Marketing Analysis of Avon

Marketing Analysis of AvonDavid H. McConnell founded the smart set in 1886 at the age of 28 days old. He sold books door-to-door and distributed perfume to lure women to vitiate his books. His perfume was much popular than his books, so he then founded the California Perfume confederation (CPC) in New York, New York in a 500-squargon-foot (46 m2) manufacturing and shipping military post at 126 Chambers Street. As the corporation grew, he employed his first representative, Mrs. P.F.E. Albee. In 1897, McConnell built a sm every (3000 square foot) laboratory in Suffern, New York. In 1906, the West bound office in San Francisco was destroyed in the Great Earthquake. In 1914 the first non-US office was opened in the Canadian province of Quebec. January 28, 1916, David H. McConnell and Alexander D. Henderson ( careman) in Suffern, New York2incorporated the California Perfume union. Sales succeed $2 cardinal by 1928 following volt million units sold in North America. The atta ch to name was changed to Avon Products Inc. October 1939 which was taken public by 1954, gross revenue reached $55 million, and the Avon C exclusivelying advertising campaign introduced. Avon Suffern research and Development zeal came into existence in 1971. With unity million gross sales representatives, sales reached $3 million, right away sales exceed $10 billion worldwide. The 100 million dollar Research and Development facility which house 300 research scientists on the original site in Suffern, New York was opened in 2005. Avon also has offices in Luzerne, Pennsylvania and Davenport, Iowa.Andrea Jung is the alliances Chairman and CEO, who was selected to the position in 1999. As at December 2009, the phoner had approximately 41,000 employees32.2 Company Profile2.2.1 Organizational StructureThe Office of the Chairman is responsible for identifying branch initiatives, incorporating international strategies, and apportioning resources to Avon units around the world. I n addition, as part of the reorganization, the firms tercetsome International Regional headquarters were to be phased out, alternated by nine stream officed business units c everyplaceing sales, marketing and distribution around the world. Profit and sledding accountability rested with them. Managers of these units would report directly to the Office of the Chairman.Also reporting to the chairman are five global staff incisions Finance/legal Affairs, Human Resources, Corporate Affairs and Communications, Planning and ware cast Development, and a refreshing department Global Product Management. Each department assumes worldwide function for its function2.2.2 study Lines of BusinessAvon Products gentle wind includes skin care items, makeup, men and women perfume fragrances, and bath toiletries, hair care, in the flesh(predicate) care, tidy sum and body care and sun care. Recognizable brand names included Skin-So-Soft, a product in the bath products area, which benefited from wide publicity concerning alternative uses Moisture Therapy and Imari fragrance. Newer products include Avon Color, an entirely new line of more than 350 shades of lip, eye, face, and nail colors. The product line assures customers that Avon has just the right shade for them and that their total look could be coordinated. Avon newest product Anew Perfecting Complex for Face, won the most successful skin care product in Avon history.Internationally, the companys product line is marketed in the first place at moderate price points. The marketing strategy empha sized department store quality at discount store prices. Avon is the worlds largest manufacturer and distributor of fashion jewelry, and markets an extensive line of gifts and collectibles. A separate division, Giorgio Beverly Hills, manufactures and sells prestige fragrances. These brand name products are sold through and through major retail department stores, in boutiques, by mail fiat catalog and by early(a) bureau .2.3 operate StrategiesAvon Products Inc. is unambiguously among major corporations, a womans company. The company sells products to, for and through women. The company understands women needs and preferences better than most. This understanding guides the basic business and influences the choice of new business opportunities. Avon need to reach and are becoming, more customer-oriented and more market- driven.Each one of the 18 words in the vision statement has considerable meaning. The three most definitive elements, however, are the focus on women, on creation global, and on the additional opportunities for Avon in self-fulfillment.Avon Products Inc. PrinciplesTo provide individuals with additional