Avon case study solution

BPMN3023 STRATEGIC MANAGEMENT Sman Tairos (2017)
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Table of Contents
1.0 Introduction................................................................................................................................3
2.0 Company Profile (Internal Forces)..............................................................................................4
2.1 Company’s Name ....................................................................................................................4
2.2 Company’s Type and Industry................................................................................................4
2.3 Vision,Mission, Objectives and Strategies...............................................................................4
2.3.1 Vision.................................................................................................................................4
2.3.2 Mission...............................................................................................................................5
2.3.3 Objectives and Strategies ....................................................................................................5
2.4 The List ofBoard of Director (BOD).......................................................................................6
2.5 The List of Top Management Team.........................................................................................6
2.6 Organizational Structure.........................................................................................................7
3.0 Case Analysis of Avon Product Inc..............................................................................................8
3.1 Avon Strategic Issues...............................................................................................................8
3.2 Issues in Avon Product Inc. .....................................................................................................9
3.2.1 Poor Management Strategy.................................................................................................9
3.2.2 Global Bribery Investigation in China..................................................................................11
3.2.3 Sheri McCoy as the Replacement of Andrea Jung................................................................12
4.0 External Forces.........................................................................................................................13
4.1 PESTEL Analysis of Avon.....................................................................................................13
4.1.1 Political Situation Analysis of Avon.....................................................................................13
4.1.2 Economic Situation Analysis of Avon..................................................................................14
4.1.3 Social Situation Analysis of Avon........................................................................................15
4.1.4 Technological SituationAnalysis of Avon ............................................................................15
4.1.5 Environmental Situation Analysis of Avon...........................................................................16
4.1.6 Legal SituationAnalysis of Avon.........................................................................................16
4.2 Porter’s 5 Forces Model Analysis ..........................................................................................17
4.2.1 Threat of New Entrants .....................................................................................................17
4.2.2 Threat of Substitute Products ............................................................................................18
4.2.3 Bargaining Power of Suppliers............................................................................................19
4.2.4 Bargaining Power of Buyers...............................................................................................20
4.2.5 Intensity of Rivalry among Competitors..............................................................................21
5.0 Strategy.....................................................................................................................................22

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5.1 Existing Strategy in Avon......................................................................................................22
5.1.1 Direct Selling.....................................................................................................................22
5.1.2 Women Empowerment.....................................................................................................22
5.1.3 Expansion of the Company into Other Industries.................................................................24
6.0 Organizational and Environmental Analysis.............................................................................25
6.1 SWOT Analysis .....................................................................................................................25
6.1.1 Strengths..........................................................................................................................25
6.1.2 Weaknesses......................................................................................................................27
6.1.3 Opportunities ...................................................................................................................28
6.1.4 Threats.............................................................................................................................29
6.2 TOWS Analysis.....................................................................................................................30
7.0 Recommendation.......................................................................................................................31
7.1 Market Penetration...............................................................................................................31
7.2 Eco-friendly products............................................................................................................31
8.0 References.................................................................................................................................32
9.0 APPENDIX...............................................................................................................................34

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1.0 Introduction
Avon is a powerhouse in the beauty industry in sales and claims its stake as being the
largest direct seller in the world. In 1886, thirty four years before women in the U.S. had even had
the right to vote, a visionary entrepreneur named David H. McConnell had the extraordinary idea
to found a business based on the premise of giving women an opportunity to earn money outside
of the home and build financial independence. From that one idea to a company of over six million
representatives in over 100 countries across the globe, the company has grown and prospered
(Avon, 2010). As the world's largest direct seller, Avon markets to women in more than 100
countries through 6.2 million independent Avon Sales Representatives. Avon's product line
includes beauty products, as well as fashion and home products, and features such well-recognized
brand names as Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals, and Mark.
Ticker AVP (Avon, 2010).
Avon was established in America in 1886 with distinctive approach of selling women
cosmetics with the name of Avon calling. This idea of business was initiated by David McConnell
from New York. The main merchandise of business was not perfume and creams but at the age of
sixteen McConnell started to sell books through door to door selling. He found out he was not able
to entice the consumers to buy the books so he initiated the campaign by offering free gifts as
perfumes which he produced with the collaboration of the pharmacist. Subsequently, this turned
out to be an incentive that became a mainline product for Avon and the books were abolished,
paving the way for Avon cosmetics’ existence.

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The door to door selling was made specifically to specification and later by 1887
McConnell hired around 13 women representatives. As the firm grew, so did the product line. In
1920, the company introduced a line of products called Avon that consisted of a toothbrush,
cleanser, and vanity set. The Avon name was inspired by the area about the company’s laboratory
at Suffern, New York, which Mr. McConnell thought resembled the countryside of William
Shakespeare’s home, Stratford-on-Avon, England. The name of the line became so popular that in
1929, the company officially became Avon. By 1929, the company was selling low-cost home
care and beauty products, door-to-door and through catalogues in all 48 states.
2.0 Company Profile (Internal Forces)
2.1 Company’s Name
Avon Product Inc. Founded by David H. McConnell in 1886. Avon is the world’s largest
direct seller with 6.4 million representatives until year 2012 all over 100 countries.
2.2 Company’s Type and Industry
Avon Product Inc. is the world's leading seller of cosmetics and beauty-related items.
Avon always build global brand and attract more consumers to buy its products. Direct sales
remain as the main marketing channels, but sales through the website and catalogue are also
carried out. Their product categories include cosmetics, fragrances, apparel and home
furnishings. Avon also used the women empowerment strategy from the beginning to create
their own brand image. Avon uses both door-to-door sales people and brochures to advertise
its products to the users.
2.3 Vision, Mission, Objectives and Strategies
2.3.1 Vision
The vision of Avon is to be the company that best understands satisfies the product,
service and self-fulfillment needs of women globally. The vision of the company is clearly
describes what the company want to become in the future. Well-developed visions of a
company express the company’s aspirations in a clear manner.

