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Aug. 2, 2017

The Multichannel Challenge at Natura in Beauty and Personal Care

Natura is headed for a big shake-up. We are sure that in 3 to 5 years our business is going to change
significantly.
—Alessandro Carlucci, Natura’s former CEO, January 20141

The business of Natura, Brazil’s largest direct-selling company with roughly 1.5 million independent door-
to-door sales consultants (ISCs), had started to change in recent years.2 On August 19, 2014, the company had
announced that board member Roberto Lima would replace Alessandro Carlucci as CEO.3 Carlucci had worked
at Natura for 25 years and had held the role of CEO since 2005. This CEO transition occurred when Natura’s
position in the cosmetics, fragrance, and toiletries (CF&T) market was being challenged by other, nondirect-
selling companies.

Following unfavorable results using only a door-to-door strategy, the new management devised a
multichannel strategy and started to sell its beauty and personal care products through new online channels,
physical stores, and other retail formats. Within the industry some saw this multichannel strategy as a
contradiction that could hurt the core assumptions of a direct selling–based model that consisted of (a) face-
to-face sales away from a retail location, and (b) the relationship orientation between Natura and its independent
door-to-door salespeople through meetings, sales incentives, and the use of catalogs provided by the company.
In spite of the declining stock price and market share (see Figure 1 and Table 1), and, despite all internal
obstacles it faced as a direct-selling company that had chosen to focus less on the sales consultants and more
on reaching the end consumers directly, Lima’s management team supported accelerating the shift in channel
strategy.

Two years after the new management implemented its strong multichannel orientation, Brazil was in the
middle of the largest economic recession ever recorded. The company had reported a sharp net income drop
in the third quarter of 2016, down 44.6% from the same quarter in the previous year.4 Natura’s direct-selling
operation only achieved a brand household penetration of 37.13% in the second quarter of 2016, which
represented a decrease of 8.5% over the same period in 2015. In the face of these results and just two years

1 Shasta Darlington, “Brazil’s Natura Turns to Internet”, CNN, January 3, 2014, http://edition.cnn.com/videos/business/2014/01/03/pkg-

darlington-brazil-cosmetics-natura.cnn (accessed Jun. 13, 2017).

2 We use the term independent sales consultant (ISC) to refer to a person that joins a direct-selling company. They are independent resellers who buy

products directly from a direct-selling company and resell those to end consumers. Natura calls them Natura Consultants, Avon calls them Avon
Representatives, and Mary Kay refers to them as Independent Beauty Consultants.
3 “Roberto Lima to Take Over as CEO of Brazil's Natura.” Reuters, August 19, 2014.
4 Paula Laier, “Brazil's Natura Reports Q3 Net Income Drop, Revises Investment Plan”, Reuters, October 26, 2016.

This case was prepared by Leandro A. Guissoni, Professor of Marketing; Fundação Getulio Vargas (FGV-EAESP); Paul W. Farris, Landmark
Communications Professor of Business Administration, Darden School of Business; Kusum Ailawadi, Professor of Marketing at the Tuck School of
Business at Dartmouth; and Murillo Boccia, Director of Ecommerce at Natura; based on reports from secondary sources. Copyright © 2017 by the
University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by
any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Our goal is to publish materials of the
highest quality; please send any errata to editorial@dardenbusinesspublishing.com.

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into his role as CEO of Natura, Lima decided to resign. On October 25, 2016, the company’s board accepted
Lima’s resignation. According to a company statement, “during his tenure as CEO of the Company, Lima
formed a solid Executive Committee and delivered important projects that included the digitalization of the
business, the entrance into new channels and the repositioning of the Natura brand.”5 Regarding the CEO
succession, the board appointed its commercial vice president, João Paulo Brotto Gonçalves Ferreira, as the
new CEO. Ferreira was tasked with revitalizing Natura’s direct-sales business as part of the company’s growth
strategy. At that moment, within the industry and the company, there were opposing points of view about how
and how quickly the multichannel transition should take place. Specifically, Ferreira was challenged with
creating a balance between the direct-selling and other channel formats to market the brand and yet allow
Natura to thrive in the face of intense multichannel competition in the beauty and personal care market in
Brazil.

The Brazilian Beauty and Personal Care Market and Natura’s Position

Despite Natura’s success following its 2004 IPO, since 2012, the company had started to struggle. Its
market share decreased and its stock price declined, but the company was not alone: its main competitor in the
door-to-door channel had also faced difficulties in the same period. Avon did not achieve its targeted results
even though in the past Brazil had been one of the company’s most profitable markets, and represented its
largest operation in the world, with more than 1.5 million ISCs.6

Figure 1. Natura stock price since the company’s IPO, May 2004 to February 2016
(in Brazilian real; close price adjusted for dividends and splits).
BRL 60.00

BRL 50.00

BRL 40.00

BRL 30.00

BRL 20.00

BRL 10.00

BRL 0.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Data source: Yahoo! Finance.

Most competitors that used retail channel strategies grew sales during the same period. In 2014, Unilever
took the lead and Natura fell to second position in the CF&T market in Brazil. Table 1 shows market share
over time for the main companies in this industry.

