QGM6163- CSM- PROJECT PAPER - DEVELOPING AVON PRODUCTS INC. IN A GLOBAL PERSPECTIVE

QGM6163- CSM- PROJECT PAPER - DEVELOPING AVON PRODUCTS INC. IN A GLOBAL PERSPECTIVE

AVON PRODUCTS INC. - DEVELOPING IN A GLOBAL PERSPECTIVEAvon Products, Inc. is the worlds largest direct selling organization and merchandiser of beauty and beauty related products. From corporate offices in New York City, Avon marketed product lines to women in 112 countries through 1.6 million independent sales representatives who sold primarily on a door-to-door basis. Total sales in 1992 were $3.8 billion. The company work force of 29,900 employees staffed divisions of product management, manufacturing, and sales and service, worldwide.Avon entered the international marketplace in the 1950s. In 1954, Avon opened sales offices in Venezuela and Puerto Rico to cultivate the Latin American market. Avon expanded into the European market in 1957 through its United Kingdom subsidiary, Avon Cosmetics, Ltd. The company entered the Asian market in 1969, by way of Japan. In 1990, it became the first major cosmetics company to manufacture and sell products in China. That same year, Avon became the first American beauty company to enter East Germany. Sales of Avon International, in 1992, were $2.25 billion, compared to Avon U.S. sales of $1.41 billion. More than three-fifths of the firms direct selling sales and earnings came from outside the United States and the proportion was growing.Internationally, the companys product line was marketed primarily at moderate price points. The marketing strategy emphasized department store quality at discount store prices.Avon divided the world into four geographical divisions: The United States, Europe, The Pacific, and The Americas. In most of international markets, the primary operating arrangement in each of these divisions was direct ownership by Avon of the foreign country subsidiary. Joint ventures with foreign firms were used when the culture and the ways of doing business were significantly unfamiliar to Avon management.By 1991, Avon management felt that it was time to re-evaluate and map out the long-term future of the firms beauty businesses on a global level. Senior management knew that the traditional Avon system of door-to-door house calls worked wonderfully in developing nations.Avon then tried to develop its own global perspective. In developing the market globally, Avon Management identifies three avenues of growth which are geographic growth, leveraging distribution channels in emerging and developing markets, and marketing in developed industrial areas.The first area was geographic growth. Enormous growth opportunities existed in countries with huge populations such as China, Indonesia and India. In Eastern Europe, management was excited about the potential in Poland, Czechoslovakia, and Hungary. In the Pacific Rim area, countries like Vietnam, Cambodia, and Laos were targeted as market opportunities.The second area of growth was to continue to emphasize direct selling in the emerging and developing markets of Latin America, the Pacific Rim, and other areas. In those markets, the retail infrastructure was undeveloped, especially in the interiors of those countries. The Avon representative provided consumers with an opportunity to buy a wide range of quality products at acceptable prices. In some developing markets, where access to quality goods was particularly prized, Avons direct selling method opened up unprecedented prospects for women.The third area of international growth was marketing in the United States and other developed industrial areas like Canada, Western Europe, and Australia. New programs were designed to complement the existing network of sales representatives and image-enhancing advertising and promotion programs worldwide to make customers aware of Avon products and the purchase options available such as on the website and retail outlets.Avons strong presence in the market globally intends to satisfy their customer demand around the world and shows that Avon has step into the market in a global perspective and vary from country to country and market to market internationally. This helps Avon in developing its own image in a global perspective and in achieving their mission of being the Global Beauty Leader.

AVON PRODUCTS INC. IntroductionDavid H. McConnell founded The California Perfume Company (CPC) in 1886 with the first office located in New York. In 1906 the San Francisco earthquake destroyed CPCs California office however, before long the company reopened. CPCs first office outside United State was opened in 1914 in Montreal, Canada. In the 1920s CPC sales doubled to $2 million during this time there were more than 25,000 representatives in the United States. The Companys name was change to Avon Products Inc. after the British town Stratford-upon-Avon in 1938. Avons sales increased to about $16 million and in 1946 the company was announced publicly with advertising campaign such as Avon Calling. Avon expanded overseas to countries such as Puerto Rico, Cuba and Venezuela. In the 1970s U.S sales top $750 millions and the first Avon Asian business was opened in Japan. Avon also acquired the Jeweler Tiffanys during this period of growth. It was the first major U.S. cosmetics manufacturer to permanently end animal testing.Avon adopted five core values which are Trust, Respect, Belief, Humility and Integrity which are evident in the mission statement to be a Global Beauty Leader, womens choice of buying, premier direct seller, the best place to work, largest women foundation and the most admired company. Avon success lies within it channel of distribution, it is the worlds largest direct seller with 5.4 million Avon representatives in over 100 countries. Additionally, it is the largest micro lender to women and it among the world top global brands. The company increased its investment in 2007 by over $120 million which aided in the development of new sales leadership opportunity, improved training, technology tools and changes in commission structure.There are three product categories which Avon distributes, they are beauty, fashion and home. In 2008, Avon changed its marketing approach of concentrating mostly on a homey image and is now including celebrities as a part of their promotions. The company advertising cost increased from $136 million in 2005 to $249 million in 2006 and $368 million in 2007. Reese Witherspoon is the Avon Foundation first global ambassador and honorary chairwoman who appear in advertisement for Avon make up, skin care products and fragrances. Spotlight the new fragrance was launched in 2009 with celebrity Courtenay Cox as the face of the brand. Avons largest manufacturing plants, Brazil, China and Poland received the ISO 14001 certifications in 2008. Various awards were granted during this period such as the Clean Industry Certificate to the manufacturing plant in Mexico. During the same period Avons revenues increased 7.5 percent and net income increased by 65 percent. Avon Products Inc. closest competitors are Revlon, Inc and Mary Kay Inc. Mary Kay Inc uses the same approach as Avon which is direct marketing approach which Revlon sells its products through cosmetics counters in department stores are pharmacies. Avon revenues far exceed that of its competitors in 2008 Avons revenue was $10.37 billion compared to Mary Kay $2.40 billion and Revlon $1.35 billion. Avon implemented reconstructing programs in 2009 which included closing two manufacturing facilities. In addition, there is heavy investment in online search engines and internet carrier sites to help increase Avons revenue. Andrea Jung is the Chief Executive Office who is leading the management team of thirteen to achieve its goal.Vision Statement (Actual)To be the company that best understands and satisfies the product, service, and self-fulfillment needs of women globally. Mission Statement (Actual) The Global Beauty Leader - Avon build a unique portfolio of Beauty and related brands, striving to surpass their competitors in quality, innovation and value, and elevating the image to become the Beauty company most women turn to worldwide. The Womens Choice for Buying - Avon become the destination store for women, offering the convenience of multiple brands and channels, and providing a personal high touch shopping experience that helps create lifelong customer relationships. The Premier Direct Seller - Avon expand the presence in direct selling and lead the reinvention of the channel, offering an entrepreneurial opportunity that delivers superior earnings, recognition, service and support, making it easy and rewarding to be affiliated with Avon and elevating the image of beauty industry. The Best Place to Work - Avon is known for leadership edge, through the passion for high standards, respect for diversity and commitment to create exceptional opportunities for professional growth so that associates can fulfill their highest potential. The Largest Womens Foundation - Avon committed a global champion for the health and well-being of women through philanthropic efforts that eliminate breast cancer from the face of the earth, and that empower women to achieve economic independence. The Most Admired Company Avon deliver superior returns to their shareholders by tirelessly pursuing new growth opportunities while continually improving their profitability, a socially responsible, ethical company that is watched and emulated as a model of success. The five values of Avon are: Trust, respect, belief, humility, and integrity.Slogan (Actual)Avon is the company for womenProposed Vision StatementTo be the leading provider of home, fashion and beauty products that will satisfy customers while preserving the environment.Proposed Mission Statement Avon is committed to being the leading global provider of home, fashion and beauty products that will enhance the lives of customers. Avon will utilize latest technology and will pursue new growth opportunities that will bring about wealth for all stakeholders. At Avon they firmly believe in respect: respect for people and respect for the environment. Proposed SloganAvon: the company for everyone committed to the enrichment of lives