earning means to support well-being and happiness.To escort families satisfaction from quality productsTo render outstanding service to customers in its helpfulness and courtesyTo acknowledge and reward employees and Representatives contributions.To distribute the dividend of ou tgrowth and success with othersTo tint social corporate responsibility andTo keep and treasure the hospitable Avon spirit. ascendant Avon Representative Success Book2.3 Operating Strategies2.3.1 Mission instruction and Management ObjectivesAvon Products Inc. intends being the company that best understands meets and satisfies women needs globally.The International Beauty leading company intends to extend competitors in quality, innovation, value and raising image to become women favorites Beauty Company worldwide by creating a unique portfolio of Beauty and related brands. The Womens quest for Buying Avon products allow for become home store for women, pass the convenience of multiple brands and channels, and providing a personal high touch shopping experience that helps create spacious customer relationships. The Premier Direct Seller depart expand the companys presence in direct selling and lead the reinvention of the channel, offering an entrepreneurial opportunity that d elivers superior earnings, recognition, service and support, making it easy and rewarding to be affiliated with Avon and elevating the image of the industry.Avon products leadership edge is through passion for high standards, respect for diversity and trueness to create exceptional opportunities for professional growth so that associates can fulfill their highest potential.The companys philanthropic efforts aim at eliminating breast cancer and empowering women to be economic freelance. As a way of creating wealth for shareholders, Avon seeks new growth opportunities and up profitableness, a socially responsible, ethical company that is noticed and imitated as a model of success.2.3.2 Business Models and StrategiesAvon Products, Inc., is one of the worlds largest direct selling organization and merchandiser of beauty and beauty related products. From corporate office in New York City, Avon markets product lines to women in 112 countries through 1.6 million active independent cont ractors (sales representatives) that receive a percentage commission for their sales but do not enjoy employment benefits, they sell primarily on a door-to-door basis. The idea behind the direct selling model is to eliminate the pith man (department and cosmetic stores) and get its products directly to consumers which will be able to cut costs and growing profits.November 2005, Avon products inaugurated an exhaustive turnaround plan to restore sustainable growth. The four-point turnaround plan includesCommitting to brand war-riddenness by focusing research and development resources on product innovation and by increasing our advertising winning with commercial edge by more effectively utilizing pricing and promotion, expanding our Sales Leadership program and improving the attractiveness of our Representative earnings opportunity as neededElevating organizational effectiveness by redesigning our anatomical structure to eliminate layers of way in order to take full vantage of o ur global scale and size andTransforming the cost structure so that our costs are aligned to our revenue growth and remain so. extension 10-K (Feb 25, 2010)One of the goals of the 2005 Turn-around Plan was to increase the number of Representatives paid in 2007 when the company had 13% increase in net sales as a result of the increase in the number of RepresentativesPrimarily, Avons revenues come from three main categories2009 2008 2007 2006Beauty Products 72% 72% 70% 69%Fashion Products 17% 18% 18% 18%Home Products 11% 10% 12% 13%Source http//www.wikinvest.com/stock/Avon_Products_(AVP)Beauty Products Cosmetics, fragrances, and personal care.Fashion Products are Jewelry, watches, apparel and accessories.Home Products Home products and decorative products.2.4 SWOT Analysis2.4.1 StrengthsPresence in dynamic sectorStrategic focus on acclivitous marketsDiversification through acquisition wide-cut brand appealFinancial stabilityStrong brand image2.4.2 Weaknessesoer credit on Beauty Prod ucts (72%)Limited outlets for the customersConfusing promotions, out of date catalogs, unattractive packaging and customer complains of Avon image.Over reliance on Sales RepresentativesProducts are not comm provided found in store2.4.3 OpportunitiesGeographic branch Enormous growth opportunities exist in countries with huge populations such as mainland China, Indonesia and India. In Eastern Europe, management is excited about the potential