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AVON PRODUCTS CORP.
Term Paper ID:21739
Essay Subject:
Marketing analysis. Products, personal selling approach, strategy, service, pricing, strengths & weaknesses.... More...
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Paper Abstract:
Marketing analysis. Products, personal selling approach, strategy, service, pricing, strengths & weaknesses.
Paper Introduction:
Introduction
Avon Products Corporation was incorporated in 1916 originally and has become an international company with sales in most countries throughout the world. This research examines the company and its marketing strategy, which combines personal selling with personal products for a highly successful organization.
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The mass brandsare currently following suit, with lower-priced alternatives to the $5 -plus department store brands (Revlon's Results, Nivea's Visage, andL'Oreal's Excell A) (Kozloff 12). Throughthe use of catalogs as well as personal representatives, the company isable to help women shop conveniently, and the "professional" appearanceaspect is handled by the nature of the products and the images shown in thecatalogs (Hwang A1). This competitiverivalry can be illustrated by Avon's introduction of Alpha Hydroxy Acid(AHA) products and the results in the industry. These productsinclude skin care products, cosmetics, costume jewelry and even decorativegifts for the house. In this way, Avon's real products belong to three categories: thereis the commodity item of the health or beauty product itself, the enhancedself-esteem that goes with such a product, and the self-esteem inherent inhaving a representative call on the customer, rather than the customerhaving to seek out the product (Colwell 51). The company has beensuccessful in reducing its long-term debt over the past several years; as apercentage of capital, long term debt fell from 68.1 percent in 1989 to24.2 percent in 1993. In addition the workforce was reduced from 45 to 32 in 1993, with fewer employees focused on more tasks (Born 6). Downward pressure on prices has been exacerbated by intensecompetitive rivalry. It continues to be a strongcompetitor in a highly competitive market, and its track record shows thatit excels within its niche. The companyformerly participated in health care operations, but divested thoseinterests in 199 , and the company agreed to sell its retail operations(including upscale Giorgio fragrances) to Procter and Gamble. Works CitedBorn, Pete. Because the consultants do not work directly for thecompany, there is little control that the company can exercise over them.While the compensation structure is such that income provides a strongmotivating factor, the company cannot institute the same control that itcould over its own employees. To this end, the company needs to improve its financialposition, with a special emphasis on continuing to reduce its long-termdebt and improving its short-term position (as measured by the currentratio). Unlike products such as Revlon or Clinique, Avon products cannotbe purchased in retail outlets. Avonproducts are available in 119 countries throughout the world and thecompany has direct investment operations in 4 countries. Revenuegrowth in the health and beauty aids categories increased at the rate of .8percent, primarily due to higher pricing from an improved mix (Kozloff 1). The company has undergone significant change in the 199 s, includingfending off takeover attempts and a reorganization of the global structure. The place of distribution is one of Avon's key differentiatingfactors. For companies that have greaterpricing flexibility than Avon, this is less of a problem than for companieswhich are locked into pricing structures or are otherwise unable torespond. If a single consultant givespoor service, it is unlikely that these consumers will return to thecompany; there are other companies that use in-home selling, and otherproducts available that can meet the consumer's needs in that instance. "Avon Loses Weight to Gain Efficiency." Women's Wear Daily (March 12, 1993): 6.Colwell, Shelley M. These women may prefer to purchaseproducts as part of their regular shopping trips, eliminating the need tospend additional time later on. It'scustomers, therefore, are women throughout the world, and the company hasrecently recognized the importance of targeting Hispanic and African-American women in the United States (Nayyar 22). At the same time, the company faces threats from traditional massmerchandisers such as Revlon and Maybelline, and from premium competitorssuch as Estee Lauder. As a result, consumers who have onerepresentative could have a very different experience with Avon thanconsumers who have a different consultant. Avon and its competitors sell an image as much asthey sell a tangible item (Royce, Franzreb & Reimer 82 ). Basic Product Avon is the world's leading marketer of beauty care products, fashionjewelry, gift and decorative products and prestige fragances. In the case of Avon, that perceived value comes from thepersonal service and convenience that shopping at home provides, and thehigher prices can be explained away by consultants as being offset by thesavings in gas and time that is associated with purchasing products atretail outlets. Avon's prices have traditionally been high when compared to prices ofmass merchandisers such as Revlon, but the company positions its productslower on the price scale than companies that sell primarily throughdepartment stores, such as Estee Lauder or Clinique (Royce, Franzreb &Reimer 82 ). in 1993, and reached a low of .9 in 1991 and 1992. The personalizedselling strategy works well not only in the United States, but also inother parts of the world, including Europe ("Germans" 14). The Company's "Real" Business Avon sells more than just products. The company should also seek out opportunities in China and the formerSoviet Union. This research examines the company and its marketing strategy,which combines personal selling with personal products for a highlysuccessful organization. In addition, it is in the company's best interest tomarket its products as of premium quality so that consumers will have theimpression that they are receiving high quality items at a lower price thanwould be available at department stores. Technology offers opportunities that expand beyond the product lines,as well. Since the health careand beauty aid market is largely based on image, this enhances the variousproducts' attractiveness. Retail operations should be avoided in the near future in favorof building business through other means, including those alreadymentioned. "Share Trends In Cosmetics/Household Products." Industry Report. The company can also seek to expand its market share by expanding itsmarketing to special groups, such as Hispanic and African-American women.Targeting ethnic groups such as these recognizes that cosmetics for womenof different backgrounds need to meet different needs, and enhances thelikelihood that new consumers will come to the company rather thanpurchasing cosmetics that target the generic woman. Instead of using retail outletssuch as discount stores or department stores, Avon products are availableonly through personal representatives. "Toiletries/Cosmetics Industry." Value Line Investment Survey (July 15, 1994): 82 -83 .Sloan, Pat. The company's primary strength, its personal sales force, is also akey weakness. Each customer has a sense of beingimportant to their representative, which enhances the image that is beingmarketed. At the endof 1993, Avon had more than 415, active representatives in the UnitedStates (representing neither a gain nor a loss from 1992) and 1,33 , representatives abroad. "Avon Looks Beyond Direct Sales." Advertising Age (February 22, 1993): 32.Vandeventer, E. The company's worldwide presence is also a strength because it is notdependent on any one country, including the United States, for its success. et al. Overall, Avon has built a strong company based on personal service ina highly competitive industry. The company hasrecognized that innovations are needed in its marketing as it seeks to keepup with changing demographics, and it has test marketed infomercials insome areas with mixed results (Sloan 32). Thestreamlining effort eliminated layers of management and created workgroupsdevoted to a particular area, such as cosmetics, skin care, or homedecorative products. These representatives are independentcontractors or independent dealers who are not agents or employees of Avon. Strengths, Weaknesses, Opportunities, Threats Avon's primary strength is its customer base and its personalizedselling strategy. Again, this enhances the sense ofself-importance of the customer. These companies are able to provide essentially thesame products as Avon, with the discounters offering lower prices and thepremium brands offering the convenience of purchasing products in outletsthat consumers already patronize. Besides selling a line of beauty products,these representatives are selling personal service and convenience, sincemost representatives sell either in the buyer's home, or, occasionally,office (Peak 3 ). The company'spersonal selling approach also has the advantage of requiring little directinvestment, with the result that entry into these markets can be madewithout a great deal of capital outlay. The company is not without weaknesses, however, chief of which is itsfinancial position. Recommendations Avon is not yet in serious trouble. This shouldinclude the use of infomercials, catalog sales, toll-free phone lines, andperhaps on-line purchases. It is the products that are at the heart of Avon. retailenvironment was abnormally difficult for the household products andcosmetic industry participants. However, selling in the home has the drawback that consumers must beable to put aside time to sit down with the consultant; today's workingwomen do not always have such time. Avon Products was the pioneer of applying a lower-dosage form of AHAto an over-the-counter product, with its Anew skin care line ($7 millionin first year sales). Current Marketing Strategy Avon sells to women, even when it sells products for men. The move away from retail operations indicates that the company isrefocusing on its core businesses and its strengths, which is personalselling of quality products. Although the industry as a whole hasundergone recent severe changes, including downturns in sales, Avon remainsa strong company both financially and in terms of marketing. In addition to these considerations, selling in the home or officemeans that the representative can give each consumer a personalized salespitch. Because ofthis, the products themselves are generally viewed as essentiallycommodities, and consumers purchase not so much on the intrinsic qualitiesof the products, but on intangible properties, such as personal service,price and image (Royce, Franzreb & Reimer 821). Avon also needs to continue to develop new products, includingproducts such as Anew that can mark it as an innovator in its industry.Since the company cannot compete (and win) solely on price, it