5 “CEO Succession,” Natura Investor Relations, October 25, 2016,

http://natu.infoinvest.com.br/enu/5785/2016%2010%2025_Fato%20Relevante_Renncia%20Roberto%20Lima_Ingles.pdf (accessed Jun. 20, 2017).
6 Tatiane Bortolozi, “Lucro da Avon Recua 40% no 2º Trimestre, para US$ 19 Milhões,” Valor, July 31, 2014,
http://www.valor.com.br/empresas/3633696/lucro-da-avon-recua-40-no-2 (accessed Jun. 20, 2017).

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Table 1. Revenue market share in the beauty and personal care market in Brazil.

Company 2008 2009 2010 2011 2012 2013 2014 2015

Unilever 10.6 10.5 10.4 10.5 11.7 11.9 12.1 12.2

Natura 13.6 14.2 14.9 13.8 13.2 12.4 11.4 11.1
Boticário (BCF) 6.5 6.7 6.9 7.8 8.8 9.2 10 10.9
Procter & Gamble (P&G) 6.9 7.0 7.8 8.3 9.0 9.1 9.1 9.7
L’Oréal Groupe 5.0 5.3 5.5 5.5 5.4 5.4 6.7 6.8
Avon 8.8 9.0 8.8 7.8 7.2 6.4 5.8 5.7
Colgate-Palmolive 6.4 6.6 5.9 6.0 6.0 5.9 5.8 5.8
Johnson & Johnson 3.8 3.7 3.8 3.8 3.8 4.0 3.8 3.8
Hypermarcas 2.6 2.7 3.2 3.1 3.1 3.1 3.0 2.7
Data source: “Beauty and Personal Care,” Euromonitor International Report 2016, http://www.euromonitor.com/beauty-and-personal-care
(accessed Jun. 14, 2016).

One local company in Brazil, Botica Comercial Farmacêutica (BCF), known as Boticário, outperformed
others in this industry from 2008 to 2015, and it was the fastest growing company in the beauty and personal
care market. Boticário maintained a very aggressive strategy in Brazil by investing in brand development and
multichannel strategies, most notably through a franchising system that included over 900 franchisees and 3,700
stores in more than 1,500 Brazilian cities.7 The growth of Boticário suggested that the reason Natura and Avon
had achieved such unfavorable results was not due to an overall market decline. In fact, the market size for
beauty and personal care in Brazil had more than doubled from 2008 to 2015, although an economic slowdown
in the country led to a small decline after 2015. Table 2 illustrates the overall growth of the sales of beauty and
personal care in the category’s largest markets from 2008 to 2015.

Table 2. Beauty and personal care sales (billions of U.S. dollars).8

Country 2008 2009 2010 2011 2012 2013 2014 2015

United States 67.74 66.82 68.37 71.40 73.94 75.66 77.21 80.04
China 26.84 29.55 32.84 36.97 40.56 44.25 47.54 50.68
Japan 32.61 31.95 31.76 31.12 31.28 31.65 31.98 32.14
Brazil 14.43 16.83 19.18 21.19 24.42 27.51 30.48 30.24
United Kingdom 14.42 14.97 15.69 16.12 16.50 17.03 17.49 17.85
Germany 14.36 14.73 15.06 15.40 15.71 15.90 16.27 16.54
France 13.64 13.61 13.82 14.01 14.20 14.26 14.35 14.39
Data source: “Beauty and Personal Care,” Euromonitor International Report 2016, http://www.euromonitor.com/beauty-and-personal-
care (accessed Jun. 14, 2016). Prices as of 2015, fixed 2015 exchange rates.

In this environment, executives of companies engaged in direct selling CF&T in Brazil had some important
questions: What factors were driving these results? What changes were needed to their business models and

7“Botica Comercial Farmacêutica Ltda in Retailing, Brazil,” Euromonitor International Report 2014.
8Euromonitor currency conversions to U.S. dollars based on year-on-year exchange rates (converted from local currency in Brazil, BRL, using
exchange rates for each year of the historic period).

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channel strategies to succeed? What were the risks and potential gains of the new channels? Would changing
channel strategy alone produce increased market share, sales, and profitability in Brazil?

Natura—Company Background

For the belief in the sales’ power through relations, we chose the direct sale model to sell and distribute our
products with Natura’s brand. It’s a model that promotes a strong connection between buyer and seller.
—Natura’s Investor Relations website9

Natura’s vision statement

Natura, through its corporate conduct, through the quality relationships it establishes, and through its
products and services, will be a globally significant brand, identified with the community of people
committed to building a better world by means of a better relationship with themselves, with others,
with the nature they are part of, with the whole.10

Natura, a 100% Brazilian-owned company founded in 1969 by Antonio Luiz da Cunha Seabra, employed
7,000 professionals. Its brand was considered strong in Brazil, across many Latin American countries, and in
France. The company’s revenue grew from BRL5.5 billion (USD1.52 billion) in 2011 to BRL7.8 billion
(USD2.16 billion) in 2015.11 Despite experiencing approximately 30% salesforce turnover, the number of sales
consultants had grown from 1 million to almost 1.5 million in the same period. High turnover was inherent to
the direct-selling business model, which was traditionally driven by acquiring new sales consultants rather them
retaining them.

Besides the number of sales consultants, one important metric for direct-selling companies was
productivity, 12 represented by the average gross margin per consultant. Between 2011 and 2016, with the
number of sales consultants increasing by 0.5 million, the average productivity declined by –0.6% (i.e.,
CAGR = compound annual growth rate). The average unit productivity had a small decline too: down from
21.6 items per Natura consultant in 2011 to 15.3 in 2016. The reasons behind that decline were unclear. Natura
had to decide which metric to follow: number of consultants or productivity.

