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The Study of Direct Selling Management Strategies:

An example of the Avon cosmetics company in Taiwan


Yen, Jui-Yen, Associate Professor, Department of Business Administration,
National Taipei College of Business, Taiwan
Chen, Mei-Liang, Lecturer, General Education Center, Hsin Sheng College of
Medical Care and Management, Taiwan
Chen, Yi- chieh, Graduate student, Grabluate Institute of International Business Management,
Ching Yun University, Taiwan

ABSTRACT

The management strategy of Direct Selling is quite different than that of business administration of general
enterprise; it is an industry that is highly mobile and emphasizes on interpersonal relationship; no matter it is Direct
Selling or Marketing, although they can save the company a lot of cost, yet they are accompanied with uncertain risk.
Being affected by the rats club due to the misuse of Direct Selling, government has to put control on Direct Selling;
currently, most people still do not know too much about Direct Selling and they worry that they might become a victim
of pyramid fraud if they are not very careful, which in turn makes the spreading of Direct Selling more difficult.
Therefore, some Direct Selling companies such as Avon, changes its form from single-level Direct Selling into
multi-channel sale so as to adapt to the change in the social form. Therefore, in this study, we are going to aim at the
study of one Direct Selling form, that is, in-depth study and understanding on Avons multi-channel system.
Keywords: Direct Selling , management strategy, 4P, channel marketing.

INTRODUCTION

Master of Management Peter F. Drucker once said: What an enterprise is, is decided by the customers1. For a
successful Direct Seller, in addition to treating himself/herself as part of the business body to accurately reflect
enterprise image and concept, it is more important to clarify and satisfy real customers need through sincere and
objective mind. This is also the most important spirit of Direct Selling and is the reason why an excellent Direct Selling
company stays strongly in the market.
In the past, when the vendor sells the product using traditional selling way, profit will be stripped off by vendors
in the first stage and second stage sales channels, and the cost of the vendor will get increased greatly and accordingly.
No doubt, these costs will be transferred to the customer, which in turn leads to a burden to the consumer. Therefore,
some suppliers, in order to reduce profit stripping in several stages by the intermediate vendors, they start to find their
own personnel for the product sale, or try to use mobile technology to assist product sale, the new generation of selling
ways such as Direct Selling, Marketing and internet shopping are thus generated.
In 1982, with the introduction of Amway, Direct Selling started to enter Taiwan and other Direct Selling
companies started to follow. On November 1997, some companies which have the sales mainly based on interpersonal
network, for example, Direct Selling for example, Amway, SHUANG HOR (HK) COMPANY LTD., Nuskin Taiwan,
Forever, etc., started to launch companys web sites for sales and business promotion so as to enhance the business
operation efficiency of Direct Selling; these companies are seen with great potential. At that time, Direct Selling
Association also reduces its entrance barrier for the membership application, that is, a company will have the
qualification to become a member once it is founded for more than one year; and a commission for promoting
commercial virtues has been founded to implement the restrictions of commercial virtues on the companies in this
industry.
Direct Selling can be divided into single level Direct Selling and multi-level Marketing; however, in recent years,
to cope with the change of industry environment, some of the Direct Selling companies such as Avon started to shift its

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strategy toward the development of multiple channels for Direct Selling. We hope, through this study, to understand the
business operation system and planning in Direct Selling and compare the advantages, disadvantages, opportunities and
threats of different business systems; we hope that the results of this study can be used as reference by companies or
people in the Direct Selling industry.

RELATED LITERATURE
2.1 Definition of terms
2.1.1 The definition of Direct Selling
World federation of direct selling associations (WFDSA) has defined Direct Selling as: On non-fixed retailing
places and through the use of face-to-face way, the product and service are sold directly to the consumers. Robert A.
Peterson & Thomas R. Wotruba (1996) briefly described the Direct Selling as a face-to-face selling without fixed
retailing sites. However, the Direct selling education foundation of USA in 1992 had a definition on Direct Selling:
Direct Selling is a distribution method for consumptive product or service through personnel contact (Sales personnel
to the purchaser) and at different commercial locations, mainly at home. Here the nature of consumptive
and distribution way are emphasized fro Direct Selling.
Direct Selling can be categorized in two ways in broad sense and in narrow sense. In broad sense, Direct Selling
is a selling way that the manufacturer or the product importer sells the product directly to the final consumer. For
example, the fisherman sells the fishes to the customers directly and the farmers sell the rice directly to the consumers,
etc. However, for further definition, the Direct Selling in broad sense should include the narrow Direct Selling: Product
manufacturer or importer, through Direct Seller and consumer and through a way of face-to-face selling, introduces or
sells the product or service to consumers. Generally speaking, Direct Seller is not employee of the company and the
selling is usually done in non-fixed selling site (Professor Te-Fa Chen, 2006).
Today, both direct Marketing and direct Selling are sometimes all called Direct Selling. However, a direct
effectiveness selling is that the product manufacturer or importer, through the mail of DM, catalogue, broadcasting, TV
channel, internet, etc., transfer the product and service information to the consumer, and the consumer then reply
through mail or answer through telephone (Professor Te-Fa Chen, 2006). Therefore, we can see two keys in Direct
Selling: Face-to-face selling and Sell at non-fixed places. Direct selling is a process of face-to-face communication
between two persons, and the direct effectiveness marketing is way of selling product or service such as mailing of
catalogue, telephone/TV marketing, direct reply to the advertisement or the recent emergence of network marketing.
The lack of face-to-face contact is the major difference between Direct Selling and direct effectiveness marketing.
Direct selling further includes single level marketing and multi-level marketing. In single level Direct Selling,
Direct Seller is also the consumer and Direct Seller sells the product or service of the company to the customer, then the
Direct Seller receives bonus from the company according to his/her sale performance. In single level Direct Selling, the
income of Direct Seller comes directly from the retailing profit he/she sells the product to the final consumer (Professor
Te-Fa Chen, 2006).
Multi-level Direct Selling is also called network marketing, in addition to getting profit through the sale of
product or service, Direct Seller can also become an upstream to absorb or instruct customer to become downstream
Direct Seller, then the Direct Seller is awarded with rank and bonus according to the number of persons in his/her
downstream and the sale performance. Bonus system is the major difference between single level Direct Selling and
multi-level Direct Selling; especially, multi-level Direct Selling is also called Marketing or multi-level Marketing,
which is a business operation model selected by most of the Direct Selling companies.

