NORTHERN CARIBBEAN UNIVERSITYCOLLEGE OF CONTINUING EDUCATION
MONTEGO BAY CAMPUS
A Strategic Management Project Prepared In Partial Fulfillment of the Requirement for
The Bachelors Degree in Business Administration & Management Studies
A Study Conducted on the case study Avon Products Inc.
Prepared By:
Tabia MacfarlaneChrystal BradyRicardo HansonDenise Heaven
Claudette DrummondShermete Jones
Joycelyn Thompson
Submitted to: Mr. Michael IsaacsDue Date: December 20, 2010
Course: MGMT 490 – Strategic Management
Table of Contents
Title Page number
Case Abstract................................................................................................................3-5
Vision statement for Avon Product Inc...............................……………………..........6
Mission statement for Avon Product Inc…………………..........................................6
Proposed Vision .............…………………………………………..............................7
Proposed Mission Statement……………………………………….............................7-8
Mary Kay Mission Statement………………………………………………................8
Internal Assessment
Financial Ratios Analysis (Table 1.1)……………………..............................9-10
Avon Organizational Chart and analysis (Figure 1.1).....................................10-11
Proposed organizational chart (Figure1.2)……………………………….......12-13
Marketing positioning map and analysis..........................................................13-14
Analysis of Marketing Strategies…………………………………………….14-15
Map locating the firm’s operations…………………………………………..16-17
Strengths..........................................................................................................18
Weaknesses…………………………………………………..........................19
Internal Factor Evaluation (IFE) Matrix (Table 1.2)…………………….......20
External Assessments
Avon Major Competitors............................……………................................21-22
Pie Chart (Figure 2.1)......................................................................................23
Pest Analysis (Table 2.1)…………………………………………….............24
Opportunities……......................................………………………….............25
Threats.............................................................................................................26
External Factor Evaluation (EFE) Matrix (Table 2.2)........................................27
[2]
Competitive Profile Matrix (CPM) (Table 2.3)………………………………..28
SWOT Matrix (Table 2.4)……………………………………........................29-30
Strategic Position and Action Evaluation (SPACE) Matrix (Figure 2.2)………….....30-32
The Quantitative Strategic Planning Matrix (QSPM), (Table 2.5)…………………...33-36
Financing Options
EPS/EBIT Analysis for Avon Product Inc.…………………………..............37-39
Avon Projected Financial Statement ………………………............................40
Avon Projected Balance Sheet……………………………………...................41
Project financial ratios........................................................................................42
Evaluation
Balance Scorecard…………………………………………………...............43-46
Conclusion...................................................................................................................47-48
Reference.....................................................................................................................49
Avon Product Inc
[3]
Case Abstract
David 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 CPC’s California office however, before long the company reopened. CPC’s
first office outside United State was opened in 1914 in Montreal, Canada. In the 1920’s
CPC sales doubled to $2 million during this time there were more than 25,000
representatives in the United States. The Company’s name was change to Avon Products
Inc. after the British town Stratford-upon-Avon in 1938. Avon’s 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 1970’s U.S sales top $750 millions and the first Avon Asian
business was opened in Japan. Avon also acquired the Jeweler Tiffany’s during this
period of growth. It was the first major U.S. cosmetics manufacturer to permanently end
animal testing.
Avon adopted five (5) core values which are Trust, respect, belief, humility and
integrity which are evident in the mission statement to be a Global beauty leader,
women’s 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 world’s 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 it’s investment in 2007 by over $120 million which aided in the development of
[4]
new sales leadership opportunity, improved training, technology tools and changes in
commission structure.
There are three (3) 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 apart 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 Courteney Cox as the face of the brand.
Avon’s 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
Avon’s 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 Avon’s revenue was $10.37
billion compared to Mary Kay $2.40 billion and Revlon $1.35 billion.
Avon implemented reconstructing programs in 20098 which included closing two
manufacturing facilities. In addition, there is heavy investment in online search engines
and internet carrier sites to help increase Avon’s revenue. Andrea Jung is the Chief
Executive Office who is leading the management team of thirteen to achieve its goal.
[5]
Avon: Beauty, Home and Fashion
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—We will build a unique portfolio of Beauty and related
brands, striving to surpass our competitors in quality, innovation and value, and
elevating our image to become the Beauty company most women turn to worldwide.