Natura’s strongest categories were fragrances, color cosmetics, and skin care, followed by deodorants and
bar soap. Further, in 2012, Natura acquired a major stake in the Australian cosmetics manufacturer Aesop and
was motivated to become a multibrand company with new products for different types of customers.

Some main characteristics of Natura had stood out to the market over the years.

New products

Innovation was key, and Natura had invested in innovation and new product development and used
Brazilian biodiversity as one of the main drivers of innovation. The company launched a considerable number
of products based in the Brazilian regional plants every year. To illustrate the importance of innovation, in 2016
Natura invested 2.4% of its net revenue in innovation, corresponding to BRL187 million (USD51.9 million)

9Natura’s Investor Relations website, http://natu.infoinvest.com.br/static/enu/modelo-comercial.asp?idioma=enu (accessed Jun. 14, 2016).

10 http://natu.infoinvest.com.br/static/enu/modelo-comercial.asp?idioma=enu.
11“Earnings Results. Natura 4Q15,” Natura, February 18, 2016, http://natu.infoinvest.com.br/enu/5579/Conference_4Q15ENG.pdf (accessed Jun.

14, 2016). USD = U.S. dollars; BRL = Brazilian reais. We use a conversion rate of USD1 = BRL3.60.
12 Productivity in retail price = (gross revenue/average consultants) / 1 – % consultant profit).
http://natu.infoinvest.com.br/enu/5579/Conference_4Q15ENG.pdf.

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and launched 255 products. 13 By the end of 2016, sales of products launched within the last two years
represented 54.3% of the total gross revenue for that year.

Sustainability

Corporate branding was important to the company, and it had been highly committed to social and
environmental goals. For example, Natura used inputs to their products obtained only in ways that would
preserve the standing forest in the Amazon. According to the 2016 annual report, since 2011 the company had
spent BRL972 million (USD270 million) in the Amazon region purchasing natural inputs and investing in local
communities’ development, education, and projects for offsetting carbon emission, generating income for more
than 2,000 families in the region.

Marketing push and pull

Unlike other direct-selling companies, Natura had targeted marketing communication activities toward
both sales consultants (marketing push) and end consumers (marketing pull)—even before it had adopted a
multichannel approach to the market—through considerable spending in mass media advertising such as TV,
online, and out-of-home campaigns. Natura believed its spending on marketing to the end consumer had been
a key strategy to strengthen the value proposition of the brand. Further, the company had also invested in
sponsorships to fund cultural projects to support the Brazilian music and fashion events, such as São Paulo
Fashion Week, which was the biggest fashion event in Latin America. As a result of its investments in marketing,
innovation, Natura had been recognized as the most valuable cosmetics brand in Brazil. According to Brand
Finance, in 2015 Natura was ranked as the 14th most valuable beauty brand in the world with an estimated
value of USD3.2 billion, up from the 17th position in the previous year. The Global Top 50 Brands 2015 report
stated the following:14

Consumers recognise Natura as a brand that promotes sustainability and reconnection with nature and
expresses the elegance of the Brazilian creative fusion. Sustainability is especially important for
Brazilian consumers—GfK research has shown that over half of Brazilian consumers consider the
environmental impact of cosmetics when purchasing beauty products, the highest for any country—
and sustainability remains a pillar of Natura. In fact, the company rounded off 2014 by becoming the
largest (and first publicly traded) company to attain B Corp sustainability certification.

Independent sales consultants

Another characteristic that stood out for Natura was its business model and strong relationship with
independent sales consultants. It had allowed Natura to build a network of more than 1.5 million consultants
in Brazil to support and implement its vision of marketing, innovation and sustainability. The door-to-door
company’s sales cycle in Brazil was as follows:15
 Natura consultants were independent resellers who purchased products directly from Natura for resale
to their own network of clients. The consultants, who typically started as consumers of Natura’s
products before beginning to sell them, were not employees of Natura and were not required to sign
exclusivity contracts.
 Natura digital consultants, who were also self-employed resellers without a formal labor relationship
with Natura, used the online Natura Network as a sales platform.

13 Natura’s annual report, 2016, http://natu.infoinvest.com.br/enu/6049/Natura_2016_Annual_Report.pdf (accessed Jun. 11, 2017)

14 “Global Top 50 Brands,” Brand Finance, 2015, http://brandfinance.com/images/upload/034_spc0415_top_50jw_09.49.33.pdf (accessed Jun. 11,
2017).
15 “Commercial Model,” Natura.com, http://natu.infoinvest.com.br/static/enu/modelo-comercial.asp?idioma=enu%20 (accessed Jun. 20, 2017).

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 Natura consultant advisors were consultants who—in addition to selling products—recruited new
consultants. They then served as advisors to those consultants.
 Natura’s commercial cycle was a period of approximately 21 days that began with the publication of a
Natura magazine (catalog), which offered new promotions and product launches.
 The Natura magazine was a catalog that contained the portfolio of products as well as the suggested
prices that the consultants should charge their customers. It was an important marketing tool that
Natura used to transmit its beliefs and values in addition to product concepts.
 The order cycle was the process that began with the consultants placing orders and ended with
delivering the products to the end consumers. Consultants, once they met Natura’s minimum order,
placed their orders throughout the Internet or telephone. After receiving the products, they had
between 21 to 60 days to pay Natura. The consultants had a line of credit that grew larger according
to the length of time that they had worked as consultants and based on their payment history.
 Natura had a strong relationship with its consultants. In each commercial cycle it invited them to a
meeting where the promotions and product launches contained in the new Natura magazine were
reviewed. The company also offered trainings on products and categories, which helped boost the
consultants’ business. In addition, the consultants were recognized annually for the length of their
relationship with Natura and for their volume of sales.