2.2 The related definition literature of management strategy


2.2.1 Strategy related definition literature
Strategy evolves from Greek word Strategos. The term strategy is originally applicable to military and political
situation, which means an art of leadership, that is, through the use of effective resource to destroy enemies. Until 1950,
the emergence of Game Theory pushes the term strategy to the application in business operation (Yi-Wu Li, 1998). In
this study, the strategy related literatures defined by many scholars are summarized as in the followings:

Journal of International Management Studies * February 2008 215


Table 2-1 Strategy definition related literature
Year Scholar Views from the scholars
Strategy is that the enterprise creates an unique and valuable position so as to facilitate its
1980 Porter
attacking or defensive behavior.
1988 Mintzberg Strategy includes plan, ploy, pattern, position and perspective.
Strategy is to select the development focus, to define the survival space of the enterprise in the
Ta-Hsien
2001 industry environment and to instruct the directions of functional policies. Strategy is a thinking
Szutu
way to build and maintain competitiveness.
Chhing-Pin Strategy is the solid actions performed by the enterprise runner and its business operation team
2004
Lin when they have to face with enterprises future development.
Strategy is instructive and long term commitment. In the content, it emphasizes on quality
2007 Tzu-Tsan Fu
goal instead of the quantity goal of financial performance.
Data source: Summarized by the author

To summarized the above discussions, it can be seen that strategy is to define the survival niche of an enterprise,
to use the limited resource to maximize opportunity and to minimize the threats; meanwhile, it controls every step to let
it match the plan and it is the solid action taken by the enterprise runner and its business operation team to face with
future development of the enterprise.

2.2.2 Related definition literatures for management strategy


The main function of management strategy is to make a plan for the future development of the enterprise from
the enterprise runners view point by associating the internal resources of the organization and the external opportunity;
all kinds of action projects for the operation of the enterprise are implemented through this plan (Hsin-Pai Liu et al.,
2000). In this study, the management strategy related literatures defined by many scholars are summarized as in the
followings:

Table 2-2 Related definition literatures of management strategy


Year Scholar Scholars views
The key of management strategy is competitiveness, And the so-called management strategy is,
1985 Omae Keniti through the use of the most effective way, to change the power of a company relative to its
competitor.
Management strategy is the highest level decision in business operation. Management strategy
Ta-Hsien is the means to achieve the organization goal; to up-level, it is to cooperate intimately with the
1995
Szutu external environment, to the down-level, it guides all the functional policies or strategies within
the enterprise.
Management strategy means a series of action projects taken by the enterprise in order to
achieve organizational goal after analysis and understanding on the opportunities and threats of
the external environment and the advantages and disadvantages of the enterprise itself; those
2001 Yi-Chin Lin
actions projects are made based on the internal superiorities of the enterprise and through effect
distribution and allocation of resources so as to cope with the external environment and to set up
long term competitiveness.
Wen-Ke
2004 Management strategy means a combination of business operation decision and action.
Chiu
Management strategy is used by an enterprise to make development blueprint and to
decide What things are worth of investing efforts (That is, do the right thing); furthermore, it
2007 Tzu-Tsan Fu
is used to decide what goals should be reached by each department and what are the
implementation actions each department must do.
Data source: Summarized by the author

From the above descriptions, it can be seen that management strategy is a set of consistent plan made by the
enterprise to cope with environment change and competition situation; to the up-level, it acts intimately with the
exterior environment, to the down-level, it instructs all kinds of functional policies or strategies within the enterprise to
ensure that the basic goal of the enterprise can be achieved through appropriate implementations by the organization.