(1, 2)
The Women’s Choice for Buying— We will 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— We will expand our 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 our industry. (3)
The Best Place to Work— We will be known for our leadership edge, through our
passion for high standards, our respect for diversity and our commitment to create
exceptional opportunities for professional growth so that associates can fulfill their
highest potential. (9)
[6]
The Largest Women’s Foundation— We will be a committed 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—We will deliver superior returns to our shareholders
by tirelessly pursuing new growth opportunities while continually improving our
profitability, a socially responsible, ethical company that is watched and emulated as
a model of success. (5, 7)
The five values of Avon are: Trust, respect, belief, humility, and integrity. (6, 8)
Vision (proposed)
To be the leading provider of home, fashion and beauty products that will satisfy our
customers while preserving the environment.
Mission statement (proposed)
Avon is committed to being the leading global provider of home, fashion and beauty
products that will enhance the lives of our customers. We will utilize latest technology
and will pursue new growth opportunities that will bring about wealth for all our
stakeholders. At Avon we firmly believe in respect: respect for people and respect for the
environment.
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 we thought that it was prudent to include
the environment to emphasize our responsibility to society as we all work towards a
sustainable future.
[7]
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 company’s 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
lives”
Mary Kay’s mission “Enriching Women’s Lives”
Mary Kay’s mission is to enrich women’s lives. We will do this in tangible ways by
offering quality products to consumers, financial opportunities to our independent sales
force, and fulfilling careers to our employees. We also reach out to the heart and spirit of
women, enabling personal growth and fulfillment for the women whose lives we touch.
We will carry out our mission in a spirit of caring, living the positive values on which our
company was built.
The components identified were customers, products, philosophy and concern for
employees; hence it lacked the identification of the market, technology, concern for
survival, growth and profitability, self-concept, and concern for public image.
Mary Kay does not have a formal vision statement.
[8]
INTERNAL ASSESSMENT
Table 1.1
Financial Ratio Analysis
Avon Product Inc. Current ratio have increased from 2006 to 2008 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 2008 than in previous
years. Additionally, more operating income means that more projects can be
undertaken which is in synchronization with strategic management processes.
[9]
Ratios 2006 2007 2008
Current Ratio 0.75 1.15 1.22
Quick Ratio 1.1 0.93 0.88
Operating Profit Margin 0.09 0.09 1.25
Net Profit Margin 0.05 0.05 0.08
Return on Stockholders Equity
0.60 0.75 1.29
Total Asset Turnover 1.67 1.73 1.76
Debt/Equity Ratio 5.62% 7.03 7.99%
Earnings Per Share 2.60 2.87 4.72
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 2008 compared to 2006 and 2007 which
indicates that Avon Products Inc holds much more financial leverage in terms of
debt and equity financing.
AVON’S ORGANIZATIONAL CHART
Figure 1.1
[10]
Chairman and CEO
Vice President,
Chief Finance and
Strategy Officer
President Avon
Products
SVP, Global Communications
SVP & General Counsel
SVP, Chief Information
Officer (CIO)
SVP Human Resource
SVP and Global Brand
President
SVP and President Avon Asia
Pacific
EVP, Avon Latin
American and Central & Eastern
Europe
EVP, Global Direct
Selling and Business
Innovations
SVP & President
North American
SVP Global Supply Chain
NOTE:
1. Andrea Jung, Chairman and CEO2. Charles Cramb, Vice Chairman, Chief Finance & Strategy Officer3. Elizabeth Smith, President, Avon Products4. Nancy Glaser, SVP, Global Communications5. Kim Rucker, SVP & General Counsel6. Donagh Herlihy, SVP, CIO7. Lucien Alziari, SVP Human Resources8. Jeri Finard, SVP and Global Brand President9. Bennett Gallina, SVP and President, Avon Asia Pacific10. Charles Herington, EVP, Avon Latin America and Central & Eastern Europe11. John Higson, EVP, Global Direct Selling and Business Innovation12. Geralyn R. Breig, SVP & President, North America13. John Owen, SVP Global Supply Chain
Analysis:
• There are different divisional areas outlined
• The structure shows direct communications from the CFO to the CEO
• Reporting structure is not clearly identified
• There should be no dual title such as Chairman and CEO
• It is not clear why the regional divisional presidents are on the same level as the
SVP, human resource
• Research and Development Officer cannot be identified
• It is not clear who reports to the Chief Finance and Strategy Officer although this
person is on the same level as the President of the products
• There could be communication problems since all high level manager report to
the president of the products who then reports to the CEO.
