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ANALYSIS ON AVON PRODUCTS CASE STUDY

- By Ms. Manasa Sai Sekar
Pursuing Master of Science in Operations Management program, University of Arkansas,
Fayetteville, AR, USA

INTRODUCTION:
This article gives an overview of Avon Products by analyzing the Avon Case Study
from the Strategic Management textbook. It also analyzes the various environment
and factors that led to the downfall of Avon products. It also contains some factors
and recommended strategy for Avon Products.

OVERVIEW OF AVON PRODUCTS:
David McConnell started Avon Products in year 1886 and is one of the worlds
largest direct selling cosmetic industries whose headquarters is at New York, USA.
Though Avons focus is on the cosmetic industry it also sells products such as
fragrances, toiletries, jewelry, apparel, home furnishings, watches, footwear,
childrens products, skin care, gift and decorative items, nutritional products,
housewares, entertainment and leisure products. Avon is known as The Company
for Women because Avon recruits and has a lot of women officials compared to
men. Most of its direct-sellers are women; Avons intention is to make women
independent entrepreneurs. Avon has 39,100 employees with 4800 employees at
USA, and most of Avons sales are out of USA.

AVONS MISSION AND VISION STATEMENT:

Mission Statement:
Avon Products does not have a clearly defined mission statement, but some of
Avons mission statement components are listed below,

Leader in global beauty
Womens choice for buying
Premier direct-selling company
Most-admired company
Best place to work
To have the largest foundation dedicated to womens causes

Avons mission statement consists of its employees, customers, industry and market.
From its mission statement we can also understand that Avons gives a lot of
importance to women empowerment.

Vision Statement:
To be the company that best understands and satisfies the product, service and
self-fulfillment needs of women- globally
Avons vision is to clear that Avons strategies are to create a strong and a
healthier life for women through its products and services.

EXTERNAL ENVIRONMENT:
An analysis of Avons external environment based on three main environments such
as industry, competitive and general environment according to chapter 3 from the
Strategic Management book and mid-term review power point is given below.

Industry Environment:
Before getting into Avons industrial position and environment, an analysis of a
general cosmetics industry is given. Cosmetic industry as a whole is a very
competitive environment because there are loads of Cosmetics Company and
products in the world. Marketing, research and development plays a major role in
this industry. If its a global company, cultural impacts are also highly possible in
this industry. Every company differentiates itself from one another by its marketing
and its research strategies. As long as women want to look beautiful this industry
can never die.
Avon is one such company whose main target is women. Avon was once a
very successful cosmetic industry because of its direct-selling strategy, but from the
year 2006 the sales of Avon have been continuously decreasing because of its ethical
issues. A detailed analysis of its ethical issues is given in this article.

Competitive Environment:
In this section, an analysis of Avons competitive advantage and its main focus of its
strategies are given below.

R&D:
Research and Development plays a major role in every industry but R&D becomes
one of the critical strategies for a cosmetic industry because people expect a lot of
product variety from any company. There are so many products in the market and
one of the ways that a company differentiates its products from the other is because
of the innovative formula for its products and the product variety. Avon
differentiates itself because of bringing natural products into the industry. There is
a lot of awareness being created amongst the youngsters about the impacts of
chemicals used in cosmetics for the body and face. Since Avons products are based
on the natural extracts formula it has always created demand amongst the young
crowd. LOreal has also been so successful in its R&D because LOreal has a wide
range of products starting from low cost products to luxury brand products. Each
product targets different customers.

Marketing:
The second critical factor for a cosmetic industry is its marketing strategy. Most of
the companies advertise its products with the help of social media and Television
Advertisements. But Avon uses the direct-selling strategy as its marketing strategy.
Direct-selling is one of the methods of supply chain where the company sells its
products to the customers directly from the manufactures with the help of sales
people; this method bypasses the distributors and the retailers. Throughout these
years Avon has been very successful in its marketing strategy. The other marketing
strategy that Avon uses is direct selling through women. Women are so good at
convincing others and Avon wanted women to take up the responsibility and
become independent entrepreneurs, so most of the sales people throughout the
other countries are women. But this model that Avon uses has not been so
successful in the following years. Competitors such as Estee lauder, Mary Kay and
Revlon have been using top models and actresses in the industry for taking a
competitive advantage over the other brands.

