Case Study for Avon

No. | Content| Pages| 1| Brief Introduction of Avon Product Inc. | 2-4| 2. | Situational Analysis A. General External Environment [PEST] 1. Political/Legal 2. Economic 3. Social-cultural 4. Technological B. SWOT Analysis * Strenght * Weakness * Opportunity * Threats C. Industry AnalysisThreat of New EntrantsBargaining Power of SuppliersBargaining Power of BuyersProduct SubsitutesIntensity of Rivalry among Competitors D. Matrix Used 1. Internal Factor Evaluation Matrix[IFE] 2. External Factor Evaluation Matrix [EFE]| 5-1011-1314-1919-22| 3. Recommendations| 23-25| 4. | Summary and Conclusion| 25| 5. | Appendices| 26-29| 1. Brief Introduction of Avon Product Inc. In year 1886, a company named The California Perfume Company (CPC) was founded by David H. McConnell. The first company office was in New York. In 1914, CPC opened first office outside United States in Canada. As the Roaring Twenties reached its peak, CPC had more than doubled its sales to $2 million and the representative increases from 10,000 to 25,000 in United States. Company’s home office moves to Fifth Avenue in New York City.

The first products were offered under the brand name Avon. These products were toothbrush, talcum and vanity set. David Jr. , become the president of the company after his father, David H. McConnell died. Their products were guaranteed and bore the Good Housekeeping Seal of Approval. The company’s name changed to Avon Products Inc in September 193. J. A. Ewald became the president after David Jr. He introduces mechanized billing and took the company public in 1946. In 1954, Avon launched television advertising campaign entitled “Avon calling”.

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The company became a household name in the United States with the television advertisement catch phrase “Ding Dong, Avon calling”. In 1979, Avon purchased the jeweller Tiffany’s. James Preston, CEO of Avon fought in 1990 to preserve Avon’s independence from a series if takeover attempts. This year Avon announced a permanent end to animal testing, becoming the first major U. S cosmetic manufacturer to do so. In only 5 years that Avon worldwide Fund for Women’s Health had raised to $50 million. Mission Statement: * The Global Beauty Leader * The Women’s Choice for Buying The Best Place to Work * The Largest Women’s Foundation * The Most Admired Company. 5 values of Avon: Trust, Respect, Belief, Humility, and Integrity. Channel of Distribution: Avon believes its success rested on its channel of distribution- Direct Selling. Thus, Avon became the world’s largest direct seller with 5. 4 million Avon representatives in over 100 countries. Avon’s business model provides company to sell products to its representatives on credit so that they do not pay the company until they get paid by their customers. Minimal start up costs for an Avon business is needed.

In 2006, Avon expended a great deal of time and money improving its representatives’ earning and selling experiences. Investment in representatives is increased to fund a number of initiatives such as the rollout of a new sales leadership opportunity, improved training, changes in the commission structure and new Web-based and mobile-technology tools. Marketing: Avon distributes 3 products categories: beauty, fashion, home. From 2006-2008, Avon’s home segment had 3. 2 % decline in revenues in 2008, Beauty division had 9. 6% increase in revenue. Latin America has more revenue and profit for Auon than any other area.

During 2008, Avon made a monumental change in marketing of its beauty products. Since its inception, the company always concentrated on a homey image that catered more to suburban housewives than urban trendsetters. Geralyn R. Breig, Avon’s president said that they had fall short in the image of the brand. In their new promotions, they have Avon lady played by actress Reese Witherspoon, MTV star Lauren Conrad and James Bond girl Gemma Arterton. In a study of mass-market cosmetic brands, research firm Brand Keys found that Avon lagged behind 7 of their cosmetic companies in customer loyalty.

CEO of Brand Keys, Robert Passikoff suggested Avon’s problem is that it isn’t associated with anything in particular. It’s almost like a commodity. Manufacturing and Logistics: In 2008, Avon’s largest manufacturing plants- Brazil, China, Poland and Philippines received ISO 14001 certification. (This is the international standard for environmental management practices. ) Avon’s manufacturing plant in Mexico received Clean Industry Certificate from federal Environmental Protection Agency. Avon’s Brazil received environmental award from Brazilian Benchmarking Environmental Program.

The winning project is the reduction of greenhouse gas (GHG) emissions in the company’s logistics operations. Avon able to cut costs, reduce the distance travelled and lower GHG emissions. Financials: For 2008, Avon’s revenues increased 7. 5%, net income increased 65%. To meet 2008 downturn in the economy, Avon began cutting jobs, closing unprofitable operations, simplifying its product line, and moving work to countries with low labour costs. The company also raised prices to help offset rising costs for commodities such as oil. The Cosmetic Industry:

Cosmetics industry is one which products tend to be countercyclical. Demand for such products normally remains constant and unaffected by economic distress. Growing trend in this industry is the introduction of “green” products. In 2008, 16% of global beauty products launched were certified organic, ethical or all natural. Competitors: There are 2 closest competitors, Mary Kay, Inc and Revlon, Inc. From the financial comparison, Avon is nearly 8 times larger than Revlon. In terms of channel of distribution, Mary Kay, Inc most closely resembles Avon because both use a direct marketing approach.