[11]
Figure 1.2
PROPOSED ORGANIZATIONAL CHART
Analysis:
For the proposed organizational chart we recommend that dual titles should not be
used such as SVP and CIO. Additionally, we separated the divisional presidents from the
same line of communication as the SVP, Human Resource. Also directly below the CEO,
we moved the Chief Finance & Strategy Officer who we thought could be view as the
COO. We recommend that the divisional presidents report to the COO who would then
report to the CEO. We thought it would be necessary to include a Research and
Development (R&D) Officer would report directly to the CEO. This individual would be
responsible for overseeing all the aspects of a research project eg. repositioning the Avon
brand. The R&D officer would aim to develop eco-friendly products through means
which are more environmentally friendly also such an individual would have the
[12]
Andrea JungCEO
Research & Development
Chief Information Officer
SVP, Human Resource SVP, Global
Communications
VP, Chief Finance & Strategy Officer
SVP Global Supply Chain
SVP & General Counsel
EVP, Global Direct
Selling and Business
Innovations
SVP and Global Brand
President
EVP, Avon Latin
American and Central & Eastern
Europe
SVP & President
North American
SVP and President Avon Asia
Pacific
President Western Europe
Middle East and Africa
responsibility to be fully aware of all the things that are happening especially in terms of
the scientific facet of the projects being created.
Marketing Positioning Map
Customer Service (High)
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 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.
Superior customer service compared to rivals:
Avon 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
[13]
Avon
Revlon
Mary Kay
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 Strategies:
Avon
Diversification of product line to appeal for greater market shares.
Direct selling to customers
Products differentiation: Beauty, fashion and Home
Heavy investment in online search engines and internet carrier sites to improve on
delivery
Improve in advertising by using celebrities to promote products such as, Avon
make up
New and innovative products which are embraces by celebrities eg. ‘Spotlight’
which was a new fragrance introduced with Courtney Cox being the face of the
product.
Focus mainly on women
Avon lacks brand image – the name ‘Avon” is not associated with most of the
products.
Revlon
Different categories of distribution:
Prestige – Department stores, specialty stores and chain department stores such as
JC Penny (international)
[14]
o Broad – Drugs stores, food stores, cosmetics discounters
Products are regularly promoted with coupons
Brand Strategy - high price link to quality of products and brand image
Products are sold through their websites www.revlon.com
Constantly having new products and developments
Mary Kay
Direct Selling to customers
Highly motivated sales force
Uses several programs to motivate, recognize, and develop It’s beauty
consultants, which include recognition in a monthly magazine, annual
events, gifts and prizes and most importantly, financial incentives
[15]
Map locating the firm’s operations:
Avon Products, Inc. markets its products to women in over 100 countries through
over 5 million independent Avon Sales Representatives. The map below shows the six (6)
geographic regions where Avon products are marketed and sold.
[16]
• 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 & the Bahamas • Barbados • Bermuda • Curacao • Dominica • Grand Cayman Island •Grenada •Guyana •Jamaica •St. Kitts & Nevis • St. Lucia • St. Maarten • St. Vincent • Suriname • Tortola • Trinidad & Tobago • Virgin Island
Internal Assessment: Strengths
[17]
• Argentina • Bolivia • Brazil • Chile • Colombia • Costa Rica • Ecuador • El Salvador • Guatemala • Honduras • Mexico • Nicaragua • Panama • Paraguay • Peru • Uruguay • Venezuela
• 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
• Australia • Hong Kong • India • Japan • Malaysia • New Zealand • Philippines • South Korea • Taiwan • Thailand • Vietnam
1. Avon is a Global Market Leader
2. Committed and dedicated workforce - 5.4 million Avon representative in over
100 countries making Avon the largest sales force
3. World’s Largest Micro lender for women - extending some $1 billion in
product and credit each year to help women start their own entrepreneurial
businesses
4. Channel of distribution – world’s largest direct seller
5. Manufacturing operations match ISO 14001 standards
6. Avon owns its major manufacturing and distribution centers
7. Increased in revenue in most geographic area. Due to increase in internet
presence. (Revenues increased 7.5% from year 2007 to 2008)
8. Avon is one of the world’s 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 testing
Internal Assessment: Weaknesses
[18]
1. Decrease in North American Sales Revenue by 129.4 million
2. Weak Brand Image
3. High advertising costs – Companies advertising spending went from $136