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2.3.2 Mission
A mission of a company describes the reasons for the existence of the particular
company and elaborates what functions the company plays in the group of society. The
mission statement of Avon Company states that the company will build a beauty portfolio
that is unique and related brands, so that it can exceed its rivals in the level of excellence,
innovation and value. Then, it can build on its image, so that it can become the best
company and be a leader in global beauty that every woman turns to. Second, Avon wants
to be women’s choice for buying. This is because Avon is the company that sells all the
things that woman need such as cosmetics like mascara, lipstick and may more. Third,
Avon wants to be a premier direct-selling company. Avon is the second largest direct
selling enterprise in the world after Amway. Direct selling has been the major marketing
strategy of the company.
Fourth, Avon want to be the most admired company among all consumers even
from different kind of people, such as teenagers or adults. Sixth, Avon also wants to a best
place to work. Avon will become the destination store for women, which offering the
convenience of multiple brands and channel, and providing a high touch shopping
experience that helps create lifelong customer relationship. Lastly, Avon want to have the
largest foundation dedicated to women’s causes, which will expand it presence in direct
selling and lead the reinvention of the channel, offering an entrepreneurial opportunity
that deliver superior earnings and elevating the image of it industry.
2.3.3 Objectives and Strategies
The objectives of the Avon Company include strengthening the direct sales, to enter
new markets, to increase its revenue margins, to increase the range of its products, to
enhance the organization effectiveness and to cut on costs by 400 million dollars.
Avon Company has adopted a number of strategies that are appropriate for the
achievement of some of the goals it has set. It has mainly majored in adopting marketing
strategies, which are include the internet marketing strategy that the company promote its
products through writing informative articles about its products on its website. Therefore,
this promotes can increase of its sales because people become aware about the products

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of the company offers. The company offers shipping services as a marketing strategy,
which they deliver the products a customer has purchased online to places where the
customers will find convenient to pick them. So, customer base is enhanced and the sales
of the company increase because customers feel it is convenient to trade with the company
2.4 The List of Board of Director (BOD)
Name Position
Andrea Jung Executive Chairman & CEO
Sheri McCoy Chief Executive Officer, Avon Product
Kimberly A. Ross EVP and Chief Finance
2.5 The List of Top Management Team
Name Position
Donagh Herlihy SVP and CIO
Jeff Benjamin SVP and General Counsel
John Owen SVP and Global Supply Chain
Scott Crum SVP human resource and CIO
Bob Briddon SVP and President, Avon Asia Pacific
Mike Schwartz SVP and Global Insights & Marketing Intelligence
Cheryl Heinonein GVP and Global Corporate Relation
Jorge Martinez Quiroga SVP and President, North America
John Higson SVP and President Europe, Middle East, Adr
Fernando J. Acosta SVP and Avon Latin America & Central, Eastern Europe

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2.6 Organizational Structure
Figure 1: Organizational Structure of Avon and the Functions of Positions
Andrea Jung
Executive Chairman
& CEO
Jeff Benjamin
SVP, General
Counsel
Donagh
Herlihy
SVP, CIO
Kimberly A. Ross
EVP, Chief Finance
Sheri McCoy
Chief Executive Officer,
Avon Product
Fernando J. Acosta
SVP, Avon Latin
America & Central,
Eastern Europe
Bob Briddon
SVP and President,
Avon Asia Pacific
Scott Crum
SVP human
resource, CIO
John Owen
SVP, Global
Supply Chain
John Higson
SVP & President
Europe, Middle
East, Adr
Jorge Martinez
Quiroga
SVP & President,
Norty America
Cheryl Heinonein
GVP,Global
Corporate Relation
Mike Schwartz
SVP, Global Insights &
Marketing Intelligence

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Figure 2: Chart of Avon Company Structural Design
This is the chart of the Avon Company structural design of organizational structure
of this company. Chief Executive Officer is at the heart or operating system of the
company. Under C.E.O have their sub ordinates that control the overall business activities
of the company. Avon has Executive Vice President which is Chief Operating Officer and
Chief Financial Officer, Senior Vice President which is General Counsel and Chief Ethics
& Compliance Officer, Human Resources & Chief Human Resources Officer, and lastly
Global President.
3.0 Case Analysis of Avon Product Inc.
In this part, we would like to look in deepen in the case of Avon in order to figure out what
are the strategic issues that the company is facing. Moreover, this chapter also will discuss the
causality of the problems confronted by the company Avon.
3.1 Avon Strategic Issues
Nowadays, the business environment is highly competitive and the success depends
on a strong business strategy. Both entrepreneurs and their employees need to make sure
that the business is in the front line where quality of customer care is the main focus and
ensure customer satisfaction by offering a variety of products. Like any business industries,
the beauty industry is highly competitive. Avon, the world largest leading direct seller
confronts tight competition from various competitors such as Mary Kay, P&G, Arbonne
and L’Oréal.

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Avon historically had enjoyed great success as a leading global beauty company.
However, this world largest beauty care products is now suffering from range of strategic
issues. Strategic issue is the fundamental challenge faced by the company which required
attention and careful decision to resolve in order to achieve the business goals (Ambler,
2017). However, identifying the strategic issue is one of the most difficult steps to be taken
in strategic planning. At Avon, the issues triggered after the CEO step down, Andrea Jung
at the end of 2011 which caused many challenges for the company future. For instance, the
company’s share price dropped more than 50 percent. The company was also facing bribery
charges in some its overseas operation particularly in China as well as undergone with SEC
internal investigation which force Avon to spend huge of money.
Therefore, the strategic issues confronted by the company can be summarized as
Avon is struggling to recover from poor management strategies that led to a CEO
changeover and global bribery investigations that incurred huge spending of funds.
3.2 Issues in Avon Product Inc.
3.2.1 Poor Management Strategy
Avon is struggling to recover from poor management strategies that led to a
CEO changeover. Avon has been facing lots of problem due to the mismatch of
position with the experts. In December 2011, the Executive Chairman and CEO
of Avon, Andrea June announced that she would step down from her position as
soon as her replacement was found. According to the Fortune reported that “The
company had surprised the Street, missing analysts’ estimates, and reporting that
it would no longer hit its revenue-growth and operating-margin targets for 2011.”
(Kowitt, April 11, 2012). Consequently, the management misstep caused the beauty
products company at vulnerable and brand image declined. The share price had
decreased for more than 50 per cent and Avon faced the threat of takeover by its
competitors. A private held Coty, majority-owned by German holding company
Joh. A. Benckiser GmbH, made an unsolicited offer for Avon at the end of March,
2012 for $10 billion.

