COMPETITIVE STRATEGIC MANAGEMENT

CASE ANALYSIS

AVON PRODUCTS INC. -2009

CASE ABSTRACT Avon Products, Inc. is a US cosmetics, perfume and toy seller with markets

in over 135 countries across the world. It was founded in 1886 by a 28-year-old David H. McConnell who sold

books door-to-door and gave out perfume to entice women to buy his books.

It started with California Perfume Company (CPC) in New York. As the company grew, he hired his first representative, Mrs. P.F.E. Albee.

In October, 1939, the company was changed officially to Avon Products, Inc. The company was taken to public in 1946.

Now, Avon Products is a multi-level marketing company. Avon uses both door-to-door sales people ("Avon ladies," primarily and a growing number of men) and brochures to advertise its products.

Avon's fastest growing markets today are in China and Russia.

AVON LEADING LADY

Andrea Jung, Avon's Chief Executive Officer, has been with Avon since 1994 till now.

When she joined Avon she entered as the President of United States product marketing and continued to impress her upper management.

Andrea Jung was promoted to the CEO position in 1999.

She has completed a decade as CEO in AVON.

She is awarded as the longest tenured female CEO among Fortune 500 companies

To be the company that best understands and satisfies the product, service and self-fulfilment needs of women - globally.

To provide everyone with high quality and innovative health and beauty products as well as financial opportunities through sales representatives that are easily obtainable, in many ways, in every part of the world.

Avon hopes by bringing these products to everyone everywhere through global markets the company can improve the quality of life for anyone around the world by being

o The Global Beauty Leadero The Women’s Choice For Buyingo The Premier Direct Sellero The Best Place To Worko The Largest Women Foundationo The Most Admired Company

AVON VISION

AVON MISSION

AVON PRINCIPLES

To provide individuals an opportunity to earn in support of their well-being and happiness.

To serve families throughout the world with products of the highest quality backed by a guarantee of satisfaction.

To render a service to customers that is outstanding in its helpfulness and courtesy.

To give full recognition to employees and Representatives, on whose contributions Avon depends.

To share with others the rewards of growth and success. To meet fully the obligations of corporate citizenship by contributing to

the well-being of society and the environment in which it functions. To maintain and cherish the friendly spirit of Avon.

AVON VALUES

Trust - means we want to live and work in an environment where communications are open and where people feel free to take risks, to share their points of view and to speak the truth as they see it. Trust people to do the right thing and help them to understand your underlying reasoning and philosophy and they won’t disappoint.

Respect - helps us to value differences, to appreciate each person for her or his unique qualities. Through respect, we help bring out the full potential of each person.

Belief - is the cornerstone of empowering associates to assume responsibilities and be the very best they can be. Believe in someone and show it and that person will move mountains to prove you’re right.

Humility - simply means we’re not always right we don’t have all the answers and we know it. We’re no less human than the people who work for us, and we’re not afraid to ask for help.

Integrity - should be the hallmark of every Avon associate. In setting and observing the highest ethical standards and doing the right thing, Avon fulfil a duty of care, not only to Representatives and customers in the communities they serve, but to colleagues and themselves.

AVON CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY

Corporate Citizenship & Social Responsibility has been a part of Avon since the company’s inception.

One of Avon Founder David H. McConnell’s guiding principles was “To meet fully the obligations of corporate citizenship by contributing to the well-being of society and the environment in which it functions.” Central to Avon’s corporate citizenship is the mission to improve the lives of women globally

Breast Cancer• Breast Cancer Crusade• Avon Walk for Breast Cancer• Avon Walk Around The World for Breast Cancer – raised $380 million

Violence Against Women• Speak Out Against Domestic Violence Programme• Partnership with United Nations Development Fund for Women – UNIFEM – to promote women’s empowerment end violence against women.

Environment• Green Building Design• Avon Paper Promise• Hello Green Tomorrow

Emergency ReliefAvon responds generously to provide support for relief and recovery efforts in times of major natural disasters and emergencies

• Asian Tsunami (2004)• Hurricane Katrina (2005)• China’s Sichuan Province earthquake (2008)• Haiti Earthquake (2010)

Avon Foundation• The world’s largest corporate-affiliated philanthropy focused on issues

that matter most to women.• Avon global philanthropy has donated more than $800 million in more

than 50 countries for causes most important to women

AVON BUSINESS GROWTH

BUSINESS SEGMENTSAvon’s products are classified into three product categories• Beauty Category - cosmetics, fragrances, skin care, and toiletries• Beauty Plus - fashion jewellery, watches, apparel, and accessories.• Beyond Beauty - home products, gift, decorative products, candles & toys.