Analysis:The vision statement was improved to include customers instead of women, since the company is now offering products for women, men and children. Additionally, in light of the fact that the world is going green, it was prudent to include the environment to emphasize the responsibility to society as we all work towards a sustainable future. The proposed mission statement incorporates all nine components that are essential to a good mission statement. The essential elements are customers, products and service, markets, technology, concern for survival, growth and profitability, philosophy, self-concept, concern for public image, and concern for employees. The proposed mission statement also speaks to the companys core values of trust, respect, belief, humility, and integrity. The old slogan for Avon states the company for women we have decided to change this slogan to Avon: the company for everyone committed to the enrichment of livesINTERNAL ASSESSMENTFinancial Ratios AnalysisRatio200820092010

Current Ratio0.751.151.22

Quick Ratio1.10.930.88

Operating Profit Margin0.090.091.25

Net Profit Margin0.050.050.08

Return on Stockholders Equity0.600.751.29

Total Asset Turnover1.671.731.76

Debt / Equity Ratio5.62%7.03%7.99%

Earnings Per Share2.602.874.72

Avon Product Inc. Current ratios have increased from 2008 to 20010 which states that they may not face complications in liquidating its assets, if needed in the short term. Profitability ratios have seen an increase which is a clear indication that Avon Products Inc. is much more well in terms of profitability in 2010 than in previous years. Additionally, more operating income means that more projects can be undertaken which is in synchronization with strategic management processes. Total Asset Turnover ratio has steadily increased over the period which shows that the business is generating sufficient volume for the size of its asset investment. Debt/equity ratio has increased from in 2010 compared to 2008 and 2009 which indicates that Avon Products Inc holds much more financial leverage in terms of debt and equity financing.Marketing Positioning Map and Analysis

Customer Service (High) Avon

Revlon

Mary Kay

Quality (Low) Quality (High)

Customer Service (Low)

Analysis:The top-to-bottom approach was used to narrow down two important variables, customer service and quality of products. The key feature of a market positioning map is that only key or immediate competitors should be plotted. The competitors of Avon, Revlon and Mary Kay are well-established firms with Revlon plotted with higher quality products (Cosmetics). Avon was strategically plotted to show that they lead in customer service. However, when compared to cosmetics quality Revlon and Mary Kay are leading far away from Avon.Superior customer service compared to rivalsAvon has gained an outstanding reputation as the best direct seller of beauty products. Through the continued efforts and achievements of its Sales Representatives Avon is now known worldwide. Avon's core competence has mainly been through direct selling, knowing this Jung and the management team implemented a Sales Leadership program in its ten largest markets and provided these markets with incentives to acquire, train, motivate, and retain the number of active Sales Representatives it needs to sustain significant growth.Analysis of Marketing StrategiesSuperior Customer ServiceAvon has gained an outstanding reputation as the best direct seller of beauty products. Through the continued efforts and achievements of its Sales Representatives Avon is now known worldwide. Avon also has a Representative development program that focuses on the professional training of Representatives, which enables them to provide valuable information on Avon brand products. Avon also keeps its superior customer service in other ways of distribution such as the Internet and in the department store sales by having a timely and correct order delivery, one on one information exchange and sincere professional advice and service in department sales.Wider Geographic Coverage Avon's management team decided to achieve growth in revenue by expanding its customer base into international markets, while continuing to compete based on their reputation as the leading direct seller of beauty products. Avon brand products are now recognized all over the world due to the success of their international campaign. The company is in great position to take advantage on growth in new global markets because of the demand for quality products. Avon now has operations in 50 different countries outside of the United States, and continues to reach new markets. Quicker Design-to-Market Times The ability to develop and release new products more quickly than rivals will give Avon the first mover advantage and further associate the name with quality and innovation and hopefully increase the company's market share in the CFT industry. Product innovation will continue to be a key factor of sales growth in the future. New product lines such as "Avon Wellness" and "Becoming" and the most recent "Anew" will attract new consumers, which will also help to increase revenue growth.More Attractive Product Line Avon's history as a beauty product distribution only enhances their credibility as a company and quality beauty product distributor. With Avon's ability in research and development they will be able to develop more new products and introduce them to the Avon product line more quickly than rivals. New products with the symbol of Avon quality and state-of-the-art technology will only increase brand image and hopefully sales while acquiring a more loyal customer base by establishing and providing a more attractive product line. Improved E-Commerce and Internet Sales CapabilitiesAvon's executives realized the company needed a more efficient method to communicate with its independent sales force, because current newsletters and brochures were not keeping up with the demands of the sales force. The Internet brings instant global reach, with thousands of products and prices that can be updated constantly at any time. Stronger Brand Name than RivalsAgain Avon's history is a big player here because it gives the company credibility and name recognition. Avon continues to strengthen its image of core beauty products and international brand product line. In the past few years the company has made several upgrades in imaging and formulations, packaging, and customer service and the accuracy and speed of order delivery have also been improved. Avon's development of quality global brands gave them a chance to deliver a consistent beauty image around the world, as well as improve relationships with suppliers and become familiar with the most efficient way to get foreign sales.Stronger Global Distribution and Sales CapabilitiesAvon's ability to produce and distribute products in multiple countries enables them to have a significant amount of international sales. Avon continues to drive their products into new markets and have always been looking for ways in which they can improve their distribution channels. Map Locating Avon Operations in WorldwideAvon Products, Inc. markets its products to women in over 100 countries through over 5 million independent Avon Sales Representatives. This is one of their strategies in developing Avon in a global perspective. The map below shows the six geographic regions where Avon products are marketed and sold.