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THE HISTORY OF DIRECT SELLING IN TAIWAN

3.1 The background of Direct Selling in Taiwan


Direct Selling originated in 1886 from California Perfume Corporation (It is Avon right now). At that time,
sales personnel sold perfume through Direct Selling way, later on, the product sold is expanded to cosmetic and skin
care product; therefore, many people think that it is the sign of the birth of single level Direct Selling. In Taiwan,
company that uses ways similar to Direct Selling model to sell the product for the first time is English publishing
company. Later on in 1978, The head of rats club of ChiaHsien Coporation of Japan escaped to Taiwan and
founded Pao-Kang-Ai Association of China and Taichia Corporation. They use Marketing model to cheat massive
amount of money, and many companies follow their ways of rats club to run their businesses; therefore, general public
have very bad or unforgettable image on the word Marketing. Until 1982, Amway and Avon entered Taiwans market
and Direct Selling starts to take off in Taiwan. The followings are the development events in recent years for Direct
Selling:

Table 3-1 Recent development of Direct Selling


Year Direct Selling history
California Perfume Corporation (It is known as Avon right now) sells perfume through
1886
person-to-person way.
The head of rats club in Japan escaped to Taiwan and founded Pao-Kang-Ai Association of China
1978
and Taichia Corporation. They use Marketing model to cheat massive amount of money.
1982 Amway and Avon entered formally Taiwans market.
1990 Taiwan Direct Selling Association was founded.
Taiwan issued Fair Trade Legislation, and the Direct Selling is formally
1992
given a legal identity.
Direct Selling starts tough fighting in bonus system; the heading of the bonus system of single level
Dec., 1997
Direct Selling toward that of multi-level Marketing is an unavoidable trend.
After Chinas government founded it very difficult to manage, in order to prevent the frequent
April, 1998 occurrence of illegal fraudulent events, it starts to entirely prohibit Direct Selling, and the legal Direct
Selling company is forced to be changed to the operation of real general store.
Data source: Summarized by the author

3.2 Direct Selling category and overview


Taiwan Direct Selling Association has a rule that once a company is founded for more than one year, it will be
qualified to become a member; currently, there are 39 members joining Direct Selling Association. The classification
based on multi-level Direct Selling and single level Direct Selling is as in the followings:
As shown in table 2-1, Mary Kay (single level Direct Selling), Nu Skin (multi-level Marketing) and Avon
(converted from single level channel to multi-level channel Direct Selling) all have their main products on cosmetic and
skin care products; in this study, the management strategy of the above mentioned three Direct Selling companies will
be studied and investigated.
Mary Kay was founded in 1960 with its Direct Seller called cosmetology consultant; Nu Skin was founded in
1984 with three business groups under it, namely, Nu Skin, Pharmanex, Big Planet. Among them, Nu Skin sells
personal care product, Pharmanex sells health food product and Big Planet mainly sells high tech product and
environmentally friendly cleaning products. Since this study only focuses on Direct Selling involves cosmetology and
body care product, hence, only Nu Skin is taken as target in the study.
In product aspect, Mary Kays product includes skin care product, cosmetic, SPA body cosmetology product and
perfume series; Nu Skins product includes face and body care, hair and skin care product. The product of Mary Kay
has a warranty period of three months, if the product has trouble within the warranty period, consumer can contact with
the cosmetology consultant he/she knows for product exchange or an exchange of equivalent product.

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Table 3-2 List of membership company of Taiwan Direct Selling Association
Name of the company
Single level Formosan Magazine Press Ltd.
Direct Avon Taiwan
Selling Mary Kay
Amway Taiwan Co., Ltd. Taiwan Nefful Co., Ltd. Forever Sunshine Life
Sunpak Corporation MJ Life Enterprises, Ltd. Enterprise Co., Ltd.
President Natural Industrial Melaleuca of Asia Co., Ltd., WideDoctor (International)
Corp. Taiwan Branch Enterprise Co., Ltd.
Nu Skin Taiwan Inc., Taiwan Summit International Lily Co., Tianshi Health Products, Inc.,
Branch Ltd. Taiwan Branch
Medical Designs Inc. Morinda International Inc., Meiyi Corporation, Taiwan
Viva America Marketing, Taiwan Branch Branch
Taiwan Branch Redin International Co., Ltd. Usana Health Sciences Taiwan
Multi-level
Sunrider Taiwan Inc., Taiwan NIKKEN Taiwan Inc., Taiwan Inc., Taiwan Branch
Direct
Branch Branch Synergy Taiwan Inc., Taiwan
Selling
E. Excel International (Taiwan) Boching Enterprise Group Branch
Inc. Nu Life International AMKEY (TAIWAN) Co., Ltd.
Taiway International Co., Ltd. Matol Taiwan Corportation Sheng-En Development Co.,
Lanfar Interantinoal Co., Ltd. Fuh Jen International Co., Ltd. Ltd.
Hsin-Ten Enterprise Altwell Taiwan Inc. Re-Young International Co.,
Herbalife Taiwan Inc., Taiwan Taiwan Naturally Plus Co., Ltd. Ltd.
Branch Kelti Group
Totallife (International) Co.,
Ltd.
Data source: 2007 Taiwan Direct Selling Association. http://www.dsa.org.tw/

