Professional Documents
Culture Documents
Soyung Pak
Jennifer Pittacora
(CFTs), gifts, decorative items for the home, and health and nutrition products (Exhibit 1). Utilizing a direct-
selling strategy, Avon distributes and sells its products in the United States through approximately 452,000
independent sales representatives (“Avon lady”) who purchase products directly from Avon and re-sell them to
the customer1. The fifth largest cosmetics company, Avon increased its sales in 2001 and 2000 by 5% year-over-
year, as a result of a 3% increase in active sales representatives and an increase in unit sales in CFTs. 2 In 2000,
Avon launched officially launched beComing (Exhibit 14) - a product line to be sold at JCPenney -, and thereby
Despite its positive performance, the future success of Avon will depend largely on the firm’s ability to
remain competitive and to acquire new customers in an industry that is becoming increasingly hypercompetitive,
as evidenced by its dependence on intensive advertising and new product innovations. With both an aging
customer base and sales force, as well as softening direct-market segment, a refurbished market position is critical
for Avon going forward as the firm needs to expand and replenish its customer base with younger, professional
consumers, among whom the Avon quality perception ranks poorly (see Exhibit 3). Avon’s task is made more
complex by its commitment to the direct-sales channel, which generates 95% of its revenue. “Without upgrading
its direct sales force with younger reps, Avon's sales base would get increasingly older and the demographic of its
customer would be very similar to that of its rep. Avon still has a long way to go in lowering the average age of a
rep, which is 48. Simply, Avon needs younger reps to help recruitment and beauty sales” 3. In other words, in its
quest for the new customer, Avon must reinvent itself while continuing to offer products that appeal to its
current customer base to make certain that it does not alienate the Avon lady.
Scope
We believe that Avon is unable to compete head-to-head in the broader retail market due to a lack of
financial resources compared to their competitors (see Exhibit 7). Instead, Avon should (1) use a niche-oriented
strategy to increase/establish market share by appealing to the younger segments (teens and working
professionals); (2) leverage its direct sales force to target the growing, less mobile, older segment (Baby
In order to reach teens/working women, Avon should expand/ introduce kiosks that offer value priced
“Avon” branded products to the teen segment and mid-priced “beComing” branded products to middle-class
working women. The firm should also seek to leverage its strength in direct sales to increase sales to the
55+/Baby Boomer segment by introducing new product innovations that specifically target this segment’s needs.
Additionally, growth in the direct sales segment should also be obtained by increasing sales to existing customers
by attracting/retaining sales representatives with creative incentive programs. In addition, we believe that Avon
should seek to reduce the number of non-beauty related products and increase sales in CFTs, its core line, to
concentrate on their core competencies and allocate their resources to establish Avon as a strong cosmetics
company.
Resources
A key element to Avon’s past success is the intimate, unique relationship that Avon ladies are able to
forge with their customers; therefore, the firm should el verage direct sales representatives in targeting the
55+/Baby Boomer. The firm should also leverage Avon’s brand name and its reputation for having value priced
Competitive advantage
Avon ladies may be the original customer relationship management vehicle, as they are able to customize
each customer’s shopping experience. Therefore, Avon should continue to encourage the personalized customer
service offered by its Representatives (direct selling approach). Avon’s ability to have control over the channel
(sales reps have no bargaining power with Avon) and set reasonable prices for its products (low cost producer)
are also significant factors in establishing and maintaining its competitive position.
Synergy
Avon should strive to take advantage of the brand equity that Avon has with older women, most of
whom grew up with Avon products. The firm should also el verage existing research and development to
develop/introduce higher quality “beComing” products and “Avon” branded teen products.
