Background of the Company

Brief history:
Started on 1886, founded by David H. McConnell and named the company, The California
Perfume Company (CPC), when he was only 28 years old. The first company office was in New York
and the manufacturing and shipping office operated from a room that was 20 by 25 feet. The great San
Francisco earthquake of 1906 destroyed CPCs California office; however, before long the company was
able to reopen. By this time, CPC had 10,000 representatives and Depot Managers selling 117 different
articles in 600 styles and package sizes.
In October of that year, the company produced its first colored brochure. In 1914, CPC opened its
first office outside the United States in Montreal, Canada. When World War I broke out across the
Atlantic, 5 million units a year of CPCs products were sold in North America. As the Roaring Twenties
reached its peak, CPC had more than doubled its sales to $2 million in the years since the end of the war.
By this time, there were 25,000 representatives in the United States. The companys home office was now
moved to Fifth Avenue in New York City. The first products were now offered under the brand name
Avon.
In 1937, David McConnell died, and his son, David Jr., became the president of the company. By
this time, their products were guaranteed, and many of them bore the Good Housekeeping Seal of
Approval.
In September 1938, the companys name was changed to Avon Products Inc., after the British
town Stratford-upon-Avon. Over half of Avons Suffern, New York, plant was relinquished to military
support in 1944. However, their product sales continued to rise to nearly $16 million. With the death of
McConnell Jr., J. A. Ewald became the president; and he introduced mechanized billing and took the
company public in 1946. In 1954, Avon launched its very successful television advertising campaign
entitled Avon Calling.
Then in 1950s they expanded overseas countries such as Cuba, Puerto Rico, and Venezuela. The
company became a household name in the United States in the 1960s with its famous television
advertisements with the catch phrase, Ding dong, Avon calling.
And in the year 1970s US sales tops $750 million and the first Asian company opened in Japan
and throughout Western Europe. To close out this decade, Avon purchased the jeweller Tiffanys in 1979.






Statement of the Problem
1. As predicted by Euro monitor International Inc. that cosmetic markets will see a slowdown in
volume demand. How would Avon Company overcome this warning and continue to increase its
profitability through minimizing its advertising expense?
Objectives
In 3 years time, maintain the increasing companys profit by 5 % every year and decrease
its advertising cost by 3%.

Industry Analysis
Avon belongs to the PERSONAL CARE industry.
Personal care industry has grown over the decades to become a billion dollar industry, surpassing many
other products which are sold in the market. Consumers are aware of the importance of cosmetic products
and especially their positive impacts on improving self-image, confidence and self-esteem. They are also
aware of the importance of first impression both at the workplace and in society in general (Bruno et. al.,
2010: 56-59). The realization of the importance of cosmetic products has spurred demand for these
products which are consumed by both males and females equally. During the recession in America for
the period of year 2000 Avon grabs the opportunity to
The Generic Strategy used
Avon Company uses Type 2 cost leadership, the best-value strategy. Type 2 is a strategy that
offers products or services to a wide range of customers at the best price-value available on the
market; the best-value strategy aims to offer customers a range of products or services at the
lowest price available compared to a rivals products with similar attributes. This strategy targets
a large scale market. Best-value cost leaderships strategy is the competitive advantage of Avon
over its existing rivalry.







Porters Five Forces Model













The threat of new entrants is low. This is due to several factors, first is customer loyalty built by Avon
to its customers are resilient enough to counteract any existing competitors and approaching entrants. 2
nd
,
the cost to entry is high for it involves developing unique cosmetic products to compete with Avon. It
requires a lot of resources both in terms of research and development and the actual manufacturing
process. Another factor which discourages entry into this industry is the huge competition present in the
industry. Existing competitors like Revlon, Unilever, Johnson and Johnson, Proctor and Gamble, and
Mary Kay had established already large market share in the industry.
The intensity of existing competitors is high this is due to large numbers of competing firms in the
industry with similar products offered and the barrier to exit is high since it involves high development
cost and research.
The bargaining power of buyers is high this is due to the intense competition among existing
competitors, and the availability of the same products offered from different manufacturer. Though, fixed
prices are imposed by Avon company to its valued customers, they (customers) have chances to weigh
prices from different prevailing competitors that offers equal quality. And most of all, customers are
informed about sellers products, prices, and costs and they have the discretion in whether and when to
purchase the product. This is due to the channel distribution process of Avon- direct selling with
brochures.
Threat of new entrants
Threat of product substitute
Bargaining power of
suppliers
Bargaining power of buyers
Intensity among
existing
competitors
The bargaining power of supplier is low, due to high number of market players in the industry and large
supply of diverse products in the market. Due to the huge supply, consumers have the power to influence
the market prices as opposed to the suppliers.
The threat of product substitute is high this is due to access availability of customers to substitute
product in the market that can satisfy their needs. And, the relative price offered by substitute products
drops and consumers switching costs decrease.