In the price aspect for Mary Kay, only Direct Seller can shop in the web site, when the amount is over 10,500 and
17,325 respectively, the discount would be 40% and 50% respectively of the original price; Nu Skin has web site
shopping function; in the past, as long as you are member of Nu Skin, you can enjoy 70% of the original price in the
shopping, but today, the web site price is the same as that of a member and Nu Skin ARO member can purchase it at
90% further the web site price.
In the sale channel aspect, Direct Seller is the only sale channel of Mary Kay, hence, when consumer wants to
order Mary Kays product, the consumer has to find cosmetology consultant he/she knows, the sale channel is thus very
narrow; for Nu Skin, in addition to Direct Seller, another easy way of shopping is through the internet, and the
consumer does not have to spend time to find Direct Seller he/she knows; therefore, its sale channel is a little bit
superior. Both products transportation is through logistics transportation.
In the promotion aspect for Mary Kay, in addition to publishing enterprises book and launching the web site, it
also promotes charity business Blossomy rose project and cooperates with Fund for Children and Family to help
poor children to improve their life; moreover, Nu Skin cooperates with Nongnong Magazine to open a Nu Skin special
column to discuss how the business runner of Nu Skin heads toward success. In 1996, Force for good foundation was
founded to promote Nutrition project for children under huger; it designed warm dish for children for domestic and
foreign children under hunger, meanwhile, a donation project of warm dish for children was started to try to help more
children under hunger.
In the personnel aspect, Mary Kay recruits female of over 18 years old to become its cosmetology consultant (that
is, the Direct Seller). Anyone who wants to join but does not know any cosmetology consultant can check into the web
site to leave personal contact information. Before the entrance of Mary Kay, it will take about 1,490 dollars to
purchase Career entrance kit; meanwhile, cosmetology consultant is incubated by supervisor of Mary Kay, in addition
to group meeting held once a week, the company will also hold irregularly a series of education activity; anyone who
wants to join Nu Skin can select to spend 850 dollars to purchase Entrance tips, or purchase companys product for at
least 2,000 dollars; anyone who use ARO repeating and circulation system for placing order every month can waive
from the membership fee. However, there is no limitation on the qualification of becoming a member of Nu Skin, and

218 Journal of International Management Studies * February 2008


the joining way is similarly to find Direct Seller you know; anyone who just wants to be a consumer can use the internet
shopping.
For the business operation qualification and encouragement standard of Direct Seller, the purchase amount of
cosmetology of Mary Kay each half year should be at least more than 10,000 dollars and when the purchase amount
exceeds certain value, certain discount is available. In the basic sale regulation, if a cosmetology consultant does not
place order for consecutive three months, it is called job idleness; if the order is not placed for consecutive five months,
the job will be stopped starting from the sixth month. However, within six months after the job stop, the job can be
started again once a new order is placed again; however, if within 12 months after job stop, there is no new placement
of order of product from the company, it is called job quit, and the qualification of cosmetology consultant is then lost.
The bonus issuance of Mary Kay is dependent on the performance of the small groups incubated by the up-level and
different uniforms are made as symbols of businesses; people of different ranks will have different uniforms, and the
national supervisor will have special uniform; in addition, different pins are awarded according to different ranks, for
example, ladder pin, bumblebee pin, pink Cadillac, etc.; furthermore, there are also welfares such as bonus system,
oversea travel and insurance, etc.
The encouragement system of Nu Skin can be divided into PSV personal score and GSV group score, 1PSV score
means 1 US dollar; when the Direct Seller accumulates a score of PSV 1,000, the Direct Seller can receive a bonus of
about 4,000 NT dollars and 12000 NT dollars for a score of 1,500, 20,000 NT dollars for a score of 2000, and the
person can get promoted to a chief supervisor when a score of 7,500 is acquired; later on, the personal consumptive
amount each month is a score of 150, to the group score, as long as the GSV score of each group is more than 2,000
(US dollars), then the person can receive a low-level number and a group bonus. If the Direct Seller wants to withdraw
from Nu Skin business, any product not unsealed or not expired can be refunded with 90% of the product value as long
as the invoice is still within one year; the rest 10% is tax collected by the government; in addition, membership fee can
be refunded at about 90% of the original fee.
To the personal incubation and promotion, Mary Kay has implemented consignment-incubation system for a
long time, that is, supervisor in different area can help supervisors in other area to incubate cosmetology consultant
under them. After the course training, Direct Seller (cosmetology consultant) can then get promoted in the order of
group leader, business supervisor and then national supervisor, etc.
The promotion of Nu Skin is absorbed and incubated by each area and each group, hence, the incubation method
of each group will be dependent on the style of each group. Meanwhile, the headquarter holds irregular product
exhibition meeting and new product launching announcement, weight management lecturer qualification incubation,
supervisor incubation camp, praise meeting and annual meeting, etc. When the Direct Seller encounters any difficulties,
he/she can go to the company directly or use telephone and web site to consult to the company. The promotional levels
of Nu Skin are, for example: Direct Selling supervisor under examination (normal Direct Seller), Direct Selling
supervisor, Gold Direct Selling supervisor, Lasurite Direct Selling supervisor, Ruby Direct Selling supervisor, Emerald
Direct Selling supervisor, Diamond Direct Selling supervisor and blue diamond; the promotional method will be
dependent on personal performance.
In the advertisement aspect, Mary Kay uses placement marketing way to advertise product catalogue in
accordance with special column of many female magazines, for example, Cosmed, Girl, Mamibaby, Tvbs Weekly; Nu
Skin instead, provides electronic publications, for example, Nu Vision, Nu People, Nu Wave (Nu Skin), Nu Style to be
browsed and downloaded by the customer. However, both of them currently do not have planned to use TV
advertisement to enhance brand visibility.
From the above comparisons, it can be seen that Mary Kay is superior to Nu Skin in terms of price, discount and
personnel incubation; however, Nu Skin is superior in terms of product types, sale channel and promotion; however,
both use only magazine and book in promoting enterprise image and concept and no marketing strategy through TV
advertisement at this moment. In the later section and chapter, SWOT analysis will be used to compare Mary Kay, Nu
Skin and the case study company Avon.