Brand performance

Although the company had recently started to provide its consultants with a variety of tools such as new
technology, new channels, additional payment methods, and many delivery options to enable them to sell to its
customers better, in 2016 the company was facing major challenges. For example, in 2016 Brand Finance’s
report on the global top 50 brands revealed a 67% decline in Natura’s brand value, down to USD1.05 billion,
due to the combined effects of recession, inflation, and the depreciation of the Brazilian real against the dollar.
Another cosmetic brand, Avon, which had Brazil as its biggest market also faced a decline in brand value
globally, down 54% to USD1.8 billion due to a declining base of representatives, profitability, and serious
problems in the U.S. market.16

As of 2016, Natura’s market position had also reflected some challenges with respect to market share.
Although its overall brand penetration was higher than other direct-selling companies such as Avon and Mary
Kay, Natura’s brand penetration had decreased by 4.6%. Frequency of purchase had decreased by 12.1%.
Unilever outperformed Natura in those two performance measures, and Boticário had increased its brand
penetration during the same period. Key performance measures provided in Table 3 compare Natura with its
main competitors.

16 “L’Oréal Paris - Once, Twice, Three Times a Winner,” Brand Finance press release, http://brandfinance.com/news/press-releases/loral-paris-

once-twice-three-times-a-winner/ (accessed Jun. 11, 2017).

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Table 3. Natura brand performance (as of June 2016, based on the past 12 months).

Brand Performance Natura Avon Mary Kay Unilever L’Oréal Boticário

Brand penetration %
51.62 48.88 5.23 95.86 46.97 37.86
(proportion of people buying)

Frequency of purchase (per

3.26 3.31 1.57 8.14 2.50 2.12
person in the last 12 months)

Amount purchased per

shopping trip (number of 2.13 2.60 3.25 2.58 1.51 1.75
items)

Amount spent per shopping

54.01 32.79 141.86 11.92 15.31 78.36
trip (in BRL)

Source: created by author based on information in Natura’s 2016 competitive intelligence report, used with permission.

Natura’s Fastest-Growing Competitor: Boticário

Boticário was founded in 1977 in south Brazil. In 2009, the company created a business unit (BU), headed
by a former Natura executive and was charged with designing new channel strategies and brands. One year
later, the company launched a new BU in conjunction with the cosmetics brand Eudora and started a door-to-
door operation linked to it. At the same time, it expanded the direct-selling channel to the Boticário brand and
its well-established network of franchisees. At the beginning of this operation, it had avoided conflict with the
store-based channel by encouraging store clerks that worked for the franchisees to sell Boticário’s products
through catalogs away from the store’s physical location. Then, those clerks and the franchisees started to
recruit more ISCs, and Boticário had begun to directly recruit more ISCs. Thus the company’s stores, in addition
to their traditional retail operations, were also being used as logistic operators to carry inventories, supply
products, and support the ISCs’ sales.17 As a reference point, Natura and Avon had fewer than 10 distribution
centers apiece to serve the whole Brazilian market. Nevertheless, they had started to compete with Boticário’s
new operation in which traditional retailers could be used as logistics operators for the door-to-door
representatives.

Boticário’s direct-selling operation reached 16.07% of brand penetration by the second quarter of 2016, an
increase of 4% in the last 12 months. In the specialized stores brand penetration was 24.19% (+25.6%), and its
franchising operation reached 11.21% (–23.5%). The direct-sales channel was estimated to account for roughly
30% of the company’s sales. It also ran an e-commerce operation that had become stronger over the years and
was invested in by the company mainly after 2011. Only a small percentage of Boticário’s sales was attributable
to the e-commerce channel because the majority of sales were made through its stores.

Besides the multichannel strategy, as of 2012 Boticário had launched other two new BUs and brands—
Quem Disse Berenice? and The Beauty Box (see Exhibit 1)—both of which were distributed through retail
stores and e-commerce operations only. Quem Disse Berenice? was a business that sold women’s cosmetics

17Camila Fusco, “O Boticário vai Bater à sua Porta,” October 10, 2010, Exame.com, http://exame.abril.com.br/negocios/noticias/boticario-vai-

bater-sua-porta-565116 (accessed May 10, 2017).

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products, most of which were manufactured by Boticário. The Beauty Box, on the other hand, resold well-
known third-party CF&T brands targeted to both women and men. Brands included Clinique, Calvin Klein,
and Carolina Herrera, among others, including Boticário’s competitors such as L’Oréal Paris.

Channel Performance in the CF&T Market

In 2015, direct selling represented 25.2% of the total CF&T market in Brazil (see Table 4). The country
was actually the industry’s most important one for this channel even when compared with other important
CF&T markets such as the United States, China, the United Kingdom, and Mexico (the second-largest beauty
and personal care market in Latin America).

