Competitive Strategic Management Developing Avon in A Global Perspective

QGM6163- CSM- PROJECT PAPER - DEVELOPING AVON PRODUCTS INC.
IN A GLOBAL PERSPECT
IVE
AVON PRODUCTS INC. - DEVELOPING IN A GLOBAL PERSPECTIVE Avon Products, Inc. is t
he worlds largest direct selling organization and merchandiser of beauty and beau
ty related products. From corporate offices in New York City, Avon marketed prod
uct lines to women in 112 countries through 1.6 million independent sales repres
entatives 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 produ
ct management, manufacturing, and sales and service, worldwide. Avon entered the
international marketplace in the 1950s. In 1954, Avon opened sales offices in V
enezuela and Puerto Rico to cultivate the Latin American market. Avon expanded i
nto the European market in 1957 through its United Kingdom subsidiary, Avon Cosm
etics, Ltd. The company entered the Asian market in 1969, by way of Japan. In 19
90, 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 ente
r East Germany. Sales of Avon International, in 1992, were $2.25 billion, compar
ed to Avon U.S. sales of $1.41 billion. More than three-fifths of the firms direc
t selling sales and earnings came from outside the United States and the proport
ion was growing. Internationally, the companys product line was marketed primaril
y at moderate price points. The marketing strategy emphasized department store q
uality at discount store prices. Avon divided the world into four geographical d
ivisions: The United States, Europe, The Pacific, and The Americas. In most of i
nternational markets, the primary operating arrangement in each of these divisio
ns was direct ownership by Avon of the foreign country subsidiary. Joint venture
s with foreign firms were used when the culture and the ways of doing business w
ere significantly unfamiliar to Avon management. By 1991, Avon management felt t
hat it was time to re-evaluate and map out the longterm future of the firms beaut
y businesses on a global level. Senior management knew that the traditional Avon
system of door-to-door house calls worked wonderfully in developing nations.
NOR NAZERANAH OMAR DIN KLCP101003
Page 1
QGM6163- CSM- PROJECT PAPER - DEVELOPING AVON PRODUCTS INC. IN A GLOBAL PERSPECT
IVE
Avon then tried to develop its own global perspective. In developing the market
globally, Avon Management identifies three avenues of growth which are geographi
c growth, leveraging distribution channels in emerging and developing markets, a
nd 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 t
he potential in Poland, Czechoslovakia, and Hungary. In the Pacific Rim area, co
untries like Vietnam, Cambodia, and Laos were targeted as market opportunities.
The second area of growth was to continue to emphasize direct selling in the eme
rging 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 so
me developing markets, where access to quality goods was particularly prized, Av
ons direct selling method opened up unprecedented prospects for women. The third
area of international growth was marketing in the United States and other develo
ped industrial areas like Canada, Western Europe, and Australia. New programs we
re designed to complement the existing network of sales representatives and imag
e-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 t
heir customer demand around the world and shows that Avon has step into the mark
et 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 perspe
ctive and in achieving their mission of being the Global Beauty Leader.
Page 2
IVE
AVON PRODUCTS INC. Introduction David H. McConnell founded The California Perfume
Company (CPC) in 1886 with the first office located in New York. In 1906 the Sa
n Francisco earthquake destroyed CPCs California office however, before long the
company reopened. CPCs first office outside United State was opened in 1914 in Mo
ntreal, Canada. In the 1920s CPC sales doubled to $2 million during this time the
re 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 1
938. Avons sales increased to about $16 million and in 1946 the company was annou
nced publicly with advertising campaign such as Avon Calling. Avon expanded overse
as to countries such as Puerto Rico, Cuba and Venezuela. In the 1970s U.S sales t
op $750 millions and the first Avon Asian business was opened in Japan. Avon als
o acquired the Jeweler Tiffanys during this period of growth. It was the first ma
jor 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 foundati
on and the most admired company. Avon success lies within it channel of distribu
tion, it is the worlds largest direct seller with 5.4 million Avon representative
s in over 100 countries. Additionally, it is the largest micro lender to women a
nd 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 stru
cture. There are three product categories which Avon distributes, they are beaut
y, fashion and home. In 2008, Avon changed its marketing approach of concentrati
ng mostly on a homey image and is now including celebrities as a part of their p
romotions. 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 Foun
dation first global ambassador and honorary chairwoman who
Page 3
IVE
appear in advertisement for Avon make up, skin care products and fragrances. Spot
light 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 r
eceived the ISO 14001 certifications in 2008. Various awards were granted during
this period such as the Clean Industry Certificate to the manufacturing plant i
n Mexico. During the same period Avons revenues increased 7.5 percent and net inc
ome 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 direc
t marketing approach which Revlon sells its products through cosmetics counters
in department stores are pharmacies. Avon revenues far exceed that of its compet
itors 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 whic
h included closing two manufacturing facilities. In addition, there is heavy inv
estment in online search engines and internet carrier sites to help increase Avo
ns revenue. Andrea Jung is the Chief Executive Office who is leading the manageme
nt team of thirteen to achieve its goal. Vision Statement (Actual) To be the com
pany that best understands and satisfies the product, service, and self-fulfillm
ent needs of women globally. Mission Statement (Actual)
The Global Beauty Leader
- Avon build a unique portfolio of Beauty and related brands, striving to surpa
ss their competitors in quality, innovation and value, and elevating the image t
o become the Beauty company most women turn to worldwide. The Womens Choice for B
uying - Avon become the destination store for women, offering the convenience of
multiple brands and channels, and providing a personal high touch shopping expe
rience that helps create lifelong customer relationships. The Premier Direct Sel
ler - Avon expand the presence in direct selling and lead the reinvention of the
channel, offering an entrepreneurial opportunity that delivers superior earning
s,
Page 4
IVE
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 - A
von is known for leadership edge, through the passion for high standards, respec
t for diversity and commitment to create exceptional opportunities for professio
nal growth so that associates can fulfill their highest potential. The Largest W
omens Foundation - Avon committed a global champion for the health and well-being
of women through philanthropic efforts that eliminate breast cancer from the fa
ce of the earth, and that empower women to achieve economic independence.