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Under Jung leadership, Avon had experienced great growth and expansion in
the early years of her execution. As in June 2004, Avon’s stock price rose to $46
per share and the profit increased from $287 million in 1999 to $846 million in
2004. Moreover, Avon embraced into international markets and non-US which
contributed up to 70 percent of sales. However, the enjoyment was not long last
due to the management misstep of Jung and emerging of potential competitors
which pursuing Avon’s customer such as P&G. Many analysts criticized that Jung
was taking Avon away from what it used to be. The company did not have clear
defines of strategic vision which confused the employee of the company’s
objectives. During Jung leadership years, Avon adopted a slogan “The Company
for Women,” which faded away from its long-term ad campaign “Ding Dong, Avon
calling.” The old tagline emphasized the direct selling strategy but Jung did not
embrace the direct selling strategy as she was taking Avon to new arena which is
retail.
Avon reached to the top and implemented a half-billion-dollar restructuring,
downsizing 30% of managers and cutting its 15 layers down to 8. This restructuring
created a revolving door at Avon that left employees demoralized and confusion
around Avon’s strategic direction. Further, Jung started looking at acquisitions as a
way to restart expansion. Avon had acquired Silpada, a silver jewelry direct seller
for $650 million. It was a bad move to acquire Silpada and Avon had to write-down
amount to $263 million due to plunged in the silver price in the commodity market
in 2011. Moreover, Avon products in international markets, Brazil was also
struggling to compete with a strong regional brand, Natura. The problem occurred
due to poor management in products packaging and delivery. The products were
delivered late, order went unfilled and shipment to the representative delayed. This
problem dragged Avon’s sale to drop about 8 percent. The situation becomes worse
in China when Avon was found to be in charge of violations of the Foreign Corrupt
Practices Act (FCPA).

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To sum up, it was clear that all those issues rise because of management
misstep under the leadership of Andrea Jung. Avon suffered huge losses in both
local and international markets and product brand declined. Number of
shareholders pressure Avon to have quick rejuvenation of the company. Finally,
Avon’s board announced in December 2011 that Jung would step down as CEO
with two years contract to stay as executive chairman.
3.2.2 Global Bribery Investigation in China
Avon entered into China market in 1990 and the company effectively sold its
beauty products due to high demand in the mass market. Unfortunately, the Chinese
government banned the direct selling in 1998 which forced Avon to open the
Beauty Boutique as required. Avon received a license to continue direct selling in
China in 2006 and it ran its operation via hybrid mode namely maintaining selling
in boutique plus direct selling via representatives. According to Wahba (2014), a
senior writer of Fortune reported that Jung had close relationship with the Chinese
government officer which indulges her business, Avon to sell the beauty products
efficiently in the restricted marketplace.
However, in 2008 Jung received a whistleblower that disclosed her secret
bribe to the Chinese government in order to pursue a direct selling in China. The
allegation of violation of Foreign Corrupt Practice Act (FCPA) which drove Avon
to begin an internal investigation by SEC that cost large amount of fund. It was
reported that Avon spent more than $225 million on legal fee and professional fee
related to the FCPA inquiry and compliance reviews.
The revenue plunged from 35% to 145% in China operation and the reputation
of the Avon left at face down (Kowitt, 2012). In the end, Jung left Avon at bruised
as it suffered great financial lost to undergo the internal investigation and also
caused the company products’ brand at bad reputation. According Avon annual
report 2012, company’s revenue decreased by 1% as the fourth quarter of 2012.
Moreover, Avon loss from continuing operation in the fourth quarter of 2012 was
amount up to $160 million.

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3.2.3 Sheri McCoy as the Replacement of Andrea Jung
When Seri McCoy, the new CEO of Avon, took-over the position, many
public views arose as if she is the right match for the challenge? Specially, is she
the strategic leader who can work with others to find out ways to facilitate Avon’s
efforts to create value for all stakeholders and perhaps especially for shareholders?
Is the plan she is putting into place going to lead to the turnaround at Avon that
many believe is necessary?
In fact, the company Avon had suffered severe losses under the leadership of
former CEO, Andrea Jung, hence Seri McCoy came to fix the company is a great
challenge for her. McCoy was actually trying to turnaround the business by
downsizing and abandoning some of foreign markets to cut the costs. The
restructuring plan initiative with new corporate strategy which is transnational
strategy to maintain the standardization of products as well as to optimize the local
responsiveness would help Avon to enhance sales and performance. However, at
this short period of time Avon would not be able to recover immediately since the
cost-cutting initiative by McCoy would have many things to be restored. For
instant, company ad campaign and engaging in e-commerce incurred spending for
$125 million in order to upgrade the software. Hence, McCoy is having a hard time
to restore the company sustainability.
Further, Hrebiniak the Warton Management professor expressed that McCoy
is clearly qualified with her profession and skills in Johnson & Johnson to recover
the company Avon as an innovative customer-centric cosmetics organization.
However, he added that McCoy needs some times to turnaround the business since
she has no experience in direct selling and it could be big challenge after the mess
created by Jung’s uncertain strategic management of the company. Certainly,
McCoy is facing the daunting lists of challenges in order to restore Avon to what it
used to be.