in Poland, Czechoslovakia, and Hungary. In the Pacific Rim area, countries like Vietnam, Cambodia, and Laos are targeted as market opportunities.Emerging and Developing Markets In those markets, the retail infrastructure was undeveloped, especially in the interiors of those countries. The Avon representatives provide consumers with opportunities to buy a wide range of quality products at acceptable prices2.4.4 ThreatsAvons dependence on the productivity and profitability of the representative direct-selling model exposes it to cost and litigation risks. It is likely that AVP will incur future costs through litigation and resolution of the lawsuit, which may include terms that would increase costs and decrease profits for Avon. capital Fluctuation Risks as a result of much presence in global markets Only 20% of the companys sales tax come from the United States while other countries contribute 80%, making the company very sensitive to currency fluctuations and the strength of the dollar. A weakening of the dollar against alien currencies would allow Avon products to become more competitively priced in global markets, thus positively affecting sales revenue from foreign markets however, a weak dollar would also mean higher costs for products manufactured overseas.2.5 Core CompetenciesOver the last three grades, Avon Products grant been implementing its turnaround plan through unlike strategic initiatives, including restructuring plan, product line simplification program (PLS), strategic sourcing initiative (SSI) and inv estment in advertising and sales representatives.Among other things the company does well areDiversification through acquisitionDistribution strategy and brand image luxuriously technology and innovationEconomic EmpowermentPhilanthropy3. Industry Analysis3.1 Industry Definition, structure and major competitorsThe US personal care products industry includes about 800 companies with combined annual revenue of $50 billion. major companies include Estee Lauder, Johnson Johnson, and Procter Gamble. The industry is concentrated the 50 largest firms account for about 70 percent of industry revenue. on that point are 28,001 companies in this industry with the US personal income driving consumer demand for personal care products4.Company Sales LocationThe Protecter Gamble Company 78,938.00M Cincinnati, OHLOreal SA 25,041.73M Clichy, FranceKimberly-Clark Corporation 19,115.00M Irving, TXColgate-Palmolive Company 15,327.00M New York, NYKao Corporation 12,777.13M Tokyo, JapanSource http//w ww.hoovers.com/industry/personal-care-products/1192-1.html3.2 Industry Growth and ProfitabilityMarket moves over the last twain socio-economic classs drop clearly been extraordinary. The forecast call for a continued, gradual recovery in demand from developed markets with emerging economies faring better.The personal and disposable personal incomes are the main drivers of this sector. According to the Bureau of Economic Analysis, July 2010, Personal income change magnitude $30.0 billion, or 0.2 percent, and disposable personal income (DPI) increase $17.6 billion, or 0.2 percent, Personal consumption expenditures (PCE) increased $44.1 billion, or 0.4 percent. remand 3.2 Personal and Disposable Personal Income2010June July Aug. Sept. Oct.(Percent change from preceding month)Personal income, current dollars 0.1 0.2 0.5 0.0 0.5Disposable personal income menses dollars 0.1 0.0 0.5 -0.1 0.4Chained (2005) dollars 0.2 -0.2 0.3 -0.2 0.3Personal consumption expendituresCurrent dollars 0.0 0.5 0.5 0.3 0.4Chained (2005) dollars 0.1 0.3 0.3 0.2 0.3Source Bureau of Economic Analysis, US section of Commerce. July, 20103.3 Pest Analysis of External Factors Affecting the Industry3.31 Political FactorsThese include the form of brass, role of regime whether as a participator or a facilitator or a regulator, political stability and risk, consumer protection, employment law, election, competitive regulations, industry-specific regulations, environmental regulations, understanding cultural differences, government structures, governmental leadership, political trends, taxes, terrorism and war.Avon Products is majorly affected by government tax and industry specifications. Different countries have different regulations with taxes.Political and legal systems of different countries have present momentant implications for Avon Products. Sometimes, the political system changes quickly, throwing the company into crisis and at other hand, it evolve more slowly.Countries Over 30Hong kong 25.25China 17.37United Kingdom 25.69United States 26.26Singapore 25.24Thailand 16.42Norway 28.19Canada 27.80Japan 24.65Russia 14.66Source