Revlon sell it product through cosmetic counters in department stores and pharmacies. Revenue of Avon is far exceeds those of its closest competitors 2. Situational Analysis A. General External Environment: PEST Analysis PEST here represents Political, Economic, Social and Technology factors, which are used to assess the market for a business or organizational unit. The PEST analysis is a useful tool for understanding the market growth or decline, and as such the position, potential and direction for a business. 1. Political Factors:| 2. Economic Factors:| i. Legal Framework for Contract Enforcement ii.

Product Labelling Requirements iii. Trade Restrictions and Tariffs| i. Economic Growth ii. Inflation Rate| 3. Social Factors:| 4. Technological Factors:| i. Emphasis on safety ii. Cultural| i. Competing Technology Development ii. Research and Development| Based on the table of PEST analysis for Avon Products, the company looks into the specific issues that relates and drives them in penetration in the international market and grows globally. Political / Legal Political and regulation are always playing a critical role in international business marketing activities.

Company who failed to abide or understand the politic and regulations for respective country will not perform well and might increase the cost of operation. Instability and strict regulations will prevent a company from expanding in a respective country. i. Legal Framework for Contract Enforcement Due to the differences politic of in U. S and Malaysia country, the organizational structure will also difference. Like the stage approval for applied sell product to market, the product must first be approved by the respective regulatory body of each country. Example: Food and Drug Administration (FDA) in the U.

S; National Pharmaceutical Control Bureau (NPCB) in the Malaysia. Under the control of FDA through Federal Food, Drug, and Cosmetic (FD&C) Act prohibits the marketing of adulterated or misbranded cosmetics in interstate commerce. In other words, it intended to protect consumers from health hazards and unsafely deceptive practices. Under the Control of Drugs and Cosmetics (amendment) Regulations 2007 by the Malaysia government, company which placing a cosmetic product in the market are required to notify the Director of Pharmaceutical Services through

National Pharmaceutical Control Bureau prior to product manufactures or importation. ii. Product Labelling Requirements In U. S, the Fair Packaging and Labeling (FPLA) Act requires an ingredient declaration to enable consumers to make informed purchasing decisions. FPLA requiring all consumer communities’ products must be labelled to disclose its net contents, identity of commodity and name and place of business of the product’s manufacturer, packer, or distributor.

However, A cosmetic product is adulterated if there is consists of poisonous or deleterious, filthy putrid or decomposed substance, container’ unsanitary or deleterious substance and unsafe color additive. Furthermore, a cosmetic products is considered misbranded if it consists false or misleading label, all required information not included, not prominent and conspicuous, misleading container, the colour additive does not conform to applicable regulations and packing or labeling in violation of an applicable regulation. iii. Trade Restrictions and Tariffs Avon is protecting their products and manufacturing mechanism by patent.

The company can build their brand image and loyalty by giving consistent quality of products to customers. This will result brand loyalty and image will increase due to patent of products and techniques in future. The code – political contributions and lobbying prohibits political contributions by Avon Products, Inc. , without the need of approval of global government affairs office. The U. S. associates may make personal contributions to the Avon Fund for Responsible Government Political Action Committee for the support of federal candidates for public office in the United States.

However, it is important for business leaders like Avon to participate in the political process by helping legislators understand the complex issues that affect their business. Avon’s public policy participation includes areas such as labour laws, tariff and tax regulations and product formulation regulation. For instance, tariff is a tax which increases the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left paying higher prices as a result.

Tariffs also reduce efficiencies by allowing companies that would not exist in a more competitive market to remain open. While Avon does not make direct political contributions, the company does pay dues to trade associations, which provide information and assistance on issues of concern to the company. “Beginning in 2009, Avon began reporting on its website the recipients and portion of Avon dues used for political contributions and expenditures by such U. S. trade associations and tax exempt organizations that receive in excess of $100,000 from Avon. In Malaysia, there is no duty for cosmetic products, except for the 20% to 30% import duty on talcum powders, face powders and hair preparations. However, as stipulated in the regulations all importers, manufacturers, and, wholesalers need to be licensed with the Drug Control Authority before they are allowed to manufacture, import, or sell the products. Economic Economic factors affect the purchasing power of potential customers and the corporation’s cost of capital. Economic growth, interest rates, exchange rates, and inflation rate are differing among all countries. i. Economic Growth

In third quarter of 2000, the U. S dollar gross domestic product (GDP) rose to 2. 5%. The Personal Care industry shows growth in 2000 due to which sales of firms continue to grow. Therefore, in the future, the consumption of personal care industry will increase as the products will become the necessity of consumers. As for the national income aspect, the use of cosmetics is increasing because of the buying power of consumer is increasing in U. S. So, in future, the personal care industry will expand and become more attractive because of the increase in the national income of working women with the expected growth of 16%.

Moreover, Avon is proud of their longstanding commitment to help women achieve financial independence. Avon has demonstrated their message of women’s empowerment at every level and in every market that Avon serves for 125 years. With Mrs. P. F. E. Albee, who pioneered our now-famous direct-selling method in 1886, Avon have given the opportunity to generate wealth, provide for their families and realize their personal dreams to millions of Avon Independent Sales Representatives here are the heart of our business. Avon provides them with unparalleled grassroots market penetration into the communities in which they operate.

