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NORTHERN CARIBBEAN UNIVERSITY

COLLEGE OF CONTINUING EDUCATION MONTEGO BAY CAMPUS

A Strategic Management Project Prepared In Partial Fulfillment of the Requirement for The Bachelors Degree in Business Administration & Management Studies

A Study Conducted on the case study Avon Products Inc.

Prepared By: Tabia Macfarlane Chrystal Brady Ricardo Hanson Denise Heaven Claudette Drummond Shermete Jones Joycelyn Thompson

Submitted to: Mr. Michael Isaacs

Due Date: December 20, 2010 Course: MGMT 490 Strategic Management Table of Contents Title Page number

Case Abstract................................................................................................................3-5 Vision statement for Avon Product Inc.........................................6 Mission statement for Avon Product Inc..........................................6 Proposed Vision ...........................................7 Proposed Mission Statement.............................7-8 Mary Kay Mission Statement................8 Internal Assessment Financial Ratios Analysis (Table 1.1)..............................9-10 Avon Organizational Chart and analysis (Figure 1.1).....................................10-11 Proposed organizational chart (Figure1.2).......12-13 Marketing positioning map and analysis..........................................................13-14 Analysis of Marketing Strategies.14-15 Map locating the firms operations..16-17 Strengths..........................................................................................................18 Weaknesses..........................19 Internal Factor Evaluation (IFE) Matrix (Table 1.2).......20 External Assessments Avon Major Competitors............................................................21-22 Pie Chart (Figure 2.1)......................................................................................23 Pest Analysis (Table 2.1).............24 Opportunities...................................................25

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Threats.............................................................................................................26 External Factor Evaluation (EFE) Matrix (Table 2.2)........................................27 Competitive Profile Matrix (CPM) (Table 2.3)..28 SWOT Matrix (Table 2.4)........................29-30 Strategic Position and Action Evaluation (SPACE) Matrix (Figure 2.2).....30-32 The Quantitative Strategic Planning Matrix (QSPM), (Table 2.5)...33-36 Financing Options EPS/EBIT Analysis for Avon Product Inc...............37-39 Avon Projected Financial Statement ............................40 Avon Projected Balance Sheet...................41 Project financial ratios........................................................................................42 Evaluation Balance Scorecard...............43-46 Conclusion...................................................................................................................47-48 Reference.....................................................................................................................49

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Avon Product Inc Case Abstract


David H. McConnell founded The California Perfume Company (CPC) in 1886 with the first office located in New York. In 1906 the San Francisco earthquake destroyed CPCs California office however, before long the company reopened. CPCs first office outside United State was opened in 1914 in Montreal, Canada. In the 1920s CPC sales doubled to $2 million during this time there were more than 25,000 representatives in the United States. The Companys name was change to Avon Products Inc. after the British town Stratford-upon-Avon in 1938. Avons sales increased to about $16 million and in 1946 the company was announced publicly with advertising campaign such as Avon Calling. Avon expanded overseas to countries such as Puerto Rico, Cuba and Venezuela. In the 1970s U.S sales top $750 millions and the first Avon Asian business was opened in Japan. Avon also acquired the Jeweler Tiffanys during this period of growth. It was the first major U.S. cosmetics manufacturer to permanently end animal testing. Avon adopted five (5) core values which are Trust, respect, belief, humility and integrity which are evident in the mission statement to be a Global beauty leader, womens choice of buying, premier direct seller, the best place to work, largest women foundation and the most admired company. Avon success lies within it channel of distribution, it is the worlds largest direct seller with 5.4 million Avon representatives in over 100 countries. Additionally, it is the largest micro lender to women and it among the world top global brands. The company [4]