The Mo
st Admired Company Avon deliver superior returns to their shareholders by tirele
ssly pursuing new growth opportunities while continually improving their profita
bility, a socially responsible, ethical company that is watched and emulated as
a model of success. The five values of Avon are: Trust, respect, belief, humilit
y, and integrity. Slogan (Actual) Avon is the company for women Proposed Vision St
atement To be the leading provider of home, fashion and beauty products that wil
l satisfy customers while preserving the environment. Proposed Mission Statement
Avon is committed to being the leading global provider of home, fashion and bea
uty 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 peopl
e and respect for the environment. Proposed Slogan Avon: the company for everyone
committed to the enrichment of lives
Page 5
IVE
Analysis: The vision statement was improved to include customers instead of women,
since the company is now offering products for women, men and children. Additio
nally, in light of the fact that the world is going green, it was prudent to inc
lude the environment to emphasize the responsibility to society as we all work t
owards a sustainable future. The proposed mission statement incorporates all nin
e components that are essential to a good mission statement. The essential eleme
nts are customers, products and service, markets, technology, concern for surviv
al, growth and profitability, philosophy, self-concept, concern for public image
, and concern for employees. The proposed mission statement also speaks to the co
mpanys core values of trust, respect, belief, humility, and integrity. The old sl
ogan for Avon states the company for women we have decided to change this slogan t
o Avon: the company for everyone committed to the enrichment of lives INTERNAL AS
SESSMENT Financial Ratios Analysis Ratio Current Ratio Quick Ratio Operating Pro
fit Margin Net Profit Margin Return on Stockholders Equity Total Asset Turnover
Debt / Equity Ratio Earnings Per Share 2008 0.75 1.1 0.09 0.05 0.60 1.67 5.62% 2
.60 2009 1.15 0.93 0.09 0.05 0.75 1.73 7.03% 2.87 2010 1.22 0.88 1.25 0.08 1.29
1.76 7.99% 4.72
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 indicati
on that Avon Products Inc. is much more well in terms of profitability in 2010 t
han in previous years. Additionally, more operating income means
Page 6
IVE
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 siz
e 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 financi
al leverage in terms of debt and equity financing. Marketing Positioning Map and
Analysis
Customer Service (High)
y Avon y y Mary Kay Revlon
Quality (Low)Quality (High)
Customer Service (Low)
Analysis: The top-to-bottom approach was used to narrow down two important varia
bles, customer service and quality of products. The key feature of a market posi
tioning map is that only key or immediate competitors should be plotted. The com
petitors of Avon, Revlon and Mary Kay are well-established firms with Revlon plo
tted with higher quality products (Cosmetics). Avon was strategically plotted to
show that they lead in customer service. However, when compared to cosmetics qu
ality Revlon and Mary Kay are leading far away from Avon. Superior customer serv
ice compared to rivals Avon has gained an outstanding reputation as the best dir
ect seller of beauty products. Through the continued efforts and achievements of
its Sales Representatives Avon is now known
Page 7
IVE
worldwide. Avon's core competence has mainly been through direct selling, knowin
g this Jung and the management team implemented a Sales Leadership program in it
s ten largest markets and provided these markets with incentives to acquire, tra
in, motivate, and retain the number of active Sales Representatives it needs to
sustain significant growth. Analysis of Marketing Strategies Superior Customer S
ervice Avon has gained an outstanding reputation as the best direct seller of be
auty products. Through the continued efforts and achievements of its Sales Repre
sentatives Avon is now known worldwide. Avon also has a Representative developme
nt program that focuses on the professional training of Representatives, which e
nables them to provide valuable information on Avon brand products. Avon also ke
eps its superior customer service in other ways of distribution such as the Inte
rnet and in the department store sales by having a timely and correct order deli
very, one on one information exchange and sincere professional advice and servic
e in department sales. Wider Geographic Coverage Avon's management team decided
to achieve growth in revenue by expanding its customer base into international m
arkets, while continuing to compete based on their reputation as the leading dir
ect seller of beauty products. Avon brand products are now recognized all over t
he world due to the success of their international campaign. The company is in g
reat position to take
advantage on growth in new global markets because of the demand for quality prod
ucts. Avon now has operations in 50 different countries outside of the United St
ates, and continues to reach new markets. Quicker Design-to-Market Times The abi
lity 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 innov
ation and hopefully increase the company's market share in the CFT industry. Pro
duct innovation will continue to be a key factor of sales growth in the future.
New product lines such as "Avon Wellness" and
Page 8
IVE
"Becoming" and the most recent "Anew" will attract new consumers, which will als
o help to increase revenue growth. More Attractive Product Line Avon's history a
s a beauty product distribution only enhances their credibility as a company and
quality beauty product distributor. With Avon's ability in research and develop
ment they will be able to develop more new products and introduce them to the Av
on product line more quickly than rivals. New products with the symbol of Avon q
uality and state-of-the-art technology will only increase brand image and hopefu
lly sales while acquiring a more loyal customer base by establishing and providi
ng a more attractive product line. Improved E-Commerce and Internet Sales Capabi
lities Avon's executives realized the company needed a more efficient method to
communicate with its independent sales force, because current newsletters and br
ochures were not keeping up with the demands of the sales force. The Internet br
ings instant global reach, with thousands of products and prices that can be upd
ated constantly at any time. Stronger Brand Name than Rivals Again Avon's histor
y is a big player here because it gives the company credibility and name recogni
tion. Avon continues to strengthen its image of core beauty products and interna
tional brand product line. In the past few years the company has made several up
grades in imaging and formulations, packaging, and customer service and the accu
racy 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 ar
ound the world, as well as improve relationships with suppliers and become famil
iar with the most efficient way to get foreign sales. Stronger Global Distributi
on and Sales Capabilities Avon's ability to produce and distribute products in m
ultiple countries enables them to have a significant amount of international sal
es. Avon continues to drive their products into new markets and have always been
looking for ways in which they can improve their distribution channels.