Analysis
Unfortunately for Avon, the direct sales market for U.S. has been shrinking due to the customer's
changes in lifestyle. Labor force participation by women increased from 49% in 1970 to 72% in 19955. Working
women spend less time in the home and have less free time which is likely to negatively impact the direct selling
model Avon currently uses. Also, the disposable income of these women has increased which is likely to cause a
substantial number of women to move to purchasing more expensive, up-market products with higher perceived
quality tha n are available in the retail channel. Currently, Avon’s products are priced at the low end with low
perceived quality and therefore would not meet the needs of these women. (Exhibit 2 and Exhibit 3 Survey –
VEL). Additionally, only 9% of women purchase their cosmetics in the direct sales channel (Exhibit 4) and from
our survey results majority of women buy cosmetics in department stores (Exhibit 11). Thus, the decision to
enter the retail channel with the beComing brand via a partnership with JCPenney in September 2000 was most
likely based in part on the shifts in demographics that have taken place within Avon’s core customer base—the
housewife. Entering the retail channel may give Avon access to this working-women segment, but this move
also places Avon in an environment plagued with hypercompetition. With the launch of the beComing line,
Avon essentially attempted to push the Value Equivalence Line out by offering a product line that the firm
hoped would carry the higher quality perception that is typical of products available in the department stores, yet
at a price that is equivalent to cosmetics available in the Food, Drug, and Mass (FDM) channels. By pricing their
products to be competitive with higher-end FDM products (L’Oreal, Neutrogena), Avon is benchmarking itself
against products with lower-perceived quality. However, by selling its beComing line through JCPenney, Avon is
also making a clear quality statement about it’s products to the consumer—i.e., that beComing is priced
competitively with FDM products but offers quality that stands up to department store standards. Indeed, Avon
has described its beComing line as a line of "mass-tige" 6cosmetics, with price points that are comparable to
FDM products (ex: L’Oreal) and 10% to 15% below the entry-level department-store lines.
Avon, however, will find it difficult to play in the fiercely competitive retail arena despite that it is the
fifth largest cosmetics company, as it only has a 3% share. Avon faces competitors such as Estee Lauder,
L’Oreal and Revlon who have significantly more resources to defend their position (See Exhibit 7). Competition
in the industry is especially fierce in the FDM channels where brand loyalty is weak, and manufacturers are
burdened with constantly having to update product lines with “quality” enhancing elements touted by premium,
department store brands (see Exhibit 12). As a result cosmetics companies advertise heavily to create a
perception of product differentiation and to announce new product introductions. With its new position in the
retail channel, Avon will be continually threatened by competitors who have deeper pockets for new product
innovations and advertising (Exhibit 7). It is only a matter of time before competitors will introduce products
that directly compete with Avon’s beComing line or increase the quality perceptions through the advertising or
Because of this, Avon must find a lower cost way to serve its customers while still making its product
available to the younger teen/ working women segments. Avon can do this by licensing kiosks to its
independent sales reps and locating these kiosks in malls. Allowing independent sales reps to operate kiosks
increases their access to customers as well as access to potential sales rep recruits. Kiosks also increase the
financial incentives of Avon sales reps by requiring reps to take on longer-term financial commitments when
licensing kiosks, which should help to reduce Avon’s high sales-rep turnover rates, thereby strengthening Avon’s
Kiosks offer another advantage over JCPenney and other department stores in that kiosk may benefit
from a halo effect from the increasing popularity of specialty stores within the cosmetics arena. Department
stores have been losing market share to specialty stores since 1996, as the number of specialty stores offering
premium products (Sephoria, Origins, various Internet sales) have increased. In addition, “sales in specialty
stores grew rapidly as…[specialty stores] gained consumer popularity due to competitive pricing structures,
By moving away from the department store model and towards the kiosk model, Avon will be located
on the same value equivalence line as its competitors and may fly under their radar screen. Avon should also
introduce products in these kiosks that cater to the teen market. By leveraging R&D for existing products, Avon
could slightly reformulate and repackage its existing products thereby creating a new brand of products targeted
towards teens (perhaps “Avon Fresh”). Avon’s products are already priced at the low end, thus the price/value
equation should appeal to the price sensitive teen market (Exhibit 2). This may also help to establish brand
awareness of the Avon name at an early age and may create loyal Avon users.
Avon should also continue to grow their older customer base since there is another demographic
development in the U.S. - the aging of the baby boomers- by continuing to introduce anti-aging creams, lipsticks,
etc. geared towards this segment. While the 10-49 year old market will stay constant until 2010 the 55+ category
will increase by 25 % in the same period9. The anti-aging skincare segment increased by 29 % in the year 2000 10
proving the importance and future potential of this older segment. The competition has already started to
pursue this segment with premium products such as the Estee Lauder’s ‘Crème de La Mer’ at the top end with
NASA developed formula for $179 and Olay at the bottom end with a price setting of $19.95. This is another
example of hypercompetition (timing and know-how) in the cosmetics industry (exhibit 13). Manufacturers are
always experimenting with new products and the players in the market are quick to imitate the successes of other
manufacturers. Pioneers attempt to throw up impediments to imitation (perhaps through advertising) however,
followers overcome impediments and replicate the pioneer’s resource base. With its direct sales representatives,
Avon is positioned well to serve this less mobile, stay-at-home, aging 55+/Baby Boomer segment.
