EXECUTIVE SUMMARY Avon is a powerhouse in the beauty industry with over $10 Billion in sales and claims its

stake as being the largest direct seller in the world. After performing extensive research on the company using multiple online tools, journals, articles and texts, we have collected enough evidence to make recommendations as to how Avon can continue its global expansion while still maintaining long and short term company objectives and staying within core competencies. We believe Avon can and should expand strategically into each of the BRIC countries while also leverage the power of the technology and the Internet to increase business through social networks. INTRODUCTION

History and Background In 1886, thirty four years before women in the U.S. had even had the right to vote, a visionary entrepreneur named David H. McConnell had the extraordinary idea to found a business based on the premise of giving women an opportunity to earn money outside of the home and build financial independence. From that one idea to a company of over six million representatives in over 100 countries across the globe, the company has grown and prospered (Avon, 2010). Currently, Avon is a leading global beauty company, with over $10 billion in annual revenue. As the world's largest direct seller, Avon markets to women in more than 100 countries through 6.2 million independent Avon Sales Representatives. Avon's product line includes beauty products, as well as fashion and home products, and features such well1

recognized brand names as Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals, and Mark. Ticker AVP (Avon, 2010). Mission Statement 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 (Corporate Responsibility Report, 2009). Social/Corporate Responsibility Avons core valuestrust, respect, belief, humility and integrity. Avon has been committed to advancing women since the company was founded in 1886, and philanthropy has always been a strong part of their heritage. In 1955 the company formalized philanthropic efforts with the creation of the Avon Foundation, which advances the mission to improve the lives of women and their families (Corporate Responsibility Report, 2009). The Avon Foundations first grant, more than half a century ago, was a single scholarship of $400. The Foundations main efforts are today focused on the critical issues of breast cancer and domestic violence, and Avon global philanthropy is advancing these causes in more than 50 countries. As committed global citizens, Avon and the Avon Foundation also support emergency and disaster relief, while a scholarship program for Avon associates and Sales Representatives maintains the tradition of supporting education. Avons commitment to the environment has been deeply rooted in Avons principles for more than a century. At locations worldwide, they remain committed to reducing our global environmental footprint, including the issue of climate change, by recycling, reducing waste, conserving energy and water, and monitoring and reducing greenhouse gas emissions. New Avon facilities are developed using green building standards. To help drive institutional and individual green behavior, Avon launched Hello Green Tomorrow in 2009 to empower a global environmental movement to nurture nature. In 2004, they established environmental goals and targets for 2008 and have made progress in pursuit of these goals. A Director of Corporate Responsibility is based in the Avon global headquarters in New York City, and collaborates with management in a wide array of relevant departments that support the many pillars of corporate responsibility, including human resources, environment, supply chain, research & development, the Avon Foundation and much more, both in the United States and around the world (Corporate Responsibility Report, 2009).
3

BUSINESS ANALYSIS Core Competencies Stronger brand Avons iconic brand has 90% awareness across the globe and sells four lipsticks every single second of the day. To maintain that advantage, Avon has elevated their focus on innovation and sustained advertising investment at almost triple the rate of 2005, even in the face of macroeconomic challenges. Stronger channel Avons Sales Leadership through which Representatives earn by both selling and recruiting has been rolled out to approximately 50 countries worldwide. They have also launched the global Internet platform to help Representatives manage their business online. Stronger Cost Management Due to the restructuring plans of 2005 and 2009, and cost transformation programs delivering well ahead of initial expectations, constant turnaround mentality is now fully embedded in the organization. Avon is expecting an operating margin improvement in 2010. Stronger organization The company has made significant progress in its evolution from a confederation of local businesses to a fully integrated matrix of global and commercial business units. Avon has effectively leveraged its global strength in marketing, sales and supply chain, while also remaining flexible and responsive to local consumers and Representatives (Avon, 2010). Management Structure Avons primary distribution channel is direct selling through more than 6.2 million Avon Sales Representatives. The recruiting or appointing and training of Representatives are the primary responsibilities of district sales managers and zone managers. Depending on the market and the responsibilities of the role, some of these individuals are Avon employees and some are independent contractors. Those who are employees are paid a salary and an incentive based
4

primarily on the achievement of a sales objective in their district. Those who are independent contractors are rewarded primarily based on total sales achieved in their zones or downlines (Avon, 2010). Current Objectives Current Short Term Objectives In November 2005, Avon launched a comprehensive, multi-year turnaround plan to restore sustainable growth. The following are the companys short term-objectives. Committing to brand competitiveness by focusing research and development resources on product innovation and by increasing advertising; Winning with commercial edge by more effectively utilizing pricing and promoti on, expanding the Sales Leadership program and improving the attractiveness of Representative earnings opportunity as needed; Elevating organizational effectiveness by redesigning the structure to eliminate layers of management in order to take full advantage of their global scale and size; and Transforming the cost structure so that costs are aligned to revenue growth and remain (Avon, 2010). Current Long Term Objectives As more and more Representatives discover the power of the Avon Earning Opportunity, Avons Long Term Objective goal is to retain them and increase their productivity by continuing to innovate their business model (Avon, 2010). Avon also plans to leverage technology and the viral power of the Internet to build communities that connect Avon to the Representatives and the Representatives to their Customers. With more and more consumers discovering the smart value of Avons store, Avon plans to broaden shopping opportunities with new product categories that reinforce their beauty image and strengthen their customer relationships (Avon, 2010). Current Strategy
5