Page 9
IVE
Map Locating Avon Operations in Worldwide Avon Products, Inc. markets its produc
ts 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 Belarus Czech Republic Finland Hungary Kyrgyzstan Lithuania Moldova Pola
nd
Armenia
Bulgaria United States
Estonia
Puerto Rico
Georgia
Aruba
Kazakhstan
ados Latvia
Curacao
Macedonia
Grand Cayman Island
Montenegro Guyana
Romania Jam
a Grenada
Dominica
Bermuda
Antigua & Bahamas
Dominican Republic Canada
Page 10
IVE
Argentina
Bolivia
Australia
Brazil
Chile
Colombia
Costa Rica
Ecuador
El Salvador
Guatemala
Honduras
Mexico
Panama
Nicaragua
Peru
Paraguay
India Malaysia Philippines Taiwan Vietnam
Hong Kong Japan New Zealand South Korea Thailand
Botswana Dubai France Greece Israel Jordan Lebanon Luxembourg Mauritius Morocco
Netherlands Norway Portugal
Cyprus Egypt Germany Iceland Italy Kuwait Lesotho Malta Mozambique Namibia North
Cyprus Oman Reunion Island
Page 11
Venezuela
Uruguay
IVE
Internal Assessment: Avon Strengths 1. 2. Avon is a Global Market Leader Committ
ed and dedicated workforce - 5.4 million Avon representatives in over 100 countr
ies 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 businesses 4. 5. 6. 7. Channel of distribution worlds
largest direct seller Manufacturing operations match ISO 14001 standards Avon ow
ns its major manufacturing and distribution centers 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% recogn
ition worldwide. 9. First cosmetic to permanently end to animal testing
Internal Assessment: Avon Weaknesses 1. 2. 3. Decrease in North American Sales R
evenue by 129.4 million Weak Brand Image High advertising costs Companies advert
ising spending went from $136 millions in 2005 to $249 million in 2008 to $368 m
illion in 2009 and 14% higher in 2010 4. 6. Poor brand loyalty and Does not targ
et urban trendsetters Beauty Sales in the first quarter 2009 were 12% lower comp
ared to sales revenue in previous year 2010 7. Avon lagged behind seven of their
cosmetic companies in customer loyalty
Page 12
IVE
Internal Factor Evaluation (IFE) Matrix Key Internal Factors Strengths 1. Global
Market Leaders 2. Committed and dedicated workforce - 5.4 million Avon represen
tative in over 100 countries 3. Revenues increased 7.5% from year 2008 to 2009 4
. Channel of distribution worlds largest direct seller 5. Award winning company w
orldwide
0.05 3 3 3 4 3 4 0.15 0.18 0.18 0.32 0.24 0.28 0.09 0.08 0.06 0.05 4 3 4 4 0.36
0.24 0.24 0.2
Weights
Rating
Weighted Score
6. Worlds Largest Micro lender for women 7. Worlds top global brands 90% recogniti
on worldwide 8. Excellent promotional strategies 9. Manufacturing operations mat
ch ISO 14001 standards 10. Announced permanent ending to animal testing Weakness
es 1. Brand Image 2. High advertising costs 3. Misleads representatives 4. Avon
seems like a commodity 5. Avon lagged behind seven of their cosmetic companies i
n customer loyalty 6. Revenue decreased in North America by 129.4 million
0.06 0.06 0.08 0.08 0.07
0.06 0.05 0.03 0.05 0.09 0.04
1 2 2 2 2 2
0.06 0.1 0.06 0.1 0.18 0.08
Total 1.00 Ratings: 1- major weakness, 2-minor weakness, 3-minor strength, 4-maj
or strength Analysis:
2.97
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 Prod
ucts Inc.
Page 13
IVE
EXTERNAL ASSESMENTS Avon Major Competitors Mary Kay and Revlon are considered tw
o major competitors of Avon Products Inc. in the cosmetics industry. Avon Produc
t 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 the
ir products to resellers such as department stores, drugstores, or cosmetic stor
es, Avon sells its products solely through its direct-selling channel of indepen
dently-contracted Active Sales Representatives and through its online website. I
n contrast to Revlons marketing strategy of selling through cosmetic counters in
department stores and pharmacies, Mary Kay rivals with Avon Inc. as they both us
e direct marketing approach. In 1983 Mary Kay Cosmetics was founded in Dallas, T
exas, 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 reach
ed $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 o
f 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 con
sultant can buy his or her own website to sell clients over the internet. In fac
t 90% of the companys revenue is now generated through online orders. Avons revenu
es far exceed both major competitors. Their revenue is almost four and half time
s that of Mary Kays and seven and half times Revlons. Avons revenue exceeds Ten Bil
lion Dollars (B$10).
Page 14
IVE
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 tota
l sales. The company earned $1.3 billion in sales and $950K in net income in 200
9. Net sales fell 3.7% to $1.29 billion. Sales in the US fell 4.4% while sales i
nternational fell by 2.9%. The company attributes the loss to the weak global ec
onomy. The net sales in 2009 were approximately $1.3 billion, a decrease of appr
oximately $51 million or 3.8% versus 2008. Revlon has a more focused product off
ering 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 thei
r revenue outside the United States. Major Competitors Pie Chart
Sales, Revlon, 1.29 5, 9%
Sales Mary Kay 2.6 18%
Sales Avon 10.382 73%
Analysis: From the pie chat above, it shows the overall sales for Avon and its m
ajor competitors in 2009. Avon gains $10.83 billion, follow by Mary Kay $ 2.6 bi
llion and Revlon $1.3billion.
Page 15
IVE
PEST Analysis Political Factors
Tax policies Employment laws Trade restrictions
and tariffs Political stability Economic Factors
Economic growth Interest rates
Exchange rates Fluctuation in oil and gas prices
Social Factors
pic Issues
Technology Factors
Technologies Adaption
Emphasis on safety No animal testing Green Environment Philanthro

Automation Technology incentives Rate of technological change
Analysis: Based on the PEST analysis of Avon Products, the company looks into th
e specific issues that relates and drives them in penetration in the internation
al market and grows globally. External Assessment: Avon Opportunities 1. A growi
ng trend in the cosmetics industry is the introduction of green products. More tha
n sixteen percent of beauty products launched in 2008 were certified organic, et
hical, or all natural. 2. 3. Eye makeup market The cosmetics industry tends to b
e 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, soci
al or economic factors. The recession also contributes to the industry being cou
nter-cyclical. There is an upsurge in people joining the industry in the past si
x or eight months and there's absolutely no doubt that this is because of the re
cession and the effect on employment.
Page 16
IVE
4.
Aveda cosmetics found that sixty eight percent of consumers will remain loyal to
a company that has a social and environmental commitment.
5. 6.
Urban Trendsetters markets Geographic growth enormous growth opportunities exist
ed in countries with huge populations such as China, Indonesia and India.
7.
Demand for cosmetic products normally remains constant and unaffected by economi
c distress
8.
The baby boomers are aging and they are more conscious on their appearance, beau
ty and also improving their looks.
9.
Emphasize direct selling in emerging and developing markets
External Assessment: Avon Threats 1. 2. 3. Competition such as Mary Kay and Revl
on Rejection of internet selling by sales representative Global economic climate
stifled new product development, innovation and sustainability programs in 2009
. 4. In terms of color cosmetics, environmental International Inc. predicted tha
t many of these markets will see slowdown in volume demand. 5. 7. Inflation rate
and Rising cost of commodities Direct-selling becoming more popular - Amid the
financial crisis Aussie mums are increasingly turning to direct selling and at-h
ome product parties to supplement their household income. 8. They are a multilev
el based company that sells inferior quality with a higher price tag than what i
t is worth.
Page 17
IVE
9.
Avon products outpaced by jazzier products to women who favored more exciting prod
uct lines
10.