Conclusion
Ultimately, Avon’s challenge is simple to grasp but difficult to tackle—to play in a hypercompetitive
arena without any competitive advantage, and to acquire new customers without a positive (at the very least, a
value-added) brand image. As stated earlier, we do not believe that Avon can successfully directly compete with
the major manufacturers in the department store retail field. Avon has neither the brand equity nor the capability.
Furthermore, given that the rate of innovation in this industry, as well as that so much of the business is spurred
We believe that their kiosk model is the most effective, realistic method for obtaining growth and
seeking new customers. Kiosks complements Avon’s direct sales structure as they will be run by Avon reps, who
understand their customers and the Avon line of products. Secondly, the kiosks may serve to strengthen the
direct sales force by giving sales reps an incentive to stay committed to the firm and their customers. Third, as
the kiosks are run by individual sales reps, they can be easily customized to support the demographic/geographic
needs of a sales rep (ex: more teen-niche oriented products in region A, more beComing products for region B.).
Fourth, kiosks expose Avon to non-Avon users without exposing Avon to the hypercompetitive department
store retail arena. Most importantly, kiosks address the issues non-Avon users cite as barriers to trial: 'Avail-
ability' (64%), 'Image' (20%), and 'Quality'(12%) (see Exhibit 9). Because kiosks are located in malls, they will be
accessible to all consumers. Through the availability, Avon will be able to attract more customers by luring them
to the kiosks, induce them to try and test the 'Quality' of the products, thereby improving the poor-quality Image
of the brand. Hence, we propose that the beComing line should be sold via kiosks rather than at JCPenney to
avoid the heavy competition in the department stores while exposing the line to the mass.
In addition to the kiosks, we feel that Avon should launch targeted products, such as a product line
geared specifically to the more price sensitive teen segment. At the same time, Avon must leverage their sales
representatives' customer-relationship skills as well as develop new products to retain their current (older)
customer base.
Going forward, Avon will continue to be faced with increasing competition from their 'deep pocket'
competitors. In an industry where sales are fueled by image built from marketing and product innovations, Avon
must increase marketing spending and/or find creative ways to stay competitive. However, at the same time, we
feel that Avon’s entry into retail is a necessary strategic move given the larger threat to direct-sales—the Internet,
which has already been a factor in moving the value equivalence line, offering easier access to cosmetics all along
the value line at lower prices (see Exhibit 3). Indeed, Avon’s own Internet site is a direct competitor to the Avon
lady. As technology becomes more commonplace, working women feel more time constrained, and people
become accustomed to making purchases online, we hypothesize that the Internet will allow retail players to
enter into Avon’s direct-sales space. Though kiosks do not represent the final solution, we do feel they serve as
an effective, efficient “bowling alley” from which Avon can position itself for mass acceptance. Our
recommendations to take Avon from the kiosk-based bowling alley to “Main Street” are found in Exhibit 8.
1
Avon 2000 10K.
2
Avon 2000 Annual Report
3
Deutsche Bank Alex Brown, Avon Products, July 30, 2001.