increased its investment in 2007 by over $120 million which aided in the development of new sales leadership opportunity, improved training, technology tools and changes in commission structure. There are three (3) product categories which Avon distributes, they are beauty, fashion and home. In 2008, Avon changed its marketing approach of concentrating mostly on a homey image and is now including celebrities as apart of their promotions. The company advertising cost increased from $136 million in 2005 to $249 million in 2006 and $368 million in 2007. Reese Witherspoon is the Avon Foundation first global ambassador and honorary chairwoman who appear in advertisement for Avon make up, skin care products and fragrances. Spotlight the new fragrance was launched in 2009 with celebrity Courteney Cox as the face of the brand. Avons largest manufacturing plants, Brazil, China and Poland received the ISO 14001 certifications in 2008. Various awards were granted during this period such as the Clean Industry Certificate to the manufacturing plant in Mexico. During the same period Avons revenues increased 7.5 percent and net income increased by 65 percent. Avon Products Inc. closest competitors are Revlon, Inc and Mary Kay Inc. Mary Kay Inc uses the same approach as Avon which is direct marketing approach which Revlon sells its products through cosmetics counters in department stores are pharmacies. Avon revenues far exceed that of its competitors in 2008 Avons revenue was $10.37 billion compared to Mary Kay $2.40 billion and Revlon $1.35 billion. Avon implemented reconstructing programs in 20098 which included closing two manufacturing facilities. In addition, there is heavy investment in online search engines

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and internet carrier sites to help increase Avons revenue. Andrea Jung is the Chief Executive Office who is leading the management team of thirteen to achieve its goal.

Avon: Beauty, Home and Fashion


Vision Statement (Actual) To be the company that best understands and satisfies the product, service, and selffulfillment needs of women globally. Mission statement (Actual) The Global Beauty LeaderWe 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. (1, 2) 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. (3) 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. (9) [6]

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 CompanyWe 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. (5, 7)

The five values of Avon are: Trust, respect, belief, humility, and integrity. (6, 8) Vision (proposed) To be the leading provider of home, fashion and beauty products that will satisfy our customers while preserving the environment. Mission statement (proposed) Avon is committed to being the leading global provider of home, fashion and beauty products that will enhance the lives 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 believe in respect: respect for people and respect for the environment. The vision statement was improved to include customers instead of women, since the company is now offering products for women, men and children. Additionally, in light of the fact that the world is going green we thought that it was prudent to include

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the environment to emphasize our responsibility to society as we all work towards a sustainable future. The proposed mission statement incorporates all nine components that are essential to a good mission statement. The essential elements are customers, products and service, markets, technology, concern for survival, growth and profitability, philosophy, self concept, concern for public image, and concern for employees. The proposed mission statement also speaks to the companys values of trust, respect, belief, humility, and integrity. The old slogan for Avon states the company for women we have decided to change this slogan to Avon: the company for everyone committed to the enrichment of lives Mary Kays mission Enriching Womens Lives Mary Kays mission is to enrich womens lives. We will do this in tangible ways by offering quality products to consumers, financial opportunities to our independent sales force, and fulfilling careers to our employees. We also reach out to the heart and spirit of women, enabling personal growth and fulfillment for the women whose lives we touch. We will carry out our mission in a spirit of caring, living the positive values on which our company was built. The components identified were customers, products, philosophy and concern for employees; hence it lacked the identification of the market, technology, concern for survival, growth and profitability, self-concept, and concern for public image. Mary Kay does not have a formal vision statement.

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INTERNAL ASSESSMENT Table 1.1 Ratios Current Ratio Quick Ratio Operating Profit Margin Net Profit Margin Return on Stockholders Equity Total Asset Turnover Debt/Equity Ratio Earnings Per Share Financial Ratio Analysis 2006 0.75 1.1 0.09 0.05 0.60 1.67 5.62% 2.60 2007 1.15 0.93 0.09 0.05 0.75 1.73 7.03 2.87 2008 1.22 0.88 1.25 0.08 1.29 1.76 7.99% 4.72

Avon Product Inc. Current ratio have increased from 2006 to 2008 which states that they may not face complications in liquidating its assets, if needed in the short term

Profitability ratios have seen an increase which is a clear indication that Avon Products Inc. is much more well in terms of profitability in 2008 than in previous years. Additionally, more operating income means that more projects can be undertaken which is in synchronization with strategic management processes. [9]

Total Asset Turnover ratio has steadily increased over the period which shows that the business is generating sufficient volume for the size of its asset investment

Debt/equity ratio has increased from in 2008 compared to 2006 and 2007 which indicates that Avon Products Inc holds much more financial leverage in terms of debt and equity financing.

