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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 firm’s 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

Threats.............................................................................................................26

External Factor Evaluation (EFE) Matrix (Table 2.2)........................................27


[2]
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

Avon Product Inc

[3]
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 CPC’s California office however, before long the company reopened. CPC’s

first office outside United State was opened in 1914 in Montreal, Canada. In the 1920’s

CPC sales doubled to $2 million during this time there were more than 25,000

representatives in the United States. The Company’s name was change to Avon Products

Inc. after the British town Stratford-upon-Avon in 1938. Avon’s 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 1970’s U.S sales top $750 millions and the first Avon Asian

business was opened in Japan. Avon also acquired the Jeweler Tiffany’s 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,

women’s 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 world’s 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

increased it’s investment in 2007 by over $120 million which aided in the development of

[4]
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.

Avon’s 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

Avon’s 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 Avon’s 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

and internet carrier sites to help increase Avon’s revenue. Andrea Jung is the Chief

Executive Office who is leading the management team of thirteen to achieve its goal.

[5]
Avon: Beauty, Home and Fashion

Vision Statement (Actual)

To be the company that best understands and satisfies the product, service, and self-

fulfillment needs of women globally.

Mission statement (Actual)

 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.

(1, 2)

 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. (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 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. (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

the environment to emphasize our responsibility to society as we all work towards a

sustainable future.

[7]
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 company’s 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 Kay’s mission “Enriching Women’s Lives”

Mary Kay’s mission is to enrich women’s 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.

[8]
INTERNAL ASSESSMENT

Table 1.1

Financial Ratio Analysis

Ratios 2006 2007 2008

Current Ratio 0.75 1.15 1.22

Quick Ratio 1.1 0.93 0.88

Operating Profit Margin 0.09 0.09 1.25

Net Profit Margin 0.05 0.05 0.08

Return on Stockholders 0.60 0.75 1.29


Equity
Total Asset Turnover 1.67 1.73 1.76

Debt/Equity Ratio 5.62% 7.03 7.99%

Earnings Per Share 2.60 2.87 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.

AVON’S ORGANIZATIONAL CHART

Figure 1.1

Chairman
and CEO

Vice
President,
President
Chief
Avon
Finance and
Products
Strategy
Officer

EVP, Avon
SVP, Chief EVP, Global SVP Global
SVP and SVP and Latin SVP &
SVP, Global SVP & Information Direct
SVP Human Global President American President Supply
Communica General Officer Selling and
Resource Brand Avon Asia and Central North Chain
tions Counsel (CIO) Business
President Pacific & Eastern American
Innovations
Europe

[10]
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

• There could be communication problems since all high level manager report to

the president of the products who then reports to the CEO.

[11]
Figure 1.2

PROPOSED ORGANIZATIONAL CHART

Andrea Jung
CEO

EVP, Global
SVP, Human Direct VP, Chief SVP &
Resource SVP, Global SVP Global SVP and
Selling and Finance & General Chief
Research & Communicati Supply Chain Global Brand
Business Strategy Counsel Information
Development ons President
Innovations Officer Officer

EVP, Avon
Latin
SVP & SVP and
American President
President President
and Central Western
North Avon Asia
& Eastern Europe
American Pacific
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

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

[12]
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

 Revlon

 Mary Kay

Quality (Low) Quality (High)

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

(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

[13]
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

 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)

[14]
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 It’s beauty

consultants, which include recognition in a monthly magazine, annual

events, gifts and prizes and most importantly, financial incentives

[15]
Map locating the firm’s 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 • United• Armenia


States • Canada
• Belarus • Puerto•Rico
Bulgaria • Dominican Republic
• Czech Republic• Aruba • Estonia • Antigua & the Bahamas
• Finland • Barbados
• Georgia • Bermuda
• Hungary • Curacao
• Kazakhstan • Dominica
• Kyrgyzstan • Grand• Latvia
Cayman Island •Grenada
• Lithuania •Guyana• Macedonia •Jamaica
• Moldova •St. Kitts
• Montenegro
& Nevis • St. Lucia
• Poland • St. Maarten
• Romania • St. Vincent
• Russia • Suriname • Serbia • Tortola
• Slovakia • Trinidad
• Slovenia
& Tobago • Virgin Island
• Ukraine

[16]
• Argentina • Bolivia • Australia • Hong Kong
• Brazil • Chile • India • Japan
• Colombia • Costa Rica • Malaysia • New Zealand
• Ecuador • El Salvador • Philippines • South Korea
• Guatemala • Honduras • Taiwan • Thailand
• Mexico • Nicaragua • Vietnam
• Panama • Paraguay
• Peru • Uruguay
• Venezuela