Advertising and Representative Value Proposition (RVP) Investing in advertising is a key strategy (Avon, 2010). Advertising investments also included advertising to recruit Representatives. Avon continued to invest in their direct-selling channel to improve the reward and effort equation for Representatives (Avon, 2010). Product Line Simplification(PLS) Avon developed the PLS program in order to develop a smaller range of better performing, more profitable products. The continued goal of PLS is to identify an improved product assortment to drive higher sales of more profitable products (Avon, 2010). Strategic Sourcing Initiative Avon launched the SSI in 2007. This initiative is expected to reduce direct and indirect costs of materials, goods and services. The goal of this initiative is to shift purchasing strategy from a local, commodity-oriented approach towards a globally coordinated effort which leverages Avons volumes, allows suppliers to benefit from economies of scale, utilizes sourcing best practices and processes, and better matches our suppliers capabilities with our needs. Beyond lower costs, the goals from SI include improving asset management, service for representatives and vendor relationships (Avon, 2010). Enterprise Resource Planning System Avon is in the process of rolling out a multi-year global enterprise resource planning (ERP) system, which is expected to improve the efficiency of their supply chain and financial transaction processes (Avon, 2010). Zero-Overhead-Growth Avon institutionalized a zero-overhead-growth philosophy that aims to offset inflation through productivity improvements. These improvements in productivity will come primarily from SSI and their restructuring initiatives. The company has defined overhead as fixed expenses such as costs associated with its sales and marketing infrastructure, and management and administrative activities (Avon, 2010).

Restructuring Initiatives 2005 Restructuring Program Avon launched their original restructuring program under the multiyear turnaround plan in late 2005. In order to implement restructuring initiatives during 2005 through 2009 the following specific actions are necessary: Organization realignment and downsizing in each region and global through a process called delayering, taking out layers to bring senior management closer to operations; The phased outsourcing of certain services, including certain finance, information technology, human resource and customer service processes, and the move of certain services from markets to lower cost shared service centers; The restructure of certain international direct-selling operations; The realignment of certain distribution and manufacturing operations, including the realignment of certain North American and Latin American distribution operations; The automation of certain distribution processes; The exit of certain unprofitable operations and product lines The reorganization of certain functions, primarily sales-related organizations (Avon, 2010). 2009 Restructuring Program In February 2009, Avon announced a new restructuring program under their multi-year turnaround plan. The restructuring initiatives under the 2009 Restructuring Program focus on restructuring the global supply chain operations, realigning certain local business support functions to a more regional basis to drive increased efficiencies, and streamlining transactionrelated services, including selective outsourcing (Avon, 2010).

Analysis of Marketing Strategies: Avon Diversification of product line to appeal for greater market shares. Direct selling to customers Products differentiation: Beauty, fashion and Home Heavy investment in online search engines and internet carrier sites to improve on delivery Improve in advertising by using celebrities to promote products such as, Avon make up New and innovative products which are embraces by celebrities eg. Spotlight which was a new fragrance introduced with Courtney Cox being the face of the product. Focus mainly on women Avon lacks brand image the name Avon is not associated with most of the products.

SWOT Analysis Strengths Diverse geographic presence enhances operations and mitigates local market risks Avon is a global player in the cosmetics industry. The company operates in 65 countries and territories worldwide through direct-sales channel. Additionally, Avon's products are also distributed in 40 other countries through distributorships. The company derives its revenues from six geographic segments: Latin America, North America, Central and Eastern Europe, Western Europe, Middle East and Africa, Asia Pacific, and China. For the fiscal year 2009, Latin America, Avon's largest geographical market, accounted for 39.5% of the total revenues (Avon, 2010). While North America; Central and Eastern Europe; Western Europe, Middle East and Africa; and Asia Pacific and China accounted for 21.8%, 14.4%, 12.3%, 8.5% and 3.4% respectively of the total revenues in the fiscal year 2009 (Avon, 2010). Given this diversity of sales Avon does not depend on single market for its revenues. This geographic diversification protects Avon from adverse economic development unique to one market area and given them the capability to shift production base to cheaper and more lucrative locations. Apart from the US manufacturing and distribution centers, the company runs four manufacturing facilities, and 11 distribution centers in Latin America; and four manufacturing facilities in Europe. It also has seven distribution centers in Western Europe, Middle East and Africa; four distribution centers in Central and Eastern Europe; two manufacturing facilities, and four distribution centers, in Asia Pacific; and two manufacturing facilities and six distribution centers in China. The shift in production base to cheaper location close to end-markets has resulted in lower cost of production giving Avon a definitive edge over its competitors. This has also given the company an opportunity to penetrate large customer base and cater to an evolving local consumer preference so as to enhance its sales volume (Avon, 2010). Low cost business model of direct selling Avon is one of the largest direct-selling companies in the world. The company is represented by nearly 6.2 million sales force and distributors worldwide, out of which 80% are from the overseas market. Seventeen countries now have more than $1 billion (US) in sales annually through this channel of distribution (Smith, 2010). The direct selling business model
9

