AVON PRODUCTS INC.

Strategic Management Case Study

Presented by:

• Rizwan Qamar

M. Phil Fellow at Faculty of Contemporary Studies,

National Defence University, Islamabad

Outline

• Avon Introduction • Brief History• Brief Company Overview• Organizational Structure

• Mission, Vision & Slogan• Existing• Why change?• Proposed

• Internal Assessment • Financial Ratio Analysis• Net Sales by Product Category• Revenue by Product Segment • Revenue by Geographic Segment • Market Positioning Map• Map Locating the Firms

Operations• Strengths and Weakness• IFE Matrix

• External Assessment • List of Competitors• Major Closest Competitors

• Competitors Analysis• Sales Pie Chart of Competitors• Competitors Financial Analysis• Opportunities and Threats • EFE Matrix• Competitive Profile Matrix (CPM)• Porter's Five Forces Model

• Strategy Analysis• SWOT Matrix• SPACE Matrix• BCG Matrix

• By Product Division• By Geographic Division

• The IE matrix• Grand Strategy Matrix

• Decision Stage• QSPM• Possible Alternative Strategies

• Balance Score Card• Conclusion• References• Q & A

Introduction

Brief History

Brief Overview

• Avon is a leading global beauty company, with over $10 billion in annual revenue in 2008

• World's largest direct seller

• Operating in 143 countries worldwide through 6.4 million independent Avon Sales Representatives

• It is the largest micro lender to women

• Avon is among the world top global brands

• Increased Investments by $ 120 m in 2007 to develop a new Sales Leadership

• Changed marketing approach from a homey image and started celebrity promotions

Brief Overview . . . . . . . Cont’d

• Avon’s largest manufacturing plants, Brazil, China and Poland received the ISO14001 certifications in 2008

• The Clean Industry Certificate to the manufacturing plant in Mexico

• During the same period Avon’s revenues increased 7.5 percent

• Avon implemented reconstructing programs in 2009• There is heavy investment in online search engines and

internet carrier sites• Andrea Jung is the Chief Executive Office who is

leading the management team of thirteen

Organizational Structure

Avon Slogan (Actual)

Avon: The Company for Women

Avon Slogan

Actual Proposed

Avon: The Company for

Everyone

AVON Vision

Actual

• To be the company that best understands and satisfies the product, service, and self-fulfillment needs of women globally

Proposed

• To be the leading beauty and cosmetics company that best understands and satisfies the self-fulfillment needs of our customers globally.

AVON Vision

Proposed Vision

• To be the leading beauty and cosmetics company that best understands and satisfies the self-fulfillment needs of our customers globally.

Analysis

• Word “Women” is replaced with “Customers”

• To identify the industry words “beauty and cosmetics” are included.

AVON Mission (Actual)

• The Global Beauty Leader— We will build a unique portfolio of Beauty and related brands, striving to surpass our competitors in quality, innovation and value, and elevating our image to become the Beauty company most women turn to worldwide.

• The Women’s Choice for Buying— we will become the destination store for women, offering the convenience of multiple brands and channels, and providing a personal high touch shopping experience that helps create lifelong customer relationships.

• The Premier Direct Seller— We will expand our presence in direct selling and lead the reinvention of the channel, offering an entrepreneurial opportunity that delivers superior earnings, recognition, service and support, making it easy and rewarding to be affiliated with Avon and elevating the image of our industry.

• The Best Place to Work — we will be known for our leadership edge, through our passion for high standards, our respect for diversity and our commitment to create exceptional opportunities for professional growth so that associates can fulfill their highest potential.

• The Largest Women’s Foundation — we will be a committed global champion for the health and well-being of women through philanthropic efforts that eliminate breast cancer from the face of the earth, and that empower women to achieve economic independence.

• The Most Admired Company— We will deliver superior returns to our shareholders by tirelessly pursuing new growth opportunities while continually improving our profitability, a socially responsible, ethical company that is watched and emulated as a model of success.

AVON Mission (Proposed)

Proposed Mission“Avon is committed to be the leading global provider of home, fashion and beauty products that will enhance the beauty and satisfaction of our customers. We will utilize latest technology and will pursue new growth opportunities that will bring about wealth for all our stakeholders. At Avon, we firmly care for the people and environment”.