must provideextra value for its products, which it can do by offering goods which areperceived as being of high quality. The use of thesemethods is not intended to serve as a way for the company to enter theretail market, but rather for the company to expand the number of consumersit can reach at home. Because of this, representativesare likely to position Avon against competitors such as Estee Lauder andClinique rather than against Revlon and Maybelline. Each of these avenues continues the traditionof shopping at home, the basis of the company's success. Although Avon's representatives do not work directly for the company,they are supported by the promotional efforts that Avon puts out. Instead, it recognizes that Avon is known forpersonal at-home selling and the current environment is conducive toexpanding that market. It is recommended that the company continue to seek out new marketinginnovations that can be used to expand the marketing message. While there is always a market for some of theseitems, others, which consumers consider luxury items, have higherelasticities of demand with the result that an increase in price, or adecrease in a consumer's income (such as through layoff or wage cuts) canresult in a dropoff in quantity demanded. New York: Smith Barney, March 29, 1994.Moody's CD Report on Avon Products, Inc. There are a number of opportunities available to Avon that can help itcontinue to grow and succeed. Within the United States,the company markets to women at home and in offices as the demographicshave changed and more women have entered the workforce. Instead, it is geographically dispersed with the goal of spreading itsrevenue across a broad cross section of the globe. Following the launch of Anew in early 1992, virtuallyevery prestige brand developed their own "unique" AHA product (Chanel DayLift, Lauder Fruition, Clinique Turnaround Cream, etc.). Inaddition to catalogs and seminars designed to maintain a high level ofcompany spirit among a highly fractionalized workforce, Avon supports itsproducts through a high level of advertising and marketing efforts. These individuals sell directly tothe consumer, and offer demonstrations and personal tips that arecustomized for each buyer. The 1993 U.S. From a company standpoint, Avon continues to seek to provide a highlevel of personal service with strong quality products. In addition to Avon, Mary Kaycosmetics and Beauticontrol Cosmetics both use personal representatives andcatalog sales. These innovations and opportunities do not come without threats,however, and the Anew experience demonstrates that Avon's greatest threatis its competition. Although Mary Kay is privately held, it is estimated to have earnings ofmore than $1 billion in 1992 (Colwell 5 ). Avon also competes against companies such as Revlon andClinique who sell in retail outlets. As a result, the company is more susceptibleto changes in price that companies such as Revlon can implement,particularly when the economy is in a recession and consumers areespecially price sensitive. The selling takesplace one on one rather than in a mass marketing situation (as in a retailoutlet) with the result that the representatives develop closerelationships with their customers. There is also convenience inthat representatives can call at the customer's convenience and women withbusy schedules do not have to work in time to go shopping, but can insteadhave the representative come to them. However, the company cannot continue toconcentrate solely on that which has made it successful so far to theexclusion of innovations that are occurring in the marketplace. This highlytargeted marketing enhances the probability for success. The recession caused companies to re-examine theirstrategies at both the company and the category level. In addition to new products that make use ofnew technology, such as Anew, the company can expand into other productlines, such as cosmetics for men. In order tomaintain this position, the company needs to build on its historic strongpoint, which is personal selling, not retail selling. Slow or declining revenue growth wasattributable to both disappointing volume performance and negative pricingthat stems from fiercely competitive retail conditions, widespread retailerinventory reductions and increased consumer price sensitivity. Takeover attempts and a "poison pill" stock purchaseright have also marred the company's financial outlook in the early 199 s(Vandeventer 262K). A. Those products which are appropriate to the consumer can bemarketed directly, while those that are not can be skipped. In addition to the company's customer base and distribution strategy,Avon also benefits from a reputation for quality products and services.This reputation sets it apart from newer companies who have entered thehealth care and beauty aids market, and also provides a strong pull for newcustomers to make the purchase decision: they are purchasing from asuccessful company. This is not to suggest that the company need never re-enter theconsumer retail market. Because of the level of personal attention that each buyer receives,the Avon representatives are also selling an enhanced sense of self-esteemeven if no product is actually sold on any one call. In part, this pricing strategy is associated with thecompany's structure in using independent contractors, who receive acommission on each unit sold. Instead, personal representatives (who arenot directly employed by the company) go to consumers' homes or offices andsell directly to them. The company has also recently reorganized its merchandising