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4.0 External Forces
4.1 PESTEL Analysis of Avon
PESTEL analysis is one of the main tools used by the companies to track the external
environment in which they are operating their business activities. PESTLE is one of the effective
ways of analyzing the external environment of a business which covers political, economic, social,
technological, legal and environmental analysis (Hutchins, 2010). Therefore in this project of
Avon case study analysis we would like to use the PESTLE analysis in order to know farther about
the external environments of Avon Company. By using the PESTLE analysis it is easy to get a
bird’s eye view of Avon Company from different angles and also from different prospective which
might affects the performance of Avon Company.
4.1.1 Political Situation Analysis of Avon
Political situation of a particular country where the company is operating its
business is very important because it determines the extent to which a government can
influence the business activities of a particular industry. Avon Company which mainly
based in United States has extended its business of beauty products in more 100 countries.
Thus as a multinational business company, Avon have to be aware of the political situation
of a country where it conducts its business. Further, the long term profitability of the
company also depends highly on the political stability and certain policy implemented by
the government of the country (Palade, 2011). In case of Avon, it needs to take care of the
following political factors that can affect its business operation and level of profitability.
 The level of political stability of the country and the level of corruption in a
particular country where Avon is operating.
 The level of safety provided by the industry safety regulation in term of
consumer goods sector.
 Avon has to know the policy and regulation implemented by the government
in consumer goods sectors.
 Trade regulations, tariffs, tax rates and incentives provided by the government
to the consumer goods and personal care products sectors.

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4.1.2 Economic Situation Analysis of Avon
Economic situation is mixed of macro-economic situation and micro economic
situation in an economy where Avon is performing it task. Avon should take care of the
macro economic factors like inflation rate, savings rate, interest rate, foreign exchange rate
and to a great extent Avon should be aware of the economic cycle of the particular country
where is operating or where is plans to open its new subsidiary. Further it is important for
the Avon to be aware of the foreign exchange rate since it is a multinational country thus a
little bit change in the foreign exchange rate can affects Avon either positively or negatively
(Dilwa, 2015).
Nevertheless, microeconomic factors are also similarly important like macro-
economic factors which Avon should take into consideration in order to keep its
performance better. In addition the microeconomic factors like competitive advantage of
the firm are very important factors for Avon in order to do compete with its rivalry. As one
of the main competitive advantages of the Avon is the direct selling thus Avon should put
more efforts to keep their competitive advantage. The economic situation which Avon
should take care of is given below:-
 Exchange rate and stability of host country’s currency. For example Avon
currently focusing on the China as it is having emerging economy. So in
this case is the exchange rate between China currency and US currency
stable or not.
 Government intervention in the free market especially in the consumer
goods. For instance, in China the government does not allow the direct
selling method so Avon should have other strategy to sell their products.
 Another main factor for economic analysis is the interest rate and inflation
rate of the country where Avon is operating. Because due to certain level of
inflation it can affects the price of the products of Avon.
 Efficiency of financial markets – Does Avon Products, Inc. needs to raise
capital in local market or they can get it from the parent company.

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4.1.3 Social Situation Analysis of Avon
PESTEL analysis include the consideration of social situation which is very crucial
because to extend the business into a new country, Avon should be aware of the social and
cultural norms of that country. Understanding the beliefs and attitudes of the people in a
particular country where there are potential customers of Avon play a great role for Avon
Products Inc. By understanding this, Avon able to produce the products which can fulfill
the demand of the customers. Usually, the market of Avon beauty products is huge in USA
and UK because the culture over there for women is always in an outfits and outlooks
which is fashionable. Further, Avon should be responsive to the change in the fashion and
lifestyle of the people in a country where is operating. The factors that Avon should take
care regarding social situation are given below-:
 Demographic culture and attitude of the people towards beauty products and
fashion. For Avon as its mostly operating in European countries where
fashion and beauty is highly treasured by the female thus it gives positive
impacts on Avon Products Inc.
 Entrepreneurial spirit among the people of the country. As Avon Products
Inc is based on the direct selling where it representative works as
entrepreneurs who sells the products door to door.
4.1.4 Technological Situation Analysis of Avon
Innovation in technology is one of the main factors that any business company
should aware of since due to the innovation in technology easily drives any products to be
obsolete. Technological advancement can affects a company from three main prospective
such as new ways of producing good and service where some companies use modern
technology to produce more products with less time, efforts and cost. Further, innovation
in technology can also affects a company in term of distribution of goods, for instance in
case of Avon where Avon is based on direct selling thus due to the innovation of internet
shopping it has highly affected the distribution strategy of Avon Products Inc. In addition,
innovation of technology also affects the Avon in term of communication with the target
customers.

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4.1.5 Environmental Situation Analysis of Avon
Environmental situation is one of the most important factor since Avon is a beauty
products company. Thus, Avon should be aware of the environment of particular country
so that it can offers products which is suitable for the skin according to the environment.
Further, in producing products different countries can have different types of law in order
to protect the environment. For instance, Avon USA is headquarter however there is certain
environment law for example in producing goods the company should not cross the limit
of carbon emission. Thus, in producing products Avon should oblige this law other than
that it might cause problem for the company. Furthermore, another main market of Avon
Products Inc is the Europe where a lot of countries give healthy tax breaks to the company
which can operate in renewable sectors.
4.1.6 Legal Situation Analysis of Avon
Legal situation is another main factor that should be considered during doing the
PESTEL analysis for any particular company. In case of Avon company the legal situation
also plays very important role since Avon is operating its business in more than one country
where the legal system might not be the same as other countries. Avon should carefully
evaluate before entering such markets as it can lead to theft of organization’s secret sauce
thus the overall competitive edge. Further in whatever country Avon is operating, it should
consider whether the country has sound legal system or not which can protect the
intellectual property rights of the Avon products. Below are the legal factors that Avon
should consider as:-
 The country where Avon has opened its subsidiary should have the
copyright law in personal and beauty products which helps Avon to
maintain its own intellectuality.
 In the market where Avon is operating should have the employment law
which help Avon to solve any dispute that takes place in the working
environment.

