The Strategic Management Papers of Avon Products Inc.

A Strategic Management Proposal

Presented to the
Faculty of Business Administration
College of Business Administration and Accountancy
Colegio de San Juan de Letran
In Partial Fulfillment of the Requirements
For the Degree of Bachelor of Science in
Business Adminsitration
Major in Business Management

Proposed By:
Abadicio, Benjamin
Austria, Marco Alfonso
Mallari, Nicolai
Ramos, Jherico
Valero, Joannalynne
MG4A

Introduction:

I.

Business, we know, is an entity that makes us profit when we sell it to the

market. Of course, we know that it would be more profitable if we lessen the cost.
However, not all entities are different in rendering service or selling goods; for
example a seller of soap and a seller of shampoo. There entities that same
entities which a threat in your business and sometimes they will your sales in half
or may be not. Thats why; there is a strategic management that uses planning,
organizing, staffing, controlling and directing. To raise your sales by manipulating
your consumer through utilizing their culture, know their wants and identify their
needs. Also strategic management is not only for consumer and raising sales, but
also handling risks, exploiting opportunities and strengthen internal audit.
Research Design and Methodology
The Strategic Management Paper was all set mainly to formulate and
propose general strategies for Avon Product Inc. to consider as it competes in
highly competitive cosmetic industry. To be able to come up with the paper
analyzing Avon Company certain data and structure have to be analyzed and
evaluated. As a result, quantitative and qualitative data and information were
gathered from different sources. Avon products Inc. taking into account that it is a
US based. Additionally, the information was collected through respective
websites.
The paper includes significant emphasis on the financial performance and
operation of the subject matter, for that reason relevant website became the
primary sources of information of the paper. In course of the research,
researchers have visited the main websites of Avon Product Inc. and the website
Of some financial entities in US that is accordance to the topic.

The paper is fastidious to an examination of financial statements of Avon

Product Inc. and the financial statements of the competing company in same
industry. Thus, annual reports of those companies are gathered taken from their
respective websites, these became the basis for analyzing their operations and
performances.

Accordingly, the paper prepared of the following research methodology:

1. Documentary analysis This approach is primary and basic reference
materials to support the whole study. In this method of research, all
documents and materials associated to the specific subject matter were
examined and analyzed. Hence, documentary analysis approach is useful
in conducting any research particularly in doing a research about company
analysis also this approach results to develop and prove the substance
and source of the information. This approach provides reasonable and
efficient information to support the study.
2. Descriptive Method This approach is both main and secondary
information pertaining to the subject which were gathered from the diverse
sources were recorded analyzed and interpreted. This method creates a
basis for a better conclusion, recommendation related to the topic of the
study.
The advocate personal and hands- on knowledge and experiences in
personal care business and its various aspects were also completed to bear
on the analysis of the different information collected from the sources
mentioned earlier.
The paper formation remains to the arrangements prescribed in the
strategic management course syllabus. The first part confers the key external

factors that affect cosmetic industry as a whole. The second part analyzes
competes in the cosmetic industry. The third part is about strategy formulation
using several decision tool matrix and strategy evaluation framework. The last
part is to come up with a package of recommendations that may consider by
the Avon product Inc. as it continues with its in the most effective and efficient
manner.
Scope and Delimitation:
The Strategic paper delimits only Avon Products Inc. and its factor both
external and internal to asses the merchandising of the Avon products. And finds
a strategic solution on the problem that derived by Fred David. The coverage of
the study is from 2000-up to present where the study of firm is use in the time
frame which is late time from the present.

Company Profile
Avon is the worlds largest direct-selling organization and merchandiser of
beauty and beauty-related products. From corporate offices in New York City,
Avon Markets product lines to women in 143 countries through 3.9 million
independent sales representatives who sell primarily on a door to door or direct
selling basis. Avons product line includes skin care items, makeup, fragrances
for men and women, and toiletries for bath, hair care, personal care, hand and
body care and sun care. It also includes an extensive line of fashion jewelry,
apparel, gifts and collectibles. Recognizable brand names such as Anew, Skinso-soft, Avon Color, Advances Techniques Hair Care and Avon Wellness are
featured. There are approximately 600 items in the product line. Avon is also the
worlds largest manufacturer and distributor of fashion jewelry, and it markets an
extensive line of gifts and collectibles. They have also product line to men called

M that actually has not in services yet. A mark is another business that recruits
a new generation.

History
In the 1800s, David McConnell, a door-to-door book salesman, had an
idea he believed would encourage women to buy his books. Following a common
trade practice of the period, he gave prospective customers a gift of perfume to
arouse their interest. Before long, he discovered that the perfume was more
popular than the books. He formed a new firm, which he called the California
Perfume Company. He started in a space scarcely larger than an ordinary
kitchen pantry. McConnell noted in 1900, his ambition was to manufacture a line
of goods superior to any other and take those goods through canvassing agents
directly from the laboratory to the consumer. His business has based from
several factors: (1) products sold directly to the consumer, (2) an image of the
company that captured the beauty and excitement of the state of California, and
(3) a national network of sales agents he had organized during his years as a
bookseller.
In the early 1950s, the sales representatives territories were reduced in size, a
strategy that led to a quadrupling of the sales force and increased sales sixfold
over the next twelve years. Avon advertisements appeared on television for the
first time during this period. The famous slogan Ding Dong, Avon Calling was
first used in 1954.