Table 4. Market share by channel for beauty and personal care products (%).
United United
Channel Brazil China Mexico
States Kingdom
Grocery retailers 34.5 24.1 29.4 55.7 30.8
Direct sales 25.2 5.7 11.9 23.8 3.2
Beauty specialist retailers 18.8 9.6 9.7 1.3 8.5
Drugstores 17.4 14.7 7.9 1.8 10.6
Department stores, mixed
1.0 30.0 19.2 8.7 11.9
retailers
Internet retailers 2.0 7.7 18.1 0.6 10.5
Hair salons 0.1 2.8 0.1 0.1 1.2
Data source: “Beauty and Personal Care,” Euromonitor International Report 2016, http://www.euromonitor.com/beauty-and-
personal-care (accessed Jun. 14, 2016).

Despite the importance of direct selling for CF&T in Brazil, in response to competitive pressures, Natura
and Avon had started to consider using different distribution channels for selling their products (see Exhibit 2).
Online channels (e.g., e-commerce and mobile), flagship stores, specialists and beauty retailers, drugstores, and
even new types of formats such as vending machines had all been studied. However, there was the possibility
that the new channel strategy could result in conflicts with their most important channel (i.e., direct sales).
Therefore, traditional CF&T direct-selling companies needed to properly coordinate such opportunities with
their business fundamentals: relationships and sales incentives.

Table 5 shows the share of each distribution channel for beauty and personal care in Brazil. Grocery
retailers remained the most important channel for this industry even though their share had declined from 2008
to 2015. Although the share of CF&T sales from door-to-door operations had declined over time, direct selling
reached a market penetration of 60.73% by late 2015 for the overall population and remained the second-most
relevant channel after grocery retailers. Other physical store formats continued to be important as well. Beauty
specialist retailers and drugstores had become more relevant, and together in 2015, they accounted for 36.2%
of the CF&T sales.

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Table 5. Channel distribution of beauty and personal care in Brazil (% value).

Channel 2008 2009 2010 2011 2012 2013 2014 2015

Grocery retailers 37.80 37.30 36.30 35.90 35.80 35.70 35.40 34.50
Direct sales 28.70 28.60 28.10 27.50 26.90 26.10 25.70 25.20

Beauty specialist retailers 15.90 16.20 17.40 17.60 17.90 18.00 18.30 18.80

Drugstores 14.50 14.90 15.00 15.50 15.90 16.60 16.90 17.40

Department stores,
0.90 0.90 0.90 0.90 0.90 1.00 1.00 1.00
mixed retailers

Internet retailers 1.10 1.10 1.20 1.50 1.50 1.60 1.70 2.00
Hair salons 0.00 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Others 1.10 0.90 1.00 1.00 1.00 0.90 0.90 1.00
Data source: “Beauty and Personal Care,” Euromonitor International Report 2016, http://www.euromonitor.com/beauty-and-personal-care
(accessed Jun. 14, 2016).

Direct Selling

In Brazil, two large direct-selling companies had coexisted in the CF&T market, Natura (local) and Avon
(multinational). Direct selling was often important where socioeconomic development was low,18 which was
one of the reasons why it was still important in Brazil. The most likely consumers of the direct-selling channel
were older people in the less-developed regions. They tended to be less comfortable with technology and had
limited access to other channels. Industry experts believed that if Natura hadn’t started its operations in 1969
with a single door-to-door channel strategy (which until 2014 as its unique channel), direct selling would not
have flourished in the CF&T market. Additional characteristics of the direct-selling model in Brazil included:
 Direct-selling companies had large salesforces made up of independent salespeople. This position was
viewed as an opportunity for someone to earn extra money as a complement to regular household
income even without an advanced formal education or specialization.
 The growth of direct selling was supported by areas and regions in the country where there was a lack
of retail development of strong brands.
 Avon and Natura were pioneers of this model in Brazil and introduced brands and products that had
achieved a high level of preference among consumers.

Although direct selling was still important in Brazil, its importance had decreased over the years (see
Table 6). As Natura quickly moved to become a multichannel company with less dependency on the door-to-
door channel, industry experts believed that direct selling in Brazil would decrease its importance even more.
Further, from research conducted in Brazil and accessed by Natura, the higher the Human Development Index
(HDI) in a particular city, the more retailers were important (physical stores) whereas, the lower the HDI, the
more important door-to-door sales were. Brazilian cities had become more developed, and as a result, direct
selling was expected to become less important. Finally, it was believed that the direct-selling channel in CF&T

18 Author interview with Murillo Boccia, September 2016; unless otherwise noted, all subsequent inferences derive from this interview.

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had reached a saturation level such that growth potential was more likely to happen only in less developed
regions and cities (e.g., not in capital cities such as São Paulo).

As of 2016, both frequency of purchase and market penetration of direct selling in Brazil had decreased.
However, Mary Kay (650,000 new households) and Boticário (525,000 new households) had increased their
brand penetration within this channel.

Table 6. Direct selling: Key measures as of June 2016.

% Change
% Total
(12 months)

Penetration % (proportion of the 52 million households) 60.73 –2.9

Frequency of purchase (per person in the last 12 months) 4.54 –7.8

Amount purchased per shopping trip (in volume) 2.61 +0.7

Amount spent per shopping trip (BRL) 54.79 +0.4

Total unit sales, last 12 months (millions) 378,010 –7.5

Total sales, last 12 months (BRL millions) 7,909,960 –7.8

Source: created by author based on information in Natura’s 2016 competitive intelligence report, used with permission.