Albania Armenia Belarus Bulgaria Czech Republic Estonia Finland Georgia Hungary Kazakhstan Kyrgyzstan Latvia Lithuania Macedonia Moldova Montenegro Poland Romania Russia Serbia Slovakia Slovenia Ukraine

United States Canada Puerto Rico Dominican Republic Aruba Antigua & Bahamas Barbados Bermuda Curacao Dominica Grand Cayman Island GrenadaGuyana JamaicaSt. Kitts & Nevis St. Lucia St. Maarten St. Vincent Suriname Tortola Trinidad & Tobago Virgin Island

Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela

Australia Hong Kong India Japan Malaysia New Zealand Philippines South Korea Taiwan Thailand Vietnam

Botswana Cyprus Dubai Egypt France Germany Greece Iceland Israel Italy Jordan Kuwait Lebanon Lesotho Luxembourg Malta Mauritius Mozambique Morocco Namibia Netherlands North Cyprus Norway Oman Portugal Reunion Island Saudi Arabia South Africa Spain Swaziland Switzerland Tunisia Turkey Turkmenistan Uganda United Kingdom Zambia

Internal Assessment: Avon Strengths1.Avon is a Global Market Leader2.Committed and dedicated workforce - 5.4 million Avon representatives in over 100 countries making Avon the largest sales force.3.Worlds Largest Micro lender for women - extending some $1 billion in product and credit each year to help women start their own entrepreneurial businesses4.Channel of distribution worlds largest direct seller5.Manufacturing operations match ISO 14001 standards6.Avon owns its major manufacturing and distribution centers7.Increased in revenue in most geographic area, improve e commerce and sales capabilities.(Revenues increased 7.5% from year 2008 to 2009)8.Avon is one of the worlds top global brands. Avon has major brand names such as Anew, skin-so-soft, Avon Color etc with 90% recognition worldwide.9.First cosmetic to permanently end to animal testingInternal Assessment: Avon Weaknesses1.Decrease in North American Sales Revenue by 129.4 million2.Weak Brand Image3.High advertising costs Companies advertising spending went from $136 millions in 2005 to $249 million in 2008 to $368 million in 2009 and 14% higher in 20104.Poor brand loyalty and Does not target urban trendsetters6.Beauty Sales in the first quarter 2009 were 12% lower compared to sales revenue in previous year 20107.Avon lagged behind seven of their cosmetic companies in customer loyalty

Internal Factor Evaluation (IFE) Matrix Key Internal FactorsWeightsRatingWeighted Score

Strengths

1. Global Market Leaders0.0940.36

2. Committed and dedicated workforce - 5.4 million Avon representative in over 100 countries0.0830.24

3. Revenues increased 7.5% from year 2008 to 20090.0640.24

4. Channel of distribution worlds largest direct seller0.0540.2

5. Award winning company worldwide0.0530.15

6. Worlds Largest Micro lender for women0.0630.18

7. Worlds top global brands 90% recognition worldwide0.0630.18

8. Excellent promotional strategies0.0840.32

9. Manufacturing operations match ISO 14001 standards0.0830.24

10. Announced permanent ending to animal testing0.0740.28

Weaknesses

1. Brand Image0.0610.06

2. High advertising costs0.0520.1

3. Misleads representatives0.0320.06

4. Avon seems like a commodity0.0520.1

5. Avon lagged behind seven of their cosmetic companies in customer loyalty0.0920.18

6. Revenue decreased in North America by 129.4 million0.0420.08

Total1.002.97

Ratings: 1- major weakness, 2-minor weakness, 3-minor strength, 4-major strengthAnalysis:The overall weighted score of Avon Products Internal factor Analysis (IFE) is 2.97 which indicated that the internal functions and roles are strong at Avon Products Inc.

EXTERNAL ASSESMENTSAvon Major CompetitorsMary Kay and Revlon are considered two major competitors of Avon Products Inc. in the cosmetics industry. Avon Product Inc. is seven and half times larger than Revlon and approximately eight times larger than Mary Kay. Although the majority of Avon's competitors distribute their products to resellers such as department stores, drugstores, or cosmetic stores, Avon sells its products solely through its direct-selling channel of independently-contracted Active Sales Representatives and through its online website. In contrast to Revlons marketing strategy of selling through cosmetic counters in department stores and pharmacies, Mary Kay rivals with Avon Inc. as they both use direct marketing approach. In 1983 Mary Kay Cosmetics was founded in Dallas, Texas, by Mary Kay (now Mary Kay Ash). This company is known for providing women with exceptional opportunities for professional achievement and economic success and rewarding women for their success. In 2009 sales of Mary Kay products reached $2.6 billion in wholesale worldwide. There are more than 37,000 women across the world who has become Independent Sales Directors. Mary Kay spends millions of dollars and conducts more than 300,000 tests to ensure that Mary Kay products meet the highest standards of quality, safety and performance. Mary Kay products are expensive versus Avon which is comparable to store products. Mary Kay seems to be targeting older women while Avon is branching out to attract women of all ages with quality affordable makeup, jewelry, shoes, purses and childrens items. Mary Kay has stayed in touch with the internet age; each independent beauty consultant can buy his or her own website to sell clients over the internet. In fact 90% of the companys revenue is now generated through online orders. Avons revenues far exceed both major competitors. Their revenue is almost four and half times that of Mary Kays and seven and half times Revlons. Avons revenue exceeds Ten Billion Dollars (B$10).

Revlon was founded in 1932, by Charles Revson and his brother Joseph, along with a chemist, Charles Lachman, who contributed the "L" in the Revlon name. In the 1990's, Revlon revitalized its cosmetics business and strengthened its industry leadership role. Revlon Sales to Wal-Mart accounts for 23% of the company's total sales. The company earned $1.3 billion in sales and $950K in net income in 2009. Net sales fell 3.7% to $1.29 billion. Sales in the US fell 4.4% while sales international fell by 2.9%. The company attributes the loss to the weak global economy. The net sales in 2009 were approximately $1.3 billion, a decrease of approximately $51 million or 3.8% versus 2008.Revlon has a more focused product offering than some companies and when one considers only color cosmetics sales they are much more comparable. Revlon is the second largest color cosmetics company in the United States. Competitors Estee Lauder and Avon get the majority of their revenue outside the United States.Major Competitors Pie Chart

Analysis:From the pie chat above, it shows the overall sales for Avon and its major competitors in 2009. Avon gains $10.83 billion, follow by Mary Kay $ 2.6 billion and Revlon $1.3billion.PEST Analysis Political FactorsEconomic Factors

Tax policiesEmployment lawsTrade restrictions and tariffsPolitical stabilityEconomic growthInterest ratesExchange ratesFluctuation in oil and gas prices