II. External Analysis

The portions entail the factors beyond the control of the firm which can be
inflicted and turning point the firm condition. These external factors are

forecasted and estimated by some the agency which could help the firm to
interpret and analysis these factors. The significance of External Analysis is to
examine the factors which are the opportunities that can grab and threats that
can avoid by the business through pursue of strategies. Forces includes Sociocultural, Politico-legal, Economic, technological and competitors.

Economic Forces
In Economics, The Firm in the Geographic areas has better economic
performance annually. However, some countries are declining the economic
performance especially the GDP or Gross Domestic Products, due to the 9/11
bombing attacks at the world trade center, war in Iraq, contagious disease in
China and other events.
Table 1.1 GDP of United States:
Year
2003
2004
2005
2006
2007

GDP
Rate
2.45%
3.10%
4.40%
3.20%
3.20%

As illustrated in the table, year 2003-2005 had an increase in its GDP

rate. And then from 2006-2007 the GDP was constant.

Table 1.2 Inflation Rate of United States

Year
2003
2004
2005
2006
2007

Inflation
Rate
3.00%
2.00%
3.50%
2.90%
3.90%

In the year 2007, there was 3.90% inflation rate, a slight increase
compared to the 2006 inflation rate with 2.90%. The inflation rate of USA
changes with uncertainty, due to the economic condition of the country.
Table 1.3 Unemployment Rate of United States:
Year
2003
2004
2005
2006
2007

Unemploymen
t Rate
3.00%
4.00%
4.49%
5.00%
5.50%

The Table shows that there was an increasing trend in the unemployment
of the American people, due to economic status of their state. Terrorism also
plays a large role that affect their economy negatively.
Synthesis:
These shown Tables of GDP (Gross Domestic Product), Inflation and
Unemployment rates are the basis of the firm in the external forces of to pursue
the goals through flexible strategy. Avon must be proactive in these forces of
each Geographical area. In the interpretation of the Table the high GDP means
the more income will receive by the consumers. Thus, they have a purchasing
power to buy their needs and wants. While lower GDP means lower the income
of the consumers. Inflation is the rising of the price in the market that lessens the
purchasing powers which could the firm.

Which means higher inflation rate

means less people who can buy the products and lower inflation rate means
more people who afford the products. Unemployment rates is very significant to
Avon,

because

increase

unemployment

rate

means

that

more

sales

representatives. In other words this is the basis of recruiting sales

representatives. Also decreasing unemployment rates is advantage of the firm
because the more income of the consumers will have more purchasing power of
the consumers.
Technological Forces
In the Information Technology, people are now more aware in the
international events that worlds happening today, by this technology the people
know the events through having an internet that gives daily reports and news that
people being abreast in the events. Also having an internet is an easy access
because with power of it. People could buy anything without going to their homes
to purchase something. Just like amazon.com, e-bay and other website that
accommodates mail-order. So Avon adopted internet or e-rep to have sales or
business in the firm without any sales representatives that provides door-to-door
for the consumers. Just one click on the computer and they provide the products
as they bought. However, the information system may vulnerable against viruses,
weather or climates disaster, power loss, fire, break-ins, and other events that
could disrupt the business which adversely effect the operations. Even though
there are safety measures against unauthorized tampering or viruses.

Political Forces
The force that impedes the firm is threat of World trade Center in which
the airplane was crashed to the twin towers that many people died and the
pentagon in which the base of the US military. Subsequently, Pres. George W.

Bush sent the troops, after he gave a 48 hours time allotment to surrender, to
capture or kill Osama bin laden whose behind of those attacks at the world trade
and pentagon. Another issue is the threat in China the outbreak of SARS, a
respiratory disease that does not have a medicine yet. This disease is
contagious, through airborne contamination. That in seconds the person will
infected from these disease. In the Philippines, the consecutive people powers,
impeachment attempts and rally to oust Pres. Gloria Macapagal- Arroyo alleged
from Grafts and Corruption, unconstitutional orders, Human Rights violations and
poor managements has been obstacle by the firm. Because of the chaos that
ensue to closure of some firms that should operate regularly. Mostly, banks
transact every day to their clients. That ensue a pre-mature closure or
bankruptcy. There is political instability in other foreign countries which impose
them to ban or restrict their in direct-selling because of the political instability that
might occur the recession or disruption of the operation of the business.
Demographic Forces
In the World, we were about 6 billions of total populations. The birth rate
21 while death rate is 8, the mortality rate is 49. The risk of the Mother in dying in
maternal cause is 92 percent; rate of natural increase is 1.2%

and total fertility

rate is 2.6%.
In United States, has 304.5 millions of the countrys populations; the birth
rates is 14% and Death rates is 8%, the infant mortality rate is 18, the risk of the
Mother in dying in maternal cause is 4800; the mortality rate is 6.6%, rate of
natural increase is 0.6% and total fertility rate is 2.1%.
Europe, has 736 millions of the countrys populations; the birth rates is
11% and Death rates is 11%, the infant mortality rate is 6, the risk of the Mother
in dying in maternal cause is 9400;, rate of natural increase is 0% and total
fertility rate is 1.5%.