Decreased earning opportunities
External Factor Evaluation (EFE) Matrix Critical Success Factors Key External Fa
ctors Opportunities 1. Organic (Green) Products 2. Eye makeup market 3. Increase
Internet Presence 4. Urban trendsetters market 5. Cosmetic industry tends to co
untercyclical 6. Geographic growth 7. Demand for cosmetic products normally rema
ins constant and unaffected by economic distress Threats 1.Competitors 2. Reject
ion of Internet Selling by sales representative Weights Rating Weighted Score
0.09 0.07 0.08 0.09 0.07 0.09 0.05
4 3 4 4 3 4 3
0.36 0.21 0.32 0.39 0.21 0.36 0.15
0.08 0.07
2 3
0.16 0.21
3.Economic Downtown 0.09 2 0.18 4. Market Slowdown 0.08 3 0.24 5. Inflation Rate
0.07 3 0.21 6. Rising cost of commodities 0.07 2 0.14 Totals 1 3.14 Ratings: 1=
the response is poor, 2= the response is average, 3= the response is superior,
4= response is superior Analysis: The table of external factors evaluation shows
the opportunities that are available and factors that threaten the success of A
von in driving the business globally.
Page 18
IVE
Competitive Profile Matrix (CPM)
Critical Success Factors Price competitiveness Global Expansion Organizational S
tructure Employee Morale Technology Product Safety Customer Loyalty Market Share
Advertising Product Quality Product Image Financial Position
Avon Revlon Mary Kay Weighted Weighted Weighted Weight Rating Score Rating Score
Rating Score 0.10 0.09 0.04 0.07 0.10 0.10 0.10 0.07 0.10 0.10 0.05 0.08 3 3 2
2 4 4 2 2 2 2 3 4 0.30 0.27 0.08 0.14 0.40 0.40 0.20 0.14 0.20 0.20 0.15 0.32 4
4 4 4 2 3 4 4 4 3 4 3 0.40 0.36 0.16 0.28 0.20 0.30 0.40 0.28 0.40 0.30 0.20 0.2
4 2 2 3 1 3 2 3 3 1 1 2 2 0.20 0.18 0.12 0.07 0.30 0.20 0.30 0.21 0.10 0.10 0.10
0.16 2.04
Total 1.00 2.80 3.52 Ratings: 1 Poor, 2 Average, 3 - Above Average, 4 Superior A
nalysis:
The table above shows the Competitive Profile Matrix of various areas of the maj
or competitors of Avon which is Revlon and Mary Kay. The table shows the competi
tive edge in the cosmetic industry. Leading by Revlon with a total of 3.52, foll
owed by Avon in the second position with 2.80 and Mary Kay with 2.04. Avon has t
o 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.
Page 19
IVE
SWOT Matrix
SWOT MATRIX
STRENGTHS
1. Global market leader 2. Largest sales force 3. Worlds largest micro lender to
women 4. Worlds largest direct seller 5. ISO 14001 certification for largest manu
facturing plants. 6. Avon owns its major manufacturing and distribution centers.
7. Increase in revenue in most geographic area due to increase in internet pres
ence. 8. First cosmetic manufacturer to end animal testing.
WEAKNESSES
1. Decrease in North American Sales Revenue. 2. Weak brand image 3. High adverti
sing/budget costs 4. Poor brand loyalty 5. Does not target urban trendsetters. 6
. Beauty sales in the first quarter 2009 were 12% lower compared to sales revenu
e in previous year 2008.
OPPORTUNITIES
1. 2. 3. 4. 5.
SO STRATEGIES
WO STRATEGIES
Organic (Green) products 1. Increase sales by increasing 1. Increase awareness o
f Eye makeup market internet presence. (S7, O3) efforts to protect the Increase
internet presence 2. Maximize on revenues in the environment. (W2, O1) Urban tre
ndsetters market makeup market through 2. Increase market share by The cosmetic
industry tends advertising and the sales positioning products to to countercycli
cal. force. (S2, O2) attract urban trendsetters 6. Demand for cosmetic 3. Manufa
cture and distribute (W5,O4) products normally remains more products that are ec
oconstant and unaffected by friendly.(S6,S4,S2,O1) economic distress
THREATS
1. Competitors such as Mary Kay and Revlon 2. Rejection of internet selling by s
ales representatives 3. Economic downturn 4. Rising cost of commodities
ST STRATEGIES
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)
WT STRATEGIES
1. Discount products that are not earning substantial revenue and then faze them
off the market in a timely manner. (W6,T3)
Page 20
IVE
Analysis: Based on the SWOT matrix table above, Avon have to improvise and reali
ze 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 internatio
nal markets. Through an aggressive market penetration Avon will be able to incre
ase 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 FS Y 6 Conservative 5 4
3 2 1 CA -6 -5 -4 -3 -2 -1 -2 -3 -4 -5 Defensive -6 ES Strategic - aggressive (0
.8)-y (1.20)x Competitive 1 2 3 4 5 6 X IS Aggressive
Page 21
IVE
Internal Strategic Position Financial Strength (FS) Return on Investment Leverag
e Liquidity 5 5 2 3
External Strategic Position Environmental Stability(ES) Competitive Pressure Une
mployment Technological Changes Barrier to Entry Price elasticity of Demand -4 4 -3 -4 -1
Working Capital Cash Flow FS Average 5 4
ES Average -3.20 Industry Strength (IS) Growth Potential -3 Profit Potential Fin
ancial Stability 5 4 4
Competitive Advantage (CA) Market Share -3
Product Quality Customer Loyalty -2
Control over Suppliers and Distributors -3 Technological Know-How -3 CA Average
-2.80
Productive Capacity Utilization 3 Resource Utilization IS Average 3.60 2
Financial Strength + Competitive Advantage Y axis=FS (4) +ES (-3.2) = .08 X axis
=CA (-2.8) +IS (3.6) =1.2 FS & IS +1(worst) to +6 (best) ES & CA -1(best) to -6(
worst)
Analysis:
Page 22
IVE
According to the diagram above Avon has a strong competitive position in the mar
ket with rapid growth. Avon is using their internal strengths to: (1) (2) (3) Ma
ximize on external opportunities Minimize internal weaknesses Avoid external thr
eats Avon should improvise on their strategies of market penetration, improve re
search and development to develop a full line of green products, reposition the br
and in terms of packaging and forward integration. These are all attainable stra
tegies that Avon have to proceed with in to the near future to be a global playe
r in the cosmetic industry. Both the SPACE and SWOT matrix revealed possible str
ategies to implement in order to further grow our customer base create brand loy
alty and further extends its competitive advantage and market leadership status.
It also acts as a guide to the areas where more emphasis, financing and allocat
ion of valuable resources is necessary. Allocation of resources and commitment b
y 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 identif
ies numerous strategies that Avon can implement in order to increase brand loyal
ty, product development and increase internet presence. To become a global playe
r in the cosmetic industry, Avon should work on issues that relate to brand loya
lty.