and a large sales force has been one of the strengths of Avon over the years. Since direct selling is by nature a low-cost business model with relatively low start-up costs, it helps the company in expanding to new markets, but does allow for new entrants into the market through the same direct selling channels. The additional costs involved with intermediaries and the threats posed by the growing bargaining power of retailers are also negligible for the company. The direct selling model also gives Avon flexibility to innovate and communicate its own brand proposition. Strong brand equity Avon is one of the oldest cosmetic companies of the US. The history of the company dates back to 1886. Over the period, the company has evolved and now is engaged in the manufacturing and distribution of cosmetic products, fragrances, fashion jewelry and apparels under some well-known brands like Avon Color, Anew, Skin-So-Soft, Avon Hair Care, Avon Wellness, Avon's Prestige Fragrance Counter, M - The Men's Catalog and Mark. The strong brand image and recognition associated with Avon's products has helped the company in becoming one of the world's largest beauty brands. The industry reports also support the brand equity of the company as it has been consistently ranked as one of the top 100 global consumer brands. The 24/7 Wall St website ranked Avon as the ninth most successful brand of 2010 with a brand value of $14 million (McIntyre, 2009). A strong brand recall and recognition enables the company to generate repetitive sales and hence maintain its leadership position in the skincare products market. Based on customer analysis, the strongest associations that customers have with Avon are ding-dong and Avon Lady (Campbell, 2002). This branding therefore has worked against them when trying to compete in more high-end markets. This strong brand value, however has allowed Avon to further establish itself in emerging markets with ease. Weaknesses Chinese operations marred with controversy and poor performance Avon was one of the first companies to obtain direct-selling license in China in 2006. As Avon faced weakness in its US operations and therefore China, the world's most populous and
10

attractive cosmetic market, and Latin America became the critical sources of sales growth for Avon. However, Chinese operations of the company lately have been marred with controversies. The allegations related to bribery involving millions of dollars and improper accounting of favors in the form of travel, entertainment and expenses has affected the goodwill of the company. The company has suspended four key officials responsible for Chinese operations, in the wake of the findings of the investigation. Besides, the bribery controversy which has diluted Avon's brand value in China, the company is also facing operational problems in the country. The company was following a hybrid business model in China, involving both direct selling and beauty boutiques. However, the model failed to create the kind of platform for Avon, so that it could leverage the lucrative Chinese market. In FY2009, the revenues from the boutiques declined by nearly 40% as against the revenue growth in the direct selling by 24%. The company plans to shift to the direct-selling mode in China in the coming fiscals. The active representative ranks (company's sales representative) in China reduced by 25% in the first quarter of 2010, as against 32% increase in 2009. The continuing operational problems in China will adversely impact the company's revenue and sales in one of its primary market and will negatively impact its overall operations. Lack of clear-focus and strategy for non-beauty products The company offers its products worldwide in three categories: beauty, fashion and home. Avon's beauty product category is engaged in the manufacture and distribution of beauty products such as cosmetics, fragrances, skin care and personal care. The company's fashion product category is involved in the manufacture and distribution of the company's non-beauty product line such as fashion jewelry, watches, apparel, footwear and accessories. The company offers gift and decorative products, housewares, entertainment and leisure products, and children's and nutritional products through its home product category. In addition to these, the company also produces health and wellness products. However, the company does not have a clear marketing and operational strategy for its non-core product line. The lack of strategic focus has affected the company's non-core business; fashion and home product lines. As a consequence, the non-beauty products business have lagged behind and reported a poor performance for FY2009. The company's fashion and home product line registered a decline of 5.1% and 1.2% respectively as compared to the previous year. In the
11

absence of a definite growth strategy, the non-core business could become a drag on the company's revenue growth and profits. Declining operating margins Avon's operating margins have gradually declined from 15.9% in 2004 to 8.9% in 2006, driven by intense competitive pressures in the North America and Asia Pacific regions. The operating margins for the North American region declined by 1.3% in 2009, as compared to 2008. The decline was mainly due to the incremental costs of restructuring initiatives. Lower revenues with fixed overhead expense and higher obsolescence expense were also contributing factors for this decline. The operating margins from other regions also faced declines. The Central and Eastern Europe registered a decline of 3.8%, Western Europe, Middle East and Africa declined by 2.3% while the Asia-Pacific region reported a decline of 3.1%. The declining profit margin indicates poor cost management and increase in the company's sales, general and administrative expenses. It also indicates that the benefits of restructuring initiatives are yet to be realized fully by the company. A further decline in the margins would decrease the company's profit generation capability and increases the probability of loss in the future. Opportunities Restructuring initiatives for organizational effectiveness The company has taken multi-year restructuring initiatives in the recent years. The move is primarily aimed at increasing revenue growth, profit margins and strengthening overall performance. The company reorganized its business into six geographic business units towards the end of 2007 to increase its effectiveness. The company started managing Central and Eastern Europe and China as separate operating segments since 2006, and increased the number of reportable segments to six: North America; Western Europe, Middle East and Africa; Central and Eastern Europe; Latin America; Asia Pacific; and China. Besides, the restructuring involved realignment and downsizing in each region of operation, which resulted in a leaner management with about 7 or 8 levels, as compared with the prior 15. The company also closed down its unprofitable operations including the closure of the Avon Salon & Spa, the closure of operations in Indonesia, the exit of a product line in China and the exit of the becoming product line in the US. In addition to this, the company reorganized its certain functions, primarily sales-related
12