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4.2 Porter’s 5 Forces Model Analysis
Five forces model was developed by Michael Porter in 1979 to understand how five key
competitive forces are influencing an industry and to analyze the competitive environment in
which a product or company works. These forces determine an industry structure and the level of
rivalry in that industry. Porter Five Forces is a holistic strategy framework that took strategic
decision away from just analyzing the present competition. In Avon contextual analysis, Porter
Five Forces focus on how Avon Products, Inc. can build a sustainable competitive advantage in
Personal Products industry. The five forces identified are:
Figure 3: Porter’s 5 Forces Model
4.2.1 Threat of New Entrants
Identifying new entrants is important since they can threaten the market share of
existing competitors. Basically, new entrants have a keen interest in gaining a large market
share. As a result, new competitor may force existing firms to be more productive and to
learn on how to compete in new dimensions such as Internet-based distribution channel.
According to Wilkinson (2013), explained the threat of new entrants as the threat from new
competitors pose to existing competitors in a particular industry. Hence, the profitable
industry tends to attract more competitors which lead to increase in competition and
production capacity without an increase in consumer demand and therefore less profit
earning.

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Cosmetics and beauty products industry is a very competitive market where
companies might loss the opportunity of gaining a large market share. Any such industry
is vulnerable of entry of new competitor in the market. Avon operates at a high market
share in the cosmetics industry but has to face many competitors already existing in the
form of strong brand names available internationally such as Mary Kay, L’Oreal, P&G,
Arbonne and Olay. These competitors manufacture and sell broad product lines through
various types of retail establishments. This beauty products industry has lucrative profit
line with high consumer demand, hence, there is a high threat of new entrants for such
beauty products companies including Avon company. The threat is high and Avon should
keep that in consideration when it comes to redesigning policies to face the challenges.
The new entrants in Personal Products bring innovation, better approaches and put
pressure on Avon Products, Inc. through lower pricing strategy, diminishing costs and
providing new value propositions to the customers. Avon Products, Inc. has to manage all
these challenges and construct effective barriers to defend its aggressive or competitive
edge. In addition to compete against strong competitors, Avon competes in product
differentiation which is the fashion and the home business as well. According to Avon, it
competes in the gift and decorative products and apparel industries globally. The new
products not only bring new customers to the fold but also give old customer a reason to
buy Avon’s products rather than other competitors.
4.2.2 Threat of Substitute Products
Substitute products are good or service from outside a given industry that perform
similar or the same functions as a product that the industry produces. This force is
especially threatening when buyers can easily find substitute products with attractive prices
or better quality and when buyers can switch from one product or service to another with
little cost. When it comes to cosmetic or beauty product industry, substitutes are available
in terms of price as well as a quality and range of products.
In case of Avon, the threat of product substitute is quite high. This is due to access
availability of customers to substitute product in the market that can satisfy their needs and
the relative price offered by substitute products drops and consumer’s switching costs

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decrease. There are many competitors in cosmetic industry include Olay, Arbonne and
Mary Kay. Therefore, there is a high threat of substitute products for Avon. If
manufacturers sell their products at higher prices, or if the products are of low quality, then
consumers are able to purchase substitutes from many competitors who are present in the
market environment (Gregory, 2003). These issues also happen in Avon industry.
Customers have many substitutes available in case they are not satisfied with
Avon’s price or quality of product. This is because customers love to compare the price
among cosmetic products and they will choose a lower price with good quality. One of the
competitors of Avon is Olay. Olay provides the product with a low price. The rise of
organic and traditional cosmetic products also affect Avon company. For example, Mary
Kay. Mary Kay is an organic and natural product. Although the price is higher than Avon
products, but customer still buy it because it has high value and offer advantages to user.
However, product substitutes present a strong threat to firms when the firms
differentiate their products along dimensions that are valuable to the customers such as
quality, innovativeness and the distribution channel besides reduces a substitute’s
attractiveness. In this term, Avon distinguishes its products through their innovativeness
and the distribution channel used to sell the firm’s products. The increased personalization
that goes hand-in-hand with direct selling creates customer loyalty. It should be kept in
mind that when customers become a loyal to a product, they do not shift to another brand
easily. Keller (2003) also has mentioned that “in order for suppliers to tackle the challenge
of threat of substitutes, they have to innovate products which meet the needs of their target
market segments.”
4.2.3 Bargaining Power of Suppliers
Increasing prices and diminishing the quality of products are potential means
suppliers use to exert power over firms competing within industry. In industry, when
suppliers are less and the companies are dependent on the suppliers then the suppliers will
use this power to manipulate the companies and negotiate the price.

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In cosmetic industry, this is not the issue because there is huge number of suppliers
available in both large and small scale companies. Almost all companies in the cosmetic
products industry buy their raw material from numerous suppliers. Thus, the bargaining
power of supplier is low due to high number of market players in the industry and large
supply of diverse products in the market. Avon relies on numerous suppliers for the raw
material of its products specifically essential oil, chemicals, containers and packaging. So,
Avon has the power to influence the market prices.
Besides, Avon tackle bargaining power of supplier by developing dedicated
suppliers whose business depends upon the firm. One of the lessons Avon Products, Inc.
can learn from Wal-Mart and Nike is how these companies developed third party
manufacturers. Most of Avon’s fashion and home segment products are purchased from a
variety of third party suppliers. The loss of any one supplier would not have a material
impact on ability to source a raw material for Beauty products on fashion and home
categories.
Furthermore, Avon implemented its Strategic Sourcing Initiative (SSI). Under this
initiative, the company will shift its purchasing strategy toward a global supplier
orientation. In addition, Avon also implemented an Enterprise Resource Planning (ERP)
System on a worldwide basis. The goal of ERP system is to increase the efficiency of
Avon’s supply chain, reduce costs and also reduce the dependency of suppliers.
4.2.4 Bargaining Power of Buyers
Alternatively, buyers or customers of an industry want to buy products at the lowest
possible price. When the customers have too many substitutes in the market for a certain
product, they can have the opportunity to shift to another substitute product.
The bargaining power of buyers in Avon industry is high. This is because the
intense competition among existing competitors and the availability of the similar products
offered from different manufacturer. Though, fixed prices are imposed by Avon company
to its valued customers, they have chances to weigh prices from different prevailing
competitors that offer equal quality.