The Quantitative Strategic Planning Matrix (QSPM)
Page 23
IVE
Quantitative Strategic Planning Matrix (QSPM) for Avon Inc
STRATEGIC ALTERNATIVES 1 2 3 Improved marketing strategies Improve Improve (pack
aging, R&D to employee coupons, introduce empowerment online bill more through r
egional boards, green training and discounts product development
Key External Factors
Opportunities 1. Organic (Green) products 2. Growth in eye makeup market 3. Incr
ease internet presence 4. Urban trendsetters market 5. The cosmetic industry ten
ds to countercyclical 6. Demand for cosmetic products normally
Weight
AS
TAS
AS
TAS
AS
TAS
0.16
0.09 0.1 0.05 0.1
1 4 3 3 3
0.16 .36 0.3 0.15 0.3
4 3 1 3 3
.64 .27 0.1 0.15 0.3
2 3 2 2 3
.32 .27 .20 0.1 0.3
remains constant and unaffected by economic distress
Threats 1. Competitors 2. Economic downturn 3. Rising cost of commodities
0.11
3
0.33
2
0.22
1
0.1
0.1 0.1 0.09 0.1 1
3
0.3 .20
3
0.3 0.1
1
0.1 .1
2
1
1
4. Rejection of internet selling by sales representatives
SubTotal
2
0.20 2.30
1
0.10 2.18
3
0.20 1.69
Page 24
IVE
The Quantitative Strategic Planning Matrix (QSPM) for Avon Inc
STRATEGIC ALTERNATIVES 1 2 3 Improved marketing Improve strategies Improve emplo
yee (packaging, R&D to empowerment coupons, introduce through online bill more r
egional boards, green training and discounts product development Key Internal Fact
ors Strengths 1. Global market leader 2. Largest sales force 0.12 0.11 3 4 0.36
0.44 3 3 0.36 0.33 3 4 0.36 0.44
3. Worlds largest micro lender to women 4. Worlds largest direct seller 5. ISO 140
01 certification for all manufacturing plants. 6. Avon owns its major manufactur
ing and distribution
0.1 0.15 0.05 0.06 0.05 0.05
4 4 3 4 4 4
0.4 0.6 0.15 0.24 0.2 0.2
4 4 3 4 3 3
0.4 0.6 0.15 0.24 0.15 0.15
4 4 3 3 4 3
0.4 0.6 0.15 0.18 0.2 0.15
centers 7. Increased in revenue in most geographic area. Due to increase in inte
rnet presence.
8. First cosmetic manufacturer to end animal testing. Weaknesses
1. 2.
Decrease in North American Revenue. Weak brand image
0.05 0.08 0.05 0.05 0.05 0.03 1
3 2
0.15 0.16
3 2
0.15 0.16
3 4
0.15 0.32
3. High advertising budget/ costs 4. Does not target urban trendsetters. 5. Poor
brand loyalty 6. Beauty sales in the first quarter 2009 were 12% lower versus t
he prior year period.
Grand Total
4
0.2
3
0.15
4
0.2
5.40
4.87
4.69
Page 25
IVE
Analysis: Based on the analysis of the QSPM matrix it reveals that improved mark
eting strategies is the most attractive strategy along with improvement in resea
rch and development to introduce green products for Avon to reach the internationa
l markets in a global perspective. Avon has implemented some new strategies to o
vercome the existing strategies to boost up their level in the international mar
kets to be the global player in the cosmetic industry. New Strategies 1) To incr
ease revenue total revenue by 10% all market segments- This will be achieved thr
ough improved marketing strategies (product placement, mail in discounts, coupon
s, online and bill boards ) to benefit both new and existing customers. 2) To in
crease and further develop the green product line by 10% - this will be done throu
gh investment research and development in order to develop such products. 3) To
improve brand image and brand loyalty- Through repositioning the Avon brand in t
erms of product packaging to differentiate the product from being just being ano
ther commodity. Existing Strategies 1) 2) 3) Direct Selling/ Network Marketing I
ncrease internet presence Employee Empowerment
Proposed Strategic Alternatives in the Quantitative Strategic Planning Matrix (Q
SPM) An improved market strategy (market penetration) This is an excellent way t
o boost sales and promote the brand. Avon is already the market leader and peopl
e are aware of the brand. However, to be a global player in the cosmetic industr
y, Avon has to go through more aggressive advertisement campaigns, sales promoti
ons, mail-in
Page 26
IVE
discounts/coupons, increase internet presence and bill boards. Avon will be able
to further heighten brand awareness, build customer loyalty and create appeal f
or their products by new and existing customers. This is an important strategy f
or Avon to be in the international market to reach the global perspective.Avon l
ooks to achieve this over the first two years with an estimated amount of 10 mil
lion dollars. With 5 million dedicated to further increase internet presence and
the remaining 5 million to cover the other activities. Improve research and dev
elopment to introduce more green products. This will be achieved through investmen
t in research and development; to develop these ecofriendly products through mea
ns which are more environmentally friendly. The demand for green products appears
to be a very viable market as consumers and distributors are becoming more consc
ious about protecting the environment. Thus creating a demand for these products
, this also presents the opportunity to increase brand loyalty. This will be don
e over the next three years at an estimated cost of 10 million dollars. To impro
ve brand image and brand loyalty Being that Avon lagged behind its major competi
tors in terms of brand loyalty; and the assertion by CEO of Brand Key Robert Pas
sikoffthat 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 l
abeling of Avon products. Avon seeks to make the Avon logo more pronounced on th
e products. It is believed that consumers will support and be loyal to brands th
at they can be identified with. Avon will actively pursue this over the next thr
ee years at an estimated cost of 10 million dollars. To implement the proposed a
lternative 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 quantitat
ive strategic planning matrix that has been proposed for Avon will develop a bra
nd new image for Avon from the existing major competitors to compete through a c
ompetitive edge and strengthen their base to be a leader in the cosmetic industr
y in developing Avon in reaching the global perspective.
Page 27
IVE
FINANCING OPTIONS Based on the proposed alternatives given in the quantitative s
trategic planning matrix, the recommendations can be implanted on a phase basis
over the next three years for Avon. The financing options that will be recommend
ed for Avon for the next three years will be as below: EPS/EBIT Analysis for Avo
n Product Inc. Amount needed: Stock Price: Tax Rate: Interest rate: $30 million
$31.90 35% 5%
# of shares outstanding: $427.5 million
Common Stock Financing Recession EBIT Interest EBT Taxes EAT # Shares EPS 773.83
0 773.83 249.17 524.66 428.4 1.22 Normal 1018.2 0 1018.2 327.86 690.30 428.4 1.
61 Boom 1287.8 0 1287.8 414.67 873.13 428.4 2.04
Page 28
IVE
Debt Financing
Recession EBIT Interest EBT Taxes EAT # Shares EPS 773.83 1.5 772.33 248.69 523.
