AVON CASE
ANALYSIS
DECEMBER 8, 2020
Avon.com (A) | HBS
Submitted by: Amal TOM, P19107
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Avon Case Analysis | Amal TOM, P19107, RCBS
The case talks about the world’s largest direct seller of beauty products, cosmetics and fifth largest
beauty company in the world into other non-retailing options other than direct-selling which was used
since a long time ago when the company was started.
Some of the facts related:
→ The company was started by David McConnel as offshoot from book selling business.
→ Started the company from the idea of selling perfume as a California Perfume Company and
appointed ‘Avon Ladies’ to sell directly with the customers.
→ Since there was Direct selling by women a lot of business happened and it led to Cash cow for
Avon to diversify into other businesses.
→ Focused on change in local sales – at work sales
→ Direct mail started functioning in the later stages – failed because of low order sizes to meet the
profitability
→ Aims to build new products and channels.
AVON Color: Leading cosmetic brand in the world
o Target market was women aged between 25-50 and below average income
o Market size was about 25 million US women
o There positioning was for high quality, highly innovative, and outstanding value
o Price was lowered up to 50% in some cases compared to others
Perfume: -
• Sold more perfume per unit than any other company
• Jung: Expansions into hair care and skin care
• Significant R&D spending
Sales Force: -
▪ 500,000 sales representatives in U.S. and it consisted about 5% of Americans in direct-selling
▪ Similar profile of reps of this industry
▪ All women aged in between their 30-40’s
▪ Sell as second-job not less than10-15 average sales/week
▪ Independent contractors and not employees that had direct connection
▪ Extensive sales management hierarchy for recruiting, training and advising
▪ 100% turnover of sales force (characteristic of direct-selling companies)
Differences in Direct-selling strategy
❖ Network Marketing and organized into single level
❖ Unlike other direct-selling companies, did not use Party Plan but instead they focused on one-
on-one meetings with their clients during selling Process
❖ Free to pursue approach that matched style of respective representative
❖ President’s Club members was formed to include Full-time sellers (20 % of reps)
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❖ Part-time sellers (some percentage were ‘stranded customers’ with no experience of selling)
❖ Because they had High Turnover potential through these - Stranded Customers - about 5 million
customers in U.S. alone
❖ Customer List of old reps not available because of representatives quitting and lead to Lack of
knowledge of identity of End-customer with Company thus it became too much dependent on
Reps
❖ Leadership Program: Additional money to representatives for recruitment
❖ Beauty Advisor Program was initiated and Consultative Selling skills added to repertoire of reps
Campaigns:
✓ 26 two-week selling campaigns and 12 per rep
✓ ‘Campaign’ definition that included, Brochure Buying + Distribution to customers + Order
placement
✓ 150 page full-color brochure was released with details about all the products available
✓ Price charged for brochures by Avon was 0.56$ for 10; 0.19$ for 100+
✓ Discount of 30% to max 50% for Avon representative was given as a Source of
Income/earnings for Avon reps!
Logistics:
▪ Order Collection over 2-week period
▪ Each customer Order/spending average: 20$
▪ Cost to Avon for Order Processing was just $4 (i.e. $3 for processing step + $1 for shipping)
Marketing:
Target Market breakup: 12%-18%-70% (Not Buy Avon-Not buy Avon through Rep-Buy Avon
through Rep)
“Company for Women” was image promoted: Breast Cancer promotional activities
Little spend on Advertising: $45 million worldwide for advertising + $12 million for sampling
o Avon.com
Only Direct-to-Customer sales promoted
No role for reps
Sold only beauty products online
Two options to revamp: Eve.com model or iVillage model
DILEMMA
✓ Role of reps in B2C
✓ Commissions to reps for Online sales
✓ Online/website-specific products
✓ Marketing of Avon.com through reps
✓ Incorporate Avon.com into B2B model
→ Incorporation of fully functional online ordering model → $60,000,000 over 3-5 years
→ $3,000,000-$5,000,000 for Online store upgradation
✓ B2B model considered riskier
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SWOT: -
Strengths
1. Strong brand image
2. Largest direct selling company
3. Experience of Board of director
Weaknesses
1. Lack of innovative technology
2. Poor focusing product
Opportunities
1. Embrace Technology advantages
2. New product innovation
3. Bring in eco-green products
Threats
1. Competitive environment
2. Threat of taking over by other companies
Analysis
So, the basic question being asked here is the transition from one type of non-store retail to another. And
its recommended solution to the problems that can happen.
