Assignment 2: Avon Products Case Study 1 Assignment 2: Avon Products Case Study Marie G. Williams HRM 532, Strayer University Professor Daniel Frost July 26, 2015 Avon Products, Inc. was a leading global cosmetics company, with over $8 billion in annual revenue in 2005. As the world’s largest direct seller, the company marketed to women in 143 countries via five (5) million independent Avon Sales Representatives. Avon product lines included numerous popular brand names, and an extensive line of costume jewelry and clothing. The company met with stiff competition in the US market from other cosmetic companies. In order to maintain its market share in the US while targeting other countries, especially China, the company drastically changed its global operating structure. This brought senior management closer to its key business geographies, strengthened global integration, accelerated information
Avon Case Study Analysis
During the 1990s, Avon began to lose its appeal to the public. The number of new company sales representatives had begun to stall; and by 1999, the U.S. sales representatives had dropped 1% from the previous year (Pearce and Robinson, 2005, pg.423). It was at this critical time that Andrea Jung, an Avon saleslady herself, was hired as CEO to help take the company in a new direction. A turnaround grand strategy was envisioned in 2000 to help reenergize the flagging U.S. sales force, which was facing fierce competition from Mary Kay and L'Oreal and seeing profit margins declining. Jung's new strategy focused on the following:
1) "reinvigorating the brand--which had an aging-grandmother feel to it--with new products, new packaging, and a new ad campaign" (Pearce and Robinson, pg.423)
2) beauty-advisory training for representatives
3) expand Avon's online sales
4) expand the multilevel sales program
Given the facts of this case, this paper presents both sides of the debate--was Jung's turnaround grand strategy properly focused and directed?
Jung's Grand Strategies Succeeded
According to Pearce and Robinson (2005), downsizing, restructuring, and reengineering reflect a "critical stage in strategy implementation wherein managers attempt to recast their organization" (pg. 15). This is exactly what Jung did using a turnaround grand strategy, which began with a form of retrenchment (pg.212). The turnaround strategy's success lies with a company's ability for management to be effective and efficient in the retrenchment process. A firm that has seen either a steep or gradual decline as Avon had, more than likely face a sharp cost reduction in order to stabilize their operations and restore their profitability (pg. 212). Jung focused on restructuring the company's sales force through cost reduction. The first thing Jung did to cut costs was consolidate the management. The company went from having 15 layers of management down to eight. This cut about 30% of its senior and middle management out within the first year (Prior, 2006).
Two long-term objectives Jung then went to work on were Avon's competitive position and her sales representative's training and individual development. One of the keys to Avon's success has been its ability to enable representatives to improve penetration of new and existing markets. To make that happen, Jung expanded the number of products offered to long-time customers. She increased advertising to better service the core markets. Jung believed that Avon could beat the department-store lines by upgrading its own act--and sticking with direct sales. She acted quickly to move Avon up the market chain by overhauling colors, textures and packaging. Until then Avon had operated on the assumption that women around the world wanted different beauty products. Jung believed all women had similar notions of beauty, therefore, would buy the same products without having to customize as much for local markets. She rolled out more global lines, which was part of Avon's push into new countries.
Jung knew that Avon's direct sales force distribution network was not reaching the millions of modern women in the workforce. Avon had to position itself, so that its customers could choose whether they wanted to buy from a rep, on the Internet, or at a store. Jung expanded Avon's lines of cosmetics, jewelry, and clothing by adding nutritional supplements and vitamins -- a line that the company said could generate $300 million in five years. Taking a cue from the Avon competitor Mary Kay, Jung launched "Beauty Advisor," a program that turned Avon representatives into beauty consultants, who help customers choose the clothing and makeup that work best for them.
Jung's strategy proved its worth by significantly increasing revenues and stock price. Avon's profits also tripled (Kratz, 2006, pg.170). Avon's image was given a facelift during this time because new beauty products were introduced while customers had more access through retail venues. Specifically, product innovations such as "Hook-Up," a double-sided applicator that can carry two beauty products at the same time, improved Avon's tired image with the younger generation of female consumers. Despite past failures to launch into retail, Avon finally found prosperity going head to head against rivals such as L'Oreal by creating a modern image and used its direct selling model to complement its entrance into department stores. As a result, Avon's stock price increased 164% in this four-year period, suggesting that stockholders also believed that Jung's grand strategy was appropriate (Setoodeh, 2005, pg.16).
Andrea Jung's grand strategy plan has merit because it has been a direct distributor of beauty products for millions of women and Jung's strategy is to attract the younger women. Retail sales have increased on average 11% annually. Jung moved a tired brand up market and created a global powerhouse opening 39 freestanding Avon Beauty Center kiosks in upscale malls throughout the U.S. Avon could not rely only on direct selling so Jung took a single-channel company and turned it into a multi-channel company. Jung gave the company an extreme makeover, pouring millions into research and development, pushing new lines of skin cream, expanding into overseas markets and developing snazzy ads with celebrities like Salma Hayek. Avon brand name image was given a huge uplift. College girls began peddling Avon on campuses, from a new line called Mark that includes Hook Up for the 16- to 24-year-old crowd. The company's strategy began to appeal to more age groups that are modern. In the process, Jung was given herself a career makeover, with her name cropping up on shortlists of candidates to turn around bigger companies. (Calling Avon Lady, 2005, pg.3).
Jung's Grand Strategies Failed
According to Del Carro, Mockler, and Gartenfeld (2004), Avon's main customer is women of all ethnic races aged 35 and over, primarily baby boomers and senior citizens (p28-27). Baby boomers look for quality; and they are not that price conscious. While senior citizens looks for convenience when they shop and are price conscious since they live on fixed income (p28-26). Avon's revenue had been growing in the single digits through most of the 1990s; however, during this period Avon was not in a strong competitive position. Furthermore, the cosmetic market was growing slowly.