64 427.5 1.22
Normal 1018.20 1.5 1016.7 327.4 689.3 427.5 1.61
Boom 1287.8 1.5 1286.3 414.2 872.1 427.5 2.04
Combination Financing (Debt 30%/Stock 70%)
Recession EBIT Interest EBT Taxes EAT # Shares EPS 773.83 .45 773.4 249.03 524.4
428.1 1.22
Normal 1018.2 .45 1017.8 327.73 690 428.1 1.61
Boom 1287.8 .45 1287.4 414.5 872.9 428.1 2.04
Page 29
IVE
Combination Financing (Debt 70%/Stock 30%)
Recession EBIT Interest EBT Taxes EAT # Shares EPS 773.83 1.05 772.78 248.84 523
.9 427.8 1.22
Normal 1018.2 1.05 1017.1 327.5 689.6 427.8 1.61
Boom 1287.8 1.05 1286.75 414.3 872.5 427.8 2.04
Analysis: Based on the four tables above, the common stock financing, debt finan
cing, 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 th
ere is the existence of capital gains for Avon.
Avon Projected Financial Statement Below are the tables of Projected Financial S
tatement which is income statement and balance sheet statement made for Avon bas
ed on the financial options and recommendation of the strategic analysis that ha
s been proposed for Avon through the quantitative strategic planning matrix for
the next three years.
Page 30
IVE
AVON'S PROJECTED INCOME STATEMENT FOR 2010-2012 IN MILLIONS
2009 Revenue Other revenue Total Total Revenue 10,284.70 98.10 10,382.80 2010 11
,313.17 113.17 11,426.27 2011 12,444.49 124.45 12568.94 2012 13,688.94 136.90 13
,825.84
Cost of Revenue total Gross Profit Cost and Expenses Selling/General/Administrat
ion/advertising Research and Development Depreciation/Amortization Interest Expe
nse (Income) Unusual Expense (Income) Other Operating Expenses, Total Operating
Income Interest Income (Expense), Net Non Operating Gain (Loss) on Sale of asset
s Other Net Income before Tax
3,888.30 6,396.40
4,227.72 7,198.55
4,650.51 7,918.43
5,115.56 8,710.28
5,389.80 66.70 561.00 1018.2
5,347.50 71.70 21.71 1,757.64
5,907.40 74.70 23.90 1,912.43
6,433.80 76.70 26.27 2,173.51
(7.10) 926.50
(9.00) 1,058.80
(8.00) 1,131.20
(7.40) 1,244.30
Income tax total
298.30
297.00
260.40
170.40
Income after tax Minority Interest Equity Interest US GAAP Adjustment Net Income
before Extra. Items Total extraordinary items Net Income
628.90 (2.40) 0 $0.00 625.8 0 625.8
761.80 (2.00) 0 $0.00 759.8 0 759.8
870.80 (2.00) $0.00 868.80 868.80
1,073.90 (1.60) 1,072.30 1,072.30
Page 31
IVE
AVON'S PROJECTED BALANCE SHEET FOR 2010-2012 IN MILLIONS
2009 ASSETS Cash and short term investment Total Receivables net Total Inventory
Prepaid Expense Other Current Asset Total Current Asset Property/Plant/Equipmen
t total net Goodwill, net Intangible, Net Long term investment' Note Receivables
-Long term Other Long Term Assets, total other Assets total Total Assets LIABILI
TIES AND SHAREHOLDERS EQUITY Accounts Payable Payable Accrued accrued Expenses N
otes Payable/short term debt Capital Leases Other current liabilities total Tota
l current liabilities Total long term debt Deferred Income Tax Minority interest
Other liabilities, total Total Liabilities Redeemable Preferred stock Preferred
stock - non redeemable, net Common Sock Additional Paid in capital Retained Ear
nings (Accumulated Deficit) Treasury - Common Other Equity Total Equity Total li
abilities & Shareholders Equity 1338.4 1219.9 1067.5 122.8 440.7 4189.3 1529.6 22
4.8 125.8 49.8 0 713.4 0 6832.7 2010 1356.4 1119.9 1174.25 120.5 443 4214.05 152
9.6 231.8 131.8 49.8 0 713.4 0 6870.45 2011 1364.44 1169.9 1291.68 110.7 390.7 4
228.38 1529.6 233.8 134.8 49.8 0 713.4 0 6889.78 2012 1368.4 1219.9 1420.85 122.
8 440.7 4572.65 1529.6 234.8 135.8 49.8 0 713.4 0 7236.05
754.7 0 1247.3 0 138.1 134.7 2274.8 2307.8 173.8 40 763.7 5560.1 0 0 186.1 1941
4383.9 -4545.8 -692.6 1272.6 6832.7
754.7 0 1247.3 0 138.1 241.9 2382 2357.8 173.8 40 713.7 5667.3 0 0 204.1 1941 43
83.9 4587.45 -738.4 1203.15 6870.45
754.7 0 1247.3 0 138.1 358.88 2498.98 2360.8 173.8 40 710.7 5784.28 0 0 212.1 19
41 4383.9 -4733 -698.5 1105.5 6889.78
754.7 0 1247.3 0 138.1 488.05 2628.15 2360.8 173.8 40 710.7 5913.45 0 0 216.1 19
41 4383.9 -4525.8 -692.6 1322.6 7236.05
Page 32
IVE
Project Financial Ratios
Ratios Current Ratio Quick Ratio Operating Profit Margin Net Profit Margin Retur
n on Stockholders Equity Total Asset Turnover Debt/Equity Ratio Earnings Per Shar
e
2010 1.84 1.3 0.15 0.07 0.63 1.66 4.7% 3.7
2011 1.8 1.2 0.15 0.07 0.79 1.82 5.2% 4.1
2012 1.7 1.2 0.16 0.07 0.81 1.91 4.5 5
Analysis:
The current ratio and quick ratios show that Avon is in a good positio
n 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 effi
ciency which will result in greater profit productivity
The net profit margin sh
ows that profitability will improve thus shareholders can expect greater return
The ROE shows that the return on equity is improving The total asset turnover sh
ows that the return on the asset investment is good The Debt/Equity ratio shows
that Avon is using more equity to finance operations EPS shows that Avon is beco
ming more attractive to investors
Page 33
IVE
EVALUATION BALANCE SCORE CARD Balance Score Card Balance Scorecard is the strate
gic planning and management system that provides a frame work for measuring perf
ormance and assisting managers identify what it is needs to be measured and comp
leted, while enabling executives in the execution of these strategies constitute
s the makeup of the balance scorecard for the business. There are four fundament
al perspectives from which organizations using this system can implement their v
ision and strategies include: 1) Financial Performance Perspective This element
is showing how viable a business appears to shareholders in order to achieve fin
ancial success. 2) Customer knowledge Perspective Highlights the importance of s
atisfying customers while focusing on the achievement of the organizations vision
. 3) Internal Business Processes Perspective Refers to the internal aspects of t
he 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 Perspective In
cludes 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 lin
k between business-planning strategies and people plans for greater productivity
. This is to ensure that Avon can achieve increase growth in revenue, increase m
arket 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 developthem as a cosmetic leader cha
nging towards a global player in the cosmetics industry.