AVONS ORGANIZATIONAL CHART Figure 1.1

Chairman and CEO

Vice President, Chief Finance and Strategy Officer

President Avon Products

SVP, Global Communica tions

SVP & General Counsel

SVP, Chief Information Officer (CIO)

SVP Human Resource

SVP and Global Brand President

SVP and President Avon Asia Pacific

EVP, Avon Latin American and Central & Eastern Europe

EVP, Global Direct Selling and Business Innovations

SVP & President North American

SVP Global Supply Chain

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NOTE: 1. Andrea Jung, Chairman and CEO 2. Charles Cramb, Vice Chairman, Chief Finance & Strategy Officer 3. Elizabeth Smith, President, Avon Products 4. Nancy Glaser, SVP, Global Communications 5. Kim Rucker, SVP & General Counsel 6. Donagh Herlihy, SVP, CIO 7. Lucien Alziari, SVP Human Resources 8. Jeri Finard, SVP and Global Brand President 9. Bennett Gallina, SVP and President, Avon Asia Pacific 10. Charles Herington, EVP, Avon Latin America and Central & Eastern Europe 11. John Higson, EVP, Global Direct Selling and Business Innovation 12. Geralyn R. Breig, SVP & President, North America 13. John Owen, SVP Global Supply Chain Analysis: There are different divisional areas outlined The structure shows direct communications from the CFO to the CEO Reporting structure is not clearly identified There should be no dual title such as Chairman and CEO It is not clear why the regional divisional presidents are on the same level as the SVP, human resource Research and Development Officer cannot be identified It is not clear who reports to the Chief Finance and Strategy Officer although this person is on the same level as the President of the products

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There could be communication problems since all high level manager report to the president of the products who then reports to the CEO.

Figure 1.2 PROPOSED ORGANIZATIONAL CHART

Andrea Jung CEO

Research & Development

SVP, Human Resource

SVP, Global Communicati ons

EVP, Global Direct Selling and Business Innovations

VP, Chief Finance & Strategy Officer

SVP Global Supply Chain

SVP & General Counsel

Chief Information Officer

SVP and Global Brand President

EVP, Avon Latin American and Central & Eastern Europe

SVP & President North American

SVP and President Avon Asia Pacific

President Western Europe Middle East and Africa

Analysis: For the proposed organizational chart we recommend that dual titles should not be used such as SVP and CIO. Additionally, we separated the divisional presidents from the same line of communication as the SVP, Human Resource. Also directly below the CEO, we moved the Chief Finance & Strategy Officer who we thought could be view as the COO. We recommend that the divisional presidents report to the COO who would then [12]

report to the CEO. We thought it would be necessary to include a Research and Development (R&D) Officer would report directly to the CEO. This individual would be responsible for overseeing all the aspects of a research project eg. repositioning the Avon brand. The R&D officer would aim to develop eco-friendly products through means which are more environmentally friendly also such an individual would have the responsibility to be fully aware of all the things that are happening especially in terms of the scientific facet of the projects being created.

Marketing Positioning Map Customer Service (High) Avon Quality (Low) Mary Kay Quality (High) Revlon

Customer Service (Low) Analysis: The top-to-bottom approach was used to narrow down two important variables, customer service and quality of products. The key feature of a market positioning map is that only key or immediate competitors should be plotted. The competitors Revlon and Mary Kay are well-established firms with Revlon plotted with higher quality products

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(Cosmetics). Avon was strategically plotted to show that they lead in customer service. However, when compared to cosmetics quality Revlon and Mary Kay are leading. Superior customer service compared to rivals: Avon has gained an outstanding reputation as the best direct seller of beauty products. Through the continued efforts and achievements of its Sales Representatives Avon is now known worldwide. Avon's core competence has mainly been through direct selling, knowing this Jung and the management team implemented a Sales Leadership program in its ten largest markets and provided these markets with incentives to acquire, train, motivate, and retain the number of active Sales Representatives it needs to sustain significant growth. 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 [14]

Avon lacks brand image the name Avon is not associated with most of the products.