Finance:
Avon has reported a loss of $38.2 million in 2012 compared to the net income of
$517.8 million in its previous years. Avons sales have been decreasing right from
the year 2006 because of some of the ethical issues that the company has been
facing. Though Avon had a loss in sales right from the year 2006, the company did
not go bankrupt, which means that is company is still trying to be financially stable.
Avon has been continuously closing some of its distribution centers in states such as
Atlanta. Avons competitors such as LOreal, Revlon, Estee Lauder and Mary Kays
sales have been growing over these years as reported.

GENERAL ENVIRONMENT:
Though Avons technological environment is successful, Avons socio-cultural,
economic, and political/legal environment has not been so successful since 2006
because of the companys ethical issues. Companys morale and sales has been
continuously decreasing.

AVONS STRATEGY OVER THESE YEARS:
The three main strategies that Avon has been following all these years are:
Direct-selling
Women Empowerment
Natural products
Expansion of the company into other industries such as home furnishings,
home decors, footwear, watchers, jewelry, apparel, etc.
Direct selling has been the major marketing strategy of the company. Avon has
always been a womens advocate against sexual harassment and violence. Avon has
used the women empowerment strategy from the beginning to create its brand
image. Avon also does a lot of awareness campaigns such as Breast cancer
awareness program, etc. Avon has also been focused on developing natural
cosmetic products rather than using a lot of chemical based products unlike other
brands. Though Avon had once been very successful in its cosmetic industry, Avon
has also ventured into other industries such as apparel and home furnishing
industry.

RISK ANALYSIS:
Before implementing strategies it is always better to register the risks associated
with it and to maintain a risk register. Though direct selling is not opted by many
companies as a marketing strategy it is always a strategy that involves trust and
depends on a countrys culture to venture into different markets. Direct selling
 strategy needs the license of every country that it ventures into. If some countries
do not allow direct selling the company must be ready to implement its alternate
strategy in order to win the markets of that country.

AVONS SIGNIFICANT STRATEGIC MISTAKES AND ETHICAL ISSUES:
The strategy that Avon did not change brought the downfall of the company. Avon
got license for direct selling in countries like India, China and Brazil in the year 2006
and its sales increased by 12.7% in the period between the years 2007-2008. But
since there was a change in government at countries such as India and China in the
end of the year 2008, the sales started decreasing after the year 2008. An
investigation team was set up in the in the mid of 2008 2009 and it was found that
some of the executive officials at Avon had bribed the government officers at
countries like China and India in order to get the license for direct selling. According
to chapter 10 of the strategic management textbook, bribery is an offensive act and
is defined by Blacks Law dictionary as the offering, giving, receiving, or soliciting of
any item of value to influence the actions of an official or other person in discharge
of a public or legal duty, because of this ethical issue Avon has been losing sales
since 2007. The other strategic mistake of Avon was that the company did not have
a Chief Operational Officer to take in charge and control this ethical issue, because of
this everyone had to report to the Chief Executive officer Andrea Jung, who was
eventually busy with the other industries apart from the cosmetic industry. Because
of this the company suspended and finally fired 4 executive level officers who had
their hands on this bribery issue. Avon had to spend close to $122.5 million on legal
fees and costs related to the investigation since 2009. Andrea Jung who was the
CEO of Avon since 2006 has to resign from the job because of media pressure and
the number of sales representatives at Avon had decreased by 8% the following
year. Avon is planning to cut down 1500 jobs because of this issue.

INTERNAL ASSESMENT:

Competitve Expected
Valuable (Y/N) Rare (Y/N) Costly to Imitate (Y/N) Nonsubstitutable (Y/N)
Position? Performance?

YES/No No YES/No NO Below Average Below Average


Value Chain Analysis:

Firm Infrastructure:
Most of Avons cosmetics products are stored in their firms. Avons cosmetics does
not have retail outlets throughout the globe, they only have warehouses and
distribution centers to store their products. But when it comes to apparel and home
furnishings Avon has retail outlets to sell its products. Because of the bribery issue
sales have been going down and Avon shut its distribution centers in China in order
to make up for the loss in revenue.

Human Resource Management:
Avons human resource management when it comes to operations, inbound and
outbound logistics has not been so successful since 2006 because of the bribery
allegations. Avons is planning to cut-down 1500 jobs in order to make up for the
revenue and Avon has also fired 4 top executives because of these allegations.

Technological Development:
Though Avon has been declining from the year 2006, its focus on natural product
formula has not changed. Sales have gone down in so many countries because of
these allegations but Avon has still managed to sell its products in the emerging
markets.