department. In February 2009, the company announced a new restructuring program under its multi-year turnaround plan (the "2009 Program"). The restructuring initiatives under the 2009 program is expected to focus on restructuring its global supply chain operations, realigning certain local business support functions to a more regional basis to drive increased efficiencies, and streamlining transaction-related services, including selective outsourcing. The company expects to incur restructuring charges and other costs to implement these initiatives in the range of $300 million to $400 million before taxes over the next several years. Avon is targeting $200 million as annualized savings under the program, upon full implementation by 2012-13. The cost savings would give the company flexibility in product pricing. Since Avon operates in the value cosmetic segment, flexibility in product pricing would give it an edge over its competitors as the company can reduce prices so as to target greater market share. Besides, the cost-saving initiatives would help the company in generating more free cash and profit margins essential for further international expansion. Re-branding strategy to drive consumer demand The company, as a part of strategic initiative, plans to engage in aggressive marketing and focus on the development of innovative products. The company has increased its advertising outlay since 2006 with the exception of 2009 when advertising expense was flat due to difficult economic conditions. Advertising investments were $390.5 million, $368.4 million, and $248.9 million during 2008, 2007, and 2006, respectively while it declined by $38 million in 2009 as compared to the previous year. However, the advertising expenditure is expected to rise in 2010. The huge advertisement outlay has supported the new product launches, such as, Anew Reversalist Serum/Cream, Anew Dermafull Helix, Spectra Lash mascara, SpectraColor Lip, 24K Gold Lipstick, Supercurlacious Mascara and Spotlight fragrance. Besides, the company is also focusing on enhancing the representative value proposition, the benefits given to sales representatives. During 2009, the company invested approximately $56 million incrementally in the Representatives through Representative Value Proposition program (RVP) by continued implementation of the Sales Leadership program, enhanced incentives, increased sales campaign frequency, improved commissions and new e-business tools. The aggressive marketing would help the company in increasing the brand awareness and boost sales. Besides, direct-selling

13

companies like Avon depend upon the motivation of its representatives. Measures like RVP would help to boost their motivation levels and encourage the sales. Moreover, the company has been innovating and introducing new brands in its portfolio through celebrity associations. Bond Girl 007 women's fragrance, Spotlight and In Bloom line of fragrances, among others, were developed in partnerships with some of the big names of the entertainment industry. Such associations have provided an alternate way of endorsing the company's value proposition. Further, the company can leverage the status of the celebrity to effectively communicate the values associated with Avon brand. The company, hence, through these aggressive advertising and branding strategy can effectually interact with its target consumer groups and strengthen its position against rivals such as L'Oreal and Revlon. Use of Social Media and Technology to drive online sales The popularity of social media continues to gain ground with internet sites such as Facebook, Twitter and MySpace. Avon already has a presence on the social media giant Facebooks site with their brand Mark. They have been on the forefront of leveraging this technology to produce more sales. There are currently more than 500 million active users on Facebook, which is about one person for every fourteen in the world. Half of these users log on in any given day and Facebook users spend 700 billion minutes per month on Facebook. There are more than 70 translations of Facebook, and about 70% of the users are outside the US and more than 150 million people engage with Facebook on external websites every month, and there are more than 200 million active users currently accessing Facebook through their mobile devices, and these users are twice as active on Facebook as non-mobile users (Facebook, 2010). Late in 2009, Avon revolutionized the direct-selling model for the next generation of women. Mark the beauty and fashion boutique brand of Avon Products, launched new digital social selling application that connected shoppers with Representatives on Facebook for the first time. (Exhibit 1) The Mark e-commerce boutique allows Facebook users to shop on the mark.girl Facebook Page and connect directly with Mark Reps. Reps can also use this new tool to build their business and build their sales by opening a digital dialogue with new clients. Avons Mark is the only company currently to have a social selling component that connects
14

shoppers on Facebook with Mark representatives. To create this new social selling tool, Avon partnered with Alvenda, a social shopping platform. The technology, created with Alvenda, is not proprietary to Avon. They plan to introduce additional iterations of the technology, some of which extend beyond the virtual borders of Facebook and its more than 350 million members. Mark will allow Facebook members to create wish lists and share them with friends through the sites news feed, and mark representatives will be able to create offer lists or product promotions that also will pop up in friends news feeds, appearing as a small dialog box. Also, Googles new pronouncement that it will be supplementing its search engine results with updates posted each second to blogs and social networking sites, like Facebook, bodes well for Marks viral effort (Prior, 2009).

15

Exhibit 1

16

Emerging markets enhances the scope of growth for the Avon's value cosmetic products The increasing popularity of beauty contests and increasing disposable incomes have spurred the emerging markets such as Brazil, Russia, India and China. These markets are becoming increasingly important to cosmetics companies like Avon. In China, Avon Products was granted a direct selling license by China's Ministry of Commerce in 2006. The company has expanded its operations in China since then becoming the second largest cosmetics market in Asia after Japan. According to Data monitor, the Chinese cosmetics market was worth $1,117.8 million in 2009, an increase of 8.1% over the previous year. The market is estimated to grow to approximately $1,535.3 million by 2014, an increase of 37.4% since 2009. GDP continues to rise and disposable income and a growing middle class are also increasing the demand for cosmetics and personal care products. (SWOT Analysis, 2010) The beauty market in another emerging country, India, has been booming, making it an attractive market to all global cosmetics' companies. The Indian market for beauty products was worth $141.6 million in 2009, representing an increase of 9.5% over the previous year. The market is expected to further go up to $198.7 million by 2014, representing an increase of 40.3% since 2009 (Make-Up in India, 2010). Competitors like Oriflame, Revlon and others have already established a presence in the Indian cosmetics market. Here Avons traditional image as a value cosmetics product and its brand proposition of being a product of "Housewife" could be well suited for Indian psyche. Avon could benefit from the positive outlook in these emerging cosmetics markets which enhance the chances of improving revenue and sales growth. Threats Competitive environment in the global cosmetics industry Like all companies in the cosmetics industry Avon has faced considerable competitive pressures in recent years, both from its direct selling rivals as well as established retail brands. The company has been witnessing strong competition in beauty segment from companies such as Oriflame, Revlon, L'Oreal, Procter & Gamble, Unilever and Estee Lauder. These companies have increased their focus to gain market share in beauty and personal care products in the US as well as emerging markets. Also, in non-beauty segments, global brands such as Amway and Party Life have remained a cause of concern for the company. In addition, even drugstore
17