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CASE STUDY: AVON TAIWAN

In 1886, Avons precursor California Perfume Corporation was founded; in 1939, Mr. McConnell formally used
a river beside Shakespeares old home Avon as the name of the company; in 1972, Taiwans Avon was founded. It is
119 years since its first foundation, Avon continuously devotes itself to the creation of unique beauty for female; at the
same time, it also creates a new career for millions of females worldwide.

4.1 Avon 5P+Aanalysis


4.1.1 Product
Avons product is so diversified and it will mail every year a copy of general catalogue of that year to
cosmetology supervisor and VIP member; in addition, it will provide the member 18 volumes of catalogue for one year
or special edition catalogue; in the web site, you will see catalogue product of two volumes. Since its product is so
diversified, we can not list all of them, and they are only classified in different types; only price range for different
product type is listed as follows. To guarantee customers right, within one month after the purchase of Avons product,
customer can get refunded for 100% with full satisfaction.

Table 4-1 List of classification of Avons product


Price
Product Product Price range Product Price range
range
classification classification (Unit: NT) classification (Unit: NT)
(Unit: NT)
Face cleaning Nutrition and
100-1,200 990-1,980 Perfume 600-1,600
Nutrition and health care

product energy

Charming
perfume
Youth Perfume
Lotion 300-1,800 1,000-4,200 250
adjustment Generics
Cream 600-1,500 Cosmetology 700-880 Bath lotion 300-800
Nutrition and
Day protection 400-2,000 700-1,600 Body lotion 350-800
slimming
Whole family Sun screening
Night cream 400-600 900-1,980 120-480
care product
Childrens Slimming
Exfoliation 400 800-990 600-1,500
Skin care

heath series
Moisture Makeup
400-2,500 200-450 Bath lotion 150-350
keeping remover
Body care

Foundation
Refresher 650-2,450 400 Skin lotion 150-350
cream
Special care 600-3,000 Isolation 300-800 Hands cream 100-200
Anti-aging
Colorful cosmetic

700-3,600 Mirror box 400-500 Body perfume 150


protection
Face film 230-1,500 Lip cosmetic 200-700 Foot care 150-250
Grease control
200-400 Eye cosmetic 250-800 Skin perfume 350-350
and anti-pimple
Eye and lip
90-1,500 Face care 250-900 Shampoo 135-380
care
Hair care

Nail care 150-300 Hair rinse 135-380


Mans care

Hare care
Cosmetic 190-380
Face care 90 product
accessory and 45-1,500
Styling
others 210
product
Data source: Summarized by the author

4.1.2 Price
With Low unit price and high circulation in mind, Avon has provided the members with diversified
consumption way and discount, for example, VIP member has the favored purchase right of Use it first and pay it

220 Journal of International Management Studies * February 2008


later; meanwhile, VIP and cosmetology representative can purchase ultra low price clearing product, that is, product
that is sold in its cost. Since Avon product is so diversified, it can not be fully listed; therefore, in this study, only the
price range of different product type is listed as in the above table 4-1.

4.1.3 Place
On Feb., 1998, in one way, Avon recruits more newcomers to expand its Direct Selling net, it also steps
aggressively into open shelf cosmetic retailing channel; starting from Feb., it was sold in Watsons and COSMED to try
to raise its sale proportion in retailing channel to as high as 8%. Until now, Avon is the largest female catalogue sale
channel in Taiwan with around 49 exhibition centers in Taiwan and the distribution is as shown in figure 4-2. Currently,
Avon has more than two hundreds thousands members and the annual issuance of its catalogue is over 6 millions.

Table 4-2 A list of exhibition centers of Avon in Taiwan


Northern Taiwan 6 stores Taoyuan, Hsinchu and Miaoli 9 stores Central Taiwan 8 stores
Yunlin and Chiayi area 11 stores Kaohsiung and Pingtung Area 11 stores East District 4 stores
Data source: Summarized by the author

In Taiwan, In addition to the open shelf special counter in Watsons, Avon is only operated in three different sale
models, that is, headquarter-operated store, Miss Avon and network sale:
1. Exhibition center: Avons exhibition center is run by the headquarter directly and it not only sells cosmetic
product but also provides personal cosmetology service to the customer.
2. Miss Avon: That is, Avon Direct Seller. Miss Avon sells the product through single level Direct Selling model and
there is no difference of up-level or down-level.
3. Network sale: As early as Nov. 1999, Avon had seized the newly emergent e commerce wave and started its
network selling activity. Avon takes full use of the unlimited nature of network space and combines its new web
site launching activity with the real expansion work of special counters (Te-Ling Ni, 2006).
Avon has its own logistic channel in Hsinchuang city. After customer places the order in the internet, the product
can be distributed directly to customers home. Meanwhile, consumer can pay at the convenience store to facilitate the
financial flow.
In the process of changing sale model and performing supply chain change and in order to ensure normal and high
efficiency operation of special counter system, Avon has enhanced its internal management. It has passed the
implementation of standardization and internal target management, the operation efficiency of store and sale channel is
thus greatly enhanced, at the same time, this is also the guarantee for the sustaining development of the company.