http//www.euromoney.com/Article/2675660/Country-risk-September-2010-Full-results.html3.3.2 Economic FactorsIn various countries, economic growth trends differs, government spending levels, taxation, disposable income, exchange rates, tariffs, inflation, job growth/unemployment, consumer confidence index, import/export ratios, and production levels.Avon has experienced fluctuating growth its said to largely depend on economic conditions and disposable household income levels. A higher disposable income will definitely increase spending pattern.3.3.3 loving FactorsThese include race, family size, age, gender, lifestyle changes, population shifts, education, trends, fads, diversity, immigration/emigration, health, living standards, housing trends, fashion, attitudes to work, leisure activities, occupations, and earning capacity.Since Avon major source of Revenue is on Beauty products which is mainly used by women, the company stands the chance of increasing revenue all things being equal. A higher taste or lifestyle to substitute products like Mary Kay may affect the company revenue.3.3.4 Technological FactorsThese are factors that enable innovative and creative ideas that make Avon to compete and meet customers needs. These include Inventions, new discoveries, research, energy uses/sources/fuels, communications, rates of obsolescence, health (pharmaceutical, equipment, etc.), manufacturing advances, information technology, internet, transportation, bio-tech, genetics, agric-tech, waste removal/recycling, and so on, all these and many more need to be improved upon continually. As technology advances, there is need to ensure compliance and engage in more research in an attempt to increase the quality of the products. The company should keep the analysis of past developments separate from that of the present situation and f uture trends3.4 Porters five forces of Analysis controversy3.4.1 Threat of new Entrants junior-gradeBeing a household name for some years, the threat of new entrants can be said to be low. Consumers who are serviced in this industry tend to stick with long and experienced3.4.2 Threat of Substitutes HighThere are several substitutes to Avon products by its competitors in the market. A excellent change or below standard can push customers to buy other products.3.4.3 Bargaining Powers of provider Low3.4.4 Bargaining Power of Customer LowCustomers who are mainly women often dont mind price(s) as long as they have value for money spent. Rather than customers fixing price, Avon does.3.4.5 Rivalry among Competing Firms HighThis is very high. Mary Kay among several others is in high competition with Avon.3.5 SummaryBargaining power of buyers Low agonistic Rivalry within an Industry HighThreat of Substitute Products HighThreat of new Entry- LowLowBargaining power of suppliers Low4. E conomic Outlook4.1 Global OutlookThe last three quarters have been impressive with the companys operating performance and its key credit measurements are improving. Avon is envisaged to continue to have conservative stances with its liquidity and share repurchases.Avon innovative ideas has earned its performance very well relative to its consumer products accomplice group and remains one of the best geographically positioned companies to gain from emerging market growth over the next several years.Avon is in the midst of a restructuring that includes cutting jobs and trimming overhead. It has concentrated on recruiting independent sellers, as well as broadening its assortment of less-expensive items, including products under $5, to drive sales. It is also growing sales in emerging markets.The recession affected the manufacturers of beauty products fairly well, due to large part to their extensive product range. While demand for cosmetics stumbled some are considered essentials and were mostly resistant to the downturn. The economic recovery will push the industry back to steady growth, as improving disposable incomes allow consumers to spend more on nonessentials like makeup. Meanwhile, manufacturers will expand both their product lines and geographic reach to take advantage of new market opportunities5.4.2 Regional OutlookAvon is on a course of action to deliver beefed-up quarterly growth, although the US market is likely to prove the exclusion to regional growth in sop up of the tough conditions there.The worlds leading direct sales cosmetic company increased revenue by 8 per cent for the first quarter in dollar terms, while the continuing weakness of the dollar will mean that revenues will rise by 5 per cent in local currencies.Based on region, Avon revenue is communicate to leap and operating profit forecast to be up. Internationally, Latin