Strategic Management

Strategic Management Avon Products Amyn Jessa - 3640 Shahmeena Khan - 3738 Hafizuddin Halim - 3449 Muhammad Iqbal - 3445 M. Hanif Fatani - 2686

Table of Contents

Executive Summary • Avon has a three distribution channel: Direct Selling, Limited Retailers, Online. Avon has a large number of sales representatives due to which it is the largest selling brand. • From a few years there is a slow growth in the sales because change in the customer preferences and customers habit. The mobility of people are increasing, more women are working and many men now coming towards personal care products in order to make their personality attractive in the work environment. • The older citizens like to shop in convenient place so that is why Avon is successful in this market. At the other side due to the lack of the new innovation for Generation Y and men, they have bad image in these markets. • They need to improve their brand image by promotion in these areas. Baby boomers prefer high quality and they are the core customers of Avon but due to the lack of providing information and education about their products, the satisfaction of these customers. Avon needs to develop new products according to the specific needs of the specific customer segment.

Executive Summary • The website of the company is not fully advertised and due to the decentralization system in the website. The brand image of the company is affecting so they need to have a centralized website system and providing other services like free coupon, free sample, price discounts, and tips of beauty. • Avon needs to expand its business in Asia, and other emerging economies like Taiwan, Russia and China.

General Environmental Factors • POLITICAL FACTORS • Federal Food Drugs (FD&C) and Fair Packaging and labeling act (FPLA ) • Present Impact • Personal care Industry most of the products are used in the sensitive areas of the body therefore testing are important for ensuring the quality of products. • Companies are implementing self inspections systems and the quality of products remain sustain. • Future impact In future the key to success will depend upon • Good relation with regulation officer • Self Inspections

POLITICAL FACTORS • No change in tax since 3 years • Present Impact: • The Operating income in personal care industry is increasing because of no change in the income tax since 3 years • Therefore numbers of new entrants are increasing. • Future Impact: • The Fixed cost would remain same, the industry will remain profitable and investments will increase in this industry.

POLITICAL FACTORS • PATENTS • Present Impact • The companies are protecting their products and manufacturing mechanism by patent. • They can build their brand image and loyalty by giving consistent quality of products to customers. • Future Impact • Brand loyalty and image will increase due to patent of products and techniques.

Economical Factors • Inflation Rate : • % change Inflation • USA 1.9 • Present Impact • Inflation is increasing due to which profit margin is decreasing because of increasing in operating cost. • Future Impact • In future Industry will have to face increase in variable cost.

Economical Factors • GDP • In the third quarter of 2000, according to revised estimates, current- dollar gross domestic product (GDP) rose 3.8 %( US). • Present Impact: • Personal Care industry shows growth in 2000 due to which sales of firms continue to grow. • Future Impact • Consumption of personal care industry will increase as result Personal care industry products will become the necessity.

Economical Factors • NATIONAL INCOME • Present Impact • Use of cosmetics is increasing because the buying power of consumer is increasing in US. • Future Impact • Personal care industry will expand and become more attractive because of increase in the national Income of working women and Baby Boomers (expected growth 16%).

Economical Factors • CONSUMPTION PATTERNS • Purchasing % of Personal care Products • Baby Boomers 98% • Generation X 97% • Generation Y 13.1% • African Americans 64% • Present Impact • In personal care Industry most of the firm are focusing on the baby boomers because of the purchasing percentage of the personal care products. Women’s are their core customer. • Future Impact • Generation X, Y and African Americans will be more attractive and profitable market in future

Socio-Culture Factors • Change in the perception of males consumers • Influence by services rather than advise of wife. • Men prefer those companies which specifically target them • Present Impact • Companies offering masculine packages, services and to promote the brand image by advertising in which they are aimed. • Future Impact • The product line of male products of companies will increase to satisfy their male customers need

Socio-Culture Factors • WORKING WOMEN • Present Impact • Consumption is increasing because currently more than half % women are working and in future it will be high. • And women are the core customers of the personal care industry. • Future Impact • Personal Care industry will be more profitable and they have to adopt the various distribution channels to access the working women.

Socio-Culture Factors • HEALTH AND EDUCATION • Usage of computer is increasing • More health conscious • Present Impact • Personal care firms are adding natural ingredients in their products because people have strong believe about the benefit of natural ingredients. • Trends in online selling is increasing. Companies offer tips of health and beauty. • Future Impact • In personal care Industry those companies will survive who will educate and inform customers about their products well.

Socio-Culture Factors • LIFE STYLE CHANGE • Less time for shopping • Fashion and trend follower • Increase in mobility of people • Present Impact • Due to above changes in the lifestyle of the people, the Industry is focusing in various distribution channels to access the customers • They need a strong analysis of fashion and trends, and innovation of a new trendy product which are tailored to specific needs of consumers. • Future Impact • More innovation will be needed in the products and distribution channels .