andmarketing divisions in order to promote company growth and efficiency. Another threat that the company faces is a slow economy when consumersmust make choices regarding the health and beauty aid items they arewilling to purchase. In this way, Avon must compete on two fronts. There are no strong differentiators among Avonproducts as opposed to its competition since any differentiators arequickly mimicked by other companies (as in the case of Anew). "Avon's Calling." Management Review (February 1993): 3 - 32.Royce, Marilyn, John Franzreb IV and David Reimer. People purchase Avonand similar products because they want to feel more attractive and hencebetter about themselves. Competition in this market is especially fierce. The 198 s and early 199 s saw a steep decline inthe overall success of the retail industry, and it is not an ideal or evenopportune time for an inexperienced retailer, such as Avon, to enter themarket. By ridding itself ofits retail operations, the company is demonstrating a commitment to thistradition. Thecompany spent more than $2 billion on these activities in 1993, up from$1.8 billion the previous year ("Moody's" 8). Introduction Avon Products Corporation was incorporated in 1916 originally and hasbecome an international company with sales in most countries throughout theworld. The financial position of the company is extremely important in thelong-term because of its impact on the company's ability to raise capitalwhen required. The company's current ratio (which measures itsability to cover ongoing operating expenses) fell from 1.6 in 1986 to 1. By focusing on its strengths, the company should continue todominate its market. Of course, Avon is not the only competitor in the healthcare andbeauty market, nor is it the only company which uses personalrepresentatives selling in the home. If a consumer has an Avon representative in the home,it is because she has invited the representative, not because a salesperson approached the consumer in a store environment. "Avon Products, Inc." Standard & Poor's Stock Reports (August 13, 1994): 262K. "Ding-dong: Updating Avon Means Respecting History." Wall Street Journal (April 4, 1994): A1, A8.Kozloff, J. Avon has proven that it can successfully market its productsthroughout the world, and building markets in these areas is particularlyimportant since they are in the early stages of the lifecycle and Avon hasthe opportunity to build market share if it acts quickly. Direct selling operations consist of the sale of cosmetics, toiletriesand fragrances, fashion jewelry and accessories and gift and decorativeproducts direct to the consumer through sales representatives. Its product lines, includingcosmetics and jewelry, are not necessities, but rather personal care itemsthat enhance an individual's sense of self-esteem. Nearly all representatives are women who well theproduct on a part-time basis. International opportunities, such asChina and the former Soviet Union, also offer opportunities for the companyto expand its worldwide presence. New York: Moody's Investors Service, 1994.Nayyar, Seema. Its customer base is remarkably loyal; consumers whopurchase Avon products once are likely to do so again and remain fiercelyloyal to the brand and the method of purchase (Hwang A1). Another advantage to selling in the home is that consumers arecomfortable there; it is their environment rather than a traditional"sales" environment. But what sets Avon apart from other healthcare and beautymanufacturers is its marketing approach. The pricing issue also means that there must be perceived valueassociated with the higher price for what is essentially a commodityproduct line. Through improvements in the telecommunications industry,marketing in the 199 s is very different than it was in the 197 s and198 s, and Avon has already begun to take advantage of these innovations.Through the use of toll-free phone numbers, fax orders and catalogshopping, the company has expanded the level of customer access availableto its market. "Avon Calling." Brandweek (February 22, 1993): 22-23.Peak, Martha. These companies do not offer thepersonal service that Avon and similar companies do, but instead offerconvenience (women can purchase the product when shopping for other goods)and image. "Mary Kay at 3 ." Soap-Cosmetics-Chemical Specialties (September 1993): 5 -52."Germans Prefer to Buy at Home." Marketing (February 28, 1991): 14.Hwang, Suein. Through marketing innovations such as the infomercial(which again depends on the telecommunications revolution), the company hasexpanded its ability to both market to consumers in their homes and reach alarge number of consumers quickly. In addition, the company continues to emphasize itsinternational operations since only 35 percent of revenue and 3 percent ofprofit came from the United States in 1993 (Vandeventer 262K). This change indemographics has helped the cosmetics industry, and Avon, in two ways:women have less time to shop, and the importance of a "professional"appearance has become a prime motivator for a number of consumers. This has a number of advantages for the company.As already discussed, it gives the customer the feeling that they areimportant enough to have this one-on-one attention. Recently, the company hasintroduced a toll-free number which customers can use to phone in or faxorders, and a new print advertising campaign has also been introduced(Nayyar 23). Mary Kay, for example, provides a very similar line ofproducts to Avon and now has more than 3 , consultants in 19 countries.
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