Oceania, has 35 millions of the countrys populations; the birth rates is

18% and Death rates is 7%, the infant mortality rate is 25%, the risk of the
Mother in dying in maternal cause is 160; rate of natural increase is 1.1% and
total fertility rate is 2.4%.
In Asia, the largest continent in the world, Compose of Hong Kong, India,
Japan, Malaysia, Philippines, South Korea, Taiwan, Thailand and China. The
populations are 7.0, 1, 149.3, 127.7, 27.7, 90.5, 48.6, 23.0, 66.1 and 1,324.7 in
millions respectively. The birth rates are in percent: 10, 24, 9, 21, 26, 10, 9, 13
and 12 respectively. The death rates are in percent: 6, 8, 9, 5, 5, 5, 6, 8 and 7
respectively. The infant mortality rates in percent are 1.6, 57, 2.8, 9, 25, 4, 4.6, 16
and 23 respectively. The risks of the Mother in dying in maternal cause in Hong
Kong is not have yet, however, there is 70 in India, 11, 600 in Japan, Malaysia
has 560, 110 in the Philippines, 6,100 in the South Korea, Taiwan is not have yet,
and 1,300 in China. The rates of natural increase in percent are 0.5, 1.6, 0.0, 1.6,
2.4, 2.1, 0.5, 0.3, 0.5 and 0.5 respectively. And the Fertility rates in percent are
2.1, 2.8, 1.3, 2.6, 3.3, 1.3, 1.1, 1.6 and 1.6 respectively.

Legal Forces
The Avon has impediments against the enacted laws of the Government.
One of the laws is the imposing taxes or other financial burdens on the sales
representatives which tendency of decrease of representatives ensue to
decrease in sales.

Aside from imposing Legal Income taxes to the

representatives. Avon has compelled by the law to bind the sales representative
and the company to an independent contractors or make them as an employee.
Avon must conform the rules, regulations, policies and restrictions of other
countries and US. Although its affect to the operation of the firm, the regulations
in the early stage of development would not have an impact to the firm.

The Products of Avon secured by the intellectual property rights of the US

government and other countries. Such as Trademarks, Patents and Copyrights,
However, Some Countries such as China may not secure the intellectual property
rights same extend as U.S. that needs a cost to substantially protect the
trademarks and patents of Avon.

Competition
The competition of cosmetic industry and consumer package goods is
highly competitive both domestic and international. Even Geographical and
regional areas, there are having competitors. The competitors in the products are
also highly competitive to the firm. Thus, the firm is competing the competitors
and their products through direct-selling, direct-selling, internet, fax, email and
telephone. Also, the firm pursue a distinct business model which compelling the
representatives to earn income. That develops marketing and innovative
products. In most typical companies, in the consumer package goods operates
the ultimate broad-base pool of consumers. The firm must compete the limited
consumer pool, before they compete the ultimate consumer pool. Avon competes
every aspect in the products. The Cosmetics, Fragrance and Toiletries of the firm
competes the highly industrialized and largest manufactures of cosmetics in the
market. The apparels, decorative and gifts products of firm compete against the
department stores, apparel stores, gift products and decorative stores. Fashion
Jewelries meets against few large jewelry competitors and many jewelry small
competitors.
In order to assess the high competition nature, the Porters five force of
competitive analysis is applied and use as a basis accordingly.
a.) Rivalry from among competitors According Porter, if the firm wants to
change, there must counter strategy to the competitors. That will have

turning point or surpassed the performance of the company against the

leading or opposing competitor. The firm should have a competitive
advantage to fortify the strategy, to makes effective to the stakeholders.
For instance, If the leading competitor has the low price on the product,
which attractive to the consumers. Hence, the firm also must have the
strategy that gives good product image and low price as well, which can
be attracting the consumers. In the example, the good product image is
the competitive advantage of the firm. The rivalry between in the market
is also the follow the leader or domino effect. In instance if one company
pursues the strategy of discount and low prices, the competitors will do
same strategy to the match the competition in the market. However, there
is some that adapt the products with innovation. That surpassed the
offering of the competitors. Such as like adding sales representative or
sales force to increase the promotion of the product.
b.) Potential Entry among New competitors- In the industry, there will be a
new competitor that penetrates the entry barriers of the market. The new
competitors of the firm are the competitors in regional or Geographical
areas which limits their markets in their territories. The advantage of new
competitors is the capitalization of the resource and inept image or clean
to the public. However, the disadvantages of company are inept
experiences and small size competitor. The firm must use their
competitive advantage to thwart the penetration of the new competitors.
c.) Potential development of the Substitute products- the potential
development of the Substitute products is the dermatology product,
cosmetics surgery and herbal medicines or herbal beauty alternatives in
Asia. Also, the medicine such dietary, teas and other that made in
Bangkok, China and other parts of Asia. These Substitute products may
lead to competition of the firm. However, it is not necessary for the firm