• Botswana • Cyprus
• Dubai • Egypt
• France • Germany
• Greece • Iceland
• Israel • Italy
• Jordan • Kuwait
• Lebanon • Lesotho
• Luxembourg • Malta
• Mauritius • Mozambique
• Morocco • Namibia
• Netherlands • North Cyprus
• Norway • Oman
• Portugal • Reunion Island
• Saudi Arabia • South Africa
• Spain • Swaziland
• Switzerland • Tunisia
• Turkey • Turkmenistan
• Uganda • United Kingdom
• Zambia

Internal Assessment: Strengths


[17]
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. World’s 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 – world’s 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 world’s 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

[18]
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

Table 1.2

[19]
Internal Factor Evaluation Matrix (IFE)

Key Internal Factors Weights Rating Weighted


Score
Strengths      
1. Global Market Leaders 0.09 4 0.36
2. Committed and dedicated workforce - 5.4 million
Avon representative in over 100 countries 0.08 3 0.24
3. Revenues increased 7.5% from year 2007 to 2008
0.06 4 0.24
4. Channel of distribution – worlds largest direct seller 0.05 4 0.2

5. Award winning company worldwide 0.05 3 0.15


6. World’s Largest Micro lender for women 0.06 3 0.18
7. World’s top global brands – 90% recognition
worldwide 0.06 3 0.18
8. Excellent promotional strategies 0.08 4 0.32
9. Manufacturing operations match ISO 14001
standards 0.08 3 0.24
10. Announced permanent ending to animal testing 0.07 4 0.28

Weaknesses
1. Brand Image 0.06 1 0.06
2. High advertising costs 0.05 2 0.1
3. Misleads representatives 0.03 2 0.06
4. Avon seems like a commodity 0.05 2 0.1
5. Avon lagged behind seven of their cosmetic
companies in customer loyalty 0.09 2 0.18
6. Revenue decreased in North America by 129.4
million 0.04 2 0.08
Total 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

AVON’S 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 Revlon’s 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

[21]
attract women of all ages with quality affordable makeup, jewelry, shoes, purses and

children’s 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 company’s revenue is now generated through online orders.

Avon’s revenues far exceed both major competitors. Their revenue is almost four

and half times that of Mary Kay’s and seven and half times Revlon’s. Avon’s 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.

[22]
Figure 2.1

Pie Chart:

Data: Sales for Avon in 2009 was $10.83b Revlon 1.30b Mary Kay 2.6B

[23]
Table 2.1

PEST Analysis

Political Factors Economic Factors

 Tax policies  Economic growth


 Employment laws  Interest rates
 Trade restrictions and tariffs  Exchange rates
 Political stability  Fluctuation in oil and gas prices

Technological Factors
Social Factors  Automation
 Technology incentives
 Rate of technological change

 Emphasis on safety

[24]
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

[25]
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

[26]
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 Weights Rating Weighted


Score
Key External Factors      
Opportunities
1. Organic (Green) Products 0.09 4 0.36

2. Eye makeup market 0.07 3 0.21

3. Increase Internet Presence 0.08 4 0.32

 4. Urban trendsetters market 0.09 4 0.39

 5. Cosmetic industry tends to countercyclical 0.07 3 0.21


6. Geographic growth 0.09 4 0.36
6. Demand for cosmetic products normally 0.05 3 0.15
remains constant and unaffected by
economic distress

Threats      
7.Competitors 0.08 2 0.16
8. Rejection of Internet Selling by sales rep. 0.07 3 0.21
9. economic Downtown 0.09 2 0.18
10. Market Slowdown 0.08 3 0.24
11. Inflation Rate 0.07 3 0.21
12. Rising cost of commodities 0.07 2 0.14
Totals 1   3.14

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

4= response is superior

[27]
Table 2.3

Competitive Profile Matrix - CPM

  Avon Revlon Mary Kay


Weighted Weighted Weighted
Critical Success Factors Weight Rating Score Rating Score Rating Score
Price competitiveness 0.10 3 0.30 4 0.40 2 0.20
Global Expansion 0.09 3 0.27 4 0.36 2 0.18
Organizational Structure 0.04 2 0.08 4 0.16 3 0.12
Employee Morale 0.07 2 0.14 4 0.28 1 0.07
Technology 0.10 4 0.40 2 0.20 3 0.30
Product Safety 0.10 4 0.40 3 0.30 2 0.20
Customer Loyalty 0.10 2 0.20 4 0.40 3 0.30
Market Share 0.07 2 0.14 4 0.28 3 0.21
Advertising 0.10 2 0.20 4 0.40 1 0.10
Product Quality 0.10 2 0.20 3 0.30 1 0.10
Product Image 0.05 3 0.15 4 0.20 2 0.10
Financial Position 0.08 4 0.32 3 0.24 2 0.16
Total 1.00   2.80   3.52   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.