Social FactorsTechnology Factors

Emphasis on safetyNo animal testingGreen EnvironmentPhilanthropic Issues

AutomationTechnology incentivesRate of technological changeTechnologies Adaption

Analysis:Based on the PEST analysis of Avon Products, the company looks into the specific issues that relates and drives them in penetration in the international market and grows globally. External Assessment: Avon Opportunities1.A growing trend in the cosmetics industry is the introduction of green products. More than sixteen percent of beauty products launched in 2008 were certified organic, ethical, or all natural.2.Eye makeup market3.The cosmetics industry tends to be countercyclical. This means that those are industries for which the demand is either not correlated with the business cycle. The demand for their products is not much affected by availability of current income, but by other personal, social or economic factors. The recession also contributes to the industry being counter-cyclical. There is an upsurge in people joining the industry in the past six or eight months and there's absolutely no doubt that this is because of the recession and the effect on employment.4.Aveda cosmetics found that sixty eight percent of consumers will remain loyal to a company that has a social and environmental commitment.5.Urban Trendsetters markets6.Geographic growth enormous growth opportunities existed in countries with huge populations such as China, Indonesia and India. 7.Demand for cosmetic products normally remains constant and unaffected by economic distress8.The baby boomers are aging and they are more conscious on their appearance, beauty and also improving their looks.9.Emphasize direct selling in emerging and developing marketsExternal Assessment: Avon Threats1.Competition such as Mary Kay and Revlon2.Rejection of internet selling by sales representative3.Global economic climate stifled new product development, innovation and sustainability programs in 2009.4.In terms of color cosmetics, environmental International Inc. predicted that many of these markets will see slowdown in volume demand.5.Inflation rate and Rising cost of commodities7.Direct-selling becoming more popular - Amid the financial crisis Aussie mums are increasingly turning to direct selling and at-home product parties to supplement their household income.8.They are a multilevel based company that sells inferior quality with a higher price tag than what it is worth.9.Avon products outpaced by jazzier products to women who favored more exciting product lines10.Decreased earning opportunitiesExternal Factor Evaluation (EFE) Matrix Critical Success FactorsWeightsRatingWeighted Score

Key External Factors

Opportunities

1. Organic (Green) Products

0.0940.36

2. Eye makeup market

0.0730.21

3. Increase Internet Presence

0.0840.32

4. Urban trendsetters market0.09

40.39

5. Cosmetic industry tends to countercyclical

0.0730.21

6. Geographic growth

0.0940.36

7. Demand for cosmetic products normally remains constant and unaffected by economic distress0.0530.15

Threats

1.Competitors0.0820.16

2. Rejection of Internet Selling by sales representative

0.0730.21

3.Economic Downtown0.0920.18

4. Market Slowdown0.0830.24

5. Inflation Rate0.0730.21

6. Rising cost of commodities0.0720.14

Totals13.14

Ratings: 1= the response is poor, 2= the response is average, 3= the response is superior, 4= response is superiorAnalysis:The table of external factors evaluation shows the opportunities that are available and factors that threaten the success of Avon in driving the business globally.Competitive Profile Matrix (CPM)AvonRevlonMary Kay

Critical Success FactorsWeightRatingWeighted ScoreRatingWeighted ScoreRatingWeighted Score

Price competitiveness0.1030.3040.4020.20

Global Expansion0.0930.2740.3620.18

Organizational Structure0.0420.0840.1630.12

Employee Morale0.0720.1440.2810.07

Technology0.1040.4020.2030.30

Product Safety0.1040.4030.3020.20

Customer Loyalty0.1020.2040.4030.30

Market Share0.0720.1440.2830.21

Advertising0.1020.2040.4010.10

Product Quality0.1020.2030.3010.10

Product Image0.0530.1540.2020.10

Financial Position0.0840.3230.2420.16

Total1.002.803.522.04

Ratings: 1 Poor, 2 Average, 3 - Above Average, 4 Superior Analysis:The table above shows the Competitive Profile Matrix of various areas of the major competitors of Avon which is Revlon and Mary Kay. The table shows the competitive edge in the cosmetic industry. Leading by Revlon with a total of 3.52, followed by Avon in the second position with 2.80 and Mary Kay with 2.04. Avon has to improvise in certain factors such as employee morale and product image to take them further in the international markets to be a global player in the cosmetic industry. This can be achieved as Avon is financially strong and working on the Global Expansion Organization Structure with adaption of new technologies.

SWOT Matrix SWOT MATRIXSTRENGTHSWEAKNESSES

1. Global market leader2. Largest sales force3. Worlds largest micro lender to women4. Worlds largest direct seller5. ISO 14001 certification for largest manufacturing plants.6. Avon owns its major manufacturing and distribution centers.7. Increase in revenue in most geographic area due to increase in internet presence.8. First cosmetic manufacturer to end animal testing.

1. Decrease in North American Sales Revenue.2. Weak brand image3. High advertising/budget costs4. Poor brand loyalty5. Does not target urban trendsetters.6. Beauty sales in the first quarter 2009 were 12% lower compared to sales revenue in previous year 2008.

OPPORTUNITIESSO STRATEGIESWO STRATEGIES

1. Organic (Green) products2. Eye makeup market3. Increase internet presence 4. Urban trendsetters market5. The cosmetic industry tends to countercyclical.6. Demand for cosmetic products normally remains constant and unaffected by economic distress

1. Increase sales by increasing internet presence. (S7, O3)2. Maximize on revenues in the makeup market through advertising and the sales force. (S2, O2)3. Manufacture and distribute more products that are eco-friendly.(S6,S4,S2,O1)1. Increase awareness of efforts to protect the environment. (W2, O1)2. Increase market share by positioning products to attract urban trendsetters (W5,O4)

THREATSST STRATEGIESWT STRATEGIES

1. Competitors such as Mary Kay and Revlon2. Rejection of internet selling by sales representatives3. Economic downturn 4. Rising cost of commodities

1. Educate employees on the benefits of increasing internet presence.2. Improve marketing strategies to new and existing customers by repositioning the brand, coupons, billboards, new packaging. (S4,S6,S7, T1, T3)1. Discount products that are not earning substantial revenue and then faze them off the market in a timely manner. (W6,T3)

Analysis:Based on the SWOT matrix table above, Avon have to improvise and realize that brand repositioning in the form of packaging is necessary, in order for Avon to create a stronger brand image and improve customer loyalty in international markets. Through an aggressive market penetration Avon will be able to increase revenue, further their strength and gain more competitive edge and increase profitability mostly in the North American region.

Strategic Position and Action Evaluation (SPACE) Matrix FSY

6

Conservative5Aggressive

4

3

2

1

CAIS

-6-5-4-3-2-1123456

X

-2

-3

-4

-5

DefensiveCompetitive

-6

ES

Strategic - aggressive

(0.8)-y

(1.20)x

Internal Strategic PositionExternal Strategic Position

Financial Strength (FS)Environmental Stability(ES)

Return on Investment 3Leverage 2Liquidity 5Working Capital 5Cash Flow 5Competitive Pressure -4Unemployment -4Technological Changes -3Barrier to Entry -4Price elasticity of Demand -1

FS Average 4ES Average -3.20

Competitive Advantage (CA) Industry Strength (IS)

Market Share -3 Product Quality -3Customer Loyalty -2 Control over Suppliers and Distributors -3 Technological Know-How -3 Growth Potential 5Profit Potential 4Financial Stability 4Productive Capacity Utilization 3Resource Utilization 2

CA Average -2.80IS Average 3.60

Financial Strength + Competitive AdvantageY axis=FS (4) +ES (-3.2) = .08X axis=CA (-2.8) +IS (3.6) =1.2FS & IS +1(worst) to +6 (best)ES & CA -1(best) to -6(worst)

Analysis:According to the diagram above Avon has a strong competitive position in the market with rapid growth. Avon is using their internal strengths to:(1)Maximize on external opportunities(2)Minimize internal weaknesses(3)Avoid external threatsAvon should improvise on their strategies of market penetration, improve research and development to develop a full line of green products, reposition the brand in terms of packaging and forward integration. These are all attainable strategies that Avon have to proceed with in to the near future to be a global player in the cosmetic industry.Both the SPACE and SWOT matrix revealed possible strategies to implement in order to further grow our customer base create brand loyalty and further extends its competitive advantage and market leadership status. It also acts as a guide to the areas where more emphasis, financing and allocation of valuable resources is necessary. Allocation of resources and commitment by all stakeholders to the outlined objectives are pivotal keys to the success of Avon to be in the international market.While the SWOT and SPACE matrix identifies numerous strategies that Avon can implement in order to increase brand loyalty, product development and increase internet presence. To become a global player in the cosmetic industry, Avon should work on issues that relate to brand loyalty.