Online Channels

As of late 2014, direct-selling companies Avon, Natura, and Mary Kay had initiated e-commerce as a new
channel to offer their products.19 Each company operated in this new channel in a different way. For example,
Avon came out with a new brand of color cosmetic, Luxe, at first sold only on the Internet, then later was
available through its catalogs. Since then, Avon had quietly expanded its e-commerce to sell its complete
product portfolio directly to consumers without establishing a strong communication to promote the
company’s online store. When shopping through the company’s online store, consumers did not have to pick
a consultant.20 The prices were usually higher on Avon’s online store than in its catalogs, and promotion was
not as intense in this channel as for door-to-door sales.

Differently from Avon, Mary Kay operated in Brazil with an online store where consumers had to pick an
independent consultant according to their location (i.e., zip code), who then received a percentage of the sale.21
This alternative avoided conflict with Mary Kay’s independent beauty consultants.

Natura had analyzed different possibilities before it launched its e-commerce operation, including the
models that had been adopted by Avon and Mary Kay. Natura’s executives considered several factors before
launching its e-commerce website, such as: (a) what role would it play in the control of the brand (i.e., price and
communication); how to best avoid potential conflict situations with traditional ISCs that sold products only

19 Tatiane Bortolozi, “Só a Venda por Catálogo Não é Mais Suficiente,” Valor.com, December 18, 2015,
http://www.valor.com.br/empresas/4363066/so-venda-por-catalogo-nao-e-mais-suficiente (accessed May 10, 2017).
20 See www.avonstore.com.br.
21 See https://www.marykay.com.br/pt-br/locator.

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through catalogs; how to best establish a relationship with consultants as part of the website’s strategy; (d) what
where the potential profitability and revenue streams; and (e) how to minimize the tax and labor risks.

In 2014, it created Rede Natura (translated as “Natura Network”) in which consultants (or any other
person) could become a digital franchisee. Consumers made online purchases through the ISCs’ personalized
web pages, which were sponsored by Natura. It first experimented in two cities within São Paulo State,
Campinas and São José dos Campos. Based on the results from the experiment, the Rede Natura brand was
introduced throughout the entire country. It worked as follows: each Natura digital franchisee received a
personalized Rede Natura URL that could be used to promote a personal web page to this person’s own
network through e-mail, Facebook, or any other touchpoint. More importantly, when consumers accessed this
website, they perceived it as the company’s own e-commerce website.

In the traditional door-to-door commercial mode, independent sales consultants bought the product,
delivered it, and charged the consumer. In the new digital franchise model, Natura took responsibility for
payment and delivery. Thus, the digital consultant’s role was to promote the products, generate the lead to the
website, help consumers go through the shopping process, and close the sales. As a consequence, the digital
consultant’s commission was lower than the direct sales’ commission. In terms of price and margin composition
for the two channels, traditional door-to-door consultants purchased products from Natura with a 30%
discount to resell to end consumers. The suggested price was published in the catalog they used to show the
products to their customers and make the sale. They could form their own stock or inventory by buying certain
products when Natura ran promotions and offer them for sale later when the products’ suggested prices rose.
As for the digital franchise model (Rede Natura), the price was set by Natura, but the digital consultants could
use specific coupon codes to run price promotions with consumers. However, this affected their standard 20%
online sales commissions.

In this business model the Natura Digital Consultants (CND) uses the Natura Network, that allows
the Natura Consultants to create their own website through which to relate with customers and sell
Natura products, combining this format with the traditional direct-selling model and increasing their
productivity. For the client, this channel serves as yet another option for acquiring Natura products
that are delivered directly by Natura and may be paid [for] using credit cards or bank payment slips in
a secure environment.22

In April of 2016, Natura launched its own company website and started to sell directly to consumers as
well as through consultants (i.e., Rede Natura). Consumers were no longer obligated to select a digital consultant
to purchase the company’s products directly from its website. After six months, the sales through their own
website represented roughly 30% of Natura’s total online sales. Sales through Natura digital consultants’
personalized websites made up the rest.

Natura’s promotional intensity through the online channel was higher than its direct competitor Avon on
their online store, and the prices on Natura’s website were sometimes lower than the price of products sold
through catalogs (i.e., by traditional ISCs). In fact, a few Natura’s consultants observed that once in a while the
price of a product was cheaper if they bought from Natura’s own website through the same process as a
consumer rather than through the traditional buying process where sales consultants purchased products
through the catalog at a discount. As a consequence, approximately 8% of Natura’s own website sales were
attributable to Natura consultants and not to end consumers. This evidence showed that this channel, even
though it was not intended to act as a wholesale distribution method, provided consultants with an opportunity
to sporadically find better offers online than through the catalogs.

22 http://natu.infoinvest.com.br/static/enu/modelo-comercial.asp?idioma=enu.