millions in 2005 to $249 millions in 2006 to $368 millions in 2007 and 14%
higher in 2008
4. Poor brand loyalty
5. Does not target urban trendsetters
6. Beauty Sales in the first quarter 2009 were 12% lower compared to sales
revenue in previous year 2008
7. Avon lagged behind seven of their cosmetic companies in customer loyalty
Table 1.2
[19]
Internal Factor Evaluation Matrix (IFE)
Key Internal Factors Weights Rating Weighted Score
Strengths 1. Global Market Leaders 0.09 4 0.362. Committed and dedicated workforce - 5.4 million Avon representative in over 100 countries 0.08 3 0.243. Revenues increased 7.5% from year 2007 to 2008
0.06 4 0.244. Channel of distribution – worlds largest direct seller 0.05 4 0.2
5. Award winning company worldwide0.05 3 0.15
6. World’s Largest Micro lender for women 0.06 3 0.187. World’s top global brands – 90% recognition worldwide 0.06 3 0.188. Excellent promotional strategies 0.08 4 0.329. Manufacturing operations match ISO 14001 standards 0.08 3 0.2410. Announced permanent ending to animal testing 0.07 4 0.28
Weaknesses1. Brand Image 0.06 1 0.062. High advertising costs 0.05 2 0.13. Misleads representatives 0.03 2 0.064. Avon seems like a commodity 0.05 2 0.15. Avon lagged behind seven of their cosmetic companies in customer loyalty 0.09 2 0.186. Revenue decreased in North America by 129.4 million 0.04 2 0.08Total 1.00 2.97
Ratings: 1- major weakness, 2-minor weakness, 3-minor strength, 4-major strength
Analysis: The overall weighted score of Avon Products Internal factor Analysis (IFE) is
2.97 which indicated that the internal functions/roles are strong at Avon Products Inc.
[20]
EXTERNAL ASSESSMENT
AVON’S MAJOR COMPETITORS
Revlon
Mary Kay
Mary 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 Revlon’s 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
[21]
attract women of all ages with quality affordable makeup, jewelry, shoes, purses and
children’s 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 company’s revenue is now generated through online orders.
Avon’s revenues far exceed both major competitors. Their revenue is almost four
and half times that of Mary Kay’s and seven and half times Revlon’s. Avon’s 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.
[22]
Figure 2.1
Pie Chart:
Data: Sales for Avon in 2009 was $10.83b Revlon 1.30b Mary Kay 2.6B
[23]
Table 2.1
PEST Analysis
Political Factors
Tax policies Employment laws Trade restrictions and tariffs Political stability
Economic Factors
Economic growth Interest rates Exchange rates Fluctuation in oil and gas prices
Social Factors
Emphasis on safety
Technological Factors Automation Technology incentives Rate of technological change
[24]
OPPORTUNITIES
1. 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 market
3. Also 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 markets
6. 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 distress
8. 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 markets
[25]
THEATS
1. Competition such as Mary Kay and Revlon
2. Rejection of internet selling by sales representative
3. 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
6. Rising cost of commodities
7. 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 lines
10. Decreased earning opportunities
[26]
External Factor Evaluation Matrix (EFE)
Table 2.2
The table below shows the opportunities that are available and
factors that threaten the success of the business.
Critical Success Factors Weights Rating Weighted Score
Key External Factors Opportunities
1. Organic (Green) Products 0.09 4 0.36
2. Eye makeup market 0.07 3 0.21
3. Increase Internet Presence 0.08 4 0.32
4. Urban trendsetters market 0.09 4 0.39
5. Cosmetic industry tends to countercyclical 0.07 3 0.216. Geographic growth 0.09 4 0.36 6. Demand for cosmetic products normally
remains constant and unaffected by economic distress
0.05 3 0.15
Threats 7.Competitors 0.08 2 0.168. Rejection of Internet Selling by sales rep. 0.07 3 0.219. economic Downtown 0.09 2 0.1810. Market Slowdown 0.08 3 0.2411. Inflation Rate 0.07 3 0.2112. Rising cost of commodities 0.07 2 0.14Totals 1 3.14
Ratings: 1= the response is poor, 2= the response is average, 3= the response is superior, 4= response is superior
[27]
Table 2.3
Competitive Profile Matrix - CPM
Avon Revlon Mary Kay
Critical Success Factors Weight RatingWeighted
Score RatingWeighted
Score RatingWeighted
Score
Price competitiveness 0.10 3 0.30 4 0.40 2 0.20
Global Expansion 0.09 3 0.27 4 0.36 2 0.18
Organizational Structure 0.04 2 0.08 4 0.16 3 0.12
Employee Morale 0.07 2 0.14 4 0.28 1 0.07
Technology 0.10 4 0.40 2 0.20 3 0.30
Product Safety 0.10 4 0.40 3 0.30 2 0.20
Customer Loyalty 0.10 2 0.20 4 0.40 3 0.30
Market Share 0.07 2 0.14 4 0.28 3 0.21
Advertising 0.10 2 0.20 4 0.40 1 0.10
Product Quality 0.10 2 0.20 3 0.30 1 0.10
Product Image 0.05 3 0.15 4 0.20 2 0.10
Financial Position 0.08 4 0.32 3 0.24 2 0.16
Total 1.00 2.80 3.52 2.04
Ratings: 1 – Poor, 2 – Average, 3 - Above Average, 4 – Superior
The table above shows the various area of the organizations competitive edge in
the industry.