Socio-Culture Factors • Asian Americans prefer quality • Y generation prefer quality with affordable prices • Males are less price sensitive • Baby Boomers prefer high quality • Present Impact • The companies which are targeting Baby Boomers , Males and Asians Americans they offer average to high quality products at high prices. • The companies focusing on the Y generation they give products at affordable prices. • Future Impact • The companies will have to offer product lines of different quality to different markets. The selection of distribution channel will be more important.

Technological Factors • Rapid change • Innovation in products • Present Impact • Life cycle of product is very short because of development of new products. • Companies are focusing on research and development of new products to fulfill the demand of the customers. • Future Impact • Industry will be more hyper competition because of rapid development of products. • The innovation of a products will be the corner stone of success.

Technological Factors • STANDARD OF PACKAGING • Contents of the products • Specification of particular consumer needs( like skin color) • Container filled in standard manner • Present Impact • In personal Care Industry companies apply self testing to check the packaging and manufacturing up to the standard. • Future Impact • Companies will focus on the good manufacturing practices and self inspection to survive in this industry.

Technological Factors • USE OF INTERNET • Online Selling • Present Impact • Use of internet is increasing and firms are focusing on web-based selling because now people like to do shopping online because of the following reasons: • Increase in mobility of people • Increase in the usage of computers • Convenient distribution channel • Future Impact • Online selling will be the most efficient distribution channel

PORTER’S FIVE FORCES ANALYSIS • PLEASE REFER TO EXCEL SHEET FOR APPENDIX ‘A’

Strategic Group • PLEASE REFER TO EXCEL SHEET FOR APPENDIX ‘B’

INDUSTRY DOMINANT TRAITS • The types of distribution channels used to access consumers: • Direct Selling • Retail selling • department stores • specialty stores • drugs stores • Kiosks 3. Online selling • Product innovation : Rapid, due to intense competition and product innovation • Differentiated Products: Products are differentiated through features, which tailored to specific needs.

Driver of Change in Industry • Internet ( Online selling): • One of the most important drivers of change is the use of internet therefore the companies are focusing online selling in order to success in the personal care industry. • They are offering online samples and trials, tips, advisories for beauty. • Customer Preference: • The consumer buying habit is changing due to which the companies have to analyze the market constantly and develop new products according to the culture and the needs of specific customers. • Life styles • Men are becoming the important customers of the personal care industry because they like to build their personality in working environment. Companies needs to develop product tailoring to their specific needs.

Key Success Factors • Quality • Price • Distribution Channels ( Relations , various type) • Brand Image and loyalty • Product Innovation (R&D) • Marketing Strategies ( Target Segments) • Products Lines • Services

External Factor Analysis Summary (EFAS) • PLEASE REFER TO EXCEL SHEET FOR APPENDIX ‘C’

Internal Factor Analysis Summary (IFAS) • PLEASE REFER TO EXCEL SHEET FOR APPENDIX ‘D’

MISSION STATEMENT • The Global Beauty Leader • The Women's Choice for Buying • The Premier Direct Seller • The Largest Women's Foundation

Objectives: Marketing Transformations Supply chain improvement Sales Leadership

Objectives: E-Commerce and Internet International

Value Chain Activity of the Avon Inc. • The Value chain activities plays a vital role in the demand and supply chain of Avon Inc Products . • The heart of Avon’s strategy implementation efforts was its ability to eliminate non-value adding costs from its value chain, • Kropf’s (COO of Avon Inc) business process reengineering (BPR) efforts achieved great success in 2000, with cost savings of more than $150 million delivered.

Supply chain improvement • Supplier management/sourcing savings • Leverage supply chain planning tools to reduce cost and inventory levels • Consensus-based forecasting • Strong linkages and focus between marketing and supply chain operations • ABC planning and product segmentation • Centralized inventory distribution hubs

SUPPLIERS • SuppliersAvon have different suppliers for its different product lines. Using BPR systems in the supplier Avon Inc saved $56 million annually after cutting its number of suppliers from300 to 75. • Strengths: • Avon Inc greater bargaining power with its suppliers due to large number of orders. • Weakness: • Threat of Quality standards problem from suppliers side • Threat of Inventory problem from supplier’s side. • Threat of on time delivery problem from suppliers side

OPERATIONS • OperationsThe Operations division supports the development, procurement, manufacturing, and fulfillment of Avon’s leading-edge products. Continues Information and feed backs are given by the R&D department to operational Department. • Strengths: • On time linking of activities • Weaknesses: • Too much work load may disturb the whole value chain • Incorrect data of inventories may lead to increase costs.

