Avon started selling beauty products door to door in 1886. For generations women have been purchasing Avon products from small catalogues through a representative calling on consumers in their homes. During the days when most women were at home rather than building their own careers this method of direct selling was appropriate. In 1979 Avon purchased Tiffany & Co Jewelers as well as a chemical maker and health-product company. By the year 1988 Avon was removing themselves from the health care industry. Their debt had reached $1.2 billion and stock prices had bottomed out. During 1989 Avon was the target of two take over attempts. The company was successful in warding off both bids. Avon launched their new web site in 1997. This was a turning point for the company as they were offering products directly to the customers thus cutting out the need for the representatives that they had spent decades relying on. Avon estimated that they had 500,000 sales representatives in the United States alone. The sales results from this Internet site have not produced the gain the company had hoped for. In 1998 Avon set up mall kiosks around the United States. This was their first attempt at operating retail stores. This was a major departure in the way the company has done business in the past. The intention of the kiosks was to aim sales at younger consumers not already aware of the Avon brand. To help the relationships between Avon and its sales representatives these kiosks are now franchised to the representatives. Andrea Jung was named CEO of Avon in 1999. During the year 2000 Avon relaunched its web site emphasizing the availability of Avon representatives on line to help potential customers with their needs. At the same time Avon created a new product line to be carried by major retailers and sold only in stores.
Avon's sales have increased but at a rate of only 5% per year during the past ten years while profits have increased by only 4% per year. On line sales of health and beauty products had reached a staggering $756 million in the first six months of 2001. Marketing techniques used in the traditional sales methods are not viable for the online segment. Research has found that on line customers have higher incomes and are more educated. Competition is this market is fierce. When the web site was initially launched they offered only a small portion of their products. The company was very timid at that time of alienating the sales representative. Management could not agree on the strategy to be used for their Internet sales and consequentially came on line later than many of their competitors.
Avon's product line has become deeper as the decades have passed. They at one time were selling only a limited line of make up and fragrances. Avon added jewelry, some clothing items, and children's books, among other offerings. At the time the case was printed two thirds of Avon's sales were generated overseas. The case cites examples of the sales in Taiwan. Five years prior to the printing of the case sales were growing at a rate of less than 5% per year in that country. Then Avon's management introduced multilevel marketing and opened retail stores selling Avon products to customers directly. The company is now enjoying 20% per year growth in Taiwan. Stock prices are increasing from the troubled times cited earlier in this report however they along with the sales have not rebounded as much as Avon would like.
The fundamental problem that Avon is currently facing is that although profits are slowly increasing, they are not...