[28]
Table 2.4
Strength-Weaknesses-Opportunity-Threats (SWOT) Matrix
STRENGTHS
10. Global market leader11. Largest sales force12. World’s largest micro lender
to women13. World’s largest direct seller14. ISO 14001 certification for
largest manufacturing plants.15. Avon owns its major
manufacturing and distribution centers.
16. Increase in revenue in most geographic area due to increase in internet presence.
17. First cosmetic manufacturer to end animal testing.
WEAKNESSES
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.
Opportunities1. 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
SO Strategies1. 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)
WO Strategies1. Increase awareness of
efforts to protect the environment. (W2, O1)
2. Increase market share by positioning products to attract urban trendsetters (W5,O4)
THREATS1. Competitors such as Mary
Kay and Revlon2. Rejection of internet selling
by sales representatives3. Economic downturn 4. Rising cost of commodities
ST Strategies1. 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)
WT Strategies1. Discount products that are
not earning substantial revenue and then faze them off the market in a timely manner. (W6,T3)
[29]
Based on the analysis of the SWOT matrix for Avon we have come to realize that
brand repositioning in the form of packaging is necessary, in order for us to create a
stronger brand image and improve customer loyalty. We also realize that through
aggressive market penetration we will further be able to increase revenue, further strength
our competitive edge and increase profitability in the North American region.
Strategic Position and Action Evaluation (SPACE) Matrix
FS Y6
Conservative 5 Aggressive
4
3
2
1
CA IS-6 -5 -4 -3 -2 -1 1 2 3 4 5 6
X-2
-3
-4
-5
Defensive Competitive-6
ES
Strategic - aggressive(0.8)-y(1.20)x
[30]
Internal Strategic Position External Strategic Position
Financial Strength (FS) Environmental Stability(ES)
Return on Investments 3 Competitive Pressure -4
Leverage 2 Unemployment -4
Liquidity 5 Technological Changes -3
Working Capital 5 Barriers to Entry -4
Cash Flow 5 Price Elasticity of Demand -1
FS Average 4 ES Average -3.20
Competitive Advantage (CA) Industry Strength (IS)
Market Share -3 Growth Potential 5
Product Quality -3 Profit Potential 4
Customer Loyalty -2 Financial Stability 4
Control over Suppliers and Distributors -3 Productive Capacity Utilization 3
Technological Know-How -3 Resource Utilization 2
CA Average -2.80 IS Average 3.60
Financial Strength + Competitive Advantage
Y axis=FS (4) +ES (-3.2) = .08
X axis=CA (-2.8) +IS (3.6) =1.2
FS & IS +1(worst) to +6 (best)
ES & CA -1(best) to -6(worst)
[31]
According to the diagram above our company has a strong competitive position in
the market with rapid growth. We will use our internal strengths to:
(1) To maximize on our external opportunities
(2) Minimize internal weaknesses
(3) Avoid external threats
We will employ the 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 will
proceed with in to the near future.
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 the organization.
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, it still does not reveal how Avon can become market leader as it relates to
brand loyalty.