operators such as CVS, Walgreen's are also increasing their focus on beauty products due to better margins. In recent years, brand recognition has emerged as key differentiator and companies across the globe have invested heavily on advertising, promotional campaigns and innovative marketing strategies to increase market share. Avon has also increased its advertising outlay considerably as mentioned above. The rise in advertising expenses would further put pressure on already eroding operating margins. (SWOT Analysis, 2010) Company's revenues are tied to the performance of the sales representatives Avon sales, both in the domestic and global markets, are contributed largely from the company's global sales representatives. The 6.2 million Representatives that Avon employs are independent contractors that receive a percentage commission for their sales. Negative sentiments like lower commissions and negligible employee benefit create dissent which could result in lesser interest by the representatives in enhancing the Avon sales. Allegations and other dissatisfaction among the representatives could bring down the productivity of the sales force hampering the growth of Avon in the longer run. (SWOT Analysis, 2010) A diversified global operation exposes Avon to currency fluctuation risks Avon derives nearly 80% of its revenues from the markets outside the US, making the company very sensitive to currency fluctuations and the strength of the dollar. In 2009, the adverse dollar movement against other currencies negatively impacted the company's revenue and operating figures. Total revenues declined by almost 9.0% and operating margin declined by an estimated 2.5 points (Avon, 2010). Further, in the first quarter of 2010, Avon had a 64% decrease in net income compared to first quarter of 2009, due to the devaluation of Venezuelan currency, despite total revenue increasing 14% (Avon Products Q1, 2010). Unfavor able currency fluctuation, if not hedged properly, could adversely impact the profits and revenue of the company in the future.

18

SWOT MATRIX ANALYSIS

Internal Assessment: Strengths

1. Avon is a Global Market Leader 2. Committed and dedicated workforce - 5.4 million Avon representative in over 100 countries making Avon the largest sales force 3. Worlds 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 worlds 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 worlds 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

Internal Assessment: Weaknesses

1. Decrease in North American Sales Revenue by 129.4 million 2. Weak Brand Image 3. High advertising costs Companies advertising spending went from $136 millions in 2005 to $249 millions in 2006 to $368 millions in 2007 and 14% higher in 2008 4. Poor brand loyalty 5. Does not target urban trendsetters 6. 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

19

Table 1

Internal Factor Evaluation Matrix (IFE)

Key Internal Factors Strengths 1. Global Market Leaders 2. Committed and dedicated workforce - 5.4 million Avon representative in over 100 countries 3. Revenues increased 7.5% from year 2007 to 2008 4. Channel of distribution worlds largest direct seller 5. Award winning company worldwide 6. Worlds Largest Micro lender for women 7. Worlds top global brands 90% recognition worldwide 8. Excellent promotional strategies 9. Manufacturing operations match ISO 14001 standards 10. Announced permanent ending to animal testing Weaknesses 1. Brand Image 2. High advertising costs 3. Misleads representatives 4. Avon seems like a commodity 5. Avon lagged behind seven of their cosmetic companies in customer loyalty 6. Revenue decreased in North America by 129.4 million Total Weights Rating Weighted Score
0.36 0.24 0.24 0.2 0.15 0.18 0.18 0.32 0.24 0.28

0.09 0.08 0.06 0.05 0.05 0.06 0.06 0.08 0.08 0.07

4 3 4 4 3 3 3 4 3 4

0.06 0.05 0.03 0.05 0.09 0.04

1 2 2 2 2 2

0.06 0.1 0.06 0.1 0.18 0.08

1.00

2.97

Ratings: 1- major weakness, 2-minor weakness, 3-minor strength, 4-major strength Analysis: The overall weighted score of Avon Products Internal factor Analysis (IFE) is 2.97 which indicated that the internal functions/roles are strong at Avon Products Inc.

20

EXTERNAL ASSESSMENT AVONS MAJOR COMPETITORS Revlon Mary Kay Mary Kay and Revlon are considered two major competitors of Avon Products Inc. in the cosmetics industry. Avon Product inc. is seven and half times larger than Revlon and approximately eight times larger than Mary Kay. Although the majority of Avon's competitors distribute their products to resellers such as department stores, drugstores, or cosmetic stores, Avon sells its products solely through its direct-selling channel of independently-contracted Active Sales Representatives and through its online website. In contrast to Revlons marketing strategy of selling through cosmetic counters in department stores and pharmacies, Mary Kay rivals with Avon Inc. as they both use direct marketing approach. In 1983 Mary Kay Cosmetics was founded in Dallas, Texas, by Mary Kay (now Mary Kay Ash). This company is known for providing women with exceptional opportunities for professional achievement and economic success and rewarding women for their success. In 2009 sales of Mary Kay products reached $2.6 billion in wholesale worldwide. There are more than 37,000 women across the world who has become Independent Sales Directors. Mary Kay spends millions of dollars and conducts more than 300,000 tests to ensure that Mary Kay products meet the highest standards of quality, safety and performance. Mary Kay products are expensive versus Avon which is comparable to store products. Mary Kay seems to be targeting older women while Avon is branching out to attract women of all ages with quality affordable makeup, jewelry, shoes, purses and childrens items. Mary Kay has stayed in touch with the internet age; each independent beauty consultant can buy his or her own website to sell clients over the internet. In fact 90% of the companys revenue is now generated through online orders. Avons revenues far exceed both major competitors. Their revenue is almost four and half times that of Mary Kays and seven and half times Revlons. Avons revenue exceeds Ten Billion Dollars (B$10). Revlon was founded in 1932, by Charles Revson and his brother Joseph, along with a chemist, Charles Lachman, who contributed the "L" in the Revlon name. In the 1990's, Revlon
21