Avon help their Representatives meet the demands their communities face by remaining flexible, accessible and responsive. Avon emphasizes more on direct selling in emerging and developing the markets. ii. Inflation Rate The effect of economic factors, including inflation and fluctuations in interest rates & currency exchange rates, as well as the designation of Venezuela as a highly inflationary economy may alter Avon’s operations and financial condition. The inflation is increasing to 1. 9% in USA due to which profit margin is decreasing because of increasing in operating cost.

Therefore, in future, the company will have to face increase in variable cost. Social The social and cultural influences on business vary from country to country. It is very important that social factors should be considered before investing in every country because it determines the success and failure of a company to operate in a country. Company who failed to identified the culture, values and belief in the country they operate will suffer massive lost and their brand may will tarnished if they fail to operate effectively in the country. . Emphasis on safety Avon first concern is the safety of the consumers. Avon pledge to provide safe, quality products to their customers through the rigorous application of manufacturing, distribution and research and development standards. Hence, Avon are committed to selling safely products through using only safe ingredients in the cosmetics products and complying with applicable regulations in every country in which Avon products are sold. Within this commitment, Avon also has a deep respect for animal welfare.

On 2 June 1989, Avon is the first major cosmetic company in the world to end all animal testing on products, including testing done in outside laboratories. Erin Edwards, media liaison for animal-rights organization People for the Ethical Treatment of Animals (PETA) claims that “Consumers are shocked to learn that millions of animals each year are injected with or forced to inhale or ingest cosmetics. Those animals live in fear and loneliness every minute of their lives. Practices such as squirting products into their eyes, pumping it into their bodies or forcing them to inhale sprays are just some of the things these poor animals have to go through. And in this scientifically advanced world, there really is no need to test on animals, especially for cosmetics. Moreover, Avon approach to safety evaluation utilizes data from computational modeling, in vitro (test tube/cell culture) and clinical tests (on human volunteers) as well as utilization of pre-existing animal-testing data. Technological

Technological development becomes extremely fast, makes qualitatively different and future unpredictable and it shifts to affect a business’ costs, quality and lead to products innovation. Hence, technology development is very vital and wisely used by companies to create the competitive advantage and is a major driver of globalization. Avon also uses technology to boost up business sales and profit. i. Competing Technology Development In 1886, Avon started the business by using door-to-door sales people and brochures to advertise the products.

But, Avon’s executives have realized that company needed a more efficient method in order to communicate with its independent sales force, because door-to-door sales people and brochures were not keeping up with the demands of the sales force as the technologic is rapid develop. Besides, Avon management team also decided to achieve growth in revenue by expanding its customer base into international markets, while continuing to compete based on their reputation as the leading direct seller of beauty products.

In this aspect, Andrea Jung (Avon’ CEO) decided to incorporate E-Commerce into Avon’s sales strategy. E-commerce is the most efficient and convenient distribution way of cutting its fixed cost because of the increasing in the mobility of people and the usage of computers and internet. Andrea Jung also realized that the E-commerce was the best choice to transform the relationships between customers, representatives, and Avon’s supply chain. The e-commerce sales strategy achieved success in 2000 with the increases of 30% on average when linked to Avon’s website.

So, besides of door-to-door sales people, Avon also keeps its superior customer service in other ways of distribution through e-Representative on online shops. Those e-Representatives will involve in the Sales Leadership program to provide markets with recruit, mentor and train others and help them succeed in cosmetic career. As a result, Avon became more competitive once they use the internet as a means of distribution because their fixed costs reduce considerably.

Due to the fact that e-commerce is one of the fastest growing sales places Avon will increase the e-Representatives participation by 37% by 2004 and over $17 million will be spend for Representative support cost Savings. Once the e-commerce was implemented it cut order costs from $0. 90 to $0. 30. ii. Research and Development Avon Products Inc had been realize that cosmetics product development is needed to be up-to-date with the major changes in the cosmetics industry that are mainly driven by consumer demand, aggressive market claims, regulatory issues and scientific breakthrough discoveries.

Hence, Avon spends millions of dollars on research and development every year in order to help Avon keep its product new, innovative and up to date with other rivals and competition. In 2002, Avon had been the first mover advantages by able to develop and release new Avon products more quickly than other competitors. In this aspect, Avon is further associate giving the company a more prestigious name in the cosmetic industry by developing its own state-of-the-art products. In other words, product innovation is a key factor of sales growth in the future.

Examples of new success product lines develop by Avon are “Avon Wellness”, “Becoming” and “Anew”. B. SWOT Analysis Strengths| Weakness| * Avon becomes the first major cosmetic manufacturer permanently bans animal testing on the product line * The world’s largest direct selling organization * Different products line to emerge as a prominent player (Fashion, Home, Beauty) * Not only focus on the beauty products and also doing well in non-beauty products * Successfully attract different level of customer| * High advertising cost * Declining North American operation| Opportunities| Threats| Restructuring and rebranding strategy to derive customer demands * Introduce into new market * Aim for male customer| * Competitive environment * Competitors distribute their products to retailer| Strengths Avon Company is the leading company of global manufacturer of beauty products and home improvement products around the globe. In 1990, Avon Company was the first major cosmetic company in the world to permanently end animal testing on their products, including testing done in outside laboratories. This is to respect of animal welfare. But, the safety of consumers is primary concern to Avon.