4.1.4 Promotion
Avon commitment day is a nationwide virtual network that Avon has built for research, medical care and social
service for the recognition of the complication of breast cancer among the females of different races; starting from 1993,
5 key anti-cancer fields are the focuses: namely, medical research, clinical care, support and service, education and early
detection. More than a decade, Avon Breast Cancer Crusade continuously raise fund and waken people the importance
of the finding of breast cancer prevention channel.

4.1.5 People
Avon has two kinds of member systems, consumer and business runner. Please look at Table 4-3.

Table 4-3 List of the right of Avons member


Successful business
Happy consumer
runner
Professional
Name
cosmetology
of the Network member Avon member Avon VIP member
representative (that is,
member
Miss Avon)

Journal of International Management Studies * February 2008 221


Free to join. It does not include net When this member has Pay 1,000 dollars to
Only basic value 2 special purchased for 20,000 dollars join.
information needs Product. The member in consecutive two months,
Joining
to be filled out only needs to purchase the membership will be
method
through the for more than 1000 upgraded to VIP
internet. dollars of consumer membership automatically. 3
price.
1. Can participate 1. Can enjoy at the same 1. Can have the right of 5. Can have the rights of
in any internet time all the rights of a network member and Avon network member, Avon
activities network member. member at the same time. member and VIP
sponsored by 2. Free Avon catalogue. 2. First visit gift for VIP member at the same
Avon. 3. Can have a discount of member. time.
2. Can have 15%~30% in the shopping. 3. Extra favored net price 6. One career classical
personal network 4. Can have first priority birthday gift. combo pack.6
service. purchase of new product. 4. Exclusive new 7. Can have the right to
3. Can subscribe 5. Can purchase the net knowledge share and first receive the bonus.
the newsletter value product at ultra low priority free trial on new 8. 18%~33% purchase
Right of of Great woman price. product. discount (3% more than
the for free. 6. Can receive gift after 5. VIP exclusive bonus point that of Avon member).
member 4. Can shop in shopping exceeds certain accumulation and 9. Irregular
the internet amount. exchange.4 encouragement activity.
without going 7. Can have a trial pack of 6. Avon catalogue for the 10. Professional
outside. new product for free. entire product. assistance and
8. Can have in-time 7. Nutrition-assisted food counseling from the
cosmetology and nutrition 15%~25% extra discount.5 recommended
counseling. 8. Flexible credit right to personnel.
9. Can attend cosmetology enjoy first and pay later. 11. Free
and nutrition courses. 9. Top winner annual delicate Beautiful life
10. No annual fee on Avon bonus point accumulation monthly for one year of
Union card. competition. 18 volumes.
Free delivery to Free delivery to home for 1. Send the gift on behalf Free delivery to home
home for shopping over 500 dollars. of the customer. for shopping over 500
Product shopping over 2. Consumer can assign the dollars.
delivery 500 dollars. time of delivery.
3. Free delivery for over
500 dollars of shopping.
Data source: Summarized by the author

In the Direct Seller business operation qualification and encouragement standard aspect, after joining
cosmetology representative, Miss Avon can receives Avon for one year 18 volumes free (Each volume for an average of
three weeks). Miss Avon has to order from member catalogue and monthly magazine for each term for amount of
consumers price of over 500 dollars, if the order amount is more than 500 dollars, 15% off can be applied; if the order
amount is over 2,000 dollars, 25% off can be applied; if the order is over 10,000 dollars, 30% off can be applied. The
business performance of Miss Avon will be calculated every 3 months, within these 3 months, 45 customers should be
introduced to consume in Avon successfully; meanwhile, the revenue within three months should be over 150 thousands
dollars before Miss Avon can be promoted to professional reserve cosmetology supervisor; for the beginning
cosmetology representative, if the consumption amount at consumers favored price within three months does not reach
over 1,000 dollars, the qualification will be lost. If the qualification is reached, then bonus reception condition is
matched, and the bonus can be divided into nine grades:

Table 4-4 Avon bonus system


Sale revenue in each Percentage of the bonus Sale revenue of each Percentage of the bonus
term received term received
10,001~30,000 3% 350,001~500,000 8%
30,001~70,000 4% 500,001~650,000 9%

222 Journal of International Management Studies * February 2008


70,001~140,000 5% 650,001~800,000 10%
140,001~200,000 6% Above 800,001 11%
200,001~350,000 7%
Data source: Summarized by the author

The promotional ranks of Avon are, for example, cosmetology representative, professional reserve cosmetology
supervisor, formal professional cosmetology supervisor, professional cosmetology vice manager, professional
cosmetology manager, senior professional cosmetology manager; the first three emphasize on sales and the last three
emphasize on incubation. In addition to receiving the bonus according to the sales revenue, Avon also uses KPI index 7
as the encouragement standard.
Since Miss Avon scatters everywhere, Avon company has to hire district manager to play the role of sales
manager; each district manager will be in charge of the recruitment, education and counseling of 100 Miss Avon.
Meanwhile, the company will also hold related educational courses so as to enhance the related cosmetology knowledge
and technique of Miss Avon.

