Avon Case

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Avon China Steering Committee
China Strategy – Crisis Meeting

May, 1st, 1998

AVON Inc. China

1

Time for Decision and Action
AVON China needs to react fast
We need to adapt our business model to the new legislation, and implement it.

A Shift to wholesale and retail system
May, 1st, 1998 AVON Inc. China

2

The Government decision
• US direct-selling companies are clean • But some Chinese ones have gone to far – Abuse of people’s hopes to build Ponzi Schemes

– Some individuals have been ruined
– Crowd turned into frenzy

• The Government is afraid
– Ban of direct selling from next October

May, 1st, 1998

AVON Inc. China

3

Direct selling and Chinese Culture
• Does our Business Model fit the Chinese culture ? • Sales reps here are eager and determined to sell • But on customers side… – Deals require interpersonal harmony – Direct selling is seen as intrusive

May, 1st, 1998

AVON Inc. China

4

React, fast !
• We need to react fast
• We have 3 possibilities :
– Pull out of China Market – Mobilize political pressure – Shift to wholesale and retail system

May, 1st, 1998

AVON Inc. China

5

Leaving China Market
• Chinese retail Market will become the largest in the next decade – average growth of 15% per year • AVON is a multinational Company : we NEED this market • We invested so far $70M in China • Our products are demanded

Strategic Mistake
May, 1st, 1998 AVON Inc. China

6

Pressuring the Government
• Mobilizing political pressure… – Expensive – Uncertain outcome – Time consuming But above all….

– No Sales

May, 1st, 1998

AVON Inc. China

7

Shift the Business Model
• Setting up Wholesale and

Retail Stores
• We can learn • Future Trends – Internet – Online selling – Taste for shopping May, 1st, 1998 AVON Inc. China

8

It may look like…

May, 1st, 1998

AVON Inc. China

9

Recommendation
- SELL and WAIT
- 塞翁失馬, 焉知非福
(Misfortune may be a blessing in disguise)

- Use China as a laboratory - Anticipate the XXIst century

new consummation habits
May, 1st, 1998 AVON Inc. China

10

Implementation
• Human Management Capital Plan • Stores location
– Objective of 150 stores in 5 years
AVON

May, 1st, 1998

AVON Inc. China

11

Financial projections
• Investment of US$50 millions (3 years)

• Break even in 4 years
125

Sales (US$ millions)
88 77 68 54 39 21 17 4 1994 31 8 1995 14 1996 15 1997 54 62 51 3 1998 9 79

+67% 95

112

Total Cost Profit

90 81

100

14 2000

22 2001

25 2002

1999

May, 1st, 1998

AVON Inc. China

12

Conclusion
Challenge Opportunities

Thank you Questions

May, 1st, 1998

AVON Inc. China

13

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