They are committed to selling only safe products, using only safe ingredients in their cosmetics products. Avon Company is the world largest direct seller with 5. 4 million Avon representatives in over 100 countries. At Avon, direct selling refers to the personal component of this sales channel. Avon Company allow to sell products to representatives on credit and the representatives do not need to pay back to company until they get paid by customers. This has given an opportunity for women to become one of the representatives to supplement the family income.

Avon Company is smart by directing the business into a whole new direction, creating initiatives and opportunities for everyone besides boosting up the sales for the company. Avon Company not only focused on the beauty products it also doing well in manufacture and distributes non-beauty product line. Avon’s product line includes beauty products, as well as fashion and home products, and features such well-recognized brand names as Avon Colour, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals, and Mark.

Avon Company play a prominent player in different products range from makeup to home products, with its differentiated product in different field, Avon Company successfully captivate the interest of the different level of consumer providing them a number of range of products to purchase. Subsequently, it resulted into a leap revenue growth from year to year. Weakness Avon Company incurring a high advertising cost. The company spending went from $136 million in 2005 to $249 million in 2006 and $368 million in 2007. Avon’s advertising budget for 2008 was 14 percent higher than previous year.

They expected their investments according year will grow roughly in line with sales growth. Another weakness would be declining North America sales. The revenue of North America in 2008 was 2,492. 7 million which had decrease 129. 4 million compare to year 2007. The region’s revenue was negatively impacted by lower average order which is continuing to be impacted by weakness in the non-Beauty business. According Andrea Jung, the CEO of Avon Company the reason of declining sales in North America was they are having macro-economic pressures in North America during year 2008.

Opportunities There is an opportunity arise for Avon Company if the company restructuring its initiatives for organizational effectiveness and rebranding strategy to drive consumer demands. As we know, Avon Company has started it earning system with direct selling. Direct selling at Avon is about representative constantly connecting and building personal relationships with new customers as well as other representatives. Avon Company sales will increase with restructuring of some international direct selling operations.

Another growth opportunity is introduce Avon product into new market. Developing a market entry strategy involves a thorough analysis of potential competitors and possible customers. In Eastern Europe, management was excited about the potential in Poland, Czechoslovakia, and Hungary. In the Pacific Rim area, countries like Vietnam, Cambodia, and Laos were targeted as market opportunities. In an addition, create a new product line which targeted for male consumer will help to increase the profit.

Majority of Avon consumers are female. Avon should become in demand market not only for women but also for men’s skin care products. Although men traditionally spend less time caring for their skin than women do, but this traditional had changed. Men nowadays do care about their skin. Hence, Avon Company should come out men’s skin products for anti-aging, acne, men’s eye creams, face moisturizers, and so on. Threats The threats that could be observed in Avon Company definitely would be the competitors in the industries.

In this case study had mention two major competitors which are Revlon Inc and Mary Kay Inc. Avon makes beauty and personal care products like what Mary Kay and Revlon do. But Revlon’s marketing strategy of selling through cosmetic counters in department stores and pharmacies, Mary Kay and Avon as they both use direct marketing approach. Mary Kay being praised the quality of products is more reliable than Avon because of Mary Kay products are expensive than Avon comparable to store products.

Avon Company sells its products only through its direct selling channel and through its online website. But majority of the competitor is starting distribute their products to retailer such as pharmacies, department stores or cosmetic stores. This brings so much of convenient to consumer and it is direct consumption by consumers. Direct selling business model is at risk for incurring more costs and due to sales only depend on the representative. C. Industry Analysis (Michael Porter’s Five Forces Model)

Threat of New Entrants:STRONG| Bargaining Power of Suppliers: WEAK| Bargaining Power of Buyers: MODERATE| Product Substitutes: WEAK| Intensity of Rivalry among Competitors: STRONG| * Capital Requirements * Access to Distribution Channel * Cost and Resources Advantages * Brand Preferences and Customer Loyalty| * Many Suppliers * Accessibility of Internet| * Low Switching Cost * Backward Integration * Buyer Concentration and Volume| * Serious substitute products from different industry are non-existent| * Many Competitors * Low Switching Cost * Level of Advertising, Research and Development Expenses| . Threat of New Entrants / Barriers to Entry: STRONG Capital requirements: Entering the beauty and cosmetic industry may cost a pretty penny for new entry firms. Finding suppliers, research and development of new products, finding a sales force and a massive advertising and marketing scheme to create awareness and attract potential customers; all can sum up to a significant amount of money. These costs are even excluding the start-up costs and losses that may be incurred. Access to distribution channel: A company cannot deliver its product to the potential customers without an effective and efficient distribution channel.

As a new entrant in beauty and cosmetic industry, it will face several problems unless it has already dumped a substantial amount of money into marketing and begun to be recognized by customers in this industry. For wholesalers,they may be reluctant to pick up a product with no buyer recognition or unknown customer demand and give away shelf space(which is the source of their revenues). Retail distribution may have to be set up from scratch, or existing retailers may need convincing to give away shelf space to the new entry and allow it to sell for an ample amount of time.

Thus, it may cost new entrant a lot just to get someone to sell their products and get recognized by customers. Avon is using direct selling (which is a type of sales channel, where products are marketed directly to customers, eliminating the need for middlemen – wholesalers, advertisers and retailers) as its distribution channel and it is successful be the world’s largest direct seller with 5. 4 million representatives in over 100 countries. Cost and resources advantages: Existing firms in the beauty and cosmetic industry such as Avon are having resource and cost advantages over any potential entrant.