because only few people use the substitute products which are not safe to
the person that occurs side effects to the person who use it.
d.) Bargaining power of the suppliers- The bargaining of the firm must
have the strong relationship due to the many competitors that affect the
quality of the products. Firm must pursue backward integration to the
suppliers. To continue the production of the products to avoid stock-outs
and shortage of the firm.
e.) Bargaining power of consumers- the competition in the markets is the
dilemma of the firms by shifting and switching of the products of the
consumers by the company offers to make it attractive and select by the
consumers.

The firm must be establishing a turning point by making

strategies to cushion the declining sales and make a hedge against the
shifting brand of consumers. Create a run to surpass that prior over to
the competitors.
III.

INTERNAL ANALYSIS

In the Internal Analysis, the company has the control in the factors
affecting to their factors. However, the weakness has the impediments in the
company that could results of decreasing sales. The internal analysis there is
six factors could be check. First is the Management, Marketing, Finance,
Research and development. Management Information System (MIS) and
Operations.
Marketing
Products

Avon commenced their products in 1886 and incorporates of State of New

York in January 26, 1916. The firm is a global manufacturer and marketer of
beauty and related products. Avon conducts business in the highly competitive
beauty industry with the High industrialized and competitive beauty products
against the other consumer package goods in the US and other foreign
competitors. To create, manufacture and provide the consumers their beauty and
other related products. Avon has 3 categories of their products: Beauty consists
of the Cosmetics, Fragrances and Toiletries. Beauty Plus which consists of the
fashion jewelries, watches, apparels and accessories. And Beyond Beauty which
consists of decorative, home and gift products. Aside from the 3 categories, there
have a Health and Wellness and Mark which focuses to young woman including
3 categories of cosmetics.

Table 3.1 Products Share of Avon Products

Avon products (2007)

Beauty products
Beauty Plus products
Beyond Beauty products
Total Sales

product
share
(%)
0.7
0.19
0.11
100

sales
($)
6957090.00
1888353.00
1093257.00
9938700.00

In the Table, the position of the products share of the Avon Products in the
Market: Beauty Products is top of the products share of the sales that
accumulate 70% of Sales. While 2nd is the Beauty Plus products that accumulate
19% of the sales and last is Beyond Beauty products in the products share that
acquired is 11% of the sales.
Price

The price of the products of Avon is low, to the socioeconomic class of D,

C and B that affordable to them to purchase. Also, they give their sales
representative to uplift their quality of life by giving opportunity to sale Avon
beauty products. Avon in terms of the price, is giving the representatives a
discount or sales to attract customers and to have increase the market share of
the firm. Also giving discount to the Sales representatives which prevents the
sales commission on the sales rep. by giving 20%-50% of the sales of the sales
representatives instead, which affects the revenues of the firm. They give
seasonal discounts for the special events such Christmas, thanksgiving days and
others. Even other countries the firm follow some events. They give discounts
those products that are low inventory turnover rate or low sales.
Although giving discounts are effective to the consumers, the legal proceeding
such as licensure, registration, taxes and other legal proceeds would affect the
sales gravely. Thus, the firm is increasing its prices due to the rate and fee
imposed by the government.

Promotion
In promotion and development activities of Avon, they conducting seminar
to the new recruit sales representatives that give them an introduction and
overview of selling Avon products to the Customers in right way. In which they
assisting and directing the sales representatives through sales aid; such as
brochures, flyers, products samples and demonstration samples, In order to
enhance the efforts of sales representative to the customers. Especially with
flyers, print advertising, promotional products are use to attract to the customers.
Avon pursues the sales incentives to the Sales representatives in order to them
to motivate on their work. By having the highest sales performance, they will
give them a reward to representative who got the highest sales performance.

