such products normally remains constant and unaffected by economic distress. 3. A growing trend in the cosmetics industry is the introduction of green products.

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4.

Many consumers are now voting with dollars for organic products and supporting brands that support values similar to their own.

5.

The baby boomers are aging and they are more conscious on how they look and are trying to improve their looks.

6. 7. 8. 9.

Restructuring initiatives for organizational effectiveness. Re-branding strategy to drive consumer demand. Emerging markets and expansion abroad. Innovation in developing new products which are in demand by customers.

10.

Product and services expansion where online market offers more opportunities to sell products.

11.

Appreciation of US currency

5.4

Threats 1. The global economic climate will stifle new product

development, innovation, and sustainability programs in the future. 2. An economic slowdown usually curbs companies from investing in R&D. 3. The industry is highly competitive among well known brands and specials offer through department stores. 4. Competitive environment beauty and health products by other companies (Revlon, Maybelline, Body Shop, Skin Food, etc.). 5. Global macro-economic pressures.

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6. 7. 8. 9.

Dependence on third party supplier. Lower cost competitors and high import taxes in some countries. International competition could harm Avon. Many substitutes for Avon products.

6.0. 6.1.

STRATEGIC PLAN Short Term Plan 1. Promote the business representatives through social network channels such as Facebook, Twitter and others. This will accelerate the process of delivery of items to the users. Business representatives should be given ICT training and become computer literate. Incentives should be awarded to those representatives who contributed high sales to the company. 2. Improve bad-debt as Avon had USD1.4 billion because this will give bad image to the company in future and the companys goodwill. It can be done through setting off by contra of products to the creditors or through negotiation with the creditors. 3. Offer a large discount to representatives that would be willing to pay for their inventory in advance instead of credit. This is encourage the representative to make more sales. 4. Offer online coupons and discounts to loyal customers when reordering their products online. This will help the consumers

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remains with the company and at the same time, the consumers will buy more products from Avon. 5. Increase marketing or advertising budget by $50 million, 70% to be spent on online advertising and 30% spent on print and other form of media. 6. Improve marketing strategies (product placement, billboards, mail-in discounts, coupons, etc.) to existing and new customers.

6.2.

Long-Term Plan 1. Intensified and improve Research & Development progress by introducing more green products. If possible make it 100% natural and organic products. 2. Continue discounting products that are not selling well and then completely remove them from the line. 3. If necessary, restructure manufacturing plants with idle capacity and shut down additional facilities. 4. Acquired and form a consortium small companies which have potential and good qualities products such as buying Tiffanys, a jewelry company which has been done earlier. This will eliminate other competitors. 5. Concentrate on new market such China and India where half of the world population is there. China started to contribute much for the Avons revenue. At the same time, ensuring the products line to be suitable to the market.

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6.

Produce products in miniature size to tap the market of women and man who are travel frequently. This is because taking a big size of bottle for perfume is a bit inflexible.

7.0.

CONCLUSION

In conclusion, Avon will be number one cosmetics producer in the United States by implementing the listed strategic plan before hand. This is because of it products and quality in it. It sells in many countries world-wide and is moving into new countries every year. At the same time, Avon expanded

into many other households products, giving service to its representative and each year, Avon finds new ways to grow and offer more services to their customers. All this will keep Avon ahead of its competitors and at the same time, to proceed and leap to the new decade outstandingly.

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BIBLIOGRAPHY Brunson, R.R. & Reed, M.M. (2009). Avon Products Inc. Baylor University. Avon Products: SWOT Analysis. Retrieved on 29th December, 2011. http://www.wikiwealth.com/swot-analysis:avp Avon Products: SWOT Analysis. Retrieved on 29th December, 2011. http://www.yousigma.com/comparativeanalysis/avonproducts.html Avon SWOT Analysis. Retrieved on 29th December, 2011. http://www.wikiswot.com/SWOT/4_/avon.html Avon Products. Retrieved on 29th December, 2011. http://en.wikipedia.org/wiki/Avon_Products Avon Company Profile. Retrieved on 29th December, 2011. http://www.avoncompany.com/aboutavon/executiveleadership/index.ht ml

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