revitalized its cosmetics business and strengthened its industry leadership role. 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. Net sales fell 3.7% to $1.29 billion. Sales in the US fell 4.4% while sales international fell by 2.9%. The company attributes the loss to the weak global economy. The net sales in 2009 were approximately $1.3 billion, a decrease of approximately $51 million or 3.8% versus 2008. Revlon has a more focused product offering than some companies and when one considers only color cosmetics sales they are much more comparable. Revlon is the second largest color cosmetics company in the United States. Competitors Estee Lauder and Avon get the majority of their revenue outside the United States.

Figure 1 Pie Chart:

Sales, Revlon, 1.295, 9% Sales, Mary Kay, 2.6, 18% Sales, Avon, 10.382, 73%

Data: Sales for Avon in 2009 was $10.83b

Revlon 1.30b

Mary Kay 2.6B

22

Table 2 PEST Analysis

Political Factors

Economic Factors

Tax policies Employment laws Trade restrictions and tariffs Political stability

Economic growth Interest rates Exchange rates Fluctuation in oil and gas prices

Technological Factors Social Factors

Automation Technology incentives Rate of technological change

Emphasis on safety

23

OPPORTUNITIES 1. 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. Also the cosmetics industry tends to be countercyclical. This means that those are industries for which the demand is either not correlated with the business cycle. The demand for their products is not much affected by availability of current income, but by other personal, social or economic factors. The recession also contributes to the industry being counter-cyclical. There is an upsurge in people joining the industry in the past six or eight months and there's absolutely no doubt that this is because of the recession and the effect on employment. 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 with huge populations such as China, Indonesia and India. 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

THREATS 1. Competition such as Mary Kay and Revlon 2. Rejection of internet selling by sales representative 3. 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 rate
24

6. Rising cost of commodities 7. 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 Factor Evaluation Matrix (EFE)

Table 3 The table below shows the opportunities that are available and factors that threaten the success of the business. Critical Success Factors Key External Factors Opportunities 1. Organic (Green) Products 2. Eye makeup market 3. Increase Internet Presence 4. Urban trendsetters market 5. Cosmetic industry tends to countercyclical 6. Geographic growth 6. Demand for cosmetic products normally remains constant and unaffected by economic distress Threats
25

Weights

Rating

Weighted Score

0.09 0.07 0.08 0.09 0.07 0.09 0.05

4 3 4 4 3 4 3

0.36 0.21 0.32 0.39 0.21 0.36 0.15

7.Competitors 8. Rejection of Internet Selling by sales rep. 9. economic Downtown 10. Market Slowdown 11. Inflation Rate 12. Rising cost of commodities Totals

0.08 0.07 0.09 0.08 0.07 0.07 1

2 3 2 3 3 2

0.16 0.21 0.18 0.24 0.21 0.14 3.14

Ratings: 1= the response is poor, 2= the response is average, 3= the response is superior, 4= response is superior Table 4

Competitive Profile Matrix - CPM

Critical Success Factors Price competitiveness Global Expansion Organizational Structure Employee Morale Technology Product Safety Customer Loyalty Market Share Advertising Product Quality Product Image Financial Position Total

Avon Revlon Mary Kay Weighted Weighted Weighted Weight Rating Score Rating Score Rating Score 0.10 0.09 0.04 0.07 0.10 0.10 0.10 0.07 0.10 0.10 0.05 0.08 1.00 3 3 2 2 4 4 2 2 2 2 3 4 0.30 0.27 0.08 0.14 0.40 0.40 0.20 0.14 0.20 0.20 0.15 0.32 2.80 4 4 4 4 2 3 4 4 4 3 4 3 0.40 0.36 0.16 0.28 0.20 0.30 0.40 0.28 0.40 0.30 0.20 0.24 3.52 2 2 3 1 3 2 3 3 1 1 2 2 0.20 0.18 0.12 0.07 0.30 0.20 0.30 0.21 0.10 0.10 0.10 0.16 2.04

Ratings: 1 Poor, 2 Average, 3 - Above Average, 4 Superior The table above shows the various area of the organizations competitive edge in the industry.

26

Table 5

Strength-Weaknesses-Opportunity-Threats (SWOT) Matrix STRENGTHS

10. Global market leader 11. Largest sales force

WEAKNESSES
1. Decrease in North American Sales Revenue.

12. Worlds largest micro lender 2. Weak brand image to women 13. Worlds largest direct seller 3. High costs advertising/budget

14. ISO 14001 certification for 4. Poor brand loyalty largest manufacturing plants. 15. Avon owns its major 5. Does not target urban

trendsetters.

manufacturing distribution centers.

and 6. Beauty sales in the first quarter 2009 were 12% lower compared to sales revenue in previous year 2008.

16. Increase in revenue in most geographic area due to

increase in internet presence. 17. First cosmetic manufacturer to end animal testing.