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The products’ lower online prices made it difficult to avoid conflicts with the ISCs even though the initial
idea was that the e-commerce channel would balance the interests of consumers and sales consultants (i.e., that
the two models could operate independently but at the same time). Consequently, the online channel was not
viewed positively by some of Natura’s consultants:

It is fair to have the online store. What is not fair is to apply the same commercial conditions on their
direct website and in the online channel of the consultants. The direct online store would be better if
it worked with full price and not with the whole portfolio.23

Regardless of any potential damage to other channels, Natura had achieved positive results through the
two types of e-commerce operations:
 Over 70,000 digital consultants (franchisees) and more than 500,000 consumers registered during the
first year of operation (2015). By late 2016, Natura had 100,000 digital consultants, 1.6 million
registered customers, and doubled revenue in 2016 in comparison with 2015.
 Natura opened the possibility for people to become “digital entrepreneurs” through the digital
franchisee model. It further attracted a different profile of digital consultants (e.g., younger, more
digital, social influencers, male and female) in contrast to the profile of the traditional door-to-door
Natura consultant (e.g., older, less digital, female). Fifty percent of the digital consultants were purely
digital and were not selling through traditional door-to-door methods.
 The new online model helped the company gain more customers from the A and B social classes as
opposed to the door-to-door channel, which mainly had customers from middle-class C.24
 Due to greater shopping convenience, sales increased in product categories where sales were below
potential (e.g., daily use products like shampoo). Natura developed what is known as a long tail business
model in relation to e-commerce. New product launches were part of Natura’s culture, but the space
to promote all the existing and new products in the printed catalog was limited. E-commerce was a
way that Natura continued to offer some potential products that were no longer being displayed in the
catalogs.

In response to any negative effects the online channel had on its relationship with the ISCs, Natura started
to focus on the Internet as a tool to help ISCs boost sales using data analytics from the company’s CRM team.
While Natura as a whole was still figuring out the wide range of website functions beyond sales, the internal
Natura CRM team had realized that datasets from the new interactions between the brand, consultants, and
end consumers could provide valuable insights to strengthen the relationships among them. For example, the
analytics team employed next-product-to-buy models and identified cross-selling opportunities. The insights
from this analysis generated suggestions to the digital consultant through an internal online platform and mobile
apps offered by Natura. This way, digital consultants were able to track the brand’s recommendations and some
key measures from their personal website. The analytics team also provided recommendations to improve
traffic, conversion rates, and profitability.

Physical stores: beauty specialists and drugstores

The traditional business model of Natura and Avon in Brazil was not ready to support sales to other
companies (i.e., retailers), but only to individuals (i.e., ISCs). However, as these companies had moved toward

23 Benjamin Rosenthal, “Natura Sales Channel Evolution and the Consultant’s Perceptions and Emotions,” a research report from a focus group

coordinated by the author made up of six high-performing Natura independent sales consultants. Quote is from a Natura consultant that attended the
focus group.
24 According to the Brazilian Market Research Association, in 2014 the average annual household income of social classes A and B ranged from

USD14,757.87 to USD67,575.20 and middle-class C ranged from USD4,820.80 to USD8,030.03 and represented 25.8% and 47.5% of the total
population, respectively.

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a multichannel approach, some embedded processes and commercial policies were being revised to serve
physical stores. Many different retail formats had been tested by direct-selling companies in the beauty and
personal care market.

Drugstores. In 2015, Natura started to sell one product line, Sou, which consisted of moisturizers and
shampoos, through the drugstore channel at one of the country’s largest drugstore chains, Droga Raia. By 2016,
the Sou line was available through three drugstore chains at more than 3,000 stores. The company planned on
adding more drugstore chains and other skin-care brands in addition to the Sou line.

Flagship stores. Before adopting the multichannel orientation, Natura had opened some temporary flagship
stores as a way to have direct access to consumers. The stores were in locations with access to A and B social
class consumers.

Natura-branded retail stores. In 2016, Natura opened five stores, at mall locations in São Paulo, to target
consumers from A and B social classes and to offer a more premium portfolio (e.g., Ekos, Chronos, and Una
brands) with a focus on makeup and skin care. Natura planned to add more than 300 stores in the next three
years.

Vending machines. Natura activated vending machines carrying the Sou line at malls, airports, train stations,
and other high-traffic locations.

Emergent retail channels—ISCs that became beauty specialist retailers. In general, ISCs sold multiple brands. Most
of them sold Avon and Natura at the same time. Some ISCs (approximately 1,000) opened multibrand beauty
retail stores selling Natura, Avon, and other CF&T brands such as Boticário, L’Oréal, and Unilever. They
carried inventory and had shelves to display the products to consumers. These ISCs were no longer operating
in the traditional door-to-door sales model (i.e., away from a fixed location and without carrying inventory). At
the same time, they had Avon and Natura catalogs on hand in case a consumer preferred to purchase a product
that was not immediately available at the store.

Multibranded retail stores existed in a space somewhere between a beauty specialist retailer format and a
direct-selling channel. They operated as retail companies or corporations, which led industry observers to
conclude that the ISCs that operated in this store format were part of an informal (i.e., emerging, unstructured,
and “unauthorized”) channel for Natura and Avon. The main issue with respect to this operation was that the
ISCs purchased the product from Natura and Avon as individuals (i.e., sales representative or ISC). Other
beauty and personal care companies, such as Boticário and L’Oréal, monitored the emerging channel and
occasionally found their products at some of these “stores,” which made the competition to access this
emerging channel type more intense.