Avon has the program to attract the customers to provide beauty that empower
their personality. This called Avon tested and Avon Select, through these
marketing efforts, the consumers could order by 4 methods: 1 through their sales
representatives; 2 by mail through special select catalogs; 3 by the dialing 1-800FOR-AVON telephone number, or 4 by fax. Aside from the program to the
consumers, another program was introduced by Avon to its representative these
called Sales Leadership, a business model designed to attract and retain sales
representatives through initiatives focused on business and training. For every
person recruits by the representatives and signs up for the leadership program,
she will get a percentage of the sales.
In terms of selling the products, the firm has vast merchandising techniques are
use to attract to the consumers in offering the products, Including new products
and improved products. They combined offers through the use of gift packages,
trial products, sample products and bundled products. In other words, they
publish a brochure to each sales campaign in which the new or improved
products are introduced and selected as offer special promotion that published in
the brochure. Current Avon products whether regard or not to the cosmetics are
selected in the brochure. The key priority of their merchandising is to enhance
the pricing and promotional model to have deeper and fact-based understanding
and have an impact to the consumers of our product and create a competitive
advantage to the competitors.
Avon is extending their concern to women not only to uplift their beauty and
personality. But also the health care for women, Avon launches the program
called Avon Wellness a part of the image program that empowers women to
their health concerns. It aims to compass the inner health as well as beauty. The
image campaign of Avon is the theme The Company for women. Its pursued
the mission and vision of the company that best understands and satisfies the
products and services, and self-fulfillment of the women globally. That
emphasizes the self reliant, self empowerment and financial independence of

women aside from beauty. It encompasses the programs of Avon breast cancer
crusade, the Avon Foundation and Avon Worldwide fund for womens health and
Avon Enterprises.
The Advertising Avon from Ding Dong Avon Calling to Lets Talk launched a
new campaign called Hello Tomorrow. It is global marketing campaign to the
consumers to support the brands and direct-selling channels; the advertising was
endorsed by Reese Witherspoon, a new ambassador of Avon and award-winning
actress. Hello Tomorrow, an expression that creates an exciting tomorrows
success of Avon. Furthermore, the empowered by the Creative Artists Agency
that provides entertainment marketing strategies for the products of Avon and the
launching of the new product line of Avon. CAA has very intensive marketing
expertise and extensive relationship in the entertainment. To create marketing
alliances with properties, personalities and industry decision makers. Avon
invested in upgrading the size and quality of the brochure and also the increased
the promotional treatments which anticipate the high returns, positive brand
image and improve and maximize sales. However, the cost of advertisement is
growing while the sales the growing ensues low income and Earning per share.
Distribution
The distribution of Avon, basically and traditionally comes from the directselling method through sales representatives in 66 countries and territories
approxiamately, there

are

5.4

million

of

representatives

and

459,000

representatives in US that are independent contractors all over the world. Sales
representatives contacts directly the customers in order to order the products by
offering them brochures, trial samples for new products and other promotion to
have the customers a good selection of the products. A brochure is a sales
campaign of Avon wherein the selection products and new products are
introduces which gives them a discount to select and order by the customers.
The brochures are usually generated up to 2 weeks in the US and 4 weeks in the

international markets. After, the customers orders the products, representatives

forward their orders through mail, internet, fax or telephone. The order of
customer is forward to the distribution centers in which they assemble the orders
of the representatives and delivered to the representatives through national and
local delivery companies. The representative then delivers the products and
subsequently collects the payment of the customers by her own accounts. In the
case of defective or return products, the representative receives the full prices of
the amount of the products which she purchases. Avon exploits the advantage of
technology by having electronic ordering of the sales representatives who
maximize the utilization and efficiency of ordering of products, giving a
convenience to the representatives. Also to improve the companys ordering
accuracy. Further, representative can build her on business through personalized
web pages which associated by the firm. That enables representative to sell the
full product line of the company online. They also have self paced training in the
market and latest news in Avon. Other markets, Avon establish decentralized
branches, satellite stores and independent retail operation to serve the
customers and sales representatives in which the representatives pickup the
ordered products from their customers. Also they uplift and help to reinforce the
beauty image by having a visibility to the people. In the Avon Stores, the Zone
managers are in charge the operation of said store. He/she and sales
representative leaders: Appoints, training and recruits the sales representatives.
In most markets, District sales manager or zone managers are employees of
Avon, in which he/she compensate a salary and sales incentives based the sales
of the representative in their district. While in some markets, are independent
contractors. In recruiting new representative, they are having personal contacts,
recommendation and local market advertising through sales leadership programs
from the current representatives. The distribution of the products of the firm is
four level of distribution which involved by the manufacturers to Avon Branches
and centers to sales representatives to customers and three level of distribution
which involved by the manufacturers to Avon Branches and center to Customers.
The Strategy in distribution is combining pull strategy and push strategy is often

called push-pull strategy. Push-pull strategy, a distribution strategy forcing to sell

the products to sales representatives down to end user and using the advertising
and promotions creates demands to end users or consumers to buy the products
to the sales representatives, to Avon centers and branches up to manufacturing.