The Quantitative Strategic Planning Matrix (QSPM)Quantitative Strategic Planning Matrix (QSPM) for Avon Inc

STRATEGIC ALTERNATIVES

123

Improved marketing strategies (packaging, coupons, online bill boards, discountsImprove R&D to introduce more green productImprove employee empowerment through regional training and development

Key External FactorsWeightASTASASTASASTAS

Opportunities

1. Organic (Green) products0.1610.164.642.32

2. Growth in eye makeup market0.094.363.273.27

3. Increase internet presence0.130.310.12.20

4. Urban trendsetters market0.0530.1530.1520.1

5. The cosmetic industry tends to countercyclical0.130.330.330.3

6. Demand for cosmetic products normally remains constant and unaffected by economic distress0.1130.3320.2210.1

Threats

1. Competitors0.130.330.310.1

2. Economic downturn 0.12.2010.11.1

3. Rising cost of commodities0.09

4. Rejection of internet selling by sales representatives0.120.2010.1030.20

SubTotal12.302.181.69

The Quantitative Strategic Planning Matrix (QSPM) for Avon Inc

STRATEGIC ALTERNATIVES

123

Improved marketing strategies (packaging, coupons, online bill boards, discountsImprove R&D to introduce more green productImprove employee empowerment through regional training and development

Key Internal Factors

Strengths

1. Global market leader0.1230.3630.3630.36

2. Largest sales force0.1140.4430.3340.44

3. Worlds largest micro lender to women0.140.440.440.4

4. Worlds largest direct seller0.1540.640.640.6

5. ISO 14001 certification for all manufacturing plants.0.0530.1530.1530.15

6. Avon owns its major manufacturing and distribution centers0.0640.2440.2430.18

7. Increased in revenue in most geographic area. Due to increase in internet presence.0.0540.230.1540.2

8. First cosmetic manufacturer to end animal testing.0.0540.230.1530.15

Weaknesses

1. Decrease in North American Revenue.0.0530.1530.1530.15

2. Weak brand image0.0820.1620.1640.32

3. High advertising budget/ costs0.05

4. Does not target urban trendsetters.0.05

5. Poor brand loyalty0.0540.230.1540.2

6. Beauty sales in the first quarter 2009 were 12% lower versus the prior year period.0.03

Grand Total15.404.874.69

Analysis:Based on the analysis of the QSPM matrix it reveals that improved marketing strategies is the most attractive strategy along with improvement in research and development to introduce green products for Avon to reach the international markets in a global perspective. Avon has implemented some new strategies to overcome the existing strategies to boost up their level in the international markets to be the global player in the cosmetic industry.New Strategies1)To increase revenue total revenue by 10% all market segments- This will be achieved through improved marketing strategies (product placement, mail in discounts, coupons, online and bill boards ) to benefit both new and existing customers.2)To increase and further develop the green product line by 10% - this will be done through investment research and development in order to develop such products.3)To improve brand image and brand loyalty- Through repositioning the Avon brand in terms of product packaging to differentiate the product from being just being another commodity. Existing Strategies1)Direct Selling/ Network Marketing2)Increase internet presence3)Employee Empowerment

Proposed Strategic Alternatives in the Quantitative Strategic Planning Matrix (QSPM)An improved market strategy (market penetration) This is an excellent way to boost sales and promote the brand. Avon is already the market leader and people are aware of the brand. However, to be a global player in the cosmetic industry, Avon has to go through more aggressive advertisement campaigns, sales promotions, mail-in discounts/coupons, increase internet presence and bill boards. Avon will be able to further heighten brand awareness, build customer loyalty and create appeal for their products by new and existing customers. This is an important strategy for Avon to be in the international market to reach the global perspective. Avon looks to achieve this over the first two years with an estimated amount of 10 million dollars. With 5 million dedicated to further increase internet presence and the remaining 5 million to cover the other activities.Improve research and development to introduce more green products. This will be achieved through investment in research and development; to develop these eco-friendly products through means which are more environmentally friendly. The demand for green products appears to be a very viable market as consumers and distributors are becoming more conscious about protecting the environment. Thus creating a demand for these products, this also presents the opportunity to increase brand loyalty. This will be done over the next three years at an estimated cost of 10 million dollars.To improve brand image and brand loyaltyBeing that Avon lagged behind its major competitors in terms of brand loyalty; and the assertion by CEO of Brand Key Robert Passikoff that Avon is not associated with anything and Avon seems to be more like a commodity. Avon has decided to reposition the brand in terms of packaging and labeling of Avon products. Avon seeks to make the Avon logo more pronounced on the products. It is believed that consumers will support and be loyal to brands that they can be identified with. Avon will actively pursue this over the next three years at an estimated cost of 10 million dollars.To implement the proposed alternative strategies of Avon to be a global player in the cosmetics industry a total cost of $ 30 million is estimated. The three new alternatives of quantitative strategic planning matrix that has been proposed for Avon will develop a brand new image for Avon from the existing major competitors to compete through a competitive edge and strengthen their base to be a leader in the cosmetic industry in developing Avon in reaching the global perspective. FINANCING OPTIONSBased on the proposed alternatives given in the quantitative strategic planning matrix, the recommendations can be implanted on a phase basis over the next three years for Avon. The financing options that will be recommended for Avon for the next three years will be as below:EPS/EBIT Analysis for Avon Product Inc.Amount needed: $30 millionStock Price:$31.90Tax Rate:35%Interest rate: 5%# of shares outstanding: $427.5 million

Common Stock FinancingRecessionNormalBoom

EBIT773.831018.21287.8

Interest000

EBT773.831018.21287.8

Taxes249.17327.86414.67

EAT524.66690.30873.13

# Shares428.4428.4428.4

EPS1.221.612.04

Debt Financing

RecessionNormalBoom

EBIT773.831018.201287.8

Interest1.51.51.5

EBT772.331016.71286.3

Taxes248.69327.4414.2

EAT523.64689.3872.1

# Shares427.5427.5427.5

EPS1.221.612.04

Combination Financing (Debt 30%/Stock 70%)

RecessionNormalBoom

EBIT773.831018.21287.8

Interest.45.45.45

EBT773.41017.81287.4

Taxes249.03327.73414.5

EAT524.4690872.9

# Shares428.1428.1428.1

EPS1.221.612.04

Combination Financing (Debt 70%/Stock 30%)

RecessionNormalBoom

EBIT773.831018.21287.8

Interest1.051.051.05

EBT772.781017.11286.75

Taxes248.84327.5414.3

EAT523.9689.6872.5

# Shares427.8427.8427.8

EPS1.221.612.04

Analysis:Based on the four tables above, the common stock financing, debt financing, combination financing of debt and stock shows that Avon has chosen Equity for financing the business. This is because if recession continues and Avon does not make any profit they are not obligated to pay any dividends. With equity there is the existence of capital gains for Avon.