Sales
Existing Customers
70%
Brand Rejector
12%
Other
70%
Channel Rejector
18%
Channel Rejector Brand Rejector Existing Customers Stranded Customers
Due to many representatives moving or quitting, there lead to formation of what is called a ‘Stranded
Customer’ which actually itself is a big untapped resource with 5million customers. It happened mainly
because of 100% turnover rate within direct-selling competitors.
Possible reasons why Reps moved away: -
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• Avon was not using a multilevel approach because representatives used to earn from selling their
recruits
• Representatives was not adapted to selling job and thus they converted their customers into
stranded ones
This suggests that there is be a variance in the amount of revenue earned by representatives in different
companies.
The current expense of deals to organization is practically half of the Net Sales and we need to contrast
this sum with the investment funds and expenses brought about on the off chance that we consider the
expense of planning a best-in-class site for Avon. This should assist us with getting a thought of the
reserve funds and the attractive quality of the option non-store retailing model being thought of.
Activity analysis on Direct-Selling Method: -
1. Preparing a proper customer list on the basis of marketing network or chain of referrals that you
get through existing customers.
2. Purchasing brochures or catalogs from Avon by representatives.
3. Orders placed through representatives through a 35-page purchase order.
4. Processing of these orders by the company.
5. Sales representatives then receives the shipment within 5 days of ordering
6. Delivery is then done again by reps to respective places.
Now we see that with the introduction of new online selling there are some necessary requirements that
needs to be done to improve the new model and replace the traditional one in the places where it’s
necessary.
Some of the suggestions are: -
1) After preparing the customers list again a customer list should be maintained online too.
Because it can make the segmentation easier and for tracking purposes too & this list can then be
forwarded to the next sales representative in case of moving or quitting of that sales rep.
2) Sending brochures to those customers who order after receiving direct mails or by
browsing the online store and thus satisfies the B2C requirement and also send it to
representatives for B2B
3) Order collection for representatives or otherwise ordering by customers
4) And those collected orders can then be submitted directly online to be processed by an ERP-type
system
5) Orders processed by Avon (because it can lead to savings of approx. $1 million on processing of
orders).
6) Shipment received by the representatives then sends it accordingly or forwarded to customers
addresses.
Hence, we see that by avoiding taking orders through a paper-pencil purchase order the company can
actually save a lot of money through following the suggested steps in processing part.
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Preparation of customers lists online will be crucial as it will make it easy for order entry and also make
it in a way in which company can have access to the those lists so that they can make sure there are no
stranded customers.
Possible constraints!
→ Reluctancy to share the customer list online and make it accessible to the company from the side
of representatives because they are their possible assets and makes it easy for the company to
depend less on them.
→ One unique identity of the brand Avon is their direct selling strategy through women. With the
onset of avon.com maybe this traditional image can go.
Hence as a solution I suggest that there should be proper communication from the situation to the
company management and also, they have to look into making changes like assuring improved
importance to the direct selling model and remove the fears of Representatives regarding the chances
of removal in the future and also highlight that both direct and online modes of selling will be
promoted.
→ Since the company is more known for the direct selling method there are chances that they could
fail in the online mode because of the presence of other competitors who function well with good
market presence. So, they have to make sure they are getting huge market attention and meet
required profits to run them.
Some steps like, marketing to customers directly alongside marketing to representatives,
advertising the website names on new brochures and catalogues supplied and website options
should be made available for customer to have sales via Representatives or directly to customers.
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