Executive Summary – Avon Products
Avon Products is one of the major players in the cosmetics and toiletries industry with a sale of about 10 billion US dollars in 2007 (Exhibits 1, 2 & 3). It has been globally competitive by creating global brands and nurturing its powerful sales channel of Single-level Marketing (Direct Selling). Globally, Avon competes with large cosmetics majors like P&G, Revlon and Shiseido to sell its products. At the same time, it also competes with other major direct sellers like Amway, Mary Kay and Tupperware to attract its sales force. Avon has primarily grown by accessing new geographies and emerging economies such as Poland, Hungary, Yugoslavia and China where disposable incomes are rising and women seek an opportunity to earn extra income. In the 1990s, Avon was the first direct seller to enter China. Other cosmetics players in the Chinese market faced problems with an under-developed infrastructure and had to rely on Government owned distribution systems to retail their products. However, Avon could leverage its direct selling model to penetrate remote areas and provide customized service to customers. It also partnered with a local company to develop localized products suitable to the Chinese market. Avon’s strong culture and focus on training helped them to drive their global best practices amongst new franchisees and lower the overhead costs. In China, Government imposed a ban on direct selling in 1998. In this time of crisis, Avon received support from its Chinese partner and other international direct sellers operating in China to lobby with the Government to allow them to operate. Avon responded by temporarily adopting the retails sales model. This case analysis enumerates Avon’s capabilities and strategies engrained in its corporate philosophy and structure to handle uncertainties and volatilities associated with doing business in unpredictable emerging market situations. Introduction and Avon’s Global Strategy
Avon is the largest direct seller of beauty products in the world, selling to over 122 countries across the world with more than 4.4 million sales representatives (Exhibits 4 & 5). It boasts of current annual sales of over 10 billion US dollars. Avon has a varied product line, primarily concentrating on cosmetic and beauty products for the women audience. Founded in 1886, Avon was incorporated as California Perfume Products in 1916. Avon’s key strength and key business differentiator has been the direct selling model it implemented in the US. Pioneering the first of its kind “Avon Ladies” program in the US in late 1920’s, the direct selling model helped keep competition through retail channels at bay and helped transform itself into a multi-dollar business with bare minimum advertising expenditures. The company saw radical changes in its structure during the times of James Preston as CEO in the late 1980’s. He concentrated on the beauty products market by selling off un-related businesses and also launching radical programs like “Leadership”, wherein a sales agent earned commission for the sales made by new representatives recruited by them. But throughout the years with increasing competition through firms like Amway, Tupperware and others for the sales force for direct selling, Avon has had to venture into other distribution channels like the internet and retail stores. But direct selling still remains its major channel of distribution with 50% coverage of the sales. Exhibit 6 shows Avon’s distribution coverage and sales through its three channels of direct selling, internet sales and retail stores. Brand Portfolio
Avon’s primary focus is on beauty and cosmetic products and is marketed under the “Beauty” umbrella. Products like jewelry and watches are sold under the “Beauty Plus” group. The other two headings are “Beyond Beauty” which includes home products, decorations etc. and “Avon Wellness” which includes health products. Category wise “Beauty” accounts for the lion’s...
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