They have been long enough in the industry and they know where they can get the particular material at a lower price, which supplier can provide the best quality product as well as services. All these advantages can only be bought using experiences. New company needs some sort of trial and error which comes along with a cost before they can get themselves the best supplier or resources. Besides in term of borrowing and financing, those established players are able to get the funding at a lower cost.

This is due to their superior company however new company always associated with uncertainty about their performance and credibility. So usually they can only get the funding at a higher cost as they needs to compensate their lender or investors for bearing higher risk. Avon’s advantages would include product innovation acquired by the big investment in the research and development division, a grade. A credit history along with a strong cash flow, the high quality associated with Avon brand products, and the leverage created by larger market share will allow Avon to have lower borrowing rates.

Brand preferences and customer loyalty: This barrier would be another problem for new entrants because having a quality brand with a strong customer base and loyalty is always a crucial competitive advantage. Company such as Avon that have a strong brand name will automatically receive higher market share and create opportunities for additional growth along with the ability to fluctuate prices on their products. A new entrant with no loyalty from consumers or name recognition will find it hard to compete with Avon as well as other big players in the beauty and cosmetic industry. 2.

Bargaining Power of Suppliers: WEAK The bargaining power of suppliers is consider relatively weak in beauty and cosmetic industry. The reason is that most of the materials needed for beauty production are widely available and can be obtained from many suppliers and many different ways. For Avon, the raw material needed such as containers and packaging can be purchased from various suppliers and also be easily substituted if a supplier raised prices substantially. Unless the materials needed for the production of particular product is extremely rare or else the bargaining power of suppliers are limited.

According to Avon in their annual report 2010, the loss of any one supplier would not have a material impact on their ability to source raw material for their Beauty products. Another reason is the accessibility of the Internet, connected the world together as one and made the accessibility to all kinds of resources as well as information possible. Large companies such as Avon who has its own manufacturing facility all over the world can easily make use of the advantages of internet to search for the best suppliers who can provide the best quality products for the best prices.

Advancement in technology and internet maximize the efficiency and effectiveness of communication and collaboration between the companies and suppliers all over the world. Moreover, Avon can actually get supplies basically from anywhere in the world not only because of the Internet but because they have entered foreign markets and produce products in different countries as well. These factors show that the power of suppliers in this industry is weak. 3. Bargaining Power of Buyers: MODERATE

In beauty and cosmetic industry, the bargaining power of buyers is moderate due to the switching costs of customers are low; and customers have the flexibility to fill their personal needs and wants on beauty products by switching brands. Switching costs can be in term of monetary costs, time and effort to search and learn to use the new products. In fact, there is no contract between customers and a particular brand of product, customers have the freedom to choose any brand that they like and change as their like.

Besides, customers no need to spend much time to learn how to use the new product as all the beauty products are used in the same way regardless what brand it is. While for the searching cost, it had been greatly reduced as all the information is readily available in the internet. Customers can search all sort of information they needed by using internet and tend to be well informed about Avon’s beauty products’ costs and prices as well as the beauty products from different brands. This situation puts the customers at a position of higher bargaining power.

While in term of backward integration, customers do not pose a threat of integrating backwards. This is because it is almost impossible that customers will develop and produce their own make up, skin care, and personal care products, fragrance or mass-producing plastic bottles or containers that Avon uses to package its products. Moreover, the buyer concentration is lower than the sellers. That’s mean there are more buyers and less sellers in the market. All the customers are individual customers and the amount of their purchase are also limited.

In fact, not to say that all of Avon’s customers are not important but losing one or two customers will not significant impact on the market share,sales performance and financial position of the company. 4. Product Substitutes: WEAK According to Porter’s Five Forces Theory, a substitute product is a product from another industry but able to offer the similar benefits and satisfy the same needs of consumers. Apparently, in beauty and cosmetic industry, serious substitute products from different industry are non-existent and the competitive pressure from substitute products is very low.

For example, customers cannot find a true substitute of lipsticks from another industry. This is the reason why the threat of substitute is very minimal. There are no products outside the industry that can perform the same function as the products from beauty and cosmetic industry. Companies within this industry are competing among themselves as the only substitute products are similar products from another company within the industry. Basically, there are only three alternatives for customers, either they buy from Avon or use another brand products or they just do not use any products from the beauty and cosmetic industry at all.

There are numerous amounts of products that can be substitutes for the products that offered by Avon. Makeup, skin care, personal care, and fragrance come in thousands of brands and customers usually find all are the same, but Avon uses differentiation strategy in their offered products among all the competitors in order to gain and retain royalty consumers in the market. The brand of Avon itself has created indirectly confidence among all the consumers and potential consumers in the market. Once a person finds a beauty product that they like, it is almost impossible to get them to switch to another brand.

This brand loyalty helps Avon in retaining customers. 5. Intensity of Rivalry among Competitors: STRONG Number of competitors: Rivalry intensifies as the number of competitor increases and as competitors become more equal in size and capability. For the direct competitors in beauty and cosmetic industry, there are Mary Kay (nearest competitor in direct sales), L’Oreal, Revlon, Procter ; Gamble, Unilevar NV, Estee Lauder, and Shiseido. The large number of competitors has intensified the competition in the market.

