BY: ABIGAIL JOHNSON & CLAIRE OSWALD

Case Analysis

About Avon

Outline:

1. Mission and Vision

2. Internal assessment

3. External assessment

4. Strategic formulation

Mission &Vision

Mission &Vision

Financial

Ratio

Analysis

RATIOS CALCULATIONANSWER

I

1 Current ratio 3,479/2,240 1.6

2 Quick ratio 3,479-1,005/2,240 1.1

II

Leverage Ratios

3 Debt to total assets ratio 188 /6,492 0.028

4 Long term debt to equity 188 /1,110 0.16

5 Debt to equity 2,532/1,110 2.3

6 Times interest earned ratio 162/120 1.4

III

Efficiency/Activity Ratios

7 Inventory turnover 5,713/1,005 5.7

8 Fixed assets turnover 5,713/3,479 1.6

9 Total assets turnover 5,713/6,492 .89

10

Accounts receivables turnover 1,025/676 1.5

11

Average collection period 676/1,205/365

.0015

12

Income per employee n/a

13

Revenue per employee n/a

IV

Profitability Ratios

14

Gross Profit Margin 5,713-3,773/5,713 .34

15

Operating Profit Margin 283/5,713 .050

16

Net Profit Margin 56/5,713 .009

17

Return on total assets (ROA) 56/6,492 .009

18

Return on stockholders’ equity (ROE) n/a 1,110

19

Earnings per share (EPS) 56/1,110 0.1

20

Price earnings ratio n/a n/a

V Growth (Current over Previous Year)

21

Sales 9,955

22

Net income -56

23

Earnings per share -0.13

24

Dividends per share 0.24

Internal

Assessment:

Internal

Assessment:

market

positioning

map

Internal Assessment:marketing strategies

Internet Marketing

Website

Advertisement

Social Media

Easy and convenient distributions of products

Marketing Mix for women around the world

Internal

Assessment:

IFE Matrix

Internal Factor Evaluation Matrix (IFE)

Strengths Weight Rating Weighted Score

Strong brand image 0.02 3 0.06

Unique portfolio 0.04 4 0.16

Innvating brand 0.08 3 0.24

Largest direct seller 0.07 3 0.21

Strong and stable growth revenue 0.05 4 0.20

Market leader in the industry 0.03 2 0.06

Strong values 0.04 3 0.12

Adaption to diverse cultures 0.03 4 0.12

Strong customer loyalty 0.06 4 0.24

Flexibility for representatives 0.07 3 0.21

0.07

Weaknesses 0.03 Rating Weighted Score

Does not have a home location 0.05 2 0.10

Poor brand quality 0.03 2 0.06

High cost in advertising 0.04 1 0.04

Lack of control over employees(representatives) 0.04 2 0.08

Employees rely on credit 0.06 1 0.06

Hard process for representatives to receive products 0.04 2 0.08

Competitors such as Loreal 0.03 2 0.06

Expensive product reproduction 0.05 2 0.10

Demand for products are low 0.04 1 0.04

Weak in global expansion 0.03 2 0.06

TOTALS 1.00 2.30

External Assessment:

Competitors

External

Assessment:

CPM

Competitive Profile Matrix (CPM)

Avon L’Oreal Mary Kay

Critical Success FactorsWeig

htRatin

gScor

eRatin

gScor

eRatin

gScor

e

Advertising0.10 3 0.30 4 0.40 2 0.20

Market Penetration 0.08 3 0.24 3 0.24 1 0.08

Customer Service 0.11 4 0.44 3 0.33 3 0.33

Organization Structure 0.06 2 0.12 2 0.12 3 0.18

Product Image 0.09 3 0.27 4 0.36 2 0.18

Employee Dedication 0.10 3 0.30 3 0.30 3 0.30

Financial Position 0.07 2 0.14 3 0.21 2 0.14

Customer Loyalty 0.12 3 0.36 3 0.36 4 0.48

Market Share 0.07 3 0.21 4 0.28 2 0.14

Product Quality 0.08 2 0.16 2 0.16 2 0.16

Technology 0.06 1 0.06 3 0.18 3 0.18

Price Competitiveness0.06 1 0.06 1 0.06 1 0.06

Totals 1.00 2.66 3.00 2.43

External Assessment

Key Industry trends:

Cosmetic industry trends:

Anti- aging,

products that relate to both male and female,

better skin

Better quality

External

Assessment: EFEThreats

Weight Rating

Weighted Score

Avon faces intense competition from competing products in

both the domestic and international and Avon’s investments will have to spend a lot of time trying to overcome this issue

0.04 3 0.12

Currency restrictions enacted by the Venezuelan government

have limited their ability to repatriate dividends and royalties

which is concerning for Avon because of the Latin America segment having the highest revenue.