Americas revenue is projected to increase at a double-digit rate and operating profit forecast to grow in line w ith or slightly ahead of revenue, reflecting a strong performance in both the Brazil and genus Argentina markets.Europes revenue and operating profit are expected to increase in the ranges of 10 per cent and 15 per cent, respectively. Growth in this region is continuing to focus on the central and eastern European markets.Operating profit is expected to be more than 25% in the Asia Pacific region.4.3 Local OutlookAvon overall growth is being driven by sales of beauty products, which are expected to increase more and more particularly the Anti-aging skincare Product. The company feels it is also a reflection of its successful new product launches and continuing commitment to invest significant resources to support its brand-building strategies.Also, the company expects increase number of active representative to positively impact on sales.4.4 SummaryThere is strong growth and improving profitability as the global outlook becomes Stable from Negative.5. Ten-year pro forma forecast5.1 Underlying AssumptionsAvon had $650 million Agreement with Silpada. The company designs is the worlds largest and fastest-growing superior silver jewellery home party company which is expected to generate revenue from 20156.Focus on emerging markets such as Brazil, China, Colombia, Russia, Turkey, and Venezuela, aiming for high market share and brand recognition in these markets. The only positive regional revenue growth the company had been in the Latin America and China at 5.6% and 0.7%7. For example, China re-licensed Avon for direct-selling, which allowed Avons revenues from China to increase rapidly from 2006 to 2008. The total revenue from China rose from $212 million in 2006 to $353 million in 20098. Similar situations may arise in Avons other emerging market segments. change magnitude cost of production and Companies are also focused on controlling their operating margins in order to maximize their profits. While advertising and commodity costs have been rising, efficient production has been useful in reducing margins.A takeover Rumour by LOreal expand in emerging markets, particularly in Latin America9First quarter for the year ended March 31st, 2010.10Avons net income was $43 million, a 64% decrease from Q1 FY 2009 net income of $117 million. The decrease was mainly caused by AVPs effective tax rate being a 66.1% due to the devaluation of Venezuelan currency. Excluding this negative impact, net income was actually $144 million. Total revenue increased 14% to $2.5 billion. The number of active representatives grew by 6% as the recessionary environment attracted many fired people to Avons independent selling business strategy. Additionally, the companys Beauty segment grew by 14%.Avon had mixed sales results internationally, as it had a 2% sales decline in North America, a 22% sales increase in Latin America, a 31% sales decrease in China, a 28% sales increase in Eastern Europe, and a 23% sales increase in horse opera Europe and Africa. The company spent $96 million on advertising a 23% increase from the same quarter last year.Second quarter for the year ended 30th June, 2010, Q2 FY 2010.11The companys Net Income was $167.6 million more than double the year-ago quarter value of $82.9 million. Net sales rose 8% to $2.68 billion. Sales in all of the companys product categories increased with 16% growth in perfume and 12% growth in color cosmetics. Avon increased advertising in the quarter to $97 million, up 19% from the prior year quarter. The company increased advertising mainly in Latin America. Geographically, Avons revenue increased 16% in Latin America from strength in Brazil and Mexico. Sales in North America remained flat. of import to note is Other Income for the quarter in review shows a deficit of usd 100m.12Third quarter for the year ended September 30th, 2010Avons net income increased 7% to $167 million. The higher costs are due to advertising and weak sales from markets like china and Brazil.Net Revenue increased 4% to $2.66 billion, compared to $2.56 billion in the prior year quarter. The company benefited from higher sales in Latin America (8% growth) and Western Europe, the spirit East, and Africa (11% growth). However, sales in North America remained stagnant with a 2% decline in growth and sales in China fell by 30% as Avon tries to transition away from retail stores in the region in favor of a direct selling method that it uses in its other markets.Advertising costs increased 36% as the company promoted its fragrances as well as its two new product categories hair and acne13.