Opportunities
1. Organic products 2. Eye makeup market 3. Increase presence 4. Urban market 5. The cosmetic industry tends to countercyclical. trendsetters internet

SO Strategies
internet presence. (S7, O3) 2. Maximize on revenues in the makeup market

WO Strategies
awareness to protect of the efforts

(Green) 1. Increase sales by increasing 1. Increase

environment. (W2, O1)

through 2. Increase market share by positioning attract urban products to

advertising and the sales force. (S2, O2) 3. Manufacture and distribute more products that are ecofriendly.(S6,S4,S2,O1)
27

trendsetters

(W5,O4)

6. Demand for cosmetic products remains normally constant and

unaffected by economic distress

THREATS

ST Strategies

WT Strategies

1. Competitors such as Mary 1. Educate employees on the 1. Discount products that are Kay and Revlon benefits of increasing not earning substantial 2. Rejection of internet selling internet presence. revenue and then faze them by sales representatives 2. Improve marketing strategies off the market in a timely 3. Economic downturn 4. Rising cost of commodities to new and existing manner. (W6,T3)

customers by repositioning the brand, coupons,

billboards, new packaging. (S4,S6,S7, T1, T3) Based on the analysis of the SWOT matrix for Avon we have come to realize that brand repositioning in the form of packaging is necessary, in order for us to create a stronger brand image and improve customer loyalty. We also realize that through aggressive market penetration we will further be able to increase revenue, further strength our competitive edge and increase profitability in the North American region.

28

RECOMMENDATION & SOLUTION Technology and Social Media We recommend that Avon continue to leverage the power of Technology and Social media to drive worldwide sales. As the popularity of social media continues to grow, with sites like Facebook which boasts 500 million active members, Avon has an opportunity to continue to invest in this market for the sale and promotion of its products. We recommend that a minimum of 25% of their increased advertising dollars be spent on these social media websites. Overall for 2010 there was a 30% increase in spending on advertising on social media sites, bringing it up to $1.68 billion, and that total is expected to increase to over $2 billion in 2011. In addition, spending is growing quickly outside the US. Worldwide, $4.3 billion will be spent on social networks in 2011, a 29% boost from this years expected $3.3 billion. Only 6.7% of all US online advertising spending in 2010 will be on social networks. (Dugan, 2010) However, as of June 2010, Americans spend 22.7% of their time online on a social network according to a recent study by the Nielsen Company (Exhibit 2&3). So while advertisers are amping up their visibility on social networks, the dollars are not matching the viewers. We see this as an opportunity for Avon to continue its early starter advantage in this market by advertising to this captive audience. At a recent meeting with analysts, Avon declared its plans to commit $50 million

over the next several years to its social networking strategy. This is a step in the right direction, but historically Avon, who allocates about 4 percent of its revenue to advertising and marketing (including representative programs), does not spend as much as other beauty firms from a marketing point of view (Prior, 2009). We see this as a vital strategy for Avon to achieve and maintain a competitive advantage in the online sales arena. Avon should also continue to upgrade its online marketplace. Carly Syme, retail analyst at Verdict Research, the leading authority on retailing in the United Kingdom, predicts trouble ahead for the company's reliance on door-to-door sales: "The mail-order market itself is a declining one and that is really impacting on Avon's sales. While it is putting more focus on the online channelthis needs to be a real focus for it over the coming years if it is to attract new customers to the brand" (Weisman, 2010). As mentioned earlier, late in 2009 Avon revolutionized the direct-selling model for the next generation of women. They created a new digital social selling application that connected shoppers with Representatives on Facebook via
29

online application for Mark the beauty and fashion boutique brand of Avon Products. We recommend Avon continue to invest in this sales forum by creating online markets for each of their product lines.

Top 10 Sectors by Share of U.S. Internet Time RANK 1 2 3 4 5 6 7 8 9 10 Category Social Networks Online Games E-mail Portals Instant Messaging Videos/Movies** Search Software Manufacturers Multi-category Entertainment Classifieds/Auctions Other* Share of Time June 2010 22.7% 10.2% 8.3% 4.4% 4.0% 3.9% 3.5% 3.3% 2.8% 2.7% 34.3% Share of Time June 2009 15.8% 9.3% 11.5% 5.5% 4.7% 3.5% 3.4% 3.3% 3.0% 2.7% 37.3% % Change in Share of Time 43% 10% -28% -19% -15% 12% 1% 0% -7% -2% -8%

Source: Nielsen NetView June 2009-June 2010 *Other refers to 74 remaining online categories visited from PC/laptops **NetViews Videos/Movies category refers to time spent on video-specific (e.g., YouTube, Bing Videos, Hulu) and movie-related websites (e.g., IMDB, MSN Movies and Netflix) only. It is not a measure of video streaming or inclusive of video streaming on non-video-specific or movie-specific websites (e.g., streamed video on sports or news sites). Exhibit 2 We are only beginning to see the power of applications for Smartphones/Tablet computers (e.g. iPad) and web tools in the promotion and sales of retail products. We believe Avon should continue its plan to overhaul the way it manages its nearly 6 million sales representatives around the world using technology. In the past, "sales leaders," who help manage reps but are not employees of the company, mainly checked in with the salespeople through faceto-face meetings and phone conversations. About a year ago, Avon equipped 150,000 sales leaders with a cloud-based computing system accessible via Smartphones and PCs. The technology keeps them much more up-to-date on the sales of each rep, and alerts them when reps
30

haven't placed orders recently or when they have payments overdue to the company (Hamm, 2009).

