Avon Products Inc. A strategic Management Case Study

1. AVON PRODUCTS INC.
Strategic Management Case Study

2. • Rizwan QamaR
M. Phil Fellow at Faculty of Contemporary Studies,
National Defence University, Islamabad
Presented by:

3. • Competitors Analysis
• Avon Introduction • Sales Pie Chart of Competitors
• Brief History • Competitors Financial Analysis
• Brief Company Overview •
•
Opportunities and Threats
EFE Matrix
• Organizational Structure • Competitive Profile Matrix (CPM)
• Mission, Vision & Slogan • Porter's Five Forces Model
• Existing • Strategy Analysis
• Why change? • SWOT Matrix
• Proposed • SPACE Matrix
• Internal Assessment • BCG Matrix
• Financial Ratio Analysis • By Product Division
• Net Sales by Product Category • By Geographic Division
• Revenue by Product Segment • The IE matrix
• Revenue by Geographic Segment
• Market Positioning Map • Grand Strategy Matrix
• Map Locating the Firms • Decision Stage
Operations • QSPM
• Strengths and Weakness • Possible Alternative Strategies
• IFE Matrix • Balance Score Card
• External Assessment • Conclusion
• List of Competitors • References
• Major Closest Competitors
• Q&A
Outline

4. Introduction

5. Brief History

6. • Avon is a leading global beauty company, with over $10
billion in annual revenue in 2008
• World's largest direct seller
• Operating in 143 countries worldwide through 6.4 million
independent Avon Sales Representatives
• It is the largest micro lender to women
• Avon is among the world top global brands
• Increased Investments by $ 120 m in 2007 to develop a
new Sales Leadership
• Changed marketing approach from a homey image and
started celebrity promotions
Brief Overview

7. • Avon’s largest manufacturing plants, Brazil, China and
Poland received the ISO14001 certifications in 2008
• The Clean Industry Certificate to the manufacturing plant
in Mexico
• During the same period Avon’s revenues increased 7.5
percent
• Avon implemented reconstructing programs in 2009
• There is heavy investment in online search engines and
internet carrier sites
• Andrea Jung is the Chief Executive Office who is
leading the management team of thirteen
Brief Overview . . . . . . . Cont’d

8. Organizational Structure

9. avon: The Company for Women
Avon Slogan (Actual)

10. Actual Proposed
avon: The
Company for
Everyone
Avon Slogan

11. Actual Proposed
• To be the company that
best understands and
satisfies the product,
service, and self-
fulfillment needs of
women globally
• To be the leading beauty
and cosmetics company
that best understands and
satisfies the self-
fulfillment needs of our
customers globally.
avon Vision

12. Proposed Vision Analysis
• To be the leading beauty • Word “Women” is
and cosmetics company replaced with
that best understands and
“Customers”
satisfies the self-
fulfillment needs of our
customers globally. • To identify the industry
words “beauty and
cosmetics” are
included.
avon Vision

13. • 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.
• 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.
• 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.
• 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.
avon Mission (Actual)

14. Proposed Mission Characteristics
“Avon is committed to be the • Broad in Scope
leading global provider of
home, fashion and beauty • Less than 250 words
products that will enhance the • Identify the Utility of
beauty and satisfaction of
our customers. We will utilize Products
latest technology and will • Social Responsibility
pursue new growth • Includes Nine Components:
opportunities that will bring
about wealth for all our • Customers, Product, Market,
stakeholders. At Avon, we Technology, Growth,
firmly care for the people and Philosophy, Self Concept,
environment”. Concern for public and
employees
AVON Mission (Proposed)

15. Financial
Ratio
Analysis
INTERNAL ASSESSMENT

16. 2008 2007 2006
Beauty 72 % 70 % 69 %
Fashion 18 % 18 % 18 %
Net Sales by Home 10 % 12 % 13 %
Product
Category Total 100 % 100 % 100 %
INTERNAL ASSESSMENT

17. Net Sales by Product
Category
INTERNAL ASSESSMENT

18. Revenue by 2008 % 2007 2006
Product Age
Segments 7,603.7 + 9.6 6,932.5 6,019.6
Beauty
($ million)
Fashion 1,863.3 + 6.2 1,753.4 1,562.7
Home 1,121.9 - 3.2 1,159.5 1,095.0
Total 10,588.9 + 7.5 9,845.2 8,677.3
INTERNAL ASSESSMENT

19. Growth
Graph
By
Product
Division
INTERNAL ASSESSMENT

20. Division 2008 2007
Latin America 3,884.1 3,298.9
North 2,492.7 2,622.1
America
Europe, 3,071.2 2,886.4
Africa and
Revenue by Asia
Geographic Asia Pacific
and China
1,242.1 1,131.1
Segments
INTERNAL ASSESSMENT