[32]
Quantitative Strategic Planning Matrix (QSPM) for Avon Inc
STRATEGIC ALTERNATIVES1 2 3
Improved marketing strategies
(packaging, coupons, online bill boards,
discounts
Improve R&D to
introduce more
“green” product
Improve employee
empowerment through regional
training and development
Key External Factors Weight AS TAS AS TAS AS TASOpportunities
1. Organic (Green) products 0.16 1 0.16 4 .64 2 .32
2. Growth in eye makeup market 0.09 4 .36 3 .27 3 .27
3. Increase internet presence 0.1 3 0.3 1 0.1 2 .20
4. Urban trendsetters market 0.05 3 0.15 3 0.15 2 0.1
5. The cosmetic industry tends to countercyclical 0.1 3 0.3 3 0.3 3 0.3
6. Demand for cosmetic products normally remains constant and unaffected by economic distress 0.11 3 0.33 2 0.22 1 0.1
Threats
1. Competitors 0.1 3 0.3 3 0.3 1 0.1
2. Economic downturn 0.1 2 .20 1 0.1 1 .1
3. Rising cost of commodities 0.09 ― ― ― ― ― ―4. Rejection of internet selling by sales
representatives 0.1 2 0.20 1 0.10 3 0.20
SubTotal 1 2.30 2.18 1.69
The Quantitative Strategic Planning Matrix (QSPM) for Avon Inc STRATEGIC ALTERNATIVES
[33]
1 2 3Improved marketing strategies
(packaging, coupons, online bill boards,
discounts
Improve R&D to
introduce more
“green” product
Improve employee
empowerment through regional
training and development
Key Internal Factors
Strengths
1. Global market leader 0.12 3 0.36 3 0.36 3 0.36
2. Largest sales force 0.11 4 0.44 3 0.33 4 0.44
3. World’s largest micro lender to women 0.1 4 0.4 4 0.4 4 0.4
4. World’s largest direct seller 0.15 4 0.6 4 0.6 4 0.6
5. ISO 14001 certification for all manufacturing plants. 0.05 3 0.15 3 0.15 3 0.15
6. Avon owns its major manufacturing and distribution centers 0.06 4 0.24 4 0.24 3 0.18
7. Increased in revenue in most geographic area. Due to increase in internet presence. 0.05 4 0.2 3 0.15 4 0.2
8. First cosmetic manufacturer to end animal testing. 0.05 4 0.2 3 0.15 3 0.15
Weaknesses
1. Decrease in North American Revenue. 0.05 3 0.15 3 0.15 3 0.15
2. Weak brand image 0.08 2 0.16 2 0.16 4 0.32
3. High advertising budget/ costs 0.05 ― ― ―
4. Does not target urban trendsetters. 0.05 ― ― ―
5. 5 Poor brand loyalty 0.05 4 0.2 3 0.15 4 0.2
6. Beauty sales in the first quarter 2009 were 12% lower versus the prior year period. 0.03 ― ― ―
Grand Total 1 5.40 4.87 4.69
[34]
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.
New Strategies
1) 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 Strategies
1) Direct Selling/ Network Marketing
2) Increase internet presence
3) Employee Empowerment
Improved market strategies (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, through more aggressive advertisement campaigns, sales
promotions, mail-in discounts/coupons, increase internet presence and bill boards. We
will be able to further heighten brand awareness, build customer loyalty and create appeal
[35]
for our products by new and existing customers. We look 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 loyalty- being 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. We have decided to reposition the brand in terms of packaging and
labeling of Avon products. We will seek 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. We will actively pursue this over the next three years at an estimated
cost of 10 million dollars.
Total estimated cost of $ 30 million
These recommendations can be implanted on a phase basis over the next three
years.