Huge corporations who dominate the market make it more difficult for smaller companies in the same industry to gain market share and they are also able to mass produce at lower costs which in turn allows them to offer lower prices compared to competitors In order to continue to survive in this competitive market, they need to strive hard to get every sale they can. Low switching costs: Rivalry is stronger when customer’s costs to switch brands are low. Switching costs in the beauty and cosmetic industry are very low, due to the endless amount of different brands of similar products in the beauty and cosmetic industry.

This had caused the competition become even more intense. Once the customers find a better product that can suit their needs, most probably they will switch to another product. Directly this leads to a situation whereby the companies in this industry will always need to come out a new product that meet customer’s need. Almost every year there will be launching of new products. For instance, Avon had launched new products such as UCR Mega Impact Lipstick, Super Extend Mascara, Anew Platinum Night Cream and Serum and so on.

Level of advertising, research and development expenses: Most of the companies in this industry have a common view that the product innovation is the most important if they want to remain competitive and survive in this industry. For example, in order to increase brand competitiveness, Avon have sustained their focus on new technology and product innovation to deliver first to market products that provide visible consumer benefits (Avon Annual Report 2010). According to L’Oreal, the world of cosmetics is fundamentally technological, and that is why they are convinced, today more than ever, that it is through Research and Innovation hat they will stand out from the competition and continue to strengthen their worldwide leadership (L’Oreal Annual Report 2010). Since year 2006, the expense on research and development were increase greatly (L’Oreal 24. 83%, Avon 10. 33%). D. a) Internal Factor Evaluation (IFE) Matrix for Avon Strength 1. Avon Products, Inc. is the world’s largest direct selling organization and merchandiser of beauty and beauty related products. 2. Committed and dedicates workforce- 5. 4 million Avon representative in over 100 countries making Avon the largest sales force. 3.

Increased in revenue in most geographic area due to increase in internet presence. For example, revenues increased 7. 5% from year 2007 to 2008. 4. Avon is an award winning company worldwide. For example, Avon Brazil received an environmental award in 2008 from Brazilian Benchmarking Environmental Program. This project involved reduction of greenhouse gas (GHS) emissions in the company’s logistics operations. Besides that, Avon Mexico won the Silver Shell award at the VI Latin American Awards for Social Work for their Speak out against Domestic Violence print advertisement in year 2006. . World’s Largest Micro lender for women – extending $1 billion in product and credit each year to help women start their own entrepreneurial businesses 6. Avon has product line in 143 countries and approximately 600 items in the product lines. 7. In year 1990, Avon announced a permanent end to animal testing- becoming the first major U. S cosmetic manufacturer to do so. 8. In year 2008, Avon’s largest manufacturing plants- in Brazil, China and Poland- received ISO 14001 certificate. This designate is the international standard for environmental management practices. . Avon owns its major manufacturing and distribution centers. In year 2008, it owns two distribution centres for primary use in North American operations, five manufacturing facilities, ten distribution centres in Latin America and four manufacturing facilities in Europe which primarily serving Western Europe, the Middle East and Africa ,and Central and Eastern Europe. Weakness 1. Weak Brand Image 2. High advertising costs – Companies advertising spending went from $136millions in 2005 to $249 millions in 2006 to $368 millions in 2007 and 14% higher in 2008. 3.

Direct-selling is more relevant to the contemporary women 4. Poor brand loyalty. Avon lagged behind seven of their cosmetic companies in customer loyalty. 5. Decrease in North American Sales Revenue by 129. 4 million Key Internal Factors| Weight| Rating| Weighted Score| | | | | Strength| | | | 1. Avon is the world’s largest direct seller | 0. 09| 4| 0. 36| 2. Committed and dedicates workforce- 5. 4 million Avon representative in over 100 countries| 0. 08| 3| 0. 24| 3. Revenues increased 7. 5% from year 2007 to 2008| 0. 06| 4| 0. 24| 4. Award winning company worldwide| 0. 6| 3| 0. 18| 5. World’s Largest Micro lender for women| 0. 07| 3| 0. 21| 6. Avon market product line in 143 countries | 0. 08| 4| 0. 32| 7. Announced permanent ending to animal testing| 0. 07| 4| 0. 28| 8. Manufacturing matches ISO 14401 certificate| 0. 08| 3| 0. 24| 9. Owns its major manufacturing plants, distribution centers and sales branches| 0. 07| 4| 0. 28| | | | | Weakness| | | | 1. Brand Image| 0. 07| 1| 0. 07| 2. High advertising cost| 0. 06| 2| 0. 12| 3. Direct-selling is more relevant to the contemporary women| 0. 08| 2| 0. 16| 4.

Avon lagged behind seven of their cosmetic companies in customer loyalty. | 0. 09| 2| 0. 18| 5. Revenues decreased in North America by 129. 4 million| 0. 04| 2| 0. 08| | | | 2. 96| Ratings: 1= major weakness, 2= minor weakness, 3minor strength, 4= major strength Analysis: The overall weighted score of Avon Products Internal factor Analysis (IFE) is 2. 96 which indicated that the internal factors or roles are strong at Avon Products Inc. b) External Factor Evaluation (EFE) Matrix for Avon Opportunities 1. A growing trend in the cosmetics industry is the introduction of “green products”.