Avon Projected Financial StatementBelow are the tables of Projected Financial Statement which is income statement and balance sheet statement made for Avon based on the financial options and recommendation of the strategic analysis that has been proposed for Avon through the quantitative strategic planning matrix for the next three years.

AVON'S PROJECTED INCOME STATEMENT FOR 2010-2012 IN MILLIONS

2009201020112012

Revenue 10,284.70 11,313.17 12,444.49 13,688.94

Other revenue Total 98.10 113.17124.45 136.90

Total Revenue 10,382.80 11,426.27 12568.94 13,825.84

Cost of Revenue total 3,888.30 4,227.72 4,650.51 5,115.56

Gross Profit 6,396.40 7,198.55 7,918.43 8,710.28

Cost and Expenses

Selling/General/Administration/advertising 5,389.80 5,347.50 5,907.40 6,433.80

Research and Development 66.70 71.70 74.70 76.70

Depreciation/Amortization - - - -

Interest Expense (Income)----

Unusual Expense (Income) 561.00 21.71 23.90 26.27

Other Operating Expenses, Total - - - -

Operating Income 1018.2 1,757.64 1,912.43 2,173.51

Interest Income (Expense), Net Non Operating - - - -

Gain (Loss) on Sale of assets - - - -

Other Net (7.10) (9.00) (8.00) (7.40)

Income before Tax 926.50 1,058.80 1,131.20 1,244.30

Income tax total 298.30 297.00 260.40 170.40

Income after tax 628.90 761.80 870.80 1,073.90

Minority Interest (2.40) (2.00) (2.00) (1.60)

Equity Interest00 - -

US GAAP Adjustment$0.00$0.00$0.00 -

Net Income before Extra. Items625.8759.8 868.80 1,072.30

Total extraordinary items00 - -

Net Income625.8759.8 868.80 1,072.30

AVON'S PROJECTED BALANCE SHEET FOR 2010-2012 IN MILLIONS

2009201020112012

ASSETS

Cash and short term investment1338.41356.41364.441368.4

Total Receivables net1219.91119.91169.91219.9

Total Inventory1067.51174.251291.681420.85

Prepaid Expense122.8120.5110.7122.8

Other Current Asset440.7443390.7440.7

Total Current Asset4189.34214.054228.384572.65

Property/Plant/Equipment total net1529.61529.61529.61529.6

Goodwill, net224.8231.8233.8234.8

Intangible, Net125.8131.8134.8135.8

Long term investment'49.849.849.849.8

Note Receivables-Long term0000

Other Long Term Assets, total713.4713.4713.4713.4

other Assets total0000

Total Assets6832.76870.456889.787236.05

LIABILITIES AND SHAREHOLDERS EQUITY

Accounts Payable754.7754.7754.7754.7

Payable Accrued0000

accrued Expenses1247.31247.31247.31247.3

Notes Payable/short term debt 0000

Capital Leases138.1138.1138.1138.1

Other current liabilities total134.7241.9358.88488.05

Total current liabilities2274.823822498.982628.15

Total long term debt2307.82357.82360.82360.8

Deferred Income Tax173.8173.8173.8173.8

Minority interest40404040

Other liabilities, total763.7713.7710.7710.7

Total Liabilities5560.15667.35784.285913.45

Redeemable Preferred stock0000

Preferred stock - non redeemable, net0000

Common Sock186.1204.1212.1216.1

Additional Paid in capital 1941194119411941

Retained Earnings (Accumulated Deficit)4383.94383.94383.94383.9

Treasury - Common-4545.8-4587.45-4733-4525.8

Other Equity-692.6-738.4-698.5-692.6

Total Equity1272.61203.151105.51322.6

Total liabilities & Shareholders Equity6832.76870.456889.787236.05

Project Financial RatiosRatios

201020112012

Current Ratio1.841.81.7

Quick Ratio1.31.21.2

Operating Profit Margin0.150.150.16

Net Profit Margin0.070.070.07

Return on Stockholders Equity0.630.790.81

Total Asset Turnover1.661.821.91

Debt/Equity Ratio4.7%5.2%4.5

Earnings Per Share3.74.15

Analysis:The current ratio and quick ratios show that Avon is in a good position to meet its short term obligations even without relying upon the sales of its inventories The operating profit margin shows that Avon is improving in its efficiency which will result in greater profit productivityThe net profit margin shows that profitability will improve thus shareholders can expect greater return The ROE shows that the return on equity is improving The total asset turnover shows that the return on the asset investment is goodThe Debt/Equity ratio shows that Avon is using more equity to finance operationsEPS shows that Avon is becoming more attractive to investors

EVALUATION BALANCE SCORE CARDBalance Score CardBalance Scorecard is the strategic planning and management system that provides a frame work for measuring performance and assisting managers identify what it is needs to be measured and completed, while enabling executives in the execution of these strategies constitutes the makeup of the balance scorecard for the business.There are four fundamental perspectives from which organizations using this system can implement their vision and strategies include:1) Financial Performance Perspective This element is showing how viable a business appears to shareholders in order to achieve financial success.2) Customer knowledge Perspective Highlights the importance of satisfying customers while focusing on the achievement of the organizations vision.3) Internal Business Processes Perspective Refers to the internal aspects of the business, wherein managers can analyze the overall operations of the business to see how well the provision of its goods and services and its ultimate impact on achieving total customer satisfaction.4) Learning and Growth PerspectiveIncludes the training and continuous upgrading of employees knowledge, skills and abilities that necessitates the advancement of being technologically savvy.Avon Products Inc. uses the Balance Score Card system to implement the essential link between business-planning strategies and people plans for greater productivity. This is to ensure that Avon can achieve increase growth in revenue, increase market share, ensuring the delivery of quality and timely services, providing the appropriate training and development of employees, delivering improved services by linking business strategies to people plans. Forecasting customers need by anticipating changes and adopting various technologies is high demand on the priority list of the Avon to develop them as a cosmetic leader changing towards a global player in the cosmetics industry.AVON BALANCE SCORE CARD EVALUATIONObjectivesMeasure/TargetTime ExpectationPrimary Responsibility

FinancialChief Financial Officer

To succeed financially,Lower customer acquisition costs.Shareholders valueContinuous

how we appear toDouble digit sales growthGrowth in revenue

our shareholdersIncrease market share for on-line products Increase profitability

Target 10% return on investment.Market share

Achieve at least 10% on net profit in 1st year of new productNet profit on percentage sales