Revlon Different categories of distribution: Prestige Department stores, specialty stores and chain department stores such as JC Penny (international) o Broad Drugs stores, food stores, cosmetics discounters Products are regularly promoted with coupons Brand Strategy - high price link to quality of products and brand image Products are sold through their websites www.revlon.com Constantly having new products and developments

Mary Kay Direct Selling to customers Highly motivated sales force Uses several programs to motivate, recognize, and develop Its beauty consultants, which include recognition in a monthly magazine, annual events, gifts and prizes and most importantly, financial incentives

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Map locating the firms operations: Avon Products, Inc. markets its products to women in over 100 countries through over 5 million independent Avon Sales Representatives. The map below shows the six (6) geographic regions where Avon products are marketed and sold.

Albania Belarus Czech Republic Finland Hungary Kyrgyzstan Lithuania Moldova Poland Russia Slovakia Ukraine

Armenia Bulgaria Estonia Georgia Kazakhstan Latvia Macedonia Montenegro Romania Serbia Slovenia

United States Puerto Rico Aruba Barbados Curacao Grand Cayman Island Guyana St. Kitts & Nevis [16] St. Maarten Suriname Trinidad & Tobago

Canada Dominican Republic Antigua & the Bahamas Bermuda Dominica Grenada Jamaica St. Lucia St. Vincent Tortola Virgin Island

Argentina Brazil Colombia Ecuador Guatemala Mexico Panama Peru Venezuela

Bolivia Chile Costa Rica El Salvador Honduras Nicaragua Paraguay Uruguay

Australia India Malaysia Philippines Taiwan Vietnam

Hong Kong Japan New Zealand South Korea Thailand

Botswana Dubai France Greece Israel Jordan Lebanon Luxembourg Mauritius Morocco Netherlands Norway Portugal Saudi Arabia Spain Switzerland Turkey Uganda Zambia

Cyprus Egypt Germany Iceland Italy Kuwait Lesotho Malta Mozambique Namibia North Cyprus Oman Reunion Island South Africa Swaziland Tunisia Turkmenistan United Kingdom

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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

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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

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Table 1.2

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
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

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

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.

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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

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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 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.

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Figure 2.1 Pie Chart:

Data: Sales for Avon in 2009 was $10.83b

Revlon 1.30b

Mary Kay 2.6B

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Table 2.1 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

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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

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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

THEATS 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 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

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External Factor Evaluation Matrix (EFE)


Table 2.2 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 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 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

Ratings: 1= the response is poor, 2= the response is average, 3= the response is superior, [27]

4= response is superior

Table 2.3

Competitive Profile Matrix - CPM


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

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

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.

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Table 2.4

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


10. Global market leader 11. Largest sales force 12. Worlds largest micro lender to women 13. Worlds largest direct seller 14. ISO 14001 certification for largest manufacturing plants. 15. Avon owns its major manufacturing and distribution centers. 16. Increase in revenue in most geographic area due to increase in internet presence. 17. First cosmetic manufacturer to end animal testing.

WEAKNESSES
1. Decrease in North American Sales Revenue. 2. Weak brand image 3. High advertising/budget costs 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.

Opportunities

1. Organic (Green) 1. Increase sales by increasing 1. Increase awareness of products internet presence. (S7, O3) efforts to protect the 2. Eye makeup market 2. Maximize on revenues in the environment. (W2, O1) 3. Increase internet makeup market through 2. Increase market share by presence advertising and the sales positioning products to 4. Urban trendsetters force. (S2, O2) attract urban trendsetters market 3. Manufacture and distribute (W5,O4) 5. The cosmetic industry more products that are ecotends to countercyclical. friendly.(S6,S4,S2,O1) 6. Demand for cosmetic products normally remains constant and unaffected by economic distress

SO Strategies

WO Strategies

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THREATS
1. Competitors such as Mary Kay and Revlon 2. Rejection of internet selling by sales representatives 3. Economic downturn 4. Rising cost of commodities

ST Strategies
1. Educate employees on the benefits of increasing internet presence. 2. Improve marketing strategies to new and existing customers by repositioning the brand, coupons, billboards, new packaging. (S4,S6,S7, T1, T3)

WT Strategies
1. Discount products that are not earning substantial revenue and then faze them off the market in a timely manner. (W6,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.

