AVON CASE ANALYSIS

Nikhil Muralidharan, Section-A, Roll No: 1301-136

The case talks about the expansion plans of Avon, the world’s largest direct seller of beauty
products and fifth-largest beauty company, into other non-retailing options other than direct-
selling.

Case Facts:
 Launched by David McConnell as offshoot from book selling business
 Started as California Perfume Company – 5000 ‘Avon ladies’ selling direct to customer
 Diversified product range post 1939
 In 1950’s, Mass Advertising – Increase Overseas Market
 Direct Selling by women – Cash cow for Avon to diversify into other businesses
 Change in emphasis on locus of sales – At-work sales
 Direct mail – failed because of low order sizes

Andrea Jung: Female CEO

 Strengthen beauty image of Avon
 Leverage equity
 Build new products and channels
 Accelerate Sales
 Enhance experience of reps

AVON Color: Leading cosmetic brand in the world

 Target Market – Women aged 25-50, below-average income
 Market Size: 25 million U.S. women
 Positioning: High quality, highly innovative, outstanding value
 Price was lower by 50% compared to others

Perfume:
 Sold more perfume per unit than any other company
 Jung: Expansion into hair care and skin care
 Significant R&D Spending

Sales Force:
 500,000 sales representatives in U.S. – 5% of Americans in direct-selling
 Similar profile of reps of this industry
 All women in 30-40’s
 Sell as second-job – less than10-15 average sales/week
 Independent contractors and not employees
 Extensive sales management hierarchy for recruiting, training and advising
 100% turnover of sales force (characteristic of direct-selling companies)

Differences in Direct-selling strategy

 Network Marketing + Organized into single level
 Unlike other direct-selling companies, did not use Party Plan – focused on one-on-one
meetings

Selling Process
 Free to pursue approach that matched style
 President’s Club members – Full-time sellers (20 % of reps)
 Part-time sellers (some percentage were ‘stranded customers’ with no experience of
selling)
 High Turnover – Stranded Customers  5000000 customers in U.S. alone
 Customer List of old reps not available – Lack of knowledge of identity of End-customer
with Company  Dependency on Reps
 Leadership Program: Additional money to reps for recruitment
 Beauty Advisor Program: Consultative Selling skills added to repertoire of reps

Campaigns:
 26 two-week selling campaigns – 12 per rep
 ‘Campaign’ definition – Brochure Buying + Distribution to customers + Order placement
 150 page full-color brochure
 Price charged for brochures by Avon – 0.56$ for 10; 0.19$ for 100+
 Discount of 30% to max 50% for Avon reps – Source of Income/earnings for Avon reps

Logistics:
 Order Collection over 2-week period
 Each customer Order/spending average: 20$
 Cost to Avon for Order Processing: $4 ($3 for processing step + $1 for shipping)

Marketing:
 Target Market breakup : 12%-18%-70% (Not Buy Avon-Not buy Avon through Rep-Buy
Avon through Rep)
 “Company for Women” image promoted: Breast Cancer promotional activities
 Little spend on Advertising: $45 million worldwide for advertising + $12 million for
sampling

Avon.com
 Only Direct-to-Customer sales promoted
 No role for reps
 Sold only beauty products online
 Two options to revamp: Eve.com model or iVillage model

Dilemma
 Role of reps in B2C
 Commissions to reps for Online sales
 Online/website-specific products
 Marketing of Avon.com through reps
 Incorporate Avon.com into B2B model
o Incorporation of fully functional online ordering model  $60,000,000
over 3-5 years
o $3,000,000-$5,000,000 for Online store upgradation
 B2B model considered riskier
Case Analysis
The basic question is a transition from one type of non-store retail to another.
Classification of Target Market:

Sales

Channel Rejector
18%

Brand Rejector
12%

Existing Customers
70%

Channel Rejector Brand Rejector Existing Customers Stranded Customers

The segment called Stranded Customers were created mainly owing to the 100% turnover
rate within direct-selling model companies.
The Stranded Customers signified an untapped resource that could be made use of if the
Representatives did not move away. Stranded customer number = ~5,000,000.
That brings us to the reason why Reps move away or the main reasons for there being a high
turnover rate.
The reasons suggested by the case are:
 o Avon never used multilevel approach (Reps earned from selling of their recruits)
o Reps who are converted Stranded Customers (Not adept at selling)
As a result, there could be a difference in the earnings of an Avon Direct-selling Rep and any
other company’s direct selling Rep.
The current cost of sales to company is almost 50% of the Net Sales and we need to compare this
amount to the savings and costs incurred if we take into account the cost of designing a state of
the art website for Avon. This should help us get an idea of the savings and the desirability of the
alternative non-store retailing model being considered.

Activity Analysis for Avon Direct-Selling method:

o Building a Customer List – On account of Network Marketing/ Chain of Referrals
o Buying Brochure or Catalog from Avon by Reps
o Collecting Orders from Customers after distribution of brochures and counselling with
Customers
o Submission of orders to Avon by Reps (through 35-page purchase order)
o Processing of orders by Avon
o Shipments received by Sales Rep within 5 days of ordering
o Delivery by Avon Reps to Customers in person at home/workplace. Delivery through
courier in cases of customers living far away

The above processes which are involved in a typical Direct Selling process can be
supported by the new online model being planned. The activities above can be reviewed
and activities in the old model can be improved with the new model or replaced with the
new model wherever feasible.

Some new model steps that can be suggested are:

o After building Customer List  Maintaining the customer List online by Reps
(Serves 2 purposes:
- Makes organizing details of customers easier for Reps
- Makes the list of Customers available Avon for further pursuit of sales in event of
quitting of Sales rep)
o Sending Brochure to Customers (directly B2C to those who order after receiving direct
mails or by browsing the online store) and Representatives
o Order Collection by Reps – or online ordering by Customers
o Collected Orders can be submitted directly online to be processed by an ERP-type system
o Orders Processed by Avon (Savings of $1 minimum on processing of Orders)
o Shipments received by Reps or forwarded to customer addresses
Thus by eliminating the need of Order Capture through a paper-pencil Purchase Order,
processing charges can be brought down for the company.
The practice of feeding in the customer lists online will be a double-edged sword. It will
help in easier order-entry for the Reps and at the same time give the company access to
the customer lists, which have been the weak link in the current process preventing the
company from pursuing stranded customers.

Sources of Conflict:
1. The Representatives might have issues with sharing what they consider their assets, in
the form of the Customer Lists. This could be seen by the Reps as an attempt by the
Company to eliminate or diminish their role in the process.
The launch and expansion of the online activities itself will be seen as a threat by long-
time members like the President’s Club members and others.
2. The Company, Avon, is identified with Direct Selling through its Avon ladies. The
launch of serious online stores for all products could dilute the recognition or credibility
of the brand. It might lose the uniqueness that it now commands in the market.

Thus, this will need more communication from company top management regarding
these changes. The Reps will need to be assured of their continued importance to the
direct selling model of Avon and fears of replacement by the online model also will need
to be allayed.

3. Avon being a recognized company in the direct selling format, there is a possibility for
the company to face failure with its online store format. Without returns on the site, the
company might have to face embarrassment.

Some of the steps actually taken by the company include:

- Marketed directly through consumers in addition to Reps
- Advertised the site name on new brochures and catalogues
- Options available on site to have sales via Reps or directly to consumers

****