0.07 4 0.28

Global macroeconomic pressures allow for future threats on

the company if Avon does not invest into preventing possible outcomes from this issue.

0.03 3 0.09

Global bribery investigations 0.09 3 0.27

Dependence on third party suppliers puts limitations on Avon compared to their competitors.

0.03 1 0.03

Avons loss of $38 million in 2012 0.02 2 0.04

Avon sales in North America during Q2 if 2013 declined by

12% due to the 13% drop in the number of active sales representatives.

0.08 4 0.32

Avon obtains 85% of its revenue from outside of the USA however, Avon’s Asia-Pacific sales fell by 9% for Q2 of 2013.

0.06 1 0.06

Avon’s EPS is negative, while its competitors such as L’Oreal is 1.12 and Revlon is .78.

0.05 3 0.15

Profit, net income, and diluted EPS dropped by 50% from 2011 to2012

0.03 2 0.06

TOTALS 1.00 2.76

External Factor Evaluation Matrix (EFE)

Opportunities Weight Rating Weighted Score

Restructuring initiatives for organizational effectiveness will bring them out of the 4 year rut of ineffective business strategies.

0.04 2 0.08

Emerging markets in the Middle East and Africa allow Avon’s direct sells representatives a comparative advantage to retailers that take more time to establish their markets.

0.06 3 0.18

Rebranding strategy to give the better than ever quality of Avon to distance their selves from the mistakes of their previous CEO to help drive consumer demand.

0.08 1 0.08

The online market offers Avon Products Inc. the ability to greatly expand their business. Avon Products Inc. can market to a much wider audience for relatively little expense

0.03 2 0.06

Avon obtains 85% of its revenue from outside of the USA and in Latin America, Europe, Africa, and the Middle East sales rose, prices rose and their average order size increased.

0.02 3 0.06

The global beauty industry is growing at a 6% rate which can help bring Avon out of their past endeavors.

0.09 4 0.36

Direct selling remains effective in emerging markets such as Brazil allowing Latin America to continue to bring in revenue

0.07 3 0.21

Direct sells grew about 30 percent between 2006 and 2012 into a $150 billion global market.

0.05 2 0.10

More than 100 countries in which Avon competes do not have good retail infrastructures allowing Avon’s 6.5 million person global sales force to be its biggest advantage over competitors.

0.03 4 0.12

Avon’s interest income is up by 12% from 2012 to 2011 and it continues to increase because it was up 7% from 2011 to 2010.

0.03 3 0.09

Strategy Formulation:

SWOT Matrix SO Strategies

Purchasing companies in the same field and develop them in the company. (S1, O1)

Expand into international markets. (S8, O6)

WO Strategies

Develop different way to advertise to reach a variety of people. (W3, O7)

Find less expensive ways to advertise products. (W3, O3)

ST Strategies

Develop products that are in demand to increase sales. (S1, T4)

Set themselves from competitors by researching trends and what is in demand. (S3, T5)

WT Strategies

Be more involved with representatives so they feel more need for the company. (W3, T3)

Develop product line that is less expensive for low income customers. (W9, T6)

Strategy Formulation:

SPACE Matrix

7

6

5

4

3

2

1

X-axis 1.2

Y-axis 0.1

-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7

-1

-2

-3

-4

-5

-6

-7

Internal Analysis: External Analysis:

Financial Position (FP) Stability Position (SP)

3 -4

2 -4

5 -3

5 -1

5 -4

Financial Position (FP) Average 4.0 Stability Position (SP) Average -3.2

Internal Analysis: External Analysis:

Competitive Position (CP) Industry Position (IP)

-3 5

-3 4

-2 4

-3 3

-3 2

Competitive Position (CP) Average -2.8 Industry Position (IP) Average 3.6

Return to Start

Rate of Inflation

Technological Changes

Price Elasticity of Demand

Competitive Pressure

IP

Barriers to Entry into Market

Growth Potential

Financial Stability

Ease of Entry into Market

Resource Utilization

Profit Potential

Market Share

Product Quality

Customer Loyalty

Technological know-how

Control over Suppliers and Distributors

Return on Investment (ROI)

Leverage

Liquidity

Working Capital

Cash Flow

CP

Defensive

AggressiveConservativeFP

CompetitiveSP

Strategy Formulation

BCG matrix

Strategy

Formulation:

IE Matrix

Grand Strategy Strategy Formulation:

Strategy

Formulation :

QSPM

Expand into

International Markets

Develop less

expensive

products for

lower income customers

Strengths Weight AS TAS AS TAS1.

Strong brand image 0.02 1 0.02 3 0.06

2.

Unique portfolio 0.04 2 0.08 2 0.08

3.

Innvating brand 0.08 3 0.24 3 0.24

4.