4.1.6 Advertisement
In TV advertisement, Avon always resorts to the emotional aspect of a product and uses sensible topic and story to
attract customers and to be distinguished from other brand names. In the advertisement of magazine and website, its
unique slogan ofUnderstand woman better than a woman. really impresses people on Avons expertise and brand
content. What it is different than Mary Kay and Nu Skin is, Avon devotes to advertisement, no matter it is TV
advertisement or spokesman way, etc., Avon put large amount of money into them, Avon hopes that its resort
of Understand woman better than a woman can really impress women around the world.
Here we will sum up the member rights of the above mentioned three Direct Sellers. Furthermore, we will
perform SWOT analysis on each Direct Seller so as to understand the strength and weakness of each company and
propose our suggestions:

Table 4-5 Analysis of members right for different companies


Mary Kay Nu Skin Avon
1. Mary Kay consumer 1. Nu Skin consumer 1. Network member
member
Type of

2. Mary Kay cosmetology 2. Nu Skin Direct Seller 2. Avon member


consultant (that is, Direct 3. VIP member
Seller) 4. Professional cosmetology (that is,
Direct Seller)
1. Can place order directly 1. Shop from Nu Skin through 1. Free to join.
Method of joining

from the Direct Seller. internet or Direct Seller. 2. When the shopping amount exceeds
2. Pay member fee of 1,499 2. Pay a membership fee of 850 1000 dollars.
dollars. dollars; or join ARO system to 3. When the shopping is over 20000
waive the membership fee. dollars in consecutive two months, the
membership will be upgraded to VIP
automatically.
4. Pay 1000 dollars of membership fee.
1. Professional consultation 1. Direct Seller professional 1. All the network services.
from cosmetology counseling and after-sales 2. Can receive catalogue and shopping
Rights of the member

representative and after-sales service. discount and irregular membership


service; three months of product 2. Rank bonus and corporate favored activity and welfare.
warranty period. welfare; ARO system member 3. Catalogue for all the products, bonus
2. Very low price and high will have 10% off in the point accumulation, shopping discount,
discount for a purchase order; purchase order. . flexible credit amount and other favored
rank encouragement and activity and welfare.
corporate welfare. 4. Can enjoy all the rights of consumer
member, order discount, monthly
magazine and encouragement activity.

Journal of International Management Studies * February 2008 223


delivery The Direct Seller nearest to the The Direct Seller nearest the 1. Free delivery to home for shopping
Product consumer will provide product consumer will provide the over 500 dollars for all members.
delivery and product product delivery and product 2. VIP and Direct Seller can have
consultation service. counseling service. delivery time selection and
consignment-gift-delivery service.
Data source: Summarized by the author

4-2 SWOT general analysis


In this study, the SWOT strength and weakness of the case in the case study and the competitors will be listed:

Table 4-6 SWOT general analysis


Strengths Weaknesses Opportunities Threats
The order discount to The traditional channel Personnel The sale is promoted only
Direct Seller can be as customers can not be consignment-training by personnel; it is thus
low as 50% of the taken care of. system without area very difficult to enhance
Mary Kay

original price. The product refund or consideration. customers recognition


Product warranty exchange time is longer Save the sale channel on the brand name and to
period of three and less convenient. cost. promote the brand image.
months and for 100% The member is limited by The threats coming from
refund guarantee. basic qualification. the competitors
competition.
It has the lowest Use survey questionnaire High age society High level Direct Seller is
member fee; the to perform new means Health, hired by the competitors.
member fee is free if customer development anti-aging and youth Team work system, the
you have joined ARO. has very low efficiency. will be tomorrows management is very
Nu Skin

Convenient and simple The price is too high and superstar industries. difficult and the quality is
order placement customers consumption Zero time difference very different.
system and product thus can not continue. international market.
delivery service so as Bonus system is too
to create convenient strict, which might lead
consumption. to over-inventory at
Direct Seller.
Diversified product. The total bonus is lower Multiple sale system to Multi-channels will
Reasonable product than the competitors. increase business increase the cost.
price. Difficult to develop male development chance. It is more complicated in
Customer can have customers. Advertisement the sale channel
Avon

product warranty Product price is in the spokesman can management.


period for one month. middle and low range increase the willing of
Excellent brand and and high price purchase from
corporate image. consumption groups consumers.
might be lost.
Data source: Summarized by the author

It can be seen from the above table that Mary Kay and Avon all commit to customers long term product
satisfaction warranty, 100% refunding and exchanging services can greatly enhance consumers confidence on their
products. The product prices of three companies are made according to customer and Direct Seller, and Avon gives
member and Direct Seller respectively favored purchase discount; in addition, Avon also provides Direct Seller and
customers diversified product discounts, such strategy can not only encourage purchases but also clear out the inventory.
However, in the order discount of Direct Sellers, Mary Kay give them discount even up to 50% off, which is the highest
discount among the discounts from all the three companies; for Nu Skin, in addition to the additional 10% off for ARO
member, the recommended sale price has been unified to 70% of the original price too, but the product price is still too
high and can not convince customers that real discounts are offered to them. Although Avon also provides product
warranty period of one month, yet the warranty period is even longer in Mary Kay, that is, three months; if the product