[28]
Table 2.4

Strength-Weaknesses-Opportunity-Threats (SWOT) Matrix

STRENGTHS WEAKNESSES

10. Global market leader 1. Decrease in North American


11. Largest sales force Sales Revenue.
12. World’s largest micro lender 2. Weak brand image
to women 3. High advertising/budget
13. World’s largest direct seller costs
14. ISO 14001 certification for 4. Poor brand loyalty
largest manufacturing plants. 5. Does not target urban
15. Avon owns its major trendsetters.
manufacturing and 6. Beauty sales in the first
distribution centers. quarter 2009 were 12%
16. Increase in revenue in most lower compared to sales
geographic area due to revenue in previous year
increase in internet presence. 2008.
17. First cosmetic manufacturer
to end animal testing.

Opportunities SO Strategies WO Strategies


1. Organic (Green) products 1. Increase sales by increasing 1. Increase awareness of
2. Eye makeup market internet presence. (S7, O3) efforts to protect the
3. Increase internet presence 2. Maximize on revenues in the environment. (W2, O1)
4. Urban trendsetters market makeup market through 2. Increase market share by
5. The cosmetic industry tends advertising and the sales positioning products to
to countercyclical. force. (S2, O2) attract urban trendsetters
6. Demand for cosmetic 3. Manufacture and distribute (W5,O4)
products normally remains more products that are eco-
constant and unaffected by friendly.(S6,S4,S2,O1)
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 to new and existing manner. (W6,T3)
4. Rising cost of commodities customers by repositioning
the brand, coupons,
billboards, new packaging.
(S4,S6,S7, T1, T3)

[29]
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 Aggressive
 
4
 
3
 
2
 
1  
CA                       IS
-6 -5 -4 -3 -2 -1 1 2 3 4 5 6
  X
-2
 
-3
 
-4
 
-5
Defensive   Competitive
-6
 
ES

Strategic -
aggressive
(0.8)-y
(1.20)x

[30]
Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability(ES)

Return on Investments 3 Competitive Pressure -4

Leverage 2 Unemployment -4

Liquidity 5 Technological Changes -3

Working Capital 5 Barriers to Entry -4

Cash Flow 5 Price Elasticity of Demand -1

FS Average 4 ES Average -3.20

Competitive Advantage (CA) Industry Strength (IS)

Market Share -3 Growth Potential


5

Product Quality -3 Profit Potential 4

Customer Loyalty -2 Financial Stability 4

Control over Suppliers and Distributors -3 Productive Capacity Utilization 3

Technological Know-How -3 Resource Utilization 2

CA Average -2.80 IS Average 3.60

Financial Strength + Competitive Advantage

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)

[31]
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

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

brand loyalty.

[32]
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 Weight AS TAS AS TAS AS TAS
Opportunities              

1. Organic (Green) products 0.16 1 0.16 4 .64 2 .32

2. Growth in eye makeup market 0.09 4 .36 3 .27 3 .27

3. Increase internet presence 0.1 3 0.3 1 0.1 2 .20

4. Urban trendsetters market 0.05 3 0.15 3 0.15 2 0.1

5. The cosmetic industry tends to countercyclical 0.1 3 0.3 3 0.3 3 0.3


6. Demand for cosmetic products normally remains
constant and unaffected by economic distress 0.11 3 0.33 2 0.22 1 0.1

Threats            

1. Competitors 0.1 3 0.3 3 0.3  1 0.1

2. Economic downturn 0.1 2 .20 1 0.1 1 .1

3. Risingcost of commodities 0.09 ― ― ― ― ― ―


4. Rejection of internet selling by sales
representatives 0.1 2 0.20 1 0.10 3 0.20

SubTotal 1   2.30   2.18   1.69 

The Quantitative Strategic Planning Matrix (QSPM) for Avon Inc


  STRATEGIC ALTERNATIVES

[33]
1 2 3
Improved
marketing Improve
strategies Improve employee
(packaging, R&D to empowermen
coupons, introduce through
online bill more regional
boards, “green” training and
discounts product development
Key Internal Factors              
Strengths              