[36]
EPS/EBIT Analysis for Avon Product Inc. (millions)
Amount needed: $30 mil
Stock Price: $31.90
Tax Rate: 35%
Interest rate: 5%
# of shares outstanding: $427.5 mil
Common Stock Financing
Recession Normal Boom
EBIT 773.83 1018.2 1287.8
Interest 0 0 0
EBT 773.83 1018.2 1287.8
Taxes 249.17 327.86 414.67
EAT 524.66 690.30 873.13
# Shares 428.4 428.4 428.4
EPS 1.22 1.61 2.04
[37]
Debt Financing
Recession Normal Boom
EBIT 773.83 1018.20 1287.8
Interest 1.5 1.5 1.5
EBT 772.33 1016.7 1286.3
Taxes 248.69 327.4 414.2
EAT 523.64 689.3 872.1
# Shares 427.5 427.5 427.5
EPS 1.22 1.61 2.04
Combination Financing (Debt 30%/Stock 70%)
Recession Normal Boom
EBIT 773.83 1018.2 1287.8
Interest .45 .45 .45
EBT 773.4 1017.8 1287.4
Taxes 249.03 327.73 414.5
EAT 524.4 690 872.9
# Shares 428.1 428.1 428.1
EPS 1.22 1.61 2.04
[38]
Combination Financing (Debt 70%/Stock 30%)
Recession Normal Boom
EBIT 773.83 1018.2 1287.8
Interest 1.05 1.05 1.05
EBT 772.78 1017.1 1286.75
Taxes 248.84 327.5 414.3
EAT 523.9 689.6 872.5
# Shares 427.8 427.8 427.8
EPS 1.22 1.61 2.04
Equity was chosen for financing the company because if recession continues and
the company does not make a profit we are not obligated to pay any dividends
With equity there is the existence of capital gains
[39]
AVON'S PROJECTED INCOME STATEMENT FOR 2010-2012 IN MILLIONS
2009 2010 2011 2012
Revenue 10,284.70
11,313.17
12,444.49
13,688.94
Other revenue Total 98.10 113.17 124.45
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 1,757.6
4 1,912.43
2,173.51
Interest Income (Expense), Net Non Operating - - - - Gain (Loss) on Sale of assets - - - -
Other Net (7.1
0) (9.0
0) (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 (2.4
0) (2.00)
(2.00)
(1.60)
Equity Interest 0 0 - - US GAAP Adjustment $0.00 $0.00 $0.00 -
Net Income before Extra. Items 625.8 759.8 868.80
1,072.30
Total extraordinary items 0 0 - -
Net Income 625.8 759.8 868.80
1,072.30
[40]
AVON'S PROJECTED BALANCE SHEET FOR 2010-2012 IN MILLIONS
2009 2010 2011 2012ASSETSCash and short term investment 1338.4 1356.4 1364.44 1368.4Total Receivables net 1219.9 1119.9 1169.9 1219.9Total Inventory 1067.5 1174.25 1291.68 1420.85Prepaid Expense 122.8 120.5 110.7 122.8Other Current Asset 440.7 443 390.7 440.7Total Current Asset 4189.3 4214.05 4228.38 4572.65
Property/Plant/Equipment total net 1529.6 1529.6 1529.6 1529.6Goodwill, net 224.8 231.8 233.8 234.8Intangible, Net 125.8 131.8 134.8 135.8Long term investment' 49.8 49.8 49.8 49.8Note Receivables-Long term 0 0 0 0Other Long Term Assets, total 713.4 713.4 713.4 713.4other Assets total 0 0 0 0Total Assets 6832.7 6870.45 6889.78 7236.05
LIABILITIES AND SHAREHOLDERS EQUITYAccounts Payable 754.7 754.7 754.7 754.7Payable Accrued 0 0 0 0accrued Expenses 1247.3 1247.3 1247.3 1247.3Notes Payable/short term debt 0 0 0 0Capital Leases 138.1 138.1 138.1 138.1Other current liabilities total 134.7 241.9 358.88 488.05Total current liabilities 2274.8 2382 2498.98 2628.15
Total long term debt 2307.8 2357.8 2360.8 2360.8Deferred Income Tax 173.8 173.8 173.8 173.8Minority interest 40 40 40 40Other liabilities, total 763.7 713.7 710.7 710.7Total Liabilities 5560.1 5667.3 5784.28 5913.45
Redeemable Preferred stock 0 0 0 0Preferred stock - non redeemable, net 0 0 0 0Common Sock 186.1 204.1 212.1 216.1Additional Paid in capital 1941 1941 1941 1941Retained Earnings (Accumulated Deficit) 4383.9 4383.9 4383.9 4383.9
Treasury - Common-4545.8 -
4587.45-4733 -4525.8
Other Equity -692.6 -738.4 -698.5 -692.6Total Equity 1272.6 1203.15 1105.5 1322.6
Total liabilities & shareholders Equity 6832.7 6870.45 6889.78 7236.05
Projected Financial Ratios
[41]
Analysis:
The current ratio and quick ratios show that Avon is 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 productivity
The 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 good
The Debt/Equity ratio shows that Avon is using more equity to finance operations
EPS shows that Avon is becoming more attractive to investors
Balance Scorecard
[42]
Ratios 2010 2011 2012
Current Ratio 1.84 1.8 1.7
Quick Ratio 1.3 1.2 1.2
Operating Profit Margin 0.15 0.15 0.16
Net Profit Margin 0.07 0.07 0.07
Return on Stockholders’ Equity 0.63 0.79 0.81
Total Asset Turnover 1.66 1.82 1.91
Debt/Equity Ratio 4.7% 5.2% 4.5
Earnings Per Share 3.7 4.1 5
The strategic planning and management system that provides a frame work for
measuring performance and assisting managers identify what it is that needs to be
measured and completed, while enabling executives in the execution of these strategies
constitutes the makeup of the balance scorecard.