Strategic Position and Action Evaluation (SPACE) Matrix


FS Y 6 Conservative 5 4 3 2 1 CA -6 -5 -4 -3 -2 -1 -2 -3 -4 [30] 1 2 3 4 5 6 X IS Aggressive

-5 Defensive -6 ES Strategic aggressive (0.8)-y (1.20)x Internal Strategic Position Financial Strength (FS) Return on Investments 3 Leverage Liquidity Working Capital Cash Flow FS Average 2 5 5 5 4 External Strategic Position Environmental Stability(ES) Competitive Pressure Unemployment Technological Changes Barriers to Entry -4 -4 -3 -4 Competitive

Price Elasticity of Demand -1 ES Average -3.20 Industry Strength (IS) Growth Potential Profit Potential Financial Stability 4 4

Competitive Advantage (CA) Market Share 5 Product Quality Customer Loyalty -3 -3 -2

Control over Suppliers and Distributors -3 Technological Know-How -3 CA Average -2.80

Productive Capacity Utilization 3 Resource Utilization IS Average 2 3.60

Financial Strength + Competitive Advantage

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Y axis=FS (4) +ES (-3.2) = .08 X axis=CA (-2.8) +IS (3.6) =1.2 FS & IS +1(worst) to +6 (best) ES & CA -1(best) to -6(worst)

According to the diagram above our company has a strong competitive position in the market with rapid growth. We will use our internal strengths to: (1) To maximize on our external opportunities (2) Minimize internal weaknesses (3) Avoid external threats We will employ the strategies of market penetration, improve research and development to develop a full line of green products, reposition the brand in terms of packaging and forward integration. These are all attainable strategies that Avon will proceed with in to the near future. Both the SPACE and SWOT matrix revealed possible strategies to implement in order to further grow our customer base create brand loyalty and further extends its competitive advantage and market leadership status. It also acts as a guide to the areas where more emphasis, financing and allocation of valuable resources is necessary. Allocation of resources and commitment by all stakeholders to the outlined objectives are pivotal keys to the success of the organization. While the SWOT and SPACE matrix identifies numerous strategies that Avon can implement in order to increase brand loyalty, product development and increase internet [32]

presence, it still does not reveal how Avon can become market leader as it relates to brand loyalty.

Quantitative Strategic Planning Matrix (QSPM) for Avon Inc


STRATEGIC ALTERNATIVES 1 2 3 Improved marketing Improve strategies Improve employee (packaging, R&D to empowerment coupons, introduce through online bill more regional boards, green training and discounts product development

Key External Factors


Opportunities 1. Organic

Weight

AS

TAS

AS

TAS

AS

TAS

(Green) products makeup market

0.16
0.09 0.1 0.05 0.1 0.11

1 4 3 3 3 3

0.16 .36 0.3 0.15 0.3 0.33

4 3 1 3 3 2

.64 .27 0.1 0.15 0.3 0.22

2 3 2 2 3 1

.32 .27 .20 0.1 0.3 0.1

2. Growth in eye

3. Increase internet presence 4. Urban

trendsetters market

5. The cosmetic

industry tends to countercyclical 6. Demand for cosmetic products normally remains constant and unaffected by economic distress
Threats 1. Competitors 2. Economic 3. Rising

0.1 0.1 0.09

0.3 .20

0.3 0.1

0.1 .1

downturn

cost of commodities [33]

4. Rejection of internet selling by sales representatives


SubTotal

0.1 1

0.20 2.30

0.10 2.18

0.20 1.69

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Based on the analysis of the QSPM matrix The Quantitative Strategic Planning it reveals that improved marketingInc Matrix (QSPM) for Avon
STRATEGIC ALTERNATIVES 1 2 3 Improved marketing Improve strategies Improve employee (packaging, R&D to empowerment coupons, introduce through online bill more regional boards, green training and discounts product development Key Internal Factors Strengths 1. Global market 2.

leader

0.12 0.11

3 4

0.36 0.44

3 3

0.36 0.33

3 4

0.36 0.44

Largest sales force Worlds largest micro lender to women largest direct seller

3.