TOWS ANALYSIS
Threats
Consumers must see value in all that they consume.
Dramatic slowdowns in consumer spending are apparent in virtually all sectors
Discretionary spending has fallen dramatically.
A retaliatory attack by competitors.
Opportunities
Engaged in credit base as mode of payment
Consumers expect green operations and products.
Global markets offer the highest growth in revenues.


Weaknesses

Internal Operating Problems
Obsolete Products
Focused Product Line
Inconsistency
Strength
Brand Name Recognition
Strong Advertising and Promotion
Globalization
Product Innovation
New Product Developments
Competitive Capabilities



Macro Environment Analysis

Political
Trade restrictions and tariffs are different in every country hence lead to high/low variable costs
that have a direct effect in contribution margin. And, political stability is an important factor
when considering diversifying.
Economical
In cosmetics Industry the products tend to be countercyclical. Demand for such products normally
remains constant and unaffected by economic distress. During recession in America, avon took
advantage the opportunity to increase sales. In that time women go through the hard times and got
stressed. In that mental strain period their skin gets affected due to burden and pressure hence
they spend money on buying make up to look good and fresh. Recent report also indicates that
demand of makeup and cosmetic are greatly increasing as women nowadays are more conscious
regarding beauty and health.
Environment
Avon has new strategy that focuses on the green image instead of being homey. This leads to
largest manufacturing plants are ISO 14001 certified and 60% production takes place in these
plants refers AVON focuses on environmental management practices.
Social
Avons consumer has an increasing demand, growing interest as to their product and highly
innovative consumer wanting more value for their dollar. . Avon marketing practices are
undergoing a change to become progressively focused on a bond and connection with the
customer.
Technological
Avon Company has technological advancements that attract more customers through use of high-
tech media and innovative marketing campaigns and celebrity endorsers. Avon Company didnt
let their guard down to be advanced by competitor; instead they spend more in their advertising
expense to advance their rivals.
Cultural
Avon Company had penetrated best in a civilized country wherein women value the essence of
beauty and self worth, it offers beauty products, fashion and home accessories. And slowly
piercing those potential urbane countries.


Demographic
Countries where Avon Company sells their product are undisputable as to number of population.
Like china, where Avon has the greatest sales.
There is no potential problem that Avon may encounter in terms of demographic issue.
Ecological
One of Avon Founder David H. McConnells guiding principles was To meet fully the
obligations of corporate citizenship by contributing to the well-being of society and the
environment in which it functions. Central to Avons corporate citizenship is the mission to
improve the lives of women globally. One of those corporate responsibilities was to engaged in
Green Building Design and promoting Green for Tomorrow.



MICRO-ENVIRONMENT ANALYSIS
The company is selling the product on a large scale and are now the global leaders of marketing technique
called Direct Selling. The company has large workforces who are normally not the employees of the
business but the agents and contractors hired. The whole team is working on fulfilling the needs and
demands of the customer. They give extra weight to the new product offering and opportunities and also
new markets that have emerged. To achieve this company is investing a higher amount in research and
development domain to hold it and to gain a competitive edge in health and beauty care. The
representatives of the company market the product through brochures, advertising strategies and also by
contributing to the progress and advancing their global visual representation to be famous and known.
Avon is one of the largest merchandiser in the CFT industry in many of its foreign markets.









Recommendations
We recommend that Avon Company should:
Focus on emerging markets and developing countries.
-developed countries had been penetrated well, Avon company has to focus on developing
countries to make a name and be the one (1) personal care brand.
Research and development.
-product advertisement has always been present in Avon Company but as to product
development, Avon company ranks top 8. Therefore, Avon should allocate greater budget for
research and development to counter-attack the retaliatory movement of competitors.

Online Advertisement
- In this fast-pacing world wherein internet has been part of daily routine, Avon
Company should engage in advertising through internet and at least reduce
advertisement in billboards.

Special promotions to direct seller
-Avon must offer special promotions to their valued seller in terms of discounts when
products where purchased on cash basis.