LOGISTICS • Avon Inc, outsourcers different Logistics Companies to handle and deliver its outbound shipments (materials, supplies, finished goods) to its different located regions for its manufacturing zones, warehouses and retailers. • Uses information systems to automate order processing and logistics to reduce transportation costs by $22 million, • Avon Inc distributes its products directly i.e. by internet ordering systems its own online stores and by the help of its direct selling model i.e. sales representatives using catalogues and brochures. • By Retailing using Avon Beauty centre Kiosks , free standing mini display stores. Which was designed to display an upscale beauty image, showcase the beauty brands and encourage customer trail of product

LOGISTICS…. • Strengths: • Avon’s Own online store creates a global image for Avon and its consumption rate. • Kiosks increase learning experiences for consumers. • Weaknesses: • Threat i.e. too much dependant on Logistic companies for its transportation of supplies • Threat i.e. too much dependant on sales representatives for its distribution of supplies • Non accuracy of sales figures using Kiosks. • Weak relationship with retailers

SALES & MARKETING • *According to the current trend of the market Avon Inc trains their own employees and service contract sales representatives for direct selling,*Avon products are marketed through sales campaign brochures( based on changing fashion trends) frequency of which is 12-26 individual sales campaigns each year. *Avon publishes 600 Million sales brochures, one idea to target women (age 20) of cosmeceuticalproducts*the company was also developing global brand campaign featuring new themes “Let’s Talk*Avon has also developed brand image by various charitable activities such as Breast Cancer Awareness Crusade, the Avon Global Running Women’s circuit, Women of enterprise programs and the Avon worldwide Funds for women.

SALES & MARKETING • Strengths: • Excessive promotions, good relationship with customers and brand loyalty • Weaknesses: • Imitablility of marketing campaigns • Too much cost on advertising and brochures

R & D • Product R&D Technology and System Development, Human Resource And General Administration • Strengths: • Supportive and corrective actions • Weaknesses: • No action taken, over costs (input) by R&D than its results in sales, quality (output)

FINANCIAL ANALYSIS • PLEASE REFER TO EXCEL SHEETS FOR ALL FINANCIAL DETAILS

BCG, GE AND GRAND STRATEGY • PLEASE REFER TO EXCEL SHEET FOR APPENDIX OF BCG, GE AND GRAND STRATEGY

SPACE MATRIX • PLEASE REFER TO EXCEL SHEET FOR APPENDIX

Key Issues Faced by the company Following are the issues / problems faced by the company. • Successful internet Presence (Online Selling) • Avon is using direct selling since many years • 92% of revenues were generated from direct selling • but from few decades they had to face drop in the sales growth rate because of the use of internet in personal care industry. • It is difficult to switch to online selling rapidly because of so many reasons. Other reasons to avoid internet was cannibalization in sales.

Key Issues Faced by the company • Protest of sales representative • Problems were occurring among sales representatives and company management and its marketing strategies. • when firms (Avon Inc ) decided to start online selling through its brochures, sales representatives did not agree on posting the web address of the company as result other competitors gain competitive edge.

Key Issues Faced by the company • Loss Of market share • From few decades Avon Inc is loosing share because of the success of the less established firms and the barriers to entry is dropping due to which number of competitors are increasing. • Weak relation with Distribution Channel • The channels used were Direct selling, Internet, Limited Retail selling (Kiosk). • Avon has less capability of distribution because it is weak in good relation with distribution channels therefore its is difficult for them access the customers. • They have to use various distribution channels to increase the growth of sales

Key Issues Faced by the company • Financial Problems were face while planning for expansions • One of the important issues which they faced when they are planning enhance their market share by specialty stores, full line discount stores and Kiosks but they planned to expand gradually rather than simultaneously because of the financial. • Brand Image /Brand Awareness in Latin and Asia America • Avon Inc is focusing on African American rather Asian Americans and Latin Americans, due to which they have weak brand image and awareness in these areas. • Avon Inc are not providing hair colors according to the fashion and trend as a result weak brand awareness in Y generation.

Key Issues Faced by the company • Direct selling no longer effective (Baby Boomers are more mobile) • The Baby Boomers are the core customers of Avon Inc most of them are working in offices and they are more mobile due to which direct selling is no longer effective. • Low Product Line Extensions for men • Avon Inc was weak in promotions in generating brand awareness because they did not provide trial and samples . • Most of the males perceived the image of Avon products aimed to women products.

TOWS MATRIX • PLEASE REFER TO EXCEL SHEET FOR APPENIX ‘TOWS MATRIX

Three Alternative strategies • Extension in the main products: • The sales of the personal care products are increasing in the main sectors because of the following reasons. • To become attractive in working area. • Becoming more Health Conscious • Due to change in fashion & Trends. So Avon should increase its product line. Strengths: • Synergies in distribution channel possible. • Aware about the existing culture & trends factors. • Good R & D. Weakness: • Bad image in men market. • Limited distribution channels • Lack of coordination from sales representative

Three Alternative strategies • Expand In Taiwan, Malaysia & Russia: • Asian countries like Malaysia, Taiwan & Russia are a huge market because of the two reasons: • Stability in economies • Population growth Strengths: • Strong Brand Image • Innovation • Avon’s product qualities are proffered in these countries. Weakness: • Bad relationship with the retailers • Lack of product promotion in these segments. • Less market share • Changes in Political scenario

Strategic Management