21
Further, most of the customers are informed about seller’s products, prices, and
costs and they have the discretion in whether and when to purchase the product. It is
important for Avon to innovate new products that attract customers to buy its products and
be a loyal customer. Therefore, Avon takes an action by building a large base of customers
such as gives discounts on products. This will be helpful in two ways. It will reduce the
bargaining power of buyers plus it will provide an opportunity to the firm to streamline its
sales and production process. Customers often seek discounts and offerings on established
products so if Avon Products, Inc. keeps on coming up with new products then it can limit
the bargaining power of buyers.
4.2.5 Intensity of Rivalry among Competitors
Many competitors existing in the cosmetic industry causes the rivalry is high and
this rivalry present globally as well as in the form of local competition in various market
in certain countries. Competitive rivalry increases when a firm is challenged by a
competitor’s actions or when a company recognizes an opportunity to improve its market
position. The concentration of companies creating cosmetic products is strong especially
in developed countries creating a high rivalry among existing firms. Typically, firms seek
to differentiate their products from competitor’s offerings in ways that customers value and
in which the firms have a competitive advantage such as product differentiation.
Avon Products, Inc. operates in a very competitive Personal Products
industry. However, the Avon industry growth rate is low. This is due to the numerous
competitors such as Mary Kay and Arbonne. Avon, Mary Kay and Arbonne use their
resources, capabilities and core competencies to try win each other’s customers. The
instability in the market that results from these competitive engagements may reduce or
diminish the profitability for all firms engaging in such battles.

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5.0 Strategy
5.1 Existing Strategy in Avon
5.1.1 Direct Selling
Direct selling is a type of sales channel where products are marketed directly to
customers, eliminating the need for middlemen which are wholesalers, advertisers and
retailers. Direct selling can be conducted one-on-one, in a group or party format, or online.
A major characteristic of direct selling is the personal contact between a sales person and
a customer, away from a retail store. Direct selling provides important benefits to
individuals who desire an opportunity to earn income and build business of their own. It
offers the prospect of self-determination and financial interdependence.
Direct selling has been the major marketing strategy of the Avon. Avon implements
door-to-door selling type of direct selling. For Avon, the "direct" part of direct selling also
refers to the personal component of this sales channel. It is about building relationships
with people and offering them a high level of service and personal attention. Avon used
freelance salespeople or ‘representative’ to visit people in their homes and to demonstrates
and explain the use of a range of beauty products.
According to Avon, direct selling connected women who were otherwise isolated
and immersed in domestic life in what the company calls the original social network.
Through direct selling, women could sample and purchase beauty products without having
travel miles to the nearest department or drug store. By focusing on personal relationships,
Avon’s sales exceeded $1 million by 1920, $1 billion by 1972 and $10 billion by 2008.
5.1.2 Women Empowerment
Women empowerment refers to increasing and improving the social, economic,
political and legal strength of the women, to ensure equal-right to women and to make them
confident enough to claim their rights. According to Avon, beauty is the journey and
empowerment is the destination.

23
The legacy of Avon Founder David H. McConnell, and the core priority of the company
today is the empowerment of women. This mission is as relevant today as it was in 1886
when the company was founded.
The Avon independent Sales Representative earnings opportunity empowers
women by enabling Avon’s six million Avon independent Sales Representatives to support
themselves and their families. Avon supports each Representative in her efforts to achieve
success and empower her to be self-sufficient by earning an income. The company's direct-
selling model offers a low cost of entry, a wide range of training and development
opportunities, management support, and digital direct selling tools that enable
representatives to manage and grow their businesses as never before. In field management,
as well as other representatives, provides mentoring, training and support.
Besides, Avon also empowered women to make an impact. Avon has used women
empowerment strategy from the beginning to create its brand image. Unique to Avon is
our woman-to-woman network of representatives combined with our capacity to educate,
engage and mobilize. Representatives make up a powerful grassroots movement that
reaches across continents and time zones to raise awareness and funds for issues of health,
safety and well-being that are important to women. Avon does a lot of awareness
campaigns such as Breast Cancer awareness program. For the Avon Breast Cancer Crusade
and Speak Out Against Domestic Violence initiatives, representatives have raised hundreds
of millions of dollars through sales of special products and personal participation in walks,
runs and other events worldwide. For Healthy Forests, Beautiful World initiative,
representatives raised millions of dollars to help restore endangered rain forests in Brazil
and Indonesia.

24
5.1.3 Expansion of the Company into Other Industries
One clear advantage to expanding a business into other industries is the opportunity
firm to create more value to the customers and also expand its business across the world.
Since people are often recognized as the most important asset of a company, acquiring new
and talented personnel is a clear-cut advantage to business expansion. This strategy can
help streamline processes, bring fresh ideas to the organization and bring a sense of
camaraderie to the organization.
Avon is one of the largest and well known company producing cosmetic or beauty
products in the world. However, Avon faces competition in both the United States and
international markets from any competitors. Therefore, Avon ventured into other industries
to compete with numerous of competitors. In addition to compete against strong
competitors within the industry, Avon expands of the company into the fashion and home
business industry as well. Avon competes in the gift and decorative products and apparel
industries globally. Typical competitors in the fashion and home industries establish
themselves in retail establishments principally department stores, gift shops and specialty
retailers and direct-mail companies specializing in these products. By introducing new
products to an already loyal customer base, Avon can generates more sales.