The company sells and markets its products through a combination of direct selling, marketing by independent Avon representatives, and via its consumer Web site, www.avon.com

AVON EMERGING MARKETSAvon expand its business worldwide, & divided the world into four geographical divisions, The United States, Europe, The Pacific, and The Americas to aim for high market share and brand recognition in these markets.

AVON MARKETING STRATEGIES Superior Customer Service• Avon focuses on the professional training of Representatives, which enables them to

provide valuable information on Avon brand products .• Have timely and correct order delivery

Wider Geographic Coverage• To achieve growth in revenue by expanding its customer base into international

markets.• Advantage on growth in new global markets on the demand for quality products

Quicker Design to Market Times• The ability to develop and release new products more quickly than rivals.• Product innovation will continue to be a key factor of sales growth in the future.

More Attractive Product Line• Ability in research and development to develop more new Avon products line.• New products with the symbol of Avon quality and state-of-the-art technology will

increase brand image .• Gain more loyal customer base by establishing and providing attractive product line

Improved E-Commerce and Internet Sales Capabilities• To transform the relationships between customers and representatives. • To incorporate e-commerce into sales strategy ,supply chain and marketing operations• Internet brings instant global reach • Products and prices can be updated constantly at anytime

Stronger Brand Name than Rivals• Credibility and name recognition to strengthen its image of core beauty products and international brand product line. • Avon's development of quality global brands gave them a chance to deliver a consistent beauty image around the world

Stronger Global Distribution and Sales Capabilities• Enables to have a significant amount of international sales. • Avon continues to drive their products into new market• Improve their distribution channels.• E-commerce implementation able to deliver quality service with high quality products• Sales capabilities and distribution in foreign markets relative to their rivals.

AVON FINANCIAL STRATEGIES Growth in Sales• Recruit Leadership Representatives around the world• Utilize the Internet to help Representatives sell Avon products efficiently• Extend the Avon brand to new products and possibly new channels.

Bigger Profit Margin• By increasing the operating margin

Capital Expenditures• Investments on new technological information systems, improvements and

modernization on existing facilities, investment on improving Internet strategy, and equipment replacement projects

Bigger Cash Flow• Through payout of a long-term incentive plan, timing of cash payments, and a

larger increase in inventories

Growth in Earnings• To increase earnings per share.• To improve operations and streamline of Avon's worldwide operations• To help on the business transformation

Inventory Days• To maintain a relatively high inventory level• To focus on inventory management & get inventory turnover down to 8-10 days.

Market Penetration• To find new ways to acquire more market share for the products that already exist.• Provide a new channel to sell existing products and gain more market share.

Market Development• To develop new markets through existing customers & geographic regions.• To develop new customers by adding new innovative products for teens

AVON CORPORATE STRATEGIES

Horizontal Diversification• Introduces new products to helps the company to gain market share.

Product Diversification• Product line are ways in which Avon has tried to gain sales through new product diversification.•Advertising and market operations to make sure the target market group is aware of the new products

Horizontal Integration• Merging or acquiring competitors in the same industry.• Gain benefits in increased technology, more market share and expertise.• The alliance with Mattel is a blending of Avon's sales expertise.• Mattel's high quality products resulting in reduced costs.

Business Level Strategy• The corporate strategy Avon's management team chose to implement the focus-differentiation strategy. •A wide variety of products hold Avon name keeping it associated with high quality products.

AVON INTERNAL & EXTERNAL ANALYSIS( SWOT )

STRENGTH• Strong Advertising and Promotion• Globalization• Brand Name Recognition• Product Innovation• New Product Developments• Competitive Capabilities

OPPORTUNITY• Expand Product Line• Retail Chain Stores• Department-Store Sales• International Markets• Technology• Customer Satisfaction

WEAKNESSES• Internal Operating Problems • Obsolete Products• Focused Product Line• Inconsistency

THREAT• Foreign Economic & Currency Issues• Rivals and Competition• High Operating Costs• Recession/ National Economy• Changing Tastes and Trends

COMPETITIVE PROFILE MATRIX Procter

AVON L’Oreal & Gamble

2.803.25

3.15

1.00Total

0.1530.20

40.05

10.05Market Share

0.4020.40

20.80

40.20Global Expansion

0.2020.40

40.40

40.10Customer Loyalty

0.4530.45

30.60

40.15Financial Position

0.3030.30

30.40

40.10Management

0.4040.30

30.30

30.10Price Competition

0.3030.40

40.40

40.10Product Quality

0.6030.80

40.20

10.20Advertising

ScoreRating

Score

Rating

Score

Rating

Weight

Critical Success Factor

COMPETITIVE ANALYSIS Porter’s Five-Forces Model

Substitute Products( WEAK )

Rivalry Within The Industry( STRONG)

Suppliers( WEAK )

New Entrants / Barriers Of Entry

( WEAK )

Customers( MODERATE )