0.1 0.15 0.05 0.06 0.05 0.05

4 4 3 4 4 4

0.4 0.6 0.15 0.24 0.2 0.2

4 4 3 4 3 3

0.4 0.6 0.15 0.24 0.15 0.15

4 4 3 3 4 3

0.4 0.6 0.15 0.18 0.2 0.15

4. Worlds 5. ISO

14001 certification for all manufacturing plants. 6. Avon owns its major manufacturing and distribution centers 7. Increased in revenue in most geographic area. Due to increase in internet presence.
8.

First cosmetic manufacturer to end animal testing.

Weaknesses

1. 2.

Decrease in North American Revenue. Weak brand image

0.05 0.08 0.05 0.05 0.05 0.03 1

3 2

0.15 0.16

3 2

0.15 0.16

3 4

0.15 0.32

3. High advertising budget/ costs 4. Does not target urban trendsetters. 5. 5 Poor brand loyalty 6. Beauty sales in the first quarter 2009 were 12% lower versus the prior year period.
Grand Total


4 0.2


3 0.15


4 0.2

5.40

4.87

4.69

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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

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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 ecofriendly 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. 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. We will actively pursue this over the next three years at an estimated cost of 10 million dollars. Total estimated cost of $ 30 million These recommendations can be implanted on a phase basis over the next three years.

EPS/EBIT Analysis for Avon Product Inc. (millions)


Amount needed: Stock Price: $30 mil $31.90 [37]

Tax Rate: Interest rate:

35% 5%

# of shares outstanding: $427.5 mil

Common Stock Financing

Recession EBIT Interest EBT Taxes EAT # Shares EPS 773.83 0 773.83 249.17 524.66 428.4 1.22

Normal 1018.2 0 1018.2 327.86 690.30 428.4 1.61

Boom 1287.8 0 1287.8 414.67 873.13 428.4 2.04

Debt Financing
Recession EBIT 773.83 [38] Normal 1018.20 Boom 1287.8

Interest EBT Taxes EAT # Shares EPS

1.5 772.33 248.69 523.64 427.5 1.22

1.5 1016.7 327.4 689.3 427.5 1.61

1.5 1286.3 414.2 872.1 427.5 2.04

Combination Financing (Debt 30%/Stock 70%)

Recession EBIT Interest EBT Taxes EAT # Shares EPS 773.83 .45 773.4 249.03 524.4 428.1 1.22

Normal 1018.2 .45 1017.8 327.73 690 428.1 1.61 1287.8 .45 1287.4 414.5 872.9 428.1 2.04

Boom

Combination Financing (Debt 70%/Stock 30%)

Recession EBIT Interest 773.83 1.05

Normal 1018.2 1.05 [39] 1287.8 1.05

Boom

EBT Taxes EAT # Shares EPS

772.78 248.84 523.9 427.8 1.22

1017.1 327.5 689.6 427.8 1.61

1286.75 414.3 872.5 427.8 2.04

Equity was chosen for financing the company because if recession continues and the company does not make a profit we are not obligated to pay any dividends

With equity there is the existence of capital gains

AVON'S PROJECTED INCOME STATEMENT FOR 2010-2012 IN MILLIONS


2009 10,284.7 Revenue Other revenue Total 0 98.1 0 113.17 124.45 0 7 2010 11,313.1 9 2011 12,444.4 4 136.9 2012 13,688.9

