You are on page 1of 52

AVON PRODUCTS INC.

Strategic Management Case Study

Rizwan Qamar
M. Phil Fellow at Faculty of Contemporary Studies,
National Defence University, Islamabad

Presented by:

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

List of Competitors
Major Closest Competitors

External Assessment

Outline

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

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

Avons 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 Avons 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

Brief Overview . . . . . . . Contd

Organizational Structure

Avon: The Company for Women

Avon Slogan (Actual)

Actual

Proposed

Avon: The
Company for
Everyone

Avon Slogan

Actual

Proposed

To be the company that


best understands and
satisfies the product,
service, and selffulfillment needs of
women globally

AVON Vision

To be the leading beauty


and cosmetics company
that best understands and
satisfies the selffulfillment needs of our
customers globally.

Proposed Vision

Analysis

To be the leading beauty


and cosmetics company
that best understands and
satisfies the selffulfillment needs of our
customers globally.

Word Women is
replaced with
Customers
To identify the industry
words beauty and
cosmetics are
included.

AVON Vision

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 Womens 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 Womens 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 (Actual)

Proposed Mission

Characteristics

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.

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

AVON Mission (Proposed)

Financial
Ratio
Analysis

INTERNAL ASSESSMENT

Net Sales by
Product
Category

2008

2007

2006

Beauty

72 %

70 %

69 %

Fashion

18 %

18 %

18 %

Home

10 %

12 %

13 %

100 %

100 %

100 %

Total

INTERNAL ASSESSMENT

Net Sales by Product


Category

INTERNAL ASSESSMENT

Revenue by
Product
Segments
($ million)

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

INTERNAL ASSESSMENT

Growth
Graph
By
Product
Division

INTERNAL ASSESSMENT

Revenue by
Geographic
Segments

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

INTERNAL ASSESSMENT

INTERNAL ASSESSMENT

Market
Positioning
Map

INTERNAL ASSESSMENT

Map
locating the
firms
Operations

INTERNAL ASSESSMENT

Strengths
1.
2.

3.

4.
5.
6.
7.

8.

9.

Avon is a Global Market Leader


Committed and dedicated workforce - 6.4 million
Avon representative in over 100 countries making
Avon the largest sales force
Worlds Largest Micro lender for women - extending
some $1 billion in product and credit each year to
help women start their own entrepreneurial
businesses
Channel of distribution worlds largest direct seller
Manufacturing operations match ISO 14001
standards
Avon owns its major manufacturing and distribution
centers
Increased in revenue in most geographic area. Due to
increase in internet presence. (Revenues increased
7.5% from year 2007 to 2008)
Avon is one of the worlds top global brands. Avon
has major brand names such as Anew, skin-so-soft,
Avon Color etc. with 90% recognition worldwide.
First cosmetic to permanently end to animal testing

Weaknesses
1.
2.
3.

4.
5.
6.
7.

Decrease in North American Sales


Revenue by 129.4 million
Weak Brand Image
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
Poor brand loyalty
Does not target urban trendsetters
Beauty Sales in the first quarter 2009
were 12% lower compared to sales
revenue in previous year 2008
Avon lagged behind seven of their
cosmetic companies in customer
loyalty

INTERNAL ASSESSMENT

Internal
Factor
Evaluation
Matrix
(IFE)

INTERNAL ASSESSMENT

List of
Competitors

1.Procter & Gamble


2.LOreal S.A.
3.Unilever PLC
4.Johnson & Johnson
5.Kimberly-Clark Corporation
6.Colgate-Palmolive Company
7.Kao Corporation
8.Estee Lauder Companies In
9.Mary Kay
10.Revlon
11.The Body Shop

EXTERNAL ASSESSMENT

Major
Competitors

EXTERNAL ASSESSMENT

Revlon

Mary Kay

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

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 companys revenue is now
generated through online orders
It entered in Pakistan in 1984 while in
India in 2007

EXTERNAL ASSESSMENT

AVONs Comparison
with Closest
Competitors

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 directselling 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

EXTERNAL ASSESSMENT

Pie Chart of Revenues 2008

EXTERNAL ASSESSMENT

AVON

Competitors
Financial Strength
2008

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

EXTERNAL ASSESSMENT

Opportunities

Threats

1.

1.

2.
3.
4.

5.
6.

7.

8.

9.

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.
Eye makeup market
The cosmetics industry tends to be
countercyclical..
Aveda cosmetics found that sixty eight
percent of consumers will remain loyal to a
company that has a social and environmental
commitment.
Urban Trendsetters markets
Geographic growth enormous growth
opportunities existed in countries populations
such as China, Indonesia and India and other
Asian countries.
Demand for cosmetic products normally
remains constant and unaffected by economic
distress.
The baby boomers are aging and they are
more conscious on their appearance, beauty
and also improving their looks.
Emphasize direct selling in emerging and
developing markets.

2.
3.
4.

5.
6.
7.

8.
9.
10.

Competition such as Mary Kay and Revlon


and many others
Rejection of internet selling by sales
representative
Global economic climate stifled new product
development, innovation and sustainability
programs in 2009.
In terms of color cosmetics, environmental
International Inc. predicted that many of
these markets will see slowdown in volume
demand.
Inflation rate
Rising cost of commodities
Direct-selling becoming more popular - Amid
the financial crisis Aussie mums are
increasingly turning to direct selling and athome product parties to supplement their
household income.
They are a multilevel based company that
sells inferior quality with a higher price tag
than what it is worth.
Avon products outpaced by jazzier
products to women who favored more
exciting product lines
Decreased earning opportunities

EXTERNAL ASSESSMENT

External Factor
Evaluation Matrix
(EFE)

EXTERNAL ASSESSMENT

COMPETITI
VE PROFILE
MATRIX
CPM

EXTERNAL ASSESSMENT

Porters Five
Forces Model

Forces

Intensity

Rivalry among competing


firms

High

Entry of New Competitor

Low

Development of Substitute
Products

Low

Bargaining Powers of
Suppliers

Low

Bargaining Power of
Consumers

High

EXTERNAL ASSESSMENT

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

Matrix Analysis

Alternative Strategies

SPACE

BCG
NA

Forward Integration

Backward Integration

Horizontal Integration

Market Penetration

Market Development

Product Development

Diversification

Joint Venture

IE Matrix
LA

EU

APC

GS

Counts

5
1

6
1

Retrenchment

Divestiture

Liquidation
Mergers & Acquisition

STRATEGY ANALYSIS

0
X

QSPM

Decision Stage

Balanced
Score Card

STRATEGY ANALYSIS

Balanced
Score Card
Contd

STRATEGY ANALYSIS

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.

Possible Alternative Strategies

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

Decision

David, Fred, R Strategic Management Concepts and Cases 10 th 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

References

Further Discussion????