4
Avon 2000 10K
5
Blau, F.D.,’Trends in the Well-Being of American Women, 1970-1995’, Journal of Economic Literature, Vol 36, No
1 (March 1998), pp 112-165
6
In-house Avon terminology. Mass Market + Prestige = Mass-Tige
7
Avon 2000 Annual Report
8
Euromonitor, ‘Color Cosmetics in the USA’
9
Projections of the total Resident population middle series 2001-2010, US Census
10
Grossman, A.M., ‘Anti-aging products top skin care sales’, Drug Store News, 5/22/2000, vol. 22, Issue 7 p88
11
Projections of the total Resident population middle series 2001-2010, US Census
12
Grossman, A.M., ‘Anti-aging products top skin care sales’, Drug Store News, 5/22/2000, vol. 22, Issue 7 p88
13
Snyder, D.A., ‘Trading in Youth: A look at the skin care industry, DCI Jun98, vol162, Issue 6, P32
Exhibit 1: 2000 Avon Sales by Product Line
18%
1%
8%
5% 62%
6%
Source:
- high and mid market brands and Avon from company websites
- low end brands from wallgreens.com
Exhibit 3a: Cosmetics VEL Perceived Prices
Channels
Department Stores 31.20%
Discounters 24.10%
Pharmacy/ Drug Stores 20.70%
Direct Sales 9.10%
Specialists 7.40%
Grocery 6.60%
Other 0.90%
22% 23%
3%
14% 23%
15%
4,000 3,770
Marketing Budget [$ MM]
3,000
2,000
1,000
1,000
429
62
-
Estee Lauder Revlon Inc. Proctor & Avon
Gamble
- Improve availability by - Improve availability by - Avon should not bra nch out of
increasing the number of increasing the number of their core competences
kiosks kiosks
- Loyalty cards / Loyalty - Increase customer reach by
program: reward frequent targeted sample mailings
buyers with gifts and discounts - Co-branding
- Improved catalogues and data - Hold promotional events
base marketing techniques geared to teens : 'New face'
- Automatic 60 day delivery event hosted by top teen
- Launch infomercials to support magazines
Avon lady - Launch infomercials to support
Avon lady
% of respondents
Availability/ Access 64
Price 0
Quality 12
Image 20
Poor Selection 2
Source: Survey of 48 Make-up users March 2-7 2002. Question: what is the reason for not purchasing Avon products?
Exhibit 10: Minutes of meeting with Avon Representative
Date : 3/5/02
Time : 1:00 pm
Interviewer : Grace Park
Interviewee : Mary Smith* (Sales rep of 16 years)
Meeting Objectives
1. Better understand Sales Rep logistics
2. Acquire Avon brochures and sample Avon products
Findings
The most popular place to purchase cosmetics were in the order of department stores
(81%), drug stores (38%), and specialty stores (28%).
Pl a c e o f c o s m e t i c s p u r c h a s e
Department store
Drug store
Speciality stores
Di s c o u n t C h a i n
Internet
Di r e c t s a l e s
Gr o c e r y S t o r e s
0 20 40 60 80 100
% of r e s p o n d e n t s
73% of our survey respondents had never tried Avon products. The reasons for the low
purchase were mainly due to 'Availability/Access' and 'Image' of the brand. As many as
54% of the respondents answered that they would purchase Avon products if they were
available in the retail channel.
Other factors that would induce the trial of new brands were;
Price
15% Word of mouth
28%
Exhibit 12: Channel VEL Line
Exhibit 13 Example of Hyper-competition in the Cosmetics Industry
Radiant Mom
Discover beComing's palette of colors that Give moms and their new arrivals the
are as individual as you are. Whether treatment they both deserve with
super-natural, polished and pretty or high- beComing's exclusive mom and baby
glam is your style, we've got your color. formulations. Gentle, mild, effective -
just perfect during this special time.
Luminous Active
beComing Luminous is skincare on call, on Whatever way you play, beComing
demand. Formulated with Lumin8™, a Active gets you going and keeps you
multi-functional "women's cocktail" that going.
responds on demand to skin symptoms,
like - dehydration, blotchiness, sensitivity
and aging - caused by stress and bio-cycle
changes. It balances, energizes,
rejuvenates and provides an array of skin-
improving benefits
Centered Sensational
Indulge your body, your mood and all of beComing Eau de Parfum is the
your senses with Aromahue bath and body essence of beComing you. A sparkling
products. 4 colorful collections of Allover floral incense that's modern, classic
Body Mists, Foaming Body Washes, and subtly intriguing. You'll never want
Replenishing Body Balms, Candles and to wear anything else.
Elixirs. Bright hues, smell-good scents and
feel-good textures. All made to layer, mix
and match.
• Avon’s strength is knowing their customers and Avon’s core products reflect this: (ClearSkin for teens, Anew for mature women)
• Recommendation—Avon should nurture its strength, and continue to offer products that target specific needs of specific markets.