1. avon products inc

7/28/2019 1. Avon Products Inc

1/16

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.

Marketing Management (BM6053) Page 1


2/16


TABLE OF CONTENTS

1. Abstract 1

2. Background 3

3. Internal Operations 4

4. Cosmetics Industry Analysis 9

5. Competitors 9

6. SWOT Analysis 10

7. Strategic Plan 13

8. Conclusion 15

9. Bibliography 16



3/16


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.



4/16


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. INTERNAL OPERATIONS

2.1. 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.

http://en.wikipedia.org/wiki/Philanthropyhttp://en.wikipedia.org/wiki/Breast_cancerhttp://en.wikipedia.org/wiki/Domestic_violencehttp://en.wikipedia.org/wiki/Philanthropyhttp://en.wikipedia.org/wiki/Breast_cancerhttp://en.wikipedia.org/wiki/Domestic_violence


5/16


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



6/16


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

http://en.wikipedia.org/wiki/Door-to-doorhttp://en.wikipedia.org/wiki/Door-to-door


7/16


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 2006Beauty $ 7,603,7 +9.6 $ 6,932.5 $ 6,019.6Fashion $ 1,863,3 +6.2 $ 1,753.4 $ 1,562.7Home $ 1,121.9 -3.2 $ 1,159.5 $ 1,095.0

Total $ 10, 588.9 7.5 $ 9,845.2 $ 8,677.3Table 2: Avons Revenue by Product Segment (in millions)

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.



8/16


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 31 December 06Total Revenue $ 10,690,100 $ 9,938,700 $ 8,763,900Gross Profit $ 6,741,000 $ 5,997,500 $ 5,329,300Operating Income or Loss $ 1,339,300 $ 872,700 $ 761,400Net Income $ 875,300 $ 530,700 $ 477,600

Table 3: Overall Income Statement (All numbers in thousands)

Period Ending 31 December 08 31 December 07 31 December 06Total Current Assets $ 3,556,900 $ 3,515,400 $ 3,334,400Goodwill $ 223,500 $ 222,200 -

Total Assets $ 6,074,000 $ 5,716,200 $ 5,238,200Total Current Liabilities $ 2,912,200 $ 3,053,400 $ 2,550,100Total Liabilities $ 5,399,100 $ 5,004,600 $ 4,447,800Total Stockholders Equity $ 674,900 $ 711,600 $ 790,400



9/16


Total Liabilities & SE $ 6,074,000 $ 5,716,200 $ 5,238,200Table 4: Overall Balance Sheet (All numbers in thousands)

3.0. COSMETICS INDUSTRY ANALYSIS

3.1. 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.

Avon Mary Kay RevlonEmployees Worldwide 42000 5000 5600Revenue USD10.37 bil. USD2.4 bil. USD1.35 bil.Channel of distribution Direct marketing Direct marketing Cosmetic coun

Table 5: List of Comparison

5.0. SWOT ANALYSIS

5.1. 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.



10/16


3. Minimal startup costs for an Avon business representative.

4. 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. Has gained huge consumer loyalty throughout the years.

8. 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. Many locations of the company is ISO14001 certified.

11. Differentiated business model to merge as a prominent player.

12. Avon has a strong Research & Development unit.

13. Unique products help Avon to compete with other beauty

companies.

14. Economies of scale help with R&D and distribution cost.

15. Technology and product innovation help Avon to compete.

5.2. 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



11/16


their customers. This requires outlay of inventory until the

inventory is sold.

2. 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. Avon is suffering the declining of North American operations.

6. 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.



12/16


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. Restructuring initiatives for organizational effectiveness.

7. Re-branding strategy to drive consumer demand.

8. Emerging markets and expansion abroad.

9. 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.



13/16


6. Dependence on third party supplier.

7. Lower cost competitors and high import taxes in some countries.

8. International competition could harm Avon.

9. Many substitutes for Avon products.

6.0. STRATEGIC PLAN

6.1. 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 re-

ordering their products online. This will help the consumers



14/16


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.



15/16


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.



16/16


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

http://www.wikiwealth.com/swot-analysis:avphttp://www.yousigma.com/comparativeanalysis/avonproducts.htmlhttp://www.wikiswot.com/SWOT/4_/avon.htmlhttp://en.wikipedia.org/wiki/Avon_Productshttp://www.avoncompany.com/aboutavon/executiveleadership/index.htmlhttp://www.avoncompany.com/aboutavon/executiveleadership/index.htmlhttp://www.wikiwealth.com/swot-analysis:avphttp://www.yousigma.com/comparativeanalysis/avonproducts.htmlhttp://www.wikiswot.com/SWOT/4_/avon.htmlhttp://en.wikipedia.org/wiki/Avon_Productshttp://www.avoncompany.com/aboutavon/executiveleadership/index.htmlhttp://www.avoncompany.com/aboutavon/executiveleadership/index.html

1. avon products inc

Documents