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10,382.8 Total Revenue 0 3,888.3 Cost of Revenue total Gross Profit Cost and Expenses 5,389.8 Selling/General/Administration/advertising Research and Development Depreciation/Amortization Interest Expense (Income) Unusual Expense (Income) Other Operating Expenses, Total Operating Income Interest Income (Expense), Net Non Operating Gain (Loss) on Sale of assets Other Net Income before Tax 0 298.3 Income tax total 0 628.9 Income after tax Minority Interest Equity Interest US GAAP Adjustment Net Income before Extra. Items Total extraordinary items Net Income 0 (2.4 0) 0 $0.00 625.8 0 625.8 0 0 0 66.7 0 561.0 0 1018.2 1 0 0 0 6,396.4 0 5 2 7

11,426.2 12568.94 4,227.7 1 7,198.5 3 7,918.4 8 4,650.5 6 4

13,825.8

5,115.5 8,710.2

5,347.5 0 71.7 0 21.7 0 1,757.6 4

5,907.4 0 74.7 0 23.9 7 1,912.4 3 1

6,433.8 76.7 26.2 2,173.5

(7.1 0) 926.5 0

(9.0 0) 1,058.8

(8.0 0) 1,131.2 0 0 260.4 0 0 870.8 0 0 (2.0 0) 0) $0.00 868.8 0 868.8 0 0 0 0)

(7.4 1,244.3

297.0

170.4

761.8 (2.0 0) 0 $0.00 759.8 0 759.8

1,073.9 (1.6 1,072.3

1,072.3

AVON'S PROJECTED BALANCE SHEET FOR 2010-2012 IN MILLIONS


2009 ASSETS Cash and short term investment Total Receivables net Total Inventory Prepaid Expense 1338.4 1219.9 1067.5 122.8 2010 1356.4 1119.9 1174.25 120.5 2011 1364.44 1169.9 1291.68 110.7 2012 1368.4 1219.9 1420.85 122.8

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Other Current Asset Total Current Asset Property/Plant/Equipment total net Ratios Goodwill, net Intangible, Net Current Ratio Long term investment' Note Receivables-Long term Other Long Ratio Assets, total Quick Term other Assets total Total Assets Profit Margin Operating LIABILITIES AND SHAREHOLDERS Net Profit Margin EQUITY Accounts Payable Return on Stockholders Equity Payable Accrued accrued Expenses Total Asset Turnover Notes Payable/short term debt Capital Leases Debt/Equity Ratio Other current liabilities total Total current liabilities

440.7 4189.3

443 4214.05

390.7 4228.38 1529.6 2012 233.8 134.8 1.7 49.8 0 713.4 1.2 0 6889.78 0.16

440.7 4572.65 1529.6 234.8 135.8 49.8 0 713.4 0 7236.05

2010 1.84 1.3 0.15 0.07 0.63 1.66 4.7% 3.7

1529.6 1529.6 224.8 2011 231.8 125.8 131.8 49.8 1.8 49.8 0 0 713.4 1.2 713.4 0 0 6832.7 0.15 6870.45

0.07
754.7 0.79754.7 0 0 1247.3 1247.3 1.82 0 0 138.1 138.1 5.2% 134.7 241.9 2274.8 2382

0.07
754.7 0.81 0 1247.3 1.91 0 138.1 4.5 358.88 2498.98 754.7 0 1247.3 0 138.1 488.05 2628.15 2360.8 173.8 40 710.7 5913.45 0 0 216.1 1941 4383.9 -4525.8 -692.6 1322.6 7236.05

Earnings Per Share

4.1

Total long term debt Deferred Income Tax Minority interest Other liabilities, total Total Liabilities Redeemable Preferred stock Preferred stock - non redeemable, net Common Sock Additional Paid in capital Retained Earnings (Accumulated Deficit) Treasury - Common Other Equity Total Equity Total liabilities & shareholders Equity

2307.8 173.8 40 763.7 5560.1 0 0 186.1 1941 4383.9 -4545.8 -692.6 1272.6 6832.7

2357.8 173.8 40 713.7 5667.3 0 0 204.1 1941 4383.9 4587.45 -738.4 1203.15 6870.45

2360.8 173.8 40 710.7 5784.28 0 0 212.1 1941 4383.9 -4733 -698.5 1105.5 6889.78

Projected Financial Ratios

Analysis: The current ratio and quick ratios show that Avon is a good position to meet its short term obligations even without relying upon the sales of its inventories [42]