Procurement:
Avon is not in the position to procure any of the other firms because of the bribery
allegations.

State Of Current Activities:
Avon operations and service are not in a good state right now and Avon is trying to
recover out of it by recruiting a new CEO and by implementing some changes in the
existing strategy.






Generic Matrix:

Cost leadership Differentiation Focus

Large market - Direct selling by Differentiation
women at
emerging
markets
- Retail stores at
existing markets
- Natural products
Small market Differentiation - Direct selling
by women
- Setting up retail
stores
- Natural
products
- Focusing on
other industries
like the home
furnishing
industry

Large market:
Retail stores would be set up at existing markets. Focus would still be on natural
cosmetic products and direct selling would still continue at emerging markets.

Small market:
Focus would be on setting up retail stores at different parts of the country and
having tie-ups with other retail stores in order to sell the products. Focus would be
on selling natural cosmetics and apart from the cosmetic industry; Avon would also
focus on other industries such as the home furnishing industry.

MY STRATEGY FOR AVON PRODUCTS BASED ON VALUE CHAIN ANALYSIS:

Firm Infrastructure - Retail Store:
Since direct selling has not been so successful in some of the countries and by
considering the new bribery scam, instead of completely backing up from that
particular country, new retail stores will be opened in order to sell the products.
Avon products would also be sold at other super market, hypermarket and cosmetic
stores to compensate for the loss of sales in that country.

Human Resource Management (Operations)- Recruiting a COO:
A chief operational officer will be recruited immediately to start managing things.
Meeting at all the stages will be monitored by the COO and will be executed only
after the consent and the signature of the COO and the CEO.

Human Resource Management (Operations/service)- Set up a tracking team:
The investigation team that was already set up will now act as a tracking team in
order to keep a track of all the discussions and meetings that will go on. At least one
member of the tracking team will participate in all the meetings and live video of the
meeting will be telecasted to the CEO and the rest of the members of the tracking
team. CEO and the tracking team would have a copy of the meetings recorded. The
tracking team will consist of members who are not involved with the company
through any sort of positions.

Technological Developments (Operations) - Invest in my R&D:
R&D will have new investments in order to create new products in order to keep the
public distracted by these allegations and to make up for the loss.

Technological developments (Marketing and Sales) - Collaborating with
LOreal:
If LOreal were interested in buying Avon, a deal would be made with LOreal with
the natural products section instead of investing in the R&D. The deal would be
made in such a way that Avon gets to keep its brand name and LOreal gets the
formula for the natural products. By doing this, Avon can achieve a wide variety of
products because LOreal has always been a master in product variety and LOreal
can start selling natural products. This way, the negotiation would be a win-win
situation and both the companies can share the profits without losing its brand
name and its brand image.

State of current activities (Marketing and sales) - Create Awareness:
Awareness campaigns will proceed as planned and new awareness campaigns will
be executed in order maintain the brand image. Marketing will get into the new
strategy of getting into television and social media advertisements in order to
recover the brand image.

NATURE OF COMPETETIVE ADVANTAGE FOR THE NEW STRATEGY:
Marketing:
The new strategy would focus on setting up retail stores for selling the products at
countries where direct selling is not allowed. The company would invest in
Television and social media advertisements and also focus on creating awareness
advertisements on both television and social media.
R&D:
The company would either invest in Research and development to create new
products or collaborate with LOreal and introduce natural products along with
product variety.
MIS:
A strong tracking team would be set up in order to keep a track of all the meetings,
and information will be carefully uploaded on the global database of the company. A
Chief Operational Officer would be recruited and the COO would approve all the
updates in the information system.

CONCLUSION:
Maintaining integration and ethical value is a very important factor of every
company, because when a company loses its ethical value, the company gets to lose
everything along with it and that includes its sales and brand image. Avon is a best
example of a company whose ethics had brought loss to the company. We must also
understand that though Avon lost its sales since 2006, it still did not get bankrupted.
Therefore, Avon might also be considered for a company that is financially stable
despite losing its ethical values.

REFERENCES:
[1] Avon case study from The Strategic Management by Fred R. DAVID and
Forest R. David
[2] Chapter 2,3 and 8,9,10,11 from The Strategic Management by Fred R.
DAVID and Forest R. David
[3] Presentations consisting of external environment and internal
assessment by Dr. Philip Jones (Professor)