Before Natura’s multichannel orientation, the company did not allow the existence of this channel as it
contradicted the fundamentals of direct selling. However, more recently it had found ways to serve this channel
due to its importance and potential in the beauty and personal care market. To help the high-performing ISCs
who had started to open stores, Natura began to offer visual standardization of the stores’ interior and exterior
and encouraged them to experiment with product offerings and different payment methods. Natura’s selected
stores targeted B and C social classes in high–foot traffic neighborhoods. The company had activated more
than 105 of these emergent channel stores since December 2014 and saw a 15% gain in productivity and 4.4%
gain in market share at those stores. Avon had also tried to offer visual standardization of these stores, since
these were multibranded ISCs that opened the physical stores, but at a slower velocity than Natura.

Other retail formats. Executives in the direct-selling industry also saw hair salons as an opportunity to be
further explored. Hair salons were a very fragmented retail type to serve, and costs to distribute through this
channel were quite high for massive consumer goods companies such as Unilever and P&G. The grocery

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channel could also be an opportunity due to its importance in beauty and personal care sales, but the distribution
model to serve this channel, the type of competition faced within this format, and the potential conflict with
other channels were some of the concerns that had kept direct-selling companies away from grocery stores so
far.

Natura’s Multichannel Challenge

In hopes of reversing the nonfavorable market trend in 2014, Natura recognized through its multichannel
strategy that each of the formats could have a different role along the consumer decision journey. Physical
stores such as beauty specialist retailers were important to promote product awareness and trial. They also
created an overall interesting shopping experience that used retail clerks’ knowledge and store displays to
influence the purchase of the brand. The drugstore channel helped Natura to market its Sou brand in
neighborhood locations and offered convenient purchase options that had become increasingly important for
beauty and personal care. Online sales supported the brand when shoppers made repeated purchases and
attracted a new consumer profile to the brand (e.g., young people and A and B social classes). Also, the online
presence, Rede Natura, generated more customer reviews and word of mouth. Further, Natura’s large salesforce
in door-to-door operations helped the brand reach consumers in a multitude of ways, especially consumers
from the C and D social classes and those who lived in less developed or smaller cities.

Finally, direct-selling companies had not yet developed capabilities in order to operate in retailing and
compete with Boticário, Unilever, and P&G. They had never worked through distribution channels that
required different approaches in terms of service level, assortment composition, promotion, price,
merchandising, and incentives to sell their products to end consumers. Instead, the direct-selling companies’
core capability was to manage the relationship between the company and ISCs, where traditionally there were
no shelves and not even a complete assortment or immediate availability of products for consumers. Instead,
direct-selling companies were skilled at creating incentives for salespeople, persuading new people to become
ISCs, and developing products to be sold through catalogs. Despite their shortcomings, direct-selling
companies acknowledged the changes in shopping behavior, demographics, and psychographics in Brazil (e.g.,
women working outside of the house), and other environmental events would shape new business models in
this industry.

When Ferreira became the CEO at the end of 2016, the previous management’s strategy had caused a
deteriorating relationship between the brand and the sales consultants because they were no longer the exclusive
sales channel. Some of the Natura consultants who also sold other brands (e.g., Avon and Mary Kay) perceived
Natura as moving from an emotional and more interpersonal relationship to a rational interest-based
institutional relationship that might not be accepted equally by all consultants. 25 As Natura moved to sell
through its own stores, drugstores, vending machines, and online, some consultants argued they did not know
what their role would be in the future and if they would become less important to Natura.

At the same time, Natura’s new management recognized that there was no stepping back from a
multichannel orientation for the brand. New players in the Brazilian market with strong global brands, such as
Sephora, had started to operate their own stores and e-commerce operations in the country. How should
Ferreira approach the transition from a single-channel to a multichannel company? How should he balance
Natura’s origins as a direct-selling company with sales consultants at the center of its strategy while at the same
time developing new channels to access the market and overcome intense competition in beauty and personal
care?

25 Rosenthal.

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Exhibit 1
The Multichannel Challenge at Natura in Beauty and Personal Care
Boticário Multichannel and Multibrand Strategies

Boticário store as of April 2017.

Source: Author photograph.

To see Boticário’s other strategies (such as recruiting representatives, allowing consumers to search for
representatives, and offering online shopping without ISC support), visit http://www.boticario.com.br,
http://www.thebeautybox.com.br, and, http://www.quemdisseberenice.com.br.
Source: Created by author.

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Exhibit 2
The Multichannel Challenge at Natura in Beauty and Personal Care
Emerging Channels for Direct-Selling Companies—E-Commerce (Natura)

Source: https://www.google.com/#q=loja+online+natura. Google and the Google logo are registered trademarks of Google Inc., used
with permission.

Source: http://www.rede.natura.net as of 2016, used with permission.

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Exhibit 2 (continued)
The Multichannel Challenge at Natura in Beauty and Personal Care
Emerging Channels for Direct-Selling Companies—Retailing
(ISC with Stores that Sell Natura and Display Its Products on Their Shelves)

Source: “Natura,” presented at 2017 Brazil Conference—Bank of America Merrill Lynch, March 29, 2017,
http://natu.infoinvest.com.br/enu/5981/ML%202930%20Mar2017%20-%20Ingles.pdf (accessed Jun. 20, 2017), used with
permission.

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Exhibit 2 (continued)
The Multichannel Challenge at Natura in Beauty and Personal Care
Emerging Channels for Direct-Selling Companies—Drugstores, Vending Machines,
Airports, Natura-Branded Stores

Source: Author photographs.

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