Characteristics • Broad in Scope

• Less than 250 words

• Identify the Utility of Products

• Social Responsibility

• Includes Nine Components:• Customers, Product, Market,

Technology, Growth, Philosophy, Self Concept, Concern for public and employees

INTERNAL ASSESSMENT

Financial Ratio Analysis

INTERNAL ASSESSMENT

2008 2007 2006

Beauty 72 % 70 % 69 %

Fashion 18 % 18 % 18 %

Home 10 % 12 % 13 %

Total 100 % 100 % 100 %

Net Sales by Product Category

INTERNAL ASSESSMENT

Net

Sale

s b

y P

rod

uct

Cate

gory

INTERNAL ASSESSMENT

2008 % Age

2007 2006

Beauty 7,603.7 + 9.6 6,932.5 6,019.6

Fashion 1,863.3 + 6.2 1,753.4 1,562.7

Home 1,121.9 - 3.2 1,159.5 1,095.0

Total 10,588.9 + 7.5 9,845.2 8,677.3

Revenue by Product Segments($ million)

INTERNAL ASSESSMENT

Growth Graph

By Product Division

INTERNAL ASSESSMENT

Division 2008 2007

Latin America 3,884.1 3,298.9

North America

2,492.7 2,622.1

Europe, Africa and Asia

3,071.2 2,886.4

Asia Pacific and China

1,242.1 1,131.1

Revenue by Geographic Segments

INTERNAL ASSESSMENT

INTERNAL ASSESSMENT

Market Positioning Map

INTERNAL ASSESSMENT

Map locating the firm’s Operations

INTERNAL ASSESSMENT

Strengths1. Avon is a Global Market Leader

2. Committed and dedicated workforce - 6.4 million Avon representative in over 100 countries making Avon the largest sales force

3. World’s Largest Micro lender for women - extending some $1 billion in product and credit each year to help women start their own entrepreneurial businesses

4. Channel of distribution – world’s largest direct seller

5. Manufacturing operations match ISO 14001 standards

6. Avon owns its major manufacturing and distribution centers

7. Increased in revenue in most geographic area. Due to increase in internet presence. (Revenues increased 7.5% from year 2007 to 2008)

8. Avon is one of the world’s top global brands. Avon has major brand names such as Anew, skin-so-soft, Avon Color etc. with 90% recognition worldwide.

9. First cosmetic to permanently end to animal testing

Weaknesses1. Decrease in North American Sales

Revenue by 129.4 million2. Weak Brand Image3. High advertising costs – Companies

advertising spending went from $136millions in 2005 to $249 million in 2006 to $368 million in 2007 and 14%higher in 2008

4. Poor brand loyalty5. Does not target urban trendsetters6. Beauty Sales in the first quarter 2009

were 12% lower compared to sales revenue in previous year 2008

7. Avon lagged behind seven of their cosmetic companies in customer loyalty

INTERNAL ASSESSMENT

Internal Factor Evaluation Matrix (IFE)

EXTERNAL ASSESSMENT

List of Competitors

1.Procter & Gamble 2.L’Oreal S.A. 3.Unilever PLC 4.Johnson & Johnson 5.Kimberly-Clark Corporation 6.Colgate-Palmolive Company 7.Kao Corporation 8.Estee Lauder Companies In9.Mary Kay10.Revlon 11.The Body Shop

EXTERNAL ASSESSMENT

Major Competitors

EXTERNAL ASSESSMENT

Revlon• Revlon was founded in 1932,

by Charles Revson • Revlon Sales to Wal-Mart

accounts for 23% of the company's total sales

• The company earned $1.3 billion in sales and $950K in net income in 2009

• Revlon attributes the loss to the weak global economy and Sales fell by 3.8%

• Revlon is the second largest color cosmetics company in the United States

Mary Kay• In 1963 Mary Kay Cosmetics was

founded in Dallas, Texas

• In 2009 sales of Mary Kay products reached $2.6 billion

• There are more than 37,000 women across the world who has become Independent Sales Directors

• Mary Kay products are expensive versus Avon

• Mary Kay seems to be targeting older women

• 90% of the company’s revenue is now generated through online orders

• It entered in Pakistan in 1984 while in India in 2007

EXTERNAL ASSESSMENT

• Avon is seven and half times larger than Mary Kay and approximately eight times larger than Revlon

• Its Competitors distribute their products to resellers but Avon sells its products solely through its direct-selling channel

• Avon brand products are now recognized all over the world due to the success of their international campaign

• Avon also has a Representative development program that focuses on the professional training of Representatives

AVON’s Comparison with Closest Competitors

EXTERNAL ASSESSMENT

Pie Chart of Revenues 2008

EXTERNAL ASSESSMENT

AVON REVLON

Market Cap $ 9,710 M $ 242.84 M

Employees 42,000 5,600

Revenues $ 10.37 B $ 1.34 B

Gross Margins

63.03 % 63.48 %

EBIT % 1,440 M $ 171.40 M

Operating Margin

12.07 % 11.42 %

Net Income $ 807.9 M $ 28.5 M

Growth 7.5 % 5.6 %

EPS $ 4.72 $ 1.422

Competitors Financial Strength 2008

EXTERNAL ASSESSMENT

Opportunities1. A growing trend in the cosmetics industry is

the introduction of “green” products. More than sixteen percent of beauty products launched in 2008 were certified organic, ethical, or all natural.

2. Eye makeup market

3. The cosmetics industry tends to be countercyclical..

4. Aveda cosmetics found that sixty eight percent of consumers will remain loyal to a company that has a social and environmental commitment.