Manufacture
r

Avon Center

Consumer
s

Table 3.2 three level of distribution

Manufacturer

Avon Center

Sales
representatives

Consumer
s

Table 3.3 four level of distribution

Manufacturer

Internet, fax & mail

Avon Center
Delivered Products

Sales
representa
tives

Consumers

Table 3.4-Internet, Fax, telephone and Mail Distribution

Customers
The customers of Avon are the women pursuing to uplift their beauty and
personality. Also, indirectly pursues the Sales representatives that purchase the
products not only to customers but for themselves.
Target Market
The Target Market of the Company is commonly for women in the mature
age profile. Also, the company is focus to young women or teen those are
enthusiasts in fashion, to uplift their personality and beauty from the
socioeconomic class from D-B. Implicitly, the company provide mens and kids
products to increase their sales.
Furthermore, the company encourages households, especially women to join the
sales force in which targeted for those low income and unemployed people. To
utilize efficiently to their promotions and create a sales force.
The market of the Avon Products is divided into 5 groups; US, Europe, Asia and
Pacific. Each market is managed by the General Manager that in charge in each
Geographical Areas, with a 53 markets and through distributorship.

Management Information System

As technology goes, more and more firms are adapting the external
factors, especially technology factor. To be able them, to get their consumer and
performance of rendering service and selling goods as well. Thus, Avon adapted
the technology to maximize the utilization and efficiency of merchandising. There

is types electronic system that applies by the firm. First, the transaction of firm to
another firm or suppliers that called business-to-business. Another type of
transaction which involves the business and consumers called business-toconsumers. And last is a transaction that involved the consumers to her coconsumer which called consumer-to-consumers transaction. In the transaction in
the website, Avon is providing e-commerce through using a website to order the
products from the sales representative. Avon, also provide an opportunity to use
personal website for sales representatives which associated by the firm, to have
an access by the customers by personal contacts and increase the promotion of
the products. The website is also accommodating payments through e-payment
which can easier and efficient transaction. The e-commerce of Avon is also use
to increase the accuracy of the transaction and to create a marketing approach to
the sales representative.
Financial/Accounting
In the part are the presented ratios and trends of the Avon versus the
Industry. Where in the performance, ratios leverage and profitability of the firm is
compared to all major competitors. The financial statement of the firm and major
competitors were from 2007-2003.

1.) Growth Ratios

Table 3.5 - Net Sales of the firm
Avon
Total Assets

2007
5,716.20

%
0.09

TOTAL ASSETS (In Million Dollars)

2006
%
2005
%
2004
5238.2
0.1
0.15
4761.4
4148.1

Source: money.msn.com; www.cnnmoney.com and finance.yahoo.com

Legend: %- Growth rate

%
0.16

2003
3581.6

In the five-year trend of Avon, they accumulated high percentage of net

sales in the year 2003. 2006, on the other hand, accumulate the lowest growth
rate is 9%.
Table 3.6 Net income of the firm
Avon
2007
9,938.70

Net Sales

%
0.13

NET SALES (In Million Dollars)

2006 %
2005 %
2004
8,763.90 0.08
8,149.60 0.15
7,747.80

%
0.13

2003
6,845.10

The net income of the company, five-year trend, in 2004 gathered 15% of
the consumers rely to the products. While 8% obtain profits from the company in
2005.

Table 3.7 - Earnings per share of the firm

Avon
2007
Earning per
share

1.24

2006

0.15

1.08

EARNING PER SHARE (In Dollars)

%
2005
%
2004
-0.43

1.88

0.03

1.79

2003

0.27

1.41

In the interpretation of the Table, the year 2003 is high growth rate
because 27% of the share will earn. While the year that drops the earning in
2005

Table 3.8 Dividend per share of the firm

Avon
Dividend per
share

2007

2006

0.74

0.06

0.7

DIVIDENDS PER SHARE (In Dollars)

%
2005
%
2004
0.06

0.66

0.17

0.56

2003

0.33

0.42

In divided per share, 2003 are accumulated 33% of growth rate, 2006 and
2005, however, having the same growth of 6%.

Table 3.9 Comparison of net sales of the industry

Companies

Avon
% change yearto-year
Revlon
% change yearto-year
Procter &
Gamble
% change yearto-year
L'Oreal
% change yearto-year
INDUSTRY
TOTAL

2003

6845.1

% of
Total
10.4424
8

1299.3

1.98213
4

43377

66.1733
6

14029.15

21.4020
3

7747.8

% of
total
10.3295
9

NET SALES (In million dollars)

2006
2005
% of
Total
10.0917
8,763.90
8149.6
1

1297.2

13.19
1.72946
4

1332.3

5.19
1.64979
7

51407

-0.16
68.5372
8

56741

2.71
70.2627
9

14553.9

18.51
19.4036
7

2004

75005.9
14.4245
2

% growth

0.093127

2007
9,938.70

7.53
1,331.40

0.014148

% of
Total

0.094765
13.4

1,400.10

-0.00067

0.01335
5.16

68,222.00

0.724938

76,476.00

0.729194

15,790.10

0.167788

17,062.60

0.162691

9.85
14532.5

3.74
65550.55

% of
Total

17.9957

86.25

-0.15
80755.4
7.66539
7

80.58

94,107.40

104,877.40

16.53

11.44

Avon net sales is improved continuously in the five year trend of

operation, with the highest point of sales in 2007, However, Top 2 companies in
the industry surpassed the net sales of the firm. Because of the diversified
products
Table 3.10 Comparison of Net income of the industry