CustomersOperations

How to achieve ourEnsure on-time delivery always Percentage of on- time delivery.Continuous

vision, the importance of

Increase customer retentionNumber of customers, email addresses, time duration between purchases

satisfying our customersReward customer loyaltyPercentage on returnConversion rate

Internal BusinessOperations

To analyze operations and see how products and services achieve Supply chain excellence in order confirmationQuick turnaround on the delivery of orders Continuous

total shareholder and customer satisfaction, Adoption of some social servicesIncorporating and engaging quality, talented skills

What business process must we excel at?Generating revenueOperations - measures of quality, products and costs

Learning & GrowthHuman Resource

To achieve continuous training and upgrading Ensure managers are exposed to People - employee retention, training and skillsContinuous

of employees skills and abilities.market changesSuccessful penetration of new markets

Always keeping abreast of new technologyOnline service innovationContinuous improvement in CRM

Advancing change and self-improvementImplement a succession planIncrease value in Knowledge management system

Analysis:The main aim to evaluate Avon based on Balance Score Card is to enables Avon to meet their strategic objectives by identifying the various means of improving workforce productivity. This is an effective tool in maximizing Avon resources and building capacity in a structured and planned way. It helps Avon to improvise based on the performance measurement and key indicators which has been stated. The department officers are responsible in meeting the targets which leads to Avons objectives. A continuous time expectation is needed to ensure that the structured and planned targets to be achieved. These plans not only look at the strategic and operational components for Avon to succeed, but also consider the people factor in developing and delivering Avon business in the international markets to be the global player in the cosmetics industry.AVON IN GLOBAL PERSPECTIVEAvon Being GlobalFrom a global perspective, three avenues of growth were identified by Avon management which are as below;1.Geographic Growth2.Leveraging distribution channels in emerging and developing markets3.Marketing in developed industrial areas.The Global Product Management Group The new multinational Global Product Management Group was an essential factor in the new organization. The group would support the entire company with Centers of Excellence to increase Avons competitive advantage in the marketplace. With a global scope and multinational staffs, the centers would be located around the world, wherever the appropriate expertise existed. The Global Product Management group would be responsible for product management, global brands, global sourcing (raw materials) and logistics, worldwide manufacturing, product research and development and certain global aspects of sales and customer service support.

The Global Planning And Development In addition to the above, the responsibilities of the Global Planning and Development group were expanded to include new business development. The group would manage Avons emerging market ventures in China, Eastern Europe, Russia, and other parts of the former Soviet Union, as well as other new market ventures. Advantages Of A Global Organization The new slimmed-down global organization will make Avon more responsive to local markets while providing economies in such areas as global manufacturing, purchasing and research and development. Avon will also be able to better exchange best practices, growth initiatives and competitive information more rapidly from market to market and become the embodiment of the phrase, Think global, act local.The new market-oriented organization was expected to speed decision-making, eliminate unnecessary levels of management, allow sharing of successful business practices by previously autonomous divisions, and reduce overhead by centralizing such functions as purchasing and manufacturing. It would concentrate on discovering what buyers wanted in each individual market and provide consumers with products in a way that would enable Avon to achieve its long run growth objectives. Avon Global DirectionAvon forces to engage the entire company in becoming more customer-oriented and more market driven. The task forces established the following targets to guide management in objective setting and strategy development: 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; and 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. Having implemented a regimen of operating strategies, financial controls, organizational changes, innovative leadership, and market-based targets over the past four years, Avon now favorably positioned to enjoy a period of growth. In a worldwide corporate climate of abrupt changes and discontinuities, of newly emerging forces and dangers, and of unforeseen influences at home and abroad, Avons leadership could well ask the unanswered question, Will the internal organizational and other changes that have been made reposition Avon so that it can compete successfully in the global marketplace.AVON STRATEGIC PROBLEMS, TRENDS & FORCESWhat to do about new product linesIt would be a good idea for Avon to research into launching new products in different lines than they are currently in but keep them similar in the industry. In order to continue growing and obtain bigger cash flows and profits you have to spend before you get a payoff. With Avon's new research and development plant they should be able to quickly design and market new product lines without many problems. Having new product lines will help maintain growth and internal expansion.How to maintain growthAvon has been growing globally for decades to continue to do this Avon needs to be aware of what it will entail. They have taken care of research and development with their new facility but there are many other factors that could inhibit them. Reluctances to expand internally will hold them down as well as finances. Avon may have to look into selling totally new products, which is consistent with what was before mentioned.