1. Global market leader 0.12 3 0.36 3 0.36 3 0.36

2. Largest sales force 0.11 4 0.44 3 0.33 4 0.44

3. World’s largest micro lender to women 0.1 4 0.4 4 0.4 4 0.4

4. World’s largest direct seller 0.15 4 0.6 4 0.6 4 0.6

5. ISO 14001 certification for all manufacturing plants. 0.05 3 0.15 3 0.15 3 0.15
6. Avon owns its major manufacturing and distribution
centers 0.06 4 0.24 4 0.24 3 0.18
7. Increased in revenue in most geographic area. Due to
increase in internet presence. 0.05 4 0.2 3 0.15 4 0.2

8. First cosmetic manufacturer to end animal testing. 0.05 4 0.2 3 0.15 3 0.15

Weaknesses              

1. Decrease in North American Revenue. 0.05 3 0.15 3 0.15 3 0.15

2. Weak brand image 0.08 2 0.16 2 0.16 4 0.32

3. High advertising budget/ costs 0.05 ―   ―   ―  

4. Does not target urban trendsetters. 0.05 ―   ―   ―  

5. 5 Poor brand loyalty 0.05 4 0.2 3 0.15 4 0.2


6. Beauty sales in the first quarter 2009 were 12%
lower versus the prior year period. 0.03 ―   ―   ―  
Grand Total 1   5.40   4.87   4.69

[34]
Based on the analysis of the QSPM matrix it reveals that improved marketing

strategies is the most attractive strategy along with improvement in research and

development to introduce “green” products.

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

[35]
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.

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.

[36]
EPS/EBIT Analysis for Avon Product Inc. (millions)
Amount needed: $30 mil
Stock Price: $31.90
Tax Rate: 35%
Interest rate: 5%
# of shares outstanding: $427.5 mil

Common Stock Financing

Recession Normal Boom

EBIT 773.83 1018.2 1287.8

Interest 0 0 0

EBT 773.83 1018.2 1287.8

Taxes 249.17 327.86 414.67

EAT 524.66 690.30 873.13

# Shares 428.4 428.4 428.4

EPS 1.22 1.61 2.04

Debt Financing
[37]
Recession Normal Boom

EBIT 773.83 1018.20 1287.8

Interest 1.5 1.5 1.5

EBT 772.33 1016.7 1286.3

Taxes 248.69 327.4 414.2

EAT 523.64 689.3 872.1

# Shares 427.5 427.5 427.5

EPS 1.22 1.61 2.04

Combination Financing (Debt 30%/Stock 70%)

Recession Normal Boom

EBIT 773.83 1018.2 1287.8

Interest .45 .45 .45

EBT 773.4 1017.8 1287.4

Taxes 249.03 327.73 414.5

EAT 524.4 690 872.9

# Shares 428.1 428.1 428.1

EPS 1.22 1.61 2.04

Combination Financing (Debt 70%/Stock 30%)

[38]
Recession Normal Boom

EBIT 773.83 1018.2 1287.8

Interest 1.05 1.05 1.05

EBT 772.78 1017.1 1286.75

Taxes 248.84 327.5 414.3

EAT 523.9 689.6 872.5

# Shares 427.8 427.8 427.8

EPS 1.22 1.61 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 2010 2011 2012


Revenue

[39]
10,284.70 11,313.17 12,444.49 13,688.94

Other revenue Total 98.10 113.17 124.45 136.90

Total Revenue 10,382.80 11,426.27 12568.94 13,825.84

Cost of Revenue total 3,888.30 4,227.72 4,650.51 5,115.56

Gross Profit 6,396.40 7,198.55 7,918.43 8,710.28

Cost and Expenses

Selling/General/Administration/advertising 5,389.80 5,347.50 5,907.40 6,433.80

Research and Development 66.70 71.70 74.70 76.70


Depreciation/Amortization - - - -
Interest Expense (Income) - - - -

Unusual Expense (Income) 561.00 21.71 23.90 26.27


Other Operating Expenses, Total - - - -
1,757.6
Operating Income 1018.2 4 1,912.43 2,173.51

Interest Income (Expense), Net Non


Operating - - - -
Gain (Loss) on Sale of assets - - - -
(7.1 (9.0
Other Net 0) 0) (8.00) (7.40)

Income before Tax 926.50 1,058.80 1,131.20 1,244.30

Income tax total 298.30 297.00 260.40 170.40

Income after tax 628.90 761.80 870.80 1,073.90


(2.4
Minority Interest 0) (2.00) (2.00) (1.60)
Equity Interest 0 0 - -
US GAAP Adjustment $0.00 $0.00 $0.00 -