25
6.0 Organizational and Environmental Analysis
SWOT and TOWS analysis are used to find out the strategic options in order to strengthen
the company’s competitive position and future strategic and financial performance.
6.1 SWOT Analysis
SWOT analysis commonly used in business entities and it part of strategic planning
exercise for company. SWOT analysis helps the business to gain insight into its current
and future position in the marketplace or against a stated goal (Rouse). SWOT analysis has
four elements inside which are strength, weakness, opportunity and threats. There is SWOT
analysis of AVON:
STRENGHTS WEAKNESSES
1. Strong brand image
2. Largest direct selling company
3. Experience of Board of Director
1. Lack of innovative technology
2. Poor focusing product
3. OPPORTUNITIES 4. THREATS
1. Embrace Technology advantages
2. New product innovation (Eco-green
products)
1. Competitive environment
2. Threat of taking over by other
companies
6.1.1 Strengths
6.1.1.1 Strong Brand Image
Avon is one of the oldest cosmetic companies of the US. The history of this
company dates back to 1886 founded by David H. McConnell. This company has evolved
and now is engaged in the manufacturing and distribution of cosmetic products, fragrances,
fashion jewelry and apparels under some well-known brands like Avon Color, Anew, Skin-
So-Soft, Avon Hair Care, Avon Wellness and Avon’s Prestige Fragrance.
A strong brand recall and recognition enables this company to generate repetitive sales and
hence maintain its leadership position in the skincare products market. Based on customer

26
analysis, the strongest associations that customers have with Avon are ‘ding-dong’ and
Avon Lady’ (Kristen Arndt). This branding therefore has worked against them when trying
to compete in more high-end markets. This strong brand value, however has allowed Avon
to further establish itself in emerging markets with ease.
6.1.1.2 Largest Direct Selling Company
Avon is one of the largest direct-selling companies in the world. This company is
represented by nearly 6.2 million sales force and distributors worldwide, out of which 80%
are from the overseas market. Seventeen countries now have more than $1 billion (US) in
sales annually through this channel of distribution (Kristen Arndt). Avon’s company is
selling the product on a large scale and is now the global leaders of marketing technique
called Direct Selling. This company has large workforces who are normally not the
employees of the business but the agents and contractors hired. The whole team is working
on fulfilling the needs and demands of the customer. They give extra weight to the new
product offering and opportunities and also new markets that have emerged.
To achieve this company is investing a higher amount in research and development domain
to hold it and to gain a competitive edge in health and beauty care. The representatives of
this company market the product through brochures, advertising strategies and also by
contributing to the progress and advancing their global visual representation to be famous
and known.
6.1.1.3 Experience Board of Director (BOD)
On April 2002, Sherilyn McCoy left her position as Vice Chairman of Johnson & Johnson
and joined Avon. Sherilyn McCoy is the CEO and a director of Avon Products, Inc. McCoy
received a B.S. degree from Dartmouth, a master’s degree from Princeton, and an MBA
from Rutgers University. Before moving to Avon, McCoy served 30 years at Johnson &
Johnson. She was the Vice Chairman of the Executive Committee for pharmaceuticals and
consumer business. She has the experience of handling and leading a significant business,
as the pharmaceuticals and consumer business contributes 60 percent of Johnson &
Johnson’s revenue.
She also has the experience of reinventing an organization through restructuring and
integration, having done so within her segment at Johnson & Johnson. Sherilyn McCoy

27
was supported by Andrea Jung to begin this company. Andrea Jung is Senior Advisor to
Avon Products, Inc. since January 1, 2013. Jung graduated magna cumlaude from
Princeton University and served as the CEO of Avon from November 1999 to May 2012.
This company has very experience BOD and in the same way have supported by CEO who
has a lot of experience in Avon’s company.
6.1.2 Weaknesses
6.1.2.1 Lack of Innovative Technology
A problem that was evident for Avon was the inability of this company to change with the
new technological world, which was fast emerging. As times were changing Avon did not
implement vital technological processes that could manage the firm’s inventory and sales
more efficiently. Rather Avon continued with onerous paperwork which consequently
leads to the slow growth which occurred in 1998-1999. The ability to move with changing
times illustrates a lack of strategy on the management’s behalf to meet their objective
outcomes.
The impact of poor in innovative technology affected to Avon’s operating. For example,
the operation margins have gradually declined from 15.9% in 2004 to 8.9% in 2006, driven
by intense competitive pressures in the North America and Asia Pacific regions. The
operating margins in North American region declined by 1.3% in 2009 compared to 2008.
6.1.2.2 Poor Focusing Product
Avon’s products include cosmetics, skincare, fragrance, personal care, hair care, and
jewelry. Avon offers gift and decorative products, housewares, entertainment and leisure
products, and children’s and nutritional products through its home product category. In
addition to these, this company also produces health and wellness products. However, this
company does not have a clear marketing and operational strategy for its non-core product
line. The lack of strategic focus has affected this company’s non-core business in fashion
and home product lines. As a consequence, the non-beauty products business have lagged
behind and reported a poor performance.

28
6.1.3 Opportunities
6.1.3.1 Embrace Technology Advantages
In a modern era, run the business through social media can assume as a trends. The
popularity of social media continues to gain ground with internet sites such as Facebook,
Twitter and Instagram. Avon already has a presence on the social media giant Facebook‘s
site with their brand “Mark” but not use it effectively to gain sale. They have been on the
forefront of leveraging this technology to produce more sales. There are currently more
than 500 million active users on Facebook, which is about one person for every fourteen
in the world. Half of these users log on in any given day and Facebook users spend 700
billion minutes per month on Facebook. Avon can take this opportunity to increase their
sale per day. Build a website that customer can purchase from website directly without
make any deal with third party.
6.1.3.2 2. New product innovation (Eco-green products): Re-branding Strategy
In 2009, this company invested approximately $56 million incrementally in the
representatives through Representative Value Proposition program (RVP) by continued
implementation of the Sales Leadership program, enhanced incentives, increased sales
campaign frequency, improved commissions and new e-business tools. The aggressive
marketing would help the company in increasing the brand awareness and boost sales.
Besides, direct-selling 14 companies like Avon depend upon the motivation of its
representatives. Measures like RVP would help to boost their motivation levels and
encourage the sales.
This company can leverage the status of the celebrity to effectively communicate the values
associated with Avon brand. Hence, this company through these aggressive advertising and
branding strategy can effectually interact with its target consumer groups and strengthen
its position against rivals such as L’Oréal and Procter & Gamble Co. (P&G). In December
2012, McCoy announced plans to downsize by cutting 1,500 jobs and exiting from the
South Korea and Vietnam markets. On April 8, 2013, Avon announced plans to downsize
further by cutting 400 additional jobs and restructuring or abandoning operations in Africa,
the Middle East, and Europe, including exiting from Ireland, as it aims to save $400 million
by the end of 2016.