Page 34
IVE
AVON BALANCE SCORE CARD EVALUATION Time Expectation Primary Responsibility
Chief Financial Officer Lower customer acquisition costs. Double digit sales gro
wth Increase market share for on-line products Target 10% return on investment.
Achieve at least 10% on net profit in 1st year of new product Shareholders value
Continuous Growth in revenue Increase profitability Market share
Objectives
Financial To succeed financially, how we appear to our shareholders
Measure/Target
Net profit on percentage sales Operations
Customers How to achieve our vision, the importance of Ensure on-time delivery a
lways Increase customer retention Reward customer loyalty Percentage of on- time
delivery. Number of customers, email addresses, time duration between purchases
Percentage on return Conversion rate Continuous
satisfying our customers Internal Business To analyze operations and see how pro
ducts and services achieve total shareholder and customer satisfaction, What bus
iness process must we excel at? Learning & Growth To achieve continuous training
and upgrading of employees skills and abilities. Always keeping abreast of new
technology Advancing change and selfimprovement
Operations Supply chain excellence in order confirmation Adoption of some social
services
Quick turnaround on the delivery of orders Incorporating and engaging quality, t
alented skills Operations -measures of quality, products and costs
Continuous
Generating revenue
Human Resource Ensure managers are exposed to market changes Online service inno
vation Implement a succession plan People - employee retention, training and ski
lls Successful penetration of new markets Continuous improvement in CRM Increase
value in Knowledge management system
Continuous
Page 35
IVE
Analysis: The main aim to evaluate Avon based on Balance Score Card is to enable
s Avon to meet their strategic objectives by identifying the various means of im
proving workforce productivity. This is an effective tool in maximizing Avon res
ources and building capacity in a structured and planned way. It helps Avon to i
mprovise based on the performance measurement and key indicators which has been
stated. The department officers are responsible in meeting the targets which lea
ds to Avons objectives. A continuous time expectation is needed to ensure that th
e structured and planned targets to be achieved. These plans not only look at th
e strategic and operational components for Avon to succeed, but also consider th
e people factor in developing and delivering Avon business in the international
markets to be the global player in the cosmetics industry. AVON IN GLOBAL PERSPE
CTIVE Avon Being Global From a global perspective, three avenues of growth were
identified by Avon management which are as below; 1. 2. 3. Geographic Growth Lev
eraging distribution channels in emerging and developing markets Marketing in de
veloped industrial areas.
The Global Product Management Group The new multinational Global Product Managem
ent Group was an essential factor in the new organization. The group would suppo
rt the entire company with Centers of Excellence to increase Avons competitive adva
ntage in the marketplace. With a global scope and multinational staffs, the cent
ers would be located around the world, wherever the appropriate expertise existe
d. The Global Product Management group would be responsible for product manageme
nt, global brands, global sourcing (raw materials) and logistics, worldwide manu
facturing, product research and development and certain global aspects of sales
and customer service support.
Page 36
IVE
The Global Planning And Development In addition to the above, the responsibiliti
es of the Global Planning and Development group were expanded to include new bus
iness 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 slimmeddown global organization will make Avon more responsive to local markets while p
roviding economies in such areas as global manufacturing, purchasing and researc
h and development. Avon will also be able to better exchange best practices, gro
wth initiatives and competitive information more rapidly from market to market a
nd become the embodiment of the phrase, Think global, act local. The new market-or
iented organization was expected to speed decision-making, eliminate unnecessary
levels of management, allow sharing of successful business practices by previou
sly autonomous divisions, and reduce overhead by centralizing such functions as
purchasing and manufacturing. It would concentrate on discovering what buyers wa
nted 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 Direct
ion Avon forces to engage the entire company in becoming more customer-oriented
and more market driven. The task forces established the following targets to gui
de 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 o
r inappropriate items;
Page 37
IVE
3.
Introduce global product planning and the extension of global sourcing (finding
the most appropriate source of raw materials);
4. 5.
Improve customer database management and market segmentation; and 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, organi
zational changes, innovative leadership, and market-based targets over the past
four years, Avon now favorably positioned to enjoy a period of growth. In a worl
dwide corporate climate of abrupt changes and discontinuities, of newly emerging
forces and dangers, and of unforeseen influences at home and abroad, Avons leade
rship could well ask the unanswered question, Will the internal organizational an
d other changes that have been made reposition Avon so that it can compete succe
ssfully in the global marketplace. AVON STRATEGIC PROBLEMS, TRENDS & FORCES What
to do about new product lines It would be a good idea for Avon to research into
launching new products in different lines than they are currently in but keep t
hem 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 re
search and development plant they should be able to quickly design and market ne
w product lines without many problems. Having new product lines will help mainta
in growth and internal expansion. How to maintain growth Avon has been growing g
lobally for decades to continue to do this Avon needs to be aware of what it wil
l entail. They have taken care of research and development with their new facili
ty but there are many other factors that could inhibit them. Reluctances to expa
nd internally will hold them down as well as finances. Avon may have to look int
o selling totally new products, which is consistent with what was before mention
ed.