Largest direct seller 0.07 4 0.28 1 0.07

5.

Strong and stable growth revenue 0.05 3 0.15 2 0.10

6.

Market leader in the industry 0.03 4 0.12 1 0.03

7.

Strong values 0.04 3 0.12 2 0.08

8.

Adaption to diverse cultures 0.03 2 0.06 3 0.09

9.

Strong customer loyalty 0.06 1 0.06 4 0.24

10.

Flexibility for representatives 0.07 3 0.21 3 0.21

0.07

Weaknesses 0.03 AS TAS AS TAS

1.

Does not have a home location 0.05 1 0.05 3 0.15

2.

Poor brand quality 0.03 3 0.09 1 0.03

3.

High cost in advertising 0.04 2 0.08 2 0.08

4.

Lack of control over employees(representatives) 0.04 3 0.12 1 0.04

5.

Employees rely on credit 0.06 4 0.24 2 0.12

6.

Hard process for representatives to receive products 0.04 3 0.12 3 0.12

7.

Competitors such as Loreal 0.03 4 0.12 3 0.09

8.

Expensive product reproduction 0.05 3 0.15 4 0.20

9.

Demand for products are low 0.04 2 0.08 3 0.12

10.

Weak in global expansion 0.03 2 0.06 2 0.06

TOTALS 4.85 4.60

Expand into international

markets

Develop less expensive products for lower income customers

Opportunities Weight AS TAS AS TAS

1. Restructuring initiatives for organizational effectiveness will bring them out of the 4 year rut of ineffective business strategies.

0.04 2 0.08 3 0.12

2. Emerging markets in the Middle East and Africa allow Avon’s direct sells representatives a comparative advantage to retailers that take more time to establish their markets.

0.06 3 0.18 2 0.12

3. Rebranding strategy to give the better than ever quality of Avon to distance their selves from the mistakes of their previous CEO to help drive consumer demand.

0.08 1 0.08 3 0.24

4. The online market offers Avon Products Inc. the ability to greatly expand their business. Avon Products Inc. can market to a much wider audience for relatively little expense

0.03 4 0.12 2 0.06

5. Avon obtains 85% of its revenue from outside of the USA and in Latin America, Europe, Africa, and the Middle East sales rose, prices rose and their average order size increased.

0.02 2 0.04 1 0.02

6. The global beauty industry is growing at a 6% rate which can help bring Avon out of their past endeavors. 0.09 3 0.27 3 0.27

7. Direct selling remains effective in emerging markets such as Brazil allowing Latin America to continue to bring in revenue 0.07 4 0.28 2 0.14

8. Direct sells grew about 30 percent between 2006 and 2012 into a $150 billion global market.

0.05 1 0.05 4 0.20

9. More than 100 countries in which Avon competes do not have good retail infrastructures allowing Avon’s 6.5 million person global sales force to be its biggest advantage over competitors.

0.03 3 0.09 3 0.09

10. Avon’s interest income is up by 12% from 2012 to 2011 and it continues to increase because it was up 7% from 2011 to 2010.

0.03 2 0.06 2 0.06

Threats Weight AS TAS AS TAS

1.

Avon faces intense competition from competing products in both the domestic and international and Avon’s investments will have to spend a lot of time trying to overcome this issue

0.04 2 0.08 1 0.04

2.

Currency restrictions enacted by the Venezuelan government have limited their ability to repatriate

dividends and royalties which is concerning for Avon because of the Latin America segment having the highest revenue.

0.07 4 0.28 2 0.14

3.

Global macroeconomic pressures allow for future threats on the company if Avon does not invest into preventing possible outcomes from this issue.

0.03 3 0.09 1 0.03

4. The global bribery investigations of the previous CEO is still causing a struggle for Avon today.

0.09 1 0.09 2 0.18

5. Dependence on third party suppliers puts limitations on Avon compared to their competitors.

0.03 2 0.06 3 0.09

6. Avon had a loss of $38.2 million in 2012 compared to a net income of $517.8 million the prior year.

0.02 1 0.02 3 0.06

7. Avon sales in North America during Q2 if 2013 declined by 12% due to the 13% drop in the number of active sales representatives.

0.08 2 0.16 2 0.16

8. Avon obtains 85% of its revenue from outside of the USA however, Avon’s Asia-Pacific sales fell by 9% for Q2 of 2013.

0.06 3 0.18 3 0.18

9. Avon’s EPS is negative, while its competitors such as L’Oreal is 1.12 and Revlon is .78.

0.05 2 0.10 2 0.10

10. Avon’s operating profit, other expenses, net income, and diluted EPS all decreased by over 50% from 2011 to 2012

0.03 3 0.09 3 0.09

Strategy Formulation

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