5. Urban Trendsetters markets

6. Geographic growth – enormous growth opportunities existed in countries populations such as China, Indonesia and India and other Asian countries.

7. Demand for cosmetic products normally remains constant and unaffected by economic distress.

8. The baby boomers are aging and they are more conscious on their appearance, beauty and also improving their looks.

9. Emphasize direct selling in emerging and developing markets.

Threats1. Competition such as Mary Kay and Revlon

and many others2. Rejection of internet selling by sales

representative3. Global economic climate stifled new product

development, innovation and sustainability programs in 2009.

4. In terms of color cosmetics, environmental International Inc. predicted that many of these markets will see slowdown in volume demand.

5. Inflation rate6. Rising cost of commodities7. Direct-selling becoming more popular -

Amid the financial crisis Aussie mums are increasingly turning to direct selling and at-home product parties to supplement their household income.

8. They are a multilevel based company that sells inferior quality with a higher price tag than what it is worth.

9. Avon products outpaced by “jazzier” products to women who favored more exciting product lines

10. Decreased earning opportunities

EXTERNAL ASSESSMENT

External Factor Evaluation Matrix (EFE)

EXTERNAL ASSESSMENT

COMPETITIVE PROFILE MATRIX – CPM

EXTERNAL ASSESSMENT

# Forces Intensity1 Rivalry among competing

firmsHigh

2 Entry of New Competitor Low

3 Development of Substitute Products

Low

4 Bargaining Powers of Suppliers

Low

5 Bargaining Power of Consumers

High

Porter’s Five Forces Model

STRATEGY ANALYSIS

STRATEGY ANALYSIS

SWOT Matrix

STRATEGY ANALYSIS

STRATEGY ANALYSIS

Y axis=FS (4) +ES (-3.2) = .08

X axis=CA (-2.8) +IS (3.6) =1.2

SPACE Matrix

STRATEGY ANALYSIS

BCG Matrix

By

Product Division

STRATEGY ANALYSIS

BCG Matrix

By

Geographic Division

STRATEGY ANALYSIS

STRATEGY ANALYSIS

Grand Strategy Matrix

STRATEGY ANALYSIS

Mat

rix

An

alys

isAlternative Strategies SPACE BCG

NA LA EU APC GS Counts

Forward Integration X X X X X X 5

Backward Integration X 1

Horizontal Integration X X 2

Market Penetration X X X X X X X 6

Market Development X X X X X X 5

Product Development X X X X X X X 6

Diversification X X X X X X X 6

Joint Venture X 1

Retrenchment X 1

Divestiture X 1

Liquidation 0

Mergers & Acquisition X 1

IE Matrix

Decision Stage

QSPM

STRATEGY ANALYSIS

Balanced Score Card

STRATEGY ANALYSIS

Balanced Score Card …… Cont’d

Possible Alternative Strategies

Extension in the main products:The sales of the personal care products are increasing in the main sectors because of the following reasons.

• To become attractive in working area.• Becoming more Health Conscious • Due to change in fashion & Trends.

Expand In Asia and Africa:

Asian countries like Pakistan, Bangladesh, Malaysia, Taiwan & Russia are a huge market because of the two reasons:

•Stability in economies•Population growth

Build a brand image in North American and Generation Y in existing markets by promotions and innovation of new product which are tailored to their specific needs: The Generation Y is the second largest population segment which is not focused by Avon and due to the lack of a proportion Avon has not a good image in North America. But Avon has a competitive advantage to expand in these markets.

Decision

• Expand the Market to South Asia, Central Asia and Africa

• Acquire the small competitors to gain more Advantage

• Invest more in R & D to develop more “Green” products

• Invest in departmental and online selling

• Expand the product line and also focus on men and children

• Repositioning the brand image through attractive packaging, new brand logo and distinguishing its products

• Enhance Brand Loyalty

References

• David, Fred, R “Strategic Management” Concepts and Cases´ 10th and 13th Edition. Prentice Hall International 2009.

• Avon Products Inc. Retrieved May 5, 2012 www.avoncompany.com• Avon USA. Retrieved May 5, 2012 www.avon.com• Avon Products UK. Retrieved May 5, 2012

http://www.avon.uk.com/PRSuite/home_page.page• Avon Products Retrieved May 5, 2012

http://en.wikipedia.org/wiki/Avon_Products• Retrieved May 5, 2012 www.wikinvest.com• Avon Calling ± for Help´ Business Month April, 2010.• Avon Calls ± At 50 Times Earnings, ´ Business Month November, 2006 -2009.• Avon Products, Inc., Annual Report, New York, N.Y., 2010• Avon Products, Inc., Annual Report, New York, N.Y., 2009• How Avon Rings Their Chimes,´ Sales and Marketing Management, November,

2009• Avon Products, Inc.: DEVELOPING A GLOBAL PERSPECTIVE• Retrieved May 5, 2012 www.yahoo.com/images• Retrieved May 5, 2012 http://www.google.com.pk/imghp?hl=en&tab=wi

Further Discussion????