How to continue cutting costsThroughout Avon's business transformation they have done an incredible job cutting costs mostly thanks to Kropf. How to continue to cut costs may rise a problem because they have launched new cosmetics that are selling well, put millions into research and development, and do not want to upset loyal customers by retiring old products that have a loyal customer base. Some customers may be hooked on a classic product such as Skin-so-Soft and just happen to by other products every once in a while when they reorder their Skin-so-Soft. Cutting this product out of the line will not only result in a loss of sales due to the product but all other little buys that each customer may order in the process. Avon's business transformation may have to look elsewhere at every part of its value chain to try and cut out expensive virtually unneeded parts to try and cuts costs.Internal ExpansionSome may say that there is no room for internal expansion because Avon has done such a good job in international markets and that it is not needed. I believe that the CFT market is so big that internal expansion within the company should be a must. I think Avon should continue to grow within and outside the United States, create more jobs and look into developing more new product lines in the men's shaving and baby care areas. Avon's strategy wants to diversify and penetrate new markets and what better way to do it than with new products. Developing alliances with department stores and more Internets selling will also help with internal expansion.Direct-Selling Model Dependent on Earnings from Active Sales RepresentativesIn both domestic and global markets, Avon's sales largely come from direct selling through its Active Sales Representatives. The 6.2 million Representatives that Avon employs are independent contractors that receive a percentage commission for their sales but do not enjoy employee benefits. The idea behind the direct-selling model is that if Avon can eliminate the middle-man (department and cosmetic stores) and get its products directly to consumers, they will be able to cut costs and increase profits. One of the goals of the 2005 Turn-around Plan to increase the number of Representatives paid off in 2007 when the company had a 13% increase in net sales as a result of the increase in the number of Representatives. Due to its reliance on direct-selling through representatives, Avon not only competes for the end consumer but also for representatives that are knowledgeable about the industry and about beauty products. Avon's dependence on the productivity and profitability of the representative direct-selling model exposes it to cost and litigation risks. In 2004, four Avon representatives filed a class action lawsuit against the company for alleged "channel stuffing," where Avon supposedly shipped products representatives without an order and held representatives responsible for payment for the unordered shipments. It is likely that AVP will incur future costs through litigation and resolution of the lawsuit, which may include terms that would increase costs and decrease profits for Avon.Multi-year Cost Restructuring Initiative May be Unable to Reduce Costs and Support Increased AdvertisingIn late 2005, Avon launched a Turn-around plan that included several strategic initiatives to realign costs, improve products, and increase market share through brand competitiveness. Avon expects annualized savings of more than $430 million when the plan is fully implemented in 2011-2012. However, with the global economic downturn and slowing demand for non-essential personal care products, Avon may not be able to achieve its savings target. For example, Avon has dropped its prices so far that at the end of Q2 2009, 70% of its products were prices less than $5. Falling short of its savings targets would be detrimental to Avon's profitability as it would no longer be able to support its increased advertising spending. In 2009, Avon decreased advertising costs by 10% which was in contrast to the 48% increase in 2007 and 83% increase in 2006 - a sign that the company was cutting back due to the economic downturn to support new product launches and improve brand recognition as part of the turn-around plan. Although Avon does not want to reduce advertising spending, which means success of the turn-around plan is vital to supporting Avon's increased advertising costs as well as costs incurred by the company's entry and expansion in new global markets, the economic downturn has forced the company to cut back on advertising. At the end of 2009, the company revised its turn-around plan and now hopes to save $200 by 2011-2012. Direct-Selling Business Model Exposed to Regulations in the Global MarketAvon has become synonymous with the direct-selling business model - the process by which the company hires independent contractors, called Active Sales Representatives, and pays them percentage of commission to sell Avon products directly to customers. By removing the need for a middle distributor, such as a department or cosmetic store, Avon hopes to eliminate costs and increase profits. In 1998, the Chinese government banned direct-selling in response to abuses perpetrated by some corporations. The company's business in the region was crippled in the short-term and strongly disadvantaged in the long-term as the company was forced to abandon its direct-selling strategy and had to open its own retail stores in order to sell products. Not until 2006 did China re-licensed Avon for direct-selling, which allowed Avon's revenues from China to increase rapidly from 2006 to 2008. Total revenue from China rose from $212 million in 2006 to $353 million in 2009. Similar situations may arise in Avon's other emerging market segments, which would negatively impact Avon's revenue growth globally. Large Presence in Global Market Exposes Avon Products to Currency Fluctuation Risks80% of Avon's sales revenues come from markets outside of the United States, making the company very sensitive to currency fluctuations and the strength of the dollar. A weakening of the dollar against foreign currencies would allow Avon products to become more competitively priced in global markets, thus positively affecting sales revenue from foreign markets; however, a weak dollar would also mean higher costs for products manufactured overseas. AVON KEY SUCCESSKey success factors concern the product attributes, competencies, competitive capabilities and market achievements with the greatest bearing on company profitability. These are the things that the company does well and helps them obtain profits.Ability to get new products out of R&D and into the marketWith all the money and time Avon has put into the Research and Development part of the company it has paid off. In 2002 Avon spent $100 million on a new state-of-the-art research and development facility. This provides researchers with the materials they need in an easy work environment, which in turn improves efficiency in every aspect of the process. Having this facility enables Avon to have their new products out in the market very quickly compared to other rivals such as Revlon and Estee Lauder. This skill gives Avon an image of superior technology and quality and provides them with the first mover advantage in many cases as well.Internet CapabilityIt was only in the past decade that Avon became familiar with the Internet. When Jung took over she saw that e-commerce was on a fast rise and that Avon was not capitalizing on this sales opportunity. It was only a matter of time before Avon had their own website that now has all kinds of e-commerce activities. Avon's website enables customers to order products, read on the most recent developments by Avon, informs them of sales and clearances as well as free gift giveaways and the top ten selling items. Customers can shop by product or category and check on their account status, review the most frequently asked questions or get assistance all at the click of a mouse. By making their web site easy to navigate and perform multiple tasks, Avon has helped reduce ordering costs and increase sales.Managerial ExperienceAndrea Jung, Avon's Chief Executive Officer, has been with Avon since 1994. Before working for Avon, she graduated from Princeton and joined Bloomingdales where she rose to second in command before the age of thirty. When she joined Avon she entered as the President of United States product marketing and continued to impress her upper management. Her bold decisions made her stand out and she was named CEO in 2001 at the age of forty. Susan Kropf who has been with Avon since the early 90's moved and Executive Lieutenant, to Executive Vice President and President of North American operations. Kropf has worked alongside Jung and was key in the Business Process Reengineering efforts that achieved great success in 2001, with savings of more than $150 million. The experience and success of Avon managers is un-teachable, irreplaceable and are definitely a huge factor on why Avon is where it is today.Accurate Filling of OrdersOnly six years ago you would hear customers complain about the inaccuracy of Avon's mail orders. This is a rare complaint today. New training programs and the implementation of the Avon website has enable the company to fill orders fast and accurately. The days of human error with direct selling have almost become obsolete with the new initiatives taken place to eliminate such error. Incentives implemented by the sales leadership program have also made Avon give consistent quality service.CONCLUSIONAvon management has re-evaluated and map out the long-term future of the firms business to develop them in the international market and be a player in cosmetic industry on a global level.By Customizing Marketing Internationally based on geographical areas, Avon tries to satisfying the subtleties and intricacies of customer demand around the world meant that the firms business would vary from country to country and market to market. To reach a wider target in the geographical area over the globe, Avon developed Avon Select, a direct marketing program, to enable customers to buy Avon products in various settings. Customers could order products via any one of four methods: through their Avon representative, by mail though special Select catalogs, by the 1-800-FOR-AVON telephone, or by FAX which were offered worldwide. This indicates that Avon is playing a major role as a cosmetic leader in a global perspective.Other than that, new programs were designed to complement the existing network of Avon sales representatives to reach a wider coverage in developing global direction. Avon spent 2 to 3 percent of annual sales on image-enhancing advertising and promotion programs worldwide to make customers aware of Avon products and the purchase options available. Even retail stores were not ruled out by management as a viable alternative for the distribution of Avon products.It was not easy for Avon in the process to develop a global organization. It affected the firm in a number of different ways. The product line was rationalized by strengthening and developing a certain number of global brands that were important and sold on a worldwide basis. Sourcing of raw materials and the logistics system took advantage of Avons strong presence in many markets in terms of efficiencies in the supply chain. A changing environment which encouraged lower duty rates suggested that it was no longer necessary to manufacture products in the countries where they were sold. Underutilized manufacturing plants, from a capacity of view, could now be consolidated with others plants were also an affecting issue for Avon in being global.By implementing a regimen of operating strategies, financial controls, organizational changes, innovative leadership, and market-based targets has favorably positioned Avon to enjoy a period of growth in worldwide. The internal organizational and changes that have been made reposition Avon so that it can compete successfully as the Cosmetic Leader in Global MarketplaceREFERENCES1. David, Fred, R Strategic Management Concepts and Cases 12ed. Prentice Hall 20092.Retrieved December 3, 2010 www.avon.com3. Retrieved December 3, 2010 www.wikinvest.com4.Avon Calling For Help Business Month April, 2010.5.Avon Calls At 50 Times Earnings, Business Month November, 2006 -2009.6.Avon Products, Inc., Annual Report, New York, N.Y., 20107.Avon Products, Inc., Annual Report, New York, N.Y., 20098.How Avon Rings Their Chimes, Sales and Marketing Management, November, 20099.Avon Products, Inc.: DEVELOPING A GLOBAL PERSPECTIVE10.Retrieved December 2010 www.yahoo.com/images

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