Companies

2003

% of
total

2004

% of
total

NET INCOME (in million dollars)

2005
% of
2006
Total

% of
Total

2007

% of
Total

Avon
% change year-toyear
Revlon
% change year-toyear
Procter & Gamble
% change year-toyear
L'Oreal
% change year-toyear
INDUSTRY TOTAL

664.8

9.24810
5

846.1

-153.8

-2.13953

-142.5

5186

72.1430
1

1491.5

20.7484
2

8.06939
2
27.2713
6
-1.35905

847.6

-83.7

-7.3472

7188.5

6156

-7.3472

3625.7

18.7042
34.5788
9
143.090
8

10485.3
45.8621
4

% growth

6923

1973.2

8.77423
6
0.17728
4
-0.86645
-41.2632
71.6659
2
12.4593
9
20.4262
9

477.6

0.043532

530.7

0.03928

-251.3

-43.65
-0.02291

-16.1

11.12
-0.00119

-66.93
8,684.00

10,340.00

0.765325

2,656.00

0.196586

25.43
2,061.00

0.187854
4.44

-45.5774
9660.1
7.87007

0.79152

-93.59

10,971.30

13,510.60

13.57

23.14

In the net income of industry, Avon has continuously improved their net
income in 3 years. With highest point of income in 2005, however, there is
backsliding of the firm in 2006 wherein they incur huge expense in advertising
and other promotional strategies.
Table 3.11 Comparison of Total Assets of Industry

The total of the industry, Avon is continually growing their assets in

the further years. On the hand, however, top 2 has wide diversification of their
products, whether conglomerate or concentric, which serve the large of pool
consumers.
Table 3.12 Comparison of Earnings Per share in the industry
Industry
EPS average

2007
8.50

%
2.40

2006
2.5

EARNINGS PER SHARE (In Dollars)

%
2005
%
2004
-55.9
5.67
-32.22
8.37

%
-147.12

The industry average of earning per share is fluctuating annually. The year
2003 is recover from the losses by drastically change of -147.12 %. They back
slide a lot, however, in the years of 2004 and 2005 by 32.22% and 55.9%.

2003
-17.76

2.) Profitability Ratios

Table3.13 Gross Margin of Avon Products in %
Avon

2003
.61

2004
.62

2005
.61

2006
.61

2007
.60

The gross margin of Avon is fluctuating annually due to the unprecedented

of sales commission of the sales representatives. The highest earn Gross profit
is 2004. While lowest gain is 2007.
Table 3.14- Operating Income of Avon Products Inc. in %

Avon

2003
.15

2004
.16

2005
.14

2006
.09

2007
.09

In the presented table, the operating margin of Avon is fluctuating

annually due to the high advertising cost. The highest earn Gross profit is 2004.
While lowest gain is 2007 and 2006.
Table 3.15- Net Income of Avon Products Inc. in %

Avon

2003
.10

2004
.11

2005
.11

2006
.06

2007
.05

In the presented table, the Net Income margin of Avon is highest in

year 2004-05 by 11 %. However, they decline their income in the consecutive
year and 2007.

Table 3.16- Return of Assets (ROA) of Avon Products Inc. in %

2003

2004

2005

2006

2007

Avon

.19

.20

.18

.09

.09

Presented table, the return of asset in the company is high 2004 with the
percentage of 20%. While the 2007 and 2006 is declined by the 9 %.

Table 3.17- Return of Equity (ROE) of Avon Products Inc. in %

Avon

2003
1.80

2004
.90

2005
1.07

2006
.60

2007
.75

The return of equity is the return the equity of the stocks of the investors.
The highest return in equity is the year 2003 by 180%. However, the return of
equity of the stockholders is declining until they reach lowest return of the 60% in
2006.
3. Liquidity Ratios
Table 3.18 Current Ratio of Avon Products Inc.

Avon

2003
1.39

2004
1.56

2005
1.17

2006
1.32

2007
1.15

The current ratio in 2004 is 1.56:1 which means for every dollar of debt of
the company is answered by a corresponding 1.56 dollars. While is in the 2007
where in the ratio is 1.15.
Table 3.19 Current Ratio of Avon Products Inc.

Avon

2003
0.98

2004
1.1

2005
0.85

2006
0.96

2007
0.81

The current ratio in 2004 is 1.1:1 which means for every dollar of debt of
the company is answered by a corresponding 1.1 dollars. While is in the 2007
where in the ratio is 0.81
4. Activity Ratio
Table 3.20 Fixed Assets turnover of Avon Products Inc.