Aveda Cosmetics found that 68% of consumers will remain loyal to a company that has a social environmental commitment. Many consumers are now “voting for dollars” for the organic products. For Avon, more than 16% of beauty products launched in 2008 were certified organic, ethical, or all natural. 2. Avon has the enormous growth opportunities which existed in countries with huge population such as China, Indonesia and India. It also divided the world into four geographical divisions: The United States, Europe, The Pacific, and The Americas. 3. Avon had funded new Web-based tool in year 2007.

Nowadays, some take advantage of Avon’s internet presence by selling online. 4. Urban trendsetters market. 5. Cosmetics industry tends to be countercyclical. It means that those are industries for which demand is either not correlated with the business cycle. The demand of the products is not much affected by availability of current income, but by other personal, social or economic factors. 6. Demand for cosmetic products normally remains constant and unaffected by economic distress. Threats 1. Competitors such as Mary Kay and Revlon. 2. Rejection of internet selling by sales representative.

This is because internet selling will reduce the sales of the representatives. 3. Global economic climate hushed new product development. 4. Inflation rate 5. In term of color cosmetics environmental International Inc. predicted that many of these markets will see slowdown in volume demand. 6. Direct selling become more popular- Amid the financial crisis Aussie mums are increasingly turning to direct selling and at-home product parties to supplement their household income. 7. The rise of the cost of commodities. This will decreased earning opportunities. 8.

They are multilevel based company that sells inferior quality with a higher price tag than what it is worth.. Key External Factor| Weight| Rating| Weighted Score| | | | | Opportunities| | | | 1. Organic (Green) Product| 0. 09| 4| 0. 36| 2. Geographical growth| 0. 09| 4| 0. 36| 3. Increase Internet Presence| 0. 09| 4| 0. 36| 4. Urban trendsetters market| 0. 08| 4| 0. 32| 5. Cosmetic industry tends to countercyclical threats| 0. 09| 3| 0. 27| 6. Demand for cosmetic products normally remains constant and unaffected by economic distress| 0. 06| 3| 0. 18| | | | | Threats| | | | 1. Competitors| 0. 9| 2| 0. 18| 2. Rejection of Internet Selling by Sales Representative| 0. 07| 3| 0. 21| 3. Economic downturn| 0. 09| 2| 0. 18| 4. Inflation rate| 0. 08| 3| 0. 24| 5. Market slowdown| 0. 08| 3| 0. 24| 6. Rising cost of commodities| 0. 08| 2| 0. 16| | | | 3. 06| Ratings: 1= the response is poor, 2= the response is average, 3= the response is better, 4= the response is more better Analysis: The overall weighted score of Avon Products External factor Analysis (EFE) is 3. 06 which indicated that the external factors or roles are response better at Avon Products Inc. 3. Recommendations

Building a Strong Brand Image In cosmetics industry, the image of the brand is one of key criteria for the consumers while making their choice. A strong brand image can convince the consumers that Avon’s products have very high quality. This will encourage more potential customer to purchase Avon’s products and current existing users will show a better loyalty. With stronger brand image, Avon can extend its reach to a wider market with a good advertising strategy. Alternative Selling Method Direct selling had been the main selling method of Avon’s product which has a lot of advantages and a huge reach.

However, this method has a several weakness such as difficulties in building brand image and hard to reach part of the consumers. Thus, Avon may develop another method to market their products such as having retail stores in famous shopping malls. This can help Avon to build a stronger brand image and convince more consumers to switch to its product. Part of the customers will still prefer to purchase from retail stores which they can make their choice from a huge range of products and able to see the real products as well as testing on them. Meeting the Customers’ Needs

In order to increase the loyalty of existing customers and attract the new potential customers, Avon must understand what the consumers want. Consumers’ expectations and needs grow from time to time. Once they found a product which can satisfy their needs better, they will quickly switch as the switching cost in the cosmetic industry is very low. Thus, Avon must come out with better products which meet the consumers’ needs faster than its competitors in order to take over a larger portion of the market. Quality Control of All Direct Sale Representatives

Due to the reason that Avon is heavily relying on its direct sales representatives in the process of marking its product, the quality of the representatives directly reflect on the performance of the brand itself. First of all, all the new representatives must attend training so that they are professional enough and have sufficient product knowledge. This can improve the performance of the representatives and reduce the chance of their misconduct to minimum. From time to time, the representatives must attend product briefing to understand on the latest product released by Avon.

Avon can also encourage their salesperson to use its own product by giving some discount or free products. The consumers will be more convinced if the representatives is also an Avon’s product user and they can see the results of the product. Convert Mission Statements into Effective Strategies Avon has some pretty good mission statements such as The Global Beauty Leader, The Women’s Choice for Buying, The Best Place to Work, The Largest Women’s Foundation and The Most Admired Company. However, these statements will not be useful if it is not converted into actions.

The company can try to design some strategies for each of the mission statements and spread the strategies to all the departments. By doing this, Avon can increase its performance by giving a clear guidelines to all the employees in the company on what they should work on. Managers can manage their department better by giving them a goal base on these mission statements. They can work hard to achieve the goals by working together towards clear common goals. Implement Membership System to Increase Customers’ Loyalty Problems on keeping the existing customers had always been a great weakness of Avon.