AVON COMPETITIVE ANALYSIS Rivalry Within Industry (STRONG)• Rivalry is usually stronger when demand for the product is growing slowly.• Rivalry is stronger when customer's costs to switch brands are low. New Entrants / Barriers of Entry (WEAK)• Economies of scale.• Cost and resource disadvantages independent of size• Learning and experience curve effects• Brand Preferences and Customer Loyalty.• Capital Requirement• Access to Distribution Channels• Expectation reactions of incumbent firms to new entry. Substitute Product (WEAK)• The only substitute products are similar products from another company within the industry Supplier (WEAK)• Accessibility of the Internet that makes it hard for suppliers to exercise sufficient bargaining power to influence the terms and conditions of supply in their favor Customer (MODERATE)• Customer buying power is moderate because switching costs are low and customers have the flexibility to fill their needs by switching brands

AVON IN GLOBAL PERSPECTIVE

From a global perspective, three avenues of growth were identified by Avon management which are;

• Geographic Growth• Leveraging distribution channels in emerging and developing markets• Marketing in developed industrial areas

1. Improve consumer attitudes toward the attractiveness and accessibility of Avon and its products, and begin to develop a global image for the company.

2. Improve the quality of the product line, in bringing new products to market and in weeding out weaker or inappropriate items.

3. Introduce global product planning and the extension of global sourcing (finding the most appropriate source of raw materials)

4. Improve customer database management and market segmentation. ( MIS )5. Establish new ways for customers to shop Avon, and improve in the speed at

which customers and sales representatives could order and receive products.

AVON GLOBAL DIRECTION

AVON STRATEGIC PROBLEMS, TRENDS & FORCES

What to do about new product lines How to maintain growth How to continue cutting costs Internal Expansion Direct-Selling Model Dependent on Earnings from Active Sales

Representatives Multi-year Cost Restructuring Initiative May be Unable to Reduce Costs and

Support Increased Advertising Direct-Selling Business Model Exposed to Regulations in the Global Market Large Presence in Global Market Exposes Avon Products to Currency

Fluctuation Risks

AVON KEY SUCCESS Ability to get new products out of R&D and into the market• Enables Avon to have their new products out in the market very quickly compared

to other rivals • Gives Avon an image of superior technology and quality and provides them with

the first mover advantage Internet Capability• E-commerce was on a fast rise and lead Avon on the sales opportunity• Avon had their own website that now has all kinds of e-commerce activities Managerial Experience• The experience and success of Avon managers is unteachable, irreplaceable and

are definitely a huge factor on why Avon is where it is today. Accurate Filling of Order• New training programs and the implementation of the Avon website has enable

the company to fill orders fast and accurately• Incentives implemented by the sales leadership program have also made Avon

give consistent quality service

PEER GROUP REVIEW

SHAHRUL LATIF• Sales representatives play an important

role - enables the direct-to-the-consumer relationships.

• Avon invest in consumer promotion.• Avon also had spend more than $30

million in capital and expenses to build and launch a new "avon.com”

• Avon sell online through "e-representatives" in their own personalized web pages.

• A unique competitive advantage in using Internet technology.

• Avon also sells products directly to consumers if they choose not to purchase through a representative.

RIZAL RAFI• Avon in a global perspective, consider on developing or acquiring new brands to reach a broader customer.

• Getting into a global direction includes a "far more significant move into retail" as well as "pursuing broader possibilities in the e-commerce arena“

• Offer products that don't conflict with its core direct selling channel.

• Strategic issue of creating a competitive model with the potential to appeal to a much broader consumer base in a broader range of distribution channels

MERAJ ALAM

• Avon not following market trends of competitors, but sticking to own business and marketing strategy.

• Avon remains one of the fastest growing leading companies in beauty industry.

• Avon focuses only on women retaining the slogan "the company for women".

• Instead of distributing in department stores, Avon increased the number of its independent sales representatives.

• Avon markets to women in over 100 countries through 4.4 million independent sales representatives.

• Door-to-door selling has been forbidden in China since 1998 , Avon gets the verbal permission to sell their products directly.

MOHD HAFIZ

• Avon’s brand strategy is to empower women through the creation of opportunities.

• Avon builds brand value through innovative products and processes, the unmatched power of its distribution channel and the earnings opportunity it provides women.

• The power of their global operating model, philanthropy, and the sales representatives contribute to brand equity.

• This has positioned Avon as the top direct seller of cosmetics in the world.

PEER GROUP REVIEW

CONCLUSION

Avon BrandGlobal ImageBrand Equity

Product LineProduct Innovation

Avon MarketerAvon Website

Supplier Worldwide

Customer / End UserCustomer Loyalty

Create New Customer

Focus on Customer through Sales Representatives & E -

Representatives