Avon

2003
7.92

2004
7.54

2005
7.68

2006
7.89

2007
7.70

In the table, 2003 is the highest turnover in the 5 year trend which is
percentage of 7.92. Means for every dollar of sales is generated by 7.92%.
Table 3.20 Total Assets turnover of Avon Products Inc.

Avon

2003
1.89

2004
1.85

2005
1.69

2006
1.66

2007
1.72

The total asset turnover, with a 5 year trend, shows us that the highest
turnover ratio was in 2003 with 1.89 while the lowest was in 2006 with 1.66
Table 3.20 Accounts Receivable turnover of Avon Products Inc.

Avon

2003
12.24

2004
12.78

2005
12.72

2006
12.39

2007
11.71

The table shows that the highest accounts receivable turnover was in
2004 with 12.78, while the lowest was in 2007 with 11.71
Table 3.20 Long term Debt to Equity Ratio of Avon Products Inc.

Avon

2003
2.36

2004
0.91

2005
.97

2006
1.48

2007
1.64

The table shows that the highest long term debt to equity ratio was in 2003
with 2.36, while the lowest was in 2004 with 0.91.

Operation/Production
Process
Personal care or cosmetics companies such Avon, improved the
products by the technology, to help the consumers be pleasant on their look at
their best beauty. Avon, in order to ensure safety ness to the consumers, they
secure their products through checking the contents of raw material from various
suppliers and selecting the supplier that has a good quality of raw materials and
affordable which is safe to use . Avon has the advance material handling for raw
materials which chemical contents the can be hazardous to the workers in the
production. The company relying on the intensive research and development to
substantiate the safety of cosmetic and non-cosmetic products with a good
quality through the use of state-of the-art research equipment and high train

researchers. The environment issue regarding on production, further, Avon has

the concern on this situation to preserve the environment and ecosystem; and
abide the law regarding environment through evaluating the waste management
and implementing policies.
Capacity
Due to the Globalization of the company, there is a broad demand
on the consumers around the world in which facilitates by sales representative.
That eventually grows as many consumers believe on the products and a part of
their needs in their personal concerns. As much as sales representative that
believes that they are profitable in selling the products to their customers, which
many people orders to them. Thus, Avon establishes more than 53 distributors
and kiosks around the world. That provide the Avon products whether cosmetics
or non-cosmetics to the consumers. Also, manufacturing structure establish in
countries that have high demand in order to provide the products efficiently and
exactly to the consumers. And avoid huge cost of production or cost of sales
which includes tariff, excises and other financial obligation imposed by the
Foreign Government. Some policies, however, of the government and external
factors would mitigate adversely the profitability of the operation. Such as
imposing taxes to the sales representatives and others external factors.

Quality

Avon ensures to the public that their products are based on the
latest medical and scientific research, with expertise in the field of chemistry of
their researchers. In which the products involves in multiple trials and attempts
conducted by tester that uses the products, to evaluate the quality and

effectiveness also ensure the quality control before they release in the market.
Bringing the products a positive outlook and impact to the consumers and create
brand loyalty not only to the products and the company as well. Extensive
research is primary factors of the company encompass the quality and safety to
their consumers. Because the quality of the product is the life of the business in
which consumers are rely on the intangible and tangible qualities that give them
benefits to themselves. The process in conducting quality control and safety
measure is complex which requires constant assessment of the research study.
Technology
As technology goes, many firms are susceptible to change in the
technology aspects. Not only in the process of transaction.

But also in the

production process which includes the quality control and research. Avon is
abreast to the environmental that susceptible to change their production process,
quality control and research by combining the latest technology information and
equipment to derive a excellent products to the consumers and efficient on the
operation and production process. Also, technology is a necessity of the firm
which they cannot out trend ors outdated in the market. In adopting this trend,
however, the company must have a sufficient budget to a particular project to
avoid incurring a huge expense. Although the technology have adverse effect to
the human force, the company has a code of ethic or code of conduct to respect
and preserve the rights and liberty to work of the workers.
Research and Development
Avon knew that latest products are necessary to growth in
extremely competitive personal care industry. Avons research and development
departments efforts are important to developing new products, including
formulating effective beauty treatments relevant to womens needs, and
redesigning or reformulating existing products. In order to augment their brand

competitiveness, they have increased their focus on new technology and

products benefits. Avons research and development facility is located in Suffern,
NY. A team of researchers and technicians apply the disciplines of science to the
practical aspects of bringing products to market around the world. Relationships
with dermatologists and other specialists enhance Avons ability to deliver new
formulas and ingredients to market. In addition, they have satellite research
facilities locate in Brazil, China, Japan, Mexico and Poland.
Avon products Inc. continuously improve, as well their consumers safety
as their number one priority. They are devoted to sell only sage products, using
only safe ingredients in their cosmetic products and complying with applicable
commitment not only to their consumer but also respect for the declaration of
animal welfare.
Management