Net Income before Extra. Items 625.8 759.8 868.80 1,072.30

Total extraordinary items 0 0 - -

Net Income 625.8 759.8 868.80 1,072.30

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

2009 2010 2011 2012


ASSETS
Cash and short term investment 1338.4 1356.4 1364.44 1368.4

[40]
Total Receivables net 1219.9 1119.9 1169.9 1219.9
Total Inventory 1067.5 1174.25 1291.68 1420.85
Prepaid Expense 122.8 120.5 110.7 122.8
Other Current Asset 440.7 443 390.7 440.7
Ratios
Total Current Asset 2010 4189.3 2011
4214.05 2012
4228.38 4572.65

Current Ratio
Property/Plant/Equipment total net 1.84 1529.6 1.81529.6 1.7
1529.6 1529.6
Goodwill, net 224.8 231.8 233.8 234.8
QuickNet
Intangible, Ratio 1.3 125.8 1.2 131.8 1.2
134.8 135.8
Long term investment' 49.8 49.8 49.8 49.8
NoteOperating Profit Margin
Receivables-Long term 0.15 0 0.15 0 0.16
0 0
Other Long Term Assets, total 713.4 713.4 713.4 713.4
otherNet
Assets total
Profit Margin 0.07 0 0.07 0 0
0.07 0
Total Assets 6832.7 6870.45 6889.78 7236.05
Return on Stockholders’ Equity 0.63 0.79 0.81
LIABILITIES AND SHAREHOLDERS
EQUITY
Total Asset Turnover 1.66 1.82 1.91
Accounts Payable 754.7 754.7 754.7 754.7
Payable Accrued 0 0 0 0
Debt/Equity Ratio 4.7% 5.2% 4.5
accrued Expenses 1247.3 1247.3 1247.3 1247.3
Notes Payable/short term debt 0 0 0 0
Earnings
Capital LeasesPer Share 3.7 138.1 4.1 138.1 5
138.1 138.1
Other current liabilities total 134.7 241.9 358.88 488.05
Total current liabilities 2274.8 2382 2498.98 2628.15

Total long term debt 2307.8 2357.8 2360.8 2360.8


Deferred Income Tax 173.8 173.8 173.8 173.8
Minority interest 40 40 40 40
Other liabilities, total 763.7 713.7 710.7 710.7
Total Liabilities 5560.1 5667.3 5784.28 5913.45

Redeemable Preferred stock 0 0 0 0


Preferred stock - non redeemable, net 0 0 0 0
Common Sock 186.1 204.1 212.1 216.1
Additional Paid in capital 1941 1941 1941 1941
Retained Earnings (Accumulated Deficit) 4383.9 4383.9 4383.9 4383.9
-
Treasury - Common -4545.8 4587.45 -4733 -4525.8
Other Equity -692.6 -738.4 -698.5 -692.6
Total Equity 1272.6 1203.15 1105.5 1322.6

Total liabilities & shareholders Equity 6832.7 6870.45 6889.78 7236.05

Projected Financial Ratios

Analysis:

[41]
 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

 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 organization’s vision.

[42]
3) Internal Business Processes perspective refers to the internal aspects of the

business, wherein managers can analyze the overall operations of the business to

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

[43]
EVALUATION
Time Primary
  Objectives Measure/Target Expectation Responsibility
Chief Financial
Financial   Officer
To succeed Lower customer Shareholders value
financially, acquisition costs.  Continuous  
Double digit sales Growth in revenue
how we appear to growth    
Increase market share Increase profitability
our shareholders for on-line products    
Target 10% return on Market share
  investment.    
 Achieve at least 10%
on net profit in 1st year
  of new product Net profit on percentage sales    
Customers Operations
Ensure on-time Percentage of on- time
How to achieve our delivery always delivery.  Continuous  
vision, the Number of customers, email
importance of Increase customer addresses, time duration
retention between purchases    
Percentage on return
satisfying our Reward customer Conversion rate
customers loyalty    
         
         

[44]
Internal Business Operations
To analyze
operations and see Supply chain
how products and excellence in order quick turnaround on the
services achieve confirmation delivery of orders  Continuous  
total shareholder and Adoption of some Incorporating and engaging
customer satisfaction, social services quality, talented skills    
What business
process must we
excel at?  Generating revenue      
  Operations -    
measures of quality, products
    and costs    
Learning & Growth Human Resource
To achieve
continuous training Ensure managers are People - employee retention,
and upgrading exposed to training and skills  Continuous  
of employees skills Successful penetration of new
and abilities. market changes markets    
Always keeping
abreast  Online service Continuous improvement in    
of new technology   innovation CRM    
 Advancing change  Implement a Increase value in Knowledge
and succession plan management    
self- improvement   system    
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 company’s 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.

[45]
Conclusion

The strategies that we proposed are similar to that of Avon Product Inc’s 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

[46]
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.

[47]
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

[48]

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