224 Journal of International Management Studies * February 2008


has trouble within the warranty period, although there is no real sale channel, yet the customer can exchange to new
product or product of equivalent value with cosmetology consultant the customer knows. Although in this aspect, Mary
Kay is superior to Avon, yet the product risk is increased.
Mary Kay has set up basic limitation on the personnel it recruits and its membership fee is the highest among the
three companies, hence, it might affect consumers to become the member of Mary Kay. For the membership fee, Nu
Skin is the lowest among those three companies; meanwhile, as long as the consumer chooses to use ARO product
circulation system, the member registration is then free.
The sale channel of Mary Kay is the only one, among the three companies, that provides face-to-face sale;
however, Avon has four sale channels such as: Direct Seller, cosmetology special counter, special store and network
Direct Selling, which greatly enhances the brand visibility. Avon resorts to the emotion in the first place and invests big
money on the advertisement and find advertisement spokesman to speak for the product so as to enhance consumers
recognition on its product and consumers good impression on its brand image. Nu Skin and Mary Kay only advertise in
magazine and books or in newspaper column to enhance their visibility, which is inferior as compared to Avon.

CONCLUSION AND SUGGENTION


5.1 Conclusion
The seven main products of Avon have included most females need and it is superior to Mary Kay and Nu Skin
in terms of product type. Meanwhile, the price not only is very affordable, the most favored discounts are also
constantly provided to members so as to encourage the purchase; furthermore, one month of satisfaction warranty is
provided for the product, customer is thus very confident on Avons product because the consumption is very
trustable.
As compared to that of Mary Kay and Nu Skin, Avons bonus is somehow lower, but its multi-element
promotional method becomes assisted force when Direct Seller sells or promotes Avons product. Since Avons product
has very reasonable price and so many promotional discounts, it is thus very superior to Mary Kay and Nu Skin in terms
of price. However, Avon does not have high price product, which might lead to the loss of high level consumers, hence,
we think that its market segmentation is still not clear enough.
The largest innovation of Avon in sale channel is its successful transfer to multi-channel sale; although real store
can compensate the drawback of brand promotion by Direct Selling, yet the multi-channel has its price of large
marketing and management fee. Moreover, Avons product is very diversified but the brand feature is not very clear;
therefore, to potential consumers, it is very difficult for them to understand Avons business operation image and its
features.

5.2 Suggestion
5.2.1 Suggestions to companies in this business
Business operation featuresAvon has includes seven major products which can most of the females need.
Although such strategy has taken care most of the market, yet its own feature is lost and it can not have strong
impression on consumers mind. Therefore, Avon can head toward a more professional company and try to develop
unique and competitive product and use the product as a segmentation of its brand and image with its competitors; in
addition to the product feature, its price can also be segmented in medium and high price so as to seize the need of
consumers of high level groups and enhance corporate and product image.
Green productIn recent year, the global warming issue becomes serious, environmental protection, in addition
to be hot topic in recent years, is also a large business opportunity. Since cosmetics is consumptive product, Avon can
thus focus on green related projects, for example, discount for using old bottle to buy a new product and the
development of green product so as to create new product opportunity.

5.2.2 Suggestions to consumers


1. Since Avons product has wide scope, it is thus very difficult for a consumer to make a choice during the shopping
process. Therefore, during the shopping process, a consumer can start from his/her own need instead of just

Journal of International Management Studies * February 2008 225


considering new product or simply considering the price so as to find personal merchandise that fits to consumer
himself/herself.
2. Although Direct Selling is very popular right now in Taiwan, yet many fraudulent events can be frequently seen by
using Direct Selling way; therefore, when consumer has chance to contact Direct Seller, the consumer must collect
enough related information and refer to consumer protection law so as to protect his/her own rights.

5.2.3 Suggestions to the government


1. In recent years, global warming issue becomes more serious, the environmental protection topics have caught
peoples attention; therefore, in addition to making laws to protect Direct Sellers right and regulate them, the
government can also emphasize on environmental issues and make related standards, for example, green
consumptive product support policy, the promotion of environmental protection consciousness and the
implementation of natural and ecological protection concept.
2. In addition to getting profit, if an enterprise can perform social marketing to feedback to customers, the enterprises
image and visibility is for sure going to be enhanced. Therefore, we suggest that the government can encourage the
enterprise to implement social marketing and to feedback the social resource through legislation.

NOTES

1. Jo-Lan Chi ed., Peter F. Drucker (2004). Management bible of Peter F. Drucker, Yuan-Liou Press.
2. Net price is price that is close the cost. All the net price products can not be accompanied with other discounts.
3. The VIP membership qualification can remain if starting from the second year, the year end accumulated customers
price value has reached 60,000 dollars.
4. For the bonus point accumulation, any consumption of 1 dollar consumers price can have one accumulation point,
when over 30,000 points are acquired, the consumer can receive a gift; when it is over 60,000 points, the consumer
can exchange the accumulation bonus point for a gift.
5. The extra discount of nutrition-assisted food is: When the value of one single purchase order is over a customers
price of 2,000 (included), 15% discount can be applied; when it is over 4,000 (included), a discount of over 25% can
be applied.
6. Career classical combo pack includes: Avons career hand pack, Avons career classic, Avons star product
experiencing set, Avons beauty rights, Avons manual for customers purchase order, visit slip, Avons invitation
card, Avons invitation manual, Avons universal manual and VIPs first visit gift, etc.
7. KPI means key performance index, which uses the most important indexes of the company as bases for the
issuance of the bonus. Avon will adjust KPI index at the end of each year so as to create a fair bonus distribution
system.

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