The operating profit margin shows that Avon is improving in its efficiency which will result in greater profit productivity

The net profit margin shows that profitability will improve thus shareholders can expect greater return

The ROE shows that the return on equity is improving The total asset turnover shows that the return on the asset investment is good The Debt/Equity ratio shows that Avon is using more equity to finance operations EPS shows that Avon is becoming more attractive to investors

Balance Scorecard The strategic planning and management system that provides a frame work for measuring performance and assisting managers identify what it is that needs to be measured and completed, while enabling executives in the execution of these strategies constitutes the makeup of the balance scorecard. There are four fundamental perspectives from which organizations using this system can implement their vision and strategies include: 1) Financial performance perspective which is showing how viable a business appears to shareholders in order to achieve financial success. 2) Customer knowledge perspective highlights the importance of satisfying customers while focusing on the achievement of the organizations vision. 3) Internal Business Processes perspective refers to the internal aspects of the business, wherein managers can analyze the overall operations of the business to

[43]

see how well the provision of its goods and services and its ultimate impact on achieving total customer satisfaction. 4) Learning and growth perspective includes the training and continuous upgrading of employees knowledge, skills and abilities that necessitates the advancement of being technologically savvy.

Avon inc. now plans to use the BSC system to implement the essential link between business-planning strategies and people plans for greater productivity. This is to ensure that as a company we can achieve increase growth in revenue , increase market share, ensuring the delivery of quality and timely services, providing the appropriate training and development of employees, delivering improved services by linking business strategies to people plans. Forecasting customers need by anticipating changes and adopting various social institutions such as food for the poor are high on the priority list of the Avon Family

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EVALUATION
Objectives Financial
To succeed financially, how we appear to our shareholders Lower customer acquisition costs. Double digit sales growth Increase market share for on-line products Target 10% return on investment. Achieve at least 10% on net profit in 1st year of new product Ensure on-time delivery always Increase customer retention Reward customer loyalty Shareholders value Continuous Growth in revenue Increase profitability Market share

Measure/Target

Time Expectation

Primary Responsibility
Chief Financial Officer

Net profit on percentage sales Operations Percentage of on- time delivery. Number of customers, email addresses, time duration between purchases Percentage on return Conversion rate Continuous

Customers How to achieve our vision, the importance of satisfying our customers

Internal Business To analyze operations and see how products and

Operations Supply chain excellence in order confirmation quick turnaround on the delivery of orders Continuous

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services achieve total shareholder and customer satisfaction, What business process must we excel at?

Adoption of some social services Generating revenue

Incorporating and engaging quality, talented skills

Operations measures of quality, products and costs Learning & Growth To achieve continuous training and upgrading of employees skills and abilities. Always keeping abreast of new technology Advancing change and self- improvement Human Resource Ensure managers are exposed to market changes Online service innovation Implement a succession plan People - employee retention, training and skills Successful penetration of new markets Continuous improvement in CRM Increase value in Knowledge management system Continuous

In the final analysis our main aim of the BSC is to enable us to meet our strategic objectives by identifying the various means of improving workforce productivity. This is an effective tool in maximizing our companys resources and building capacity in a structured and planned way. These plans not only look at the strategic and operational components for our company to succeed, but also consider the people factor in developing and delivering our business.

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Conclusion The strategies that we proposed are similar to that of Avon Product Incs existing Strategies. In order for us to see an increase in total revenue by 10% in all market segments, we will have to explore increasing our internet presence and usage. When we do this it will lead to an increase in sales as more persons will be aware of online ordering and purchasing. Internet users are increasing rapidly and it is imperative for an organization such as Avon to be innovative in order to maximize on the opportunities that can be derived from internet shopping as well as other market segments. 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

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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.

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References 1. David, Fred, R Strategic Management Concepts and Cases 12ed. Prentice Hall 2009 2. Retrieved December 3, 2010 www.yahoo.com/images 3. Retrieved December 3, 2010 www.avon.com 4. Retrieved December 3, 2010 www.wikinvest.com

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