Avon Case Study

Topics: Sales, Marketing, Selling Pages: 5 (1739 words) Published: November 10, 2012
Company Case
The Newest Avon Lady—Barbie!
Selling Tradition
"Ding-dong, Avon calling." With that simple advertising message over the past 112 years, Avon Products built a $4 billion worldwide beauty-products business. Founded in 1886, and incorporated as California Perfume Products in 1916, Avon deployed an army of women to sell its products. These "Avon ladies," 40 million of them over the company's history, met with friends and neighbors in their homes, showed products, took and delivered orders, and earned sales commissions. Through direct selling, Avon bypassed the battle for retail space and attention waged by its competitors in department stores, and later in discount drug stores and supermarkets. Direct selling also offered convenience for the customer, coupled with personal beauty-care advice from a friend. Avon's plan worked well. Most members of its up to 500,000-member U.S. salesforce were homemakers who needed extra money, but did not want a full-time job outside the home. They developed client lists of friends and neighbors whom they called on from time to time. Customers could also call them between visits. Recruiting salespeople was easy, and a good salesperson could develop a loyal core of customers who made repeat purchases. Avon paid the salespeople a commission based on their sales, and a successful salesperson could earn an attractive income. Times Change

However, during the 1970s and 1980s, the environment changed. First, more women found that they needed to work outside the home. As a result, when Avon ladies rang the doorbell, often no one answered. Second, many Avon ladies decided that they needed more than part-time jobs, and Avon's annual salesforce turnover rates soared to more than 200 percent. Third, because of high salesforce turnover, many Avon customers wanting to see a salesperson could not find one. Fourth, more competitors, such as Amway, Mary Kay Cosmetics, and Tupperware, were competing for the pool of people interested in full- or part-time direct-selling jobs. Finally, in addition to all those factors, increasing mobility of the U.S. population meant that both customers and salespeople were moving. This made it difficult for salespeople to establish loyal, stable customer bases. A New Strategy

To deal with these issues, in 1988 Avon Products tapped James E. Preston to serve as its chair and chief executive. Preston decided that Avon needed to overhaul its marketing strategy. First, he refocused the company on its core business—selling cosmetics, fragrances, and toiletries—and sold unrelated businesses. Next, he drastically cut prices on Avon products. Finally, he tried a new compensation program called "Leadership" that allowed sales representatives to earn up to 21 percent in bonuses based on the sales of new representatives they recruited. Such multilevel selling is common among direct-sales companies. However, by late 1991, Avon killed the program, arguing that it did not fit Avon's culture. Preston believed that Avon had left as many as ten million former or potential customers stranded. These customers wanted to buy Avon products, but salesforce turnover meant that they did not know how to find a salesperson or order products. Fourteen percent of American women accounted for one-third of Avon's sales. Another 62 percent were fringe customers. These customers viewed Avon positively but did not buy regularly. Another 15 percent of American women were potentially receptive to Avon, but were not necessarily interested in dealing with a traditional Avon sales representative. Thus, Preston decided to develop another program he called "Avon Select." The program featured a catalog and toll-free telephone number that allowed direct-mail selling. Avon's research revealed that its median customer was 45 years old and had an average household income of under $30,000. The catalog would reach younger, higher-income customers. Preston believed that, with a catalog, the company could cut...
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