Page 38
IVE
How to continue cutting costs Throughout Avon's business transformation they hav
e done an incredible job cutting costs mostly thanks to Kropf. How to continue t
o 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 up
set loyal customers by retiring old products that have a loyal customer base. So
me customers may be hooked on a classic product such as Skin-so-Soft and just ha
ppen to by other products every once in a while when they reorder their Skin-soSoft. Cutting this product out of the line will not only result in a loss of sal
es 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 Expansion Some may say that there is no room for i
nternal 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 interna
l 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 devel
oping more new product lines in the men's shaving and baby care areas. Avon's st
rategy 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 In
ternets selling will also help with internal expansion. Direct-Selling Model Dep
endent on Earnings from Active Sales Representatives In 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 independ
ent 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 Avo
n can eliminate the middle-man (department and cosmetic stores) and get its prod
ucts 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 Represe
ntatives 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 consu
mer but also for
Page 39
IVE
representatives that are knowledgeable about the industry and about beauty produ
cts. Avon's dependence on the productivity and profitability of the representati
ve direct-selling model exposes it to cost and litigation risks. In 2004, four A
von representatives filed a class action lawsuit against the company for alleged
"channel stuffing," where Avon supposedly shipped products representatives with
out 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 Unab
le to Reduce Costs and Support Increased Advertising In 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. Avo
n expects annualized savings of more than $430 million when the plan is fully im
plemented in 2011-2012. However, with the global economic downturn and slowing d
emand 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 i
ts savings targets would be detrimental to Avon's profitability as it would no l
onger be able to support its increased advertising spending. In 2009, Avon decre
ased 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 e
conomic downturn to support new product launches and improve brand recognition a
s part of the turn-around plan. Although Avon does not want to reduce advertisin
g spending, which means success of the turn-around plan is vital to supporting A
von's increased advertising costs as well as costs incurred by the company's ent
ry and expansion in new global markets, the economic downturn has forced the com
pany 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 Mo
del Exposed to Regulations in the Global Market Avon has become synonymous with
the direct-selling business model - the process by which the company hires indep
endent contractors, called Active Sales Representatives, and pays them
Page 40
IVE
percentage of commission to sell Avon products directly to customers. By removin
g the need for a middle distributor, such as a department or cosmetic store, Avo
n hopes to eliminate costs and increase profits. In 1998, the Chinese government
banned direct-selling in response to abuses perpetrated by some corporations. T
he 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-s
elling 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 Avo
n's revenues from China to increase rapidly from 2006 to 2008. Total revenue fro
m China rose from $212 million in 2006 to $353 million in 2009. Similar situatio
ns may arise in Avon's other emerging market segments, which would negatively im
pact Avon's revenue growth globally. Large Presence in Global Market Exposes Avo
n Products to Currency Fluctuation Risks 80% of Avon's sales revenues come from
markets outside of the United States, making the company very sensitive to curre
ncy fluctuations and the strength of the dollar.A weakening of the dollar agains
t foreign currencies would allow Avon products to become more competitively pric
ed in global markets, thus positively affecting sales revenue from foreign marke
ts; however, a weak dollar would also mean higher costs for products manufacture
d overseas. AVON KEY SUCCESS Key success factors concern the product attributes,
competencies, competitive capabilities and market achievements with the greates
t bearing on company profitability. These are the things that the company does w
ell and helps them obtain profits. Ability to get new products out of R&D and in
to the market With all the money and time Avon has put into the Research and Dev
elopment 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 researc
hers with the materials they need in an easy work environment, which in turn imp
roves efficiency in every aspect of the process. Having this facility enables Av
on to have their new products out in the market very quickly compared to other r
ivals such as Revlon and Estee Lauder. This skill gives Avon an image of superio
r technology and quality and provides them with the first mover advantage in man
y cases as well.
Page 41
IVE
Internet Capability It was only in the past decade that Avon became familiar wit
h the Internet. When Jung took over she saw that e-commerce was on a fast rise a
nd that Avon was not capitalizing on this sales opportunity. It was only a matte
r 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 mos
t recent developments by Avon, informs them of sales and clearances as well as f
ree 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 sit
e easy to navigate and perform multiple tasks, Avon has helped reduce ordering c
osts and increase sales. Managerial Experience Andrea Jung, Avon's Chief Executi
ve Officer, has been with Avon since 1994. Before working for Avon, she graduate
d from Princeton and joined Bloomingdales where she rose to second in command be
fore the age of thirty. When she joined Avon she entered as the President of Uni
ted 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 fo
rty. 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 operati
ons. Kropf has worked alongside Jung and was key in the Business Process Reengin
eering efforts that achieved great success in 2001, with savings of more than $1
50 million. The experience and success of Avon managers is unteachable, irreplac
eable and are definitely a huge factor on why Avon is where it is today. Accurat
e Filling of Orders Only six years ago you would hear customers complain about t
he inaccuracy of Avon's mail orders. This is a rare complaint today. New trainin
g 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 hav
e almost become obsolete with the new initiatives taken place to eliminate such
error. Incentives implemented by the sales leadership program have also made Avo
n give consistent quality service.
Page 42
IVE
CONCLUSION Avon management hasre-evaluated and map out the long-term future of t
he firms business to develop them in the international market and be a player in
cosmetic industry on a global level. By Customizing Marketing Internationally ba
sed on geographical areas, Avon tries to satisfying the subtleties and intricaci
es of customer demand around the world meant that the firms business would vary f
rom country to country and market to market. To reach a wider target in the geog
raphical area over the globe, Avon developed Avon Select, a direct marketing pro
gram, to enable customers to buy Avon products in various settings. Customers co
uld order products via any one of four methods: through their Avon representativ
e, by mail though special Select catalogs, by the 1-800-FOR-AVON telephone, or b
y 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 perc
ent of annual sales on image-enhancing advertising and promotion programs worldw
ide 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 d
evelop a global organization. It affected the firm in a number of different ways
. The product line was rationalized by strengthening and developing a certain nu
mber of global brands that were important and sold on a worldwide basis. Sourcin
g of raw materials and the logistics system took advantage of Avons strong presen
ce in many markets in terms of efficiencies in the supply chain. A changing envi
ronment which encouraged lower duty rates suggested that it was no longer necess
ary to manufacture products in the countries where they were sold.Underutilized
manufacturing plants, from a capacity of view, could now be consolidated with ot
hers plants were also an affecting issue for Avon in being global. By implementi
ng 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 change
s that have been made reposition Avon so that it can compete successfully as the
Cosmetic Leader in Global Marketplace
Page 43
IVE
REFERENCES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. David, Fred, R Strategic Management Con
cepts and Cases 12ed. Prentice Hall 2009 Retrieved December 3, 2010 www.avon.com
Retrieved December 3, 2010 www.wikinvest.com Avon Calling For Help Business Month
April, 2010. Avon Calls At 50 Times Earnings, Business Month November, 2006 -2009.
Avon Products, Inc., Annual Report, New York, N.Y., 2010 Avon Products, Inc., A
nnual Report, New York, N.Y., 2009 How Avon Rings Their Chimes, Sales and Marketin
g Management, November, 2009 Avon Products, Inc.: DEVELOPING A GLOBAL PERSPECTIV
E Retrieved December 2010 www.yahoo.com/images
Page 44

Competitive Strategic Management Developing Avon in A Global Perspective

Enviado por

Dados do documento

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Competitive Strategic Management Developing Avon in A Global Perspective

Enviado por

Direitos autorais:

Formatos disponíveis

QGM6163- CSM- PROJECT PAPER - DEVELOPING AVON PRODUCTS INC.

India Malaysia Philippines Taiwan Vietnam

Hong Kong Japan New Zealand South Korea Thailand

Emphasis on safety No animal testing Green Environment Philanthro

Você também pode gostar