There are four fundamental perspectives from which organizations using this system can
implement their vision and strategies include:
1) Financial performance perspective which 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 organization’s 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 perspective includes the training and continuous upgrading
of employees knowledge, skills and abilities that necessitates the advancement of
being technologically savvy.
Avon inc. now plans to use the BSC system to implement the essential link between
business-planning strategies and people plans for greater productivity. This is to ensure
[43]
that as a company we 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 social institutions such as food for the poor are high on the priority list
of the Avon Family
EVALUATION
Objectives Measure/TargetTime Expectation
Primary Responsibility
[44]
Financial Chief Financial Officer
To succeed financially,
Lower customer acquisition costs.
Shareholders value Continuous
how we appear toDouble digit sales growth
Growth 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 product Net profit on percentage sales
Customers Operations
How to achieve ourEnsure on-time delivery always
Percentage of on- time delivery. Continuous
vision, the importance of Increase customer
retention
Number of customers, email addresses, time duration between purchases
satisfying our customers
Reward customer loyalty
Percentage on returnConversion rate
Internal Business OperationsTo analyze operations and see how products and services achieve
Supply chain excellence in order confirmation
quick turnaround on the delivery of orders Continuous
total shareholder and customer satisfaction,
Adoption of some social services
Incorporating and engaging quality, talented skills
What business process must we excel at? Generating revenue
Operations -
measures of quality, products and costs
Learning & Growth Human ResourceTo achieve continuous training and upgrading
Ensure managers are exposed to
People - employee retention, training and skills Continuous
of employees skills and abilities. market changes
Successful penetration of new markets
Always keeping abreast Online service Continuous improvement in of new technology innovation CRM Advancing change and
Implement a succession plan
Increase value in Knowledge management
self- improvement system
In the final analysis our main aim of the BSC is to enable us to meet our strategic
objectives by identifying the various means of improving workforce productivity. This is
[45]
an effective tool in maximizing our company’s resources and building capacity in a
structured and planned way. These plans not only look at the strategic and operational
components for our company to succeed, but also consider the people factor in
developing and delivering our business.
Conclusion
The strategies that we proposed are similar to that of Avon Product Inc’s existing
[46]
Strategies. In order for us to see an increase in total revenue by 10% in all market
segments, we will have to explore increasing our internet presence and usage. When we
do this it will lead to an increase in sales as more persons will be aware of online
ordering and purchasing. Internet users are increasing rapidly and it is imperative for an
organization such as Avon to be innovative in order to maximize on the opportunities that
can be derived from internet shopping as well as other market segments.
Avon Product Inc is moving with the rapid changing of times by embracing the
societal concept; manufacturing products to satisfy customers’ needs, making good
marketing decisions to achieve company objectives bearing in mind the long term
interests of society. We will improve our research and development unit to introduce
more green products all in an effort to promote a more eco-friendly environment. This
again will enhance the marketing strategy techniques in direct selling and network
marketing.
Repositioning the Avon brand image would entail attractive packaging, designing
a brand logo distinguishing its products from other brands to yield brand loyalty and
employee empowerment through personal identification to and with the brand Avon.
We are proud to be associated with the company Avon who believes in employee
empowerment which we exemplify through the provision of jobs and various
opportunities for its employees and sales representatives. Brand repositioning will bring
ownership and a sense of loyalty.
As strategists, it is imperative to not disregard or rule out any alternatives or
existing strategies but explore, incorporate and build on these strategies to better enable
[47]
the company to reach its desired long term objectives. We believe that all strategies are
relevant for this today for a successful future.
References
1. David, Fred, R “Strategic Management Concepts and Cases” 12ed. Prentice Hall 2009
[48]
2. Retrieved December 3, 2010 www.yahoo.com/images
3. Retrieved December 3, 2010 www.avon.com
4. Retrieved December 3, 2010 www.wikinvest.com
[49]
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