29
6.1.4 Threats
6.1.4.1 Competitive Environment
Avon faces competition in both the United States and international markets. In addition to
the products themselves, Avon competes with companies based on direct-selling strategies,
Internet, and the mass-market channels of retail. Several direct-selling companies including
Mary Kay and Arbonne sell product lines similar to Avon and have international operations
to compete with Avon globally. Aside from Mary Kay and Arbonne, Avon competes with
other beauty companies using a distinct business model that relies heavily on the success
of its representatives for example L’Oréal and P&G. These companies have increased their
focus to gain market share in beauty and personal care products in the US as well as
emerging markets. Also, in non-beauty segments, global brands such as Amway and Party
Life have remained a cause of concern for the company.
6.1.4.2 Threat of taking over by other competitors
The beauty company faced an offer of taking over by Coty, a Germany owned company at
$10 billion after a series of management changeover at Avon. However, it was refused
from the top management since they believe that Avon can get up by itself to gain market
share as it used to do. The weakening in the top management drives company to the bottom
line of earning and incur heavy losses. Hence, the treat of taking over by other company in
the same industry is high.

30
6.2 TOWS Analysis
For the purpose of formulation of strategy, TOWS analysis is an important tool. Four kinds
of strategies are developed by the managers with the help of matching tool of “Threats-
Opportunities-Weaknesses-Strengths”. On the basis of this analysis, the organizations may easily
develop the successful strategies for their business after seeing and analyzing the competitors
deeply.
SWOT STRENGHTS WEAKNESSES
1. Strong brand image
2. Largest direct selling
company
3. Experience of Board of
Director
1. Lack of innovative
technology
2. Poor focusing product
OPPORTUNITIES SO STRATEGIES WO STRATEGIES
1. Embrace Technology
Advancement
2. New product
innovation (Eco-
green products)
1. Make a strong brand
image by innovating
new product line (Eco-
green products) (S1,O2)
2. Maximizes direct selling
through increasing of
the use of internet
present. (S2, O1)
1. Increase innovative of
product by embracing
technology advancement.
(W1, O1)
2. Increase awareness of efforts
to increase revenue by
adding new product line
which is eco-green product.
(W2, O2)
THREATS ST STRATEGIES WT STRATEGIES
1. Competitive
environment
2. Threat of taking
over by other
companies
1. Gain competitive
advantage by making a
strong brand image and
emphasizes direct
selling system. (S1,
S2,T1)
2. Secure the company
sovereignty position by
having experience BOD
who can make wise
decision which benefits
to all stakeholders.
(S3,T2).
1. Create the innovative and
unique product in order to
gain competitive advantage.
(W1, T1)
2. Implementing new product
line can minimize the
weakness of poor focusing
product and attract more
customer which can also
helps Avon from being
taken-over.

31
7.0 Recommendation
After performing extensive research on the company using multiple online tools, journals,
articles and texts, we have collected enough evidence to make recommendations as to how Avon can
continue its global expansion while still maintaining long and short term company objectives and
staying within core competencies. We believe Avon can and should expand strategically into each of
the BRIC countries while also leverage the power of the technology and the Internet to increase
business through social networks. There are some proposed strategies for Avon’s company which
is market penetration and eco-friendly product.
7.1 Market Penetration
Improved 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 or coupons,
increase internet presence and bill boards. Avon will be able to further heighten brand
awareness, build customer loyalty and create appeal for our products by new and existing
customers. To look Avon achieves 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.
7.2 Eco-friendly products.
Avon’s director or leader should take a part to more research about “green” product.
Improve research and development to introduce more “green” products because customers
nowadays more refer to “green” product cosmetic. This will be achieved through
investment in research and development. 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.

32
8.0 References
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of-avon/
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cc4b64ab8c9067f8
AVON. (2013, Feb 12). Avon Reports Fourth-Quarter and Full-Year 2012 results. Retrieved on
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Dagmar R. (2001). Porters 5 forces. Retrieved on December 2, 2017, from
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marketing-essay.php
Hill, C. W. L and Jones, G. R. (2007). Strategic management theory: An integrated approach.
Seventh edition. New York: Houghton Mifflin Company.
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-pestel-analysis
Palade, A. (2011). Analysis of marketing mix on cosmetics products. Annals of the University of
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Pearce, J. A., II and Robinson, R. B. (2005). Strategic management formulation, implementation,
and control. Ninth Edition, New York: McGraw-Hill.
Porter, M.E. (1985). Competitive advantage: Creating and sustaining superior performance. The
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Riley, J. (2012). Porter’s five forces model: Analyzing industry structure. Retrieved on
November 29, 2017, from
http://www.tutor2u.net/business/strategy/porter_five_forces.htm.

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Rouse, M. (n.d.). Definition SWOT analysis. Retrieved on December 5, 2017, from
http://searchcio.techtarget.com/definition/SWOT-analysis-strengths-weaknesses-
opportunities-and-threats-analysis
UKessays. (2015, March 23). The history of Avon Product Inc.Retrieved on Noveber 1, 2017,
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marketing-essay.php
Wheelan, T.L., & Hunger, J. D. (2008). Strategic management and business policy. 11th Ed.,
Prentice Hall, London.

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9.0 APPENDIX
Logo of Avon Products Inc.
Andrea Jung
Executive Chairman & CEO

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Sheri McCoy
Chief Executive Officer, Avon Product
Avon Cosmetics Products

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Avon Fashion Products
Jewelry Products of Avon

Avon case study solution

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