21. INTERNAL ASSESSMENT

22. Market
Positioning
Map
INTERNAL ASSESSMENT

23. Map
locating the
firm’s
Operations
INTERNAL ASSESSMENT

24. Strengths Weaknesses
1. Avon is a Global Market Leader
1. Decrease in North American Sales
2. Committed and dedicated workforce - 6.4 million Revenue by 129.4 million
Avon representative in over 100 countries making
Avon the largest sales force 2. Weak Brand Image
3. World’s Largest Micro lender for women - 3. High advertising costs – Companies
extending some $1 billion in product and credit advertising spending went from
each year to help women start their own $136millions in 2005 to $249 million
entrepreneurial businesses in 2006 to $368 million in 2007 and
14%higher in 2008
4. Channel of distribution – world’s largest direct
seller 4. Poor brand loyalty
5. Manufacturing operations match ISO 14001 5. Does not target urban trendsetters
standards 6. Beauty Sales in the first quarter 2009
6. Avon owns its major manufacturing and distribution were 12% lower compared to sales
centers revenue in previous year 2008
7. Increased in revenue in most geographic area. Due 7. Avon lagged behind seven of their
to increase in internet presence. (Revenues cosmetic companies in customer
increased 7.5% from year 2007 to 2008) loyalty
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

25. Internal
Factor
Evaluation
Matrix
(IFE)
INTERNAL ASSESSMENT

26. 1.Procter & Gamble
2.L’Oreal S.A.
3.Unilever PLC
4.Johnson & Johnson
5.Kimberly-Clark Corporation
6.Colgate-Palmolive Company
7.Kao Corporation
List of 8.Estee Lauder Companies In
9.Mary Kay
Competitors 10.Revlon
11.The Body Shop
EXTERNAL ASSESSMENT

27. Major
Competitors
EXTERNAL ASSESSMENT

28. Revlon Mary Kay
• Revlon was founded in 1932, • In 1963 Mary Kay Cosmetics was
by Charles Revson founded in Dallas, Texas
• Revlon Sales to Wal-Mart • In 2009 sales of Mary Kay products
accounts for 23% of the reached $2.6 billion
company's total sales • There are more than 37,000 women
• The company earned $1.3 across the world who has become
billion in sales and $950K in Independent Sales Directors
net income in 2009 • Mary Kay products are expensive
• Revlon attributes the loss to versus Avon
the weak global economy and • Mary Kay seems to be targeting older
Sales fell by 3.8% women
• Revlon is the second largest • 90% of the company’s revenue is now
color cosmetics company in generated through online orders
the United States • It entered in Pakistan in 1984 while in
India in 2007
EXTERNAL ASSESSMENT

29. • Avon is seven and half times larger
than Mary Kay and approximately
eight times larger than Revlon
• Its Competitors distribute their
products to resellers but Avon sells
AVON’s Comparison its products solely through its direct-
with Closest selling channel
Competitors • Avon brand products are now
recognized all over the world due to
the success of their international
campaign
• Avon also has a Representative
development program that focuses
on the professional training of
Representatives
EXTERNAL ASSESSMENT

30. Pie Chart of Revenues 2008
EXTERNAL ASSESSMENT

31. AVON REVLON
Competitors Market Cap $ 9,710 M $ 242.84 M
Financial Strength Employees 42,000 5,600
2008 Revenues $ 10.37 B $ 1.34 B
Gross 63.03 % 63.48 %
Margins
EBIT % 1,440 M $ 171.40 M
Operating 12.07 % 11.42 %
Margin
Net Income $ 807.9 M $ 28.5 M
Growth 7.5 % 5.6 %
EPS $ 4.72 $ 1.422
EXTERNAL ASSESSMENT

32. Opportunities Threats
1. A growing trend in the cosmetics industry is 1. Competition such as Mary Kay and Revlon
the introduction of “green” products. More and many others
than sixteen percent of beauty products 2. Rejection of internet selling by sales
launched in 2008 were certified organic, representative
ethical, or all natural. 3. Global economic climate stifled new product
development, innovation and sustainability
2. Eye makeup market programs in 2009.
3. The cosmetics industry tends to be 4. In terms of color cosmetics, environmental
countercyclical.. International Inc. predicted that many of
4. Aveda cosmetics found that sixty eight these markets will see slowdown in volume
percent of consumers will remain loyal to a demand.
company that has a social and 5. Inflation rate
environmental commitment. 6. Rising cost of commodities
5. Urban Trendsetters markets 7. Direct-selling becoming more popular - Amid
the financial crisis Aussie mums are
6. Geographic growth – enormous growth increasingly turning to direct selling and at-
opportunities existed in countries home product parties to supplement their
populations such as China, Indonesia and household income.
India and other Asian countries. 8. They are a multilevel based company that
7. Demand for cosmetic products normally sells inferior quality with a higher price tag
than what it is worth.
remains constant and unaffected by
economic distress. 9. Avon products outpaced by “jazzier”
products to women who favored more
8. The baby boomers are aging and they are exciting product lines
more conscious on their appearance, beauty 10. Decreased earning opportunities
and also improving their looks.
9. Emphasize direct selling in emerging and
developing markets.
EXTERNAL ASSESSMENT