Thus, Avon can offer to its customer to join as members in order to enjoy some privilege in exchange of their loyalty. The more products that a customer purchase and the longer the customer uses Avon’s products, he/she can enjoy greater discounts, receive free gifts and enjoy all other benefits which only offers to loyal customers. By owning the information of its members, Avon can deliver the information of its products to all the members easily and effectively. With high loyalty on the products, the customers might recommend the products to the people around them which further increase the market and improve in sales value.

Delivery of Information on Latest Products Letting the consumers know about the details of the latest product by Avon in the market is also very crucial in the process of competing with its fellow competitors. Direct selling is quite passive and slow as the customers will only look for the representative when they need to purchase the product. Avon needs a more proactive method in order to let the consumers know about the products. Besides advertising on the media, Avon can try distribute some limited voucher on its website or to customers who submit their information to get the latest news of its products.

Through this way, consumers will constantly checking on Avon’s new product and purchase them before they come in touch with the products of other brand. 4. Summary and Conclusion Overall, with some good mission statement and marketing strategy, Avon had an outstanding performance over the competitors of its own kind. It had achieved constant economic growth, increase in sales and improve of profit margin over the years. Through PEST Analysis and Industry Analysis, it is shown that what are the key criterions that are affecting the performance of the company.

Avon had managed to do pretty well in satisfying those criterions and maintain it competitiveness in the market while maintaining growing revenue. Despite the current growth, Avon still needs to make some improvement in order to maintain its long term competiveness. Through the Internal Factor Evaluation (IFE) Matrix, it is clear that Avon is having some major weakness such as poor brand image and customers’ loyalty as well as high advertising cost. The executives must come out with some effective strategies in order to overcome these weaknesses which will slow down the growth of the company.

The External Factor Evaluation (EFE) Matrix had pointed out some opportunities and risks that Avon may take in the process of expanding the industry. Consideration must be made through these options in order to achieve a higher performance compare to other competitors. Threats must be kept minimum or even avoided to avoid the decline in revenue and decrease of sales. In a nutshell, continue improving and breaking through while maintaining current strength and performance is very important in order to survive as well as grow constantly in the high competitive market of cosmetic industry. 5. Appendices Avon Annual Report (2010). Empowering Women for 125 Years. Retrieved from 17 November 2011 from http://www. annualreports. com/HostedData/AnnualReports/PDF/avp2010. pdf * SlideShare(2010). Economical analysis of Cosmetic Industry. Retrieved from 17 November 2011 from http://www. slideshare. net/lovee911/economical-analysis-of-cosmetic-industry * Journal of International Management Studies (February 2008). The Study of Direct Selling Management Strategies:  An example of the Avon cosmetics company in Taiwan. Retrieved from 18 November 2011 from http://www. jimsjournal. org/26ChenMeiLiang. df * Sm Case Jisha & Remya. Strategic Management Case Analysis. Retrieved from 18 November 2011 from http://www. slideshare. net/guest78d8ca/sm-case-jisha-remya2. * Tabia Macfarlane, Chrystal Brady, Ricardo Hanson, Denise Heaven, Claudette Drummond, Shermete Jones, Joycelyn Thompson (Dec, 2010). A study conducted on the case study Avon Product Inc. Retrieved from 18 November 2011 from http://www. scribd. com/doc/47323515/Avon-Products * Avon Products, Inc (2011). Animal Testing- Commitment to Science. Respect for Animal Welfare. Retrieved from 18 November 2011 from http://avoncompany. om/corporatecitizenship/corporateresponsibility/whatwecareabout/productresponsibility/animaltesting. html * Ava Caridad, Editor (November 2006). Top 20 Global Beauty Companies. Retrieved from 17 November 2011 from  http://www. beautypackaging. com/articles/2006/10/top-20-global-beauty-companies * Avon Products, Inc (2011) Earnings Opportunity. Retrieve from 17 November 2011 from http://avoncompany. com/earningsopportunity/index. html * (2003). Building A Strong Brand: Brands and Branding Basics by Dave Dolak. Retrieved from 28 November 2011 fromhttp://www. davedolak. com/articles/dolak4. htm * (2009).

The Honest To Goodness Pros and Cons of Direct Sales by MELODY. Retrieved from 28 November 2011 fromhttp://melodythacker. com/index. php/2009/06/16/the-honest-to-goodness-pros-and-cons-of-direct-sales/ * (2010). Know your customers’ needs by The Chartered Institute of Marketing. Retrieved from 28 November 2011 from http://www. lifehack. org/articles/management/the-six-basic-needs-of-customers. html * Susan M. Heathfield (2010). Develop Your Strategies, Goals, and Action Plans Within Your Strategic Framework By Susan M. Heathfield. Retrieved from 28 November 2011 from http://humanresources. about. com/cs/strategicplanning1/a/strategicplan_5. tm *  PR News wire (Mar 2010). Avon to Open New Regional Research ; Development Center in Shanghai. Retrieved from 28 November 2011from http://media. avoncompany. com/index. php? s=10922;item=22902 * Simon Pitman (Sep 2011). Andrea Jung opens up on how technology is shaping the new Avon. Retrieved from 28 November 2011from http://www. cosmeticsdesign. com/Business-Financial/Andrea-Jung-opens-up-on-how-technology-is-shaping-the-new-Avon * Nanette Byrnes (March 2007). Avon: More Than Cosmetic Changes. Retrieved from 28 November 2011from http://www. businessweek. com/magazine/content/07_11/b4025071. htm