Exhibit 3 Focusing on International Growth- the BRIC Countries

31

Growth opportunities in BRIC (Brazil, Russia, India and China) countries were identified long ago. For the beauty industry, this meant a shift in focus away from the traditional, maturing markets (predominantly those in North America and Western Europe) and a chance to reach a vast and mostly untapped consumer pool. BRIC countries are characterized by rapid urbanization, large populations with low beauty product usage and emerging middle classes. These countries have come to the fore as world economic hot spots, and are acting as prime contributors to dynamism in the global beauty products industry. With the exception of Russia, BRIC has far outgrown the 4% global growth in beauty 20082009, according to market research from Euromonitor International (Lennard, 2010). Brazil and China are the star performers and are set to add around US$8 billion and US$10 billion to the size of their respective beauty industries by 2014. All of the BRICs are set to be pivotal to future growth. These four countries alone will contribute over half of the total US$43 billion absolute growth in the global beauty industry over 2009-2014. Although there is a general trend towards urban dwelling in the BRICs, rural areas continue to account for the majority of consumers in nearly all of them. While the number of chained stores is beginning to grow in the big cities, the distribution infrastructure is often very poor and still developing in these markets, meaning that it would otherwise be very difficult to reach rural consumers. Furthermore, there is still a very strong emphasis on community living in the BRICs. Direct selling, therefore, is probably the ideal way to reach these rural consumers (Lennard, 2010). Other Recommendations & Strategy to overcome potential threats: Diversification of product line to appeal for greater market shares. Direct selling to customers Products differentiation: Beauty, fashion and Home Heavy investment in online search engines and internet carrier sites to improve on delivery Improve in advertising by using celebrities to promote products such as, Avon make up New and innovative products which are embraces by celebrities eg. Spotlight which was a new fragrance introduced with Courtney Cox being the face of the product.
32

Focus mainly on women

New Strategies 1) To increase revenue total revenue by 10% all market segments- This will be achieved through improved marketing strategies (product placement, mail in discounts, coupons, online and bill boards ) to benefit both new and existing customers. 2) To increase and further develop the green product line by 10% - this will be done through investment research and development in order to develop such products. 3) To improve brand image and brand loyalty- Through repositioning the Avon brand in terms of product packaging to differentiate the product from being just being another commodity. Existing Strategies 1) Direct Selling/ Network Marketing 2) Increase internet presence 3) Employee Empowerment

Improved market strategies (market penetration) this is an excellent way to boost sales and promote the brand. Avon is already the market leader and people are aware of the brand. However, through more aggressive advertisement campaigns, sales promotions, mail-in discounts/coupons, increase internet presence and bill boards. We will be able to further heighten brand awareness, build customer loyalty and create appeal for our products by new and existing customers. We look to achieve this over the first two years with an estimated amount of 10 million dollars. With 5 million dedicated to further increase internet presence and the remaining 5 million to cover the other activities. Improve research and development to introduce more green products. This will be achieved through investment in research and development; to develop these eco-friendly products through means which are more environmentally friendly. The demand for green products appears to be a very viable market as consumers and distributors are becoming more conscious about protecting the environment. Thus creating a demand for these products, this also presents the opportunity to increase brand loyalty. This will be done over the next three years at an estimated cost of 10 million dollars.
33

To improve brand image and brand loyalty- being that Avon lagged behind its major competitors in terms of brand loyalty; and the assertion by CEO of Brand Key Robert Passikoff that Avon is not associated with anything and Avon seems to be more like a commodity. We have decided to reposition the brand in terms of packaging and labeling of Avon products. We will seek to make the Avon logo more pronounced on the products. It is believed that consumers will support and be loyal to brands that they can be identified with.

34

CONCLUSION In conclusion, Avon can capitalize on global expansion and technological advances while still staying within its core competencies. In fact, taking advantage of these opportunities while also being cost conscious will assist Avon in achieving its short and long-term corporate objectives. If Avon strategically enters each of the BRIC countries and harnesses the power of technology, it will be on track for continued global dominance. Avon Product Inc is moving with the rapid changing of times by embracing the societal concept; manufacturing products to satisfy customers needs, making good marketing decisions to achieve company objectives bearing in mind the long term interests of society. We will improve our research and development unit to introduce more green products all in an effort to promote a more eco-friendly environment. This again will enhance the marketing strategy techniques in direct selling and network marketing.

Repositioning the Avon brand image would entail attractive packaging, designing a brand logo distinguishing its products from other brands to yield brand loyalty and employee empowerment through personal identification to and with the brand Avon. We are proud to be associated with the company Avon who believes in employee empowerment which we exemplify through the provision of jobs and various opportunities for its employees and sales representatives. Brand repositioning will bring ownership and a sense of loyalty.

As strategists, it is imperative to not disregard or rule out any alternatives or existing strategies but explore, incorporate and build on these strategies to better enable the company to reach its desired long term objectives. We believe that all strategies are relevant for this today for a successful future.

35

REFERENCES

Avon (2010). 2009Annual Report. Retrieved September 10, 2010 from http://avoncompany.com/investor/annualreport/pdf/annualreport2009.pdf. Avon builds social media skills for community launch (2010). New Media Age, 3. Retrieved October 18, 2010 from ABI/INFORM Global. Avon Products, Inc. (2010). Retrieved October 23, 2010 from http://360.datamonitor.com.ezproxy.sju.edu/ Azevedo, Jovilson (9 Mar 2009). Natura-eco-beauty. Retrieved from http://www.brandchannel.com/features_profile.asp?pr_id=429 Banerjee, Rajiv (7 Oct 2009). Swami Raote, MD J&J on the firm's foray into beauty care segment. Retrieved from http://economictimes.indiatimes.com/features/brand-equity/SwamiRaote-MD-JJ-on-the-firms-foray-into-beauty-care segment/articleshow/5095974.cms

David, Fred, R Strategic Management Concepts and Cases 12ed. Prentice Hall 2009 www.avon.com

36