33. External Factor
Evaluation Matrix
(EFE)
EXTERNAL ASSESSMENT

34. COMPETITI
VE PROFILE
MATRIX –
CPM
EXTERNAL ASSESSMENT

35. # Forces Intensity
1 Rivalry among competing High
firms
2 Entry of New Competitor Low
3 Development of Substitute Low
Products
Porter’s Five 4 Bargaining Powers of Low
Suppliers
Forces Model
5 Bargaining Power of High
Consumers
EXTERNAL ASSESSMENT

36. STRATEGY ANALYSIS

37. SWOT
Matrix
STRATEGY ANALYSIS

38. STRATEGY ANALYSIS

39. Y axis=FS (4) +ES (-3.2) = .08
X axis=CA (-2.8) +IS (3.6) =1.2
SPACE Matrix
STRATEGY ANALYSIS

40. BCG
Matrix
By
Product
Division
STRATEGY ANALYSIS

41. BCG
Matrix
By
Geographic
Division
STRATEGY ANALYSIS

42. STRATEGY ANALYSIS

43. Grand
Strategy
Matrix
STRATEGY ANALYSIS

44. Alternative Strategies SPACE BCG IE Matrix
NA LA EU APC GS Counts
Forward Integration X X X X X X 5
Backward Integration X 1
Horizontal Integration X X 2
Matrix Analysis
Market Penetration X X X X X X X 6
Market Development X X X X X X 5
Product Development X X X X X X X 6
Diversification X X X X X X X 6
Joint Venture X 1
Retrenchment X 1
Divestiture X 1
Liquidation 0
Mergers & Acquisition X 1
STRATEGY ANALYSIS

45. QSPM
Decision Stage

46. Balanced
Score Card
STRATEGY ANALYSIS

47. Balanced
Score Card
…… Cont’d
STRATEGY ANALYSIS

48. Extension in the main products:
The sales of the personal care products are increasing in the main
sectors because of the following reasons.
• To become attractive in working area.
• Becoming more Health Conscious
• Due to change in fashion & Trends.
Expand In Asia and Africa:
Asian countries like Pakistan, Bangladesh, Malaysia, Taiwan & Russia
are a huge market because of the two reasons:
•Stability in economies
•Population growth
Build a brand image in North American and Generation Y in
existing markets by promotions and innovation of new product
which are tailored to their specific needs:
The Generation Y is the second largest population segment which is not
focused by Avon and due to the lack of a proportion Avon has not a good image
in North America. But Avon has a competitive advantage to expand in these
markets.
Possible Alternative Strategies

49. • Expand the Market to South Asia, Central Asia and
Africa
• Acquire the small competitors to gain more Advantage
• Invest more in R & D to develop more “Green” products
• Invest in departmental and online selling
• Expand the product line and also focus on men and
children
• Repositioning the brand image through attractive
packaging, new brand logo and distinguishing its
products
• Enhance Brand Loyalty
Decision

50. • David, Fred, R “Strategic Management” Concepts and Cases´ 10 th and 13th
Edition. Prentice Hall International 2009.
• Avon Products Inc. Retrieved May 5, 2012 www.avoncompany.com
• Avon USA. Retrieved May 5, 2012 www.avon.com
• Avon Products UK. Retrieved May 5, 2012
http://www.avon.uk.com/PRSuite/home_page.page
• Avon Products Retrieved May 5, 2012
http://en.wikipedia.org/wiki/Avon_Products
• Retrieved May 5, 2012 www.wikinvest.com
• Avon Calling ± for Help´ Business Month April, 2010.
• Avon Calls ± At 50 Times Earnings, ´ Business Month November, 2006 -2009.
• Avon Products, Inc., Annual Report, New York, N.Y., 2010
• Avon Products, Inc., Annual Report, New York, N.Y., 2009
• How Avon Rings Their Chimes,´ Sales and Marketing Management, November,
2009
• Avon Products, Inc.: DEVELOPING A GLOBAL PERSPECTIVE
• Retrieved May 5, 2012 www.yahoo.com/images
• Retrieved May 5, 2012 http://www.google.com.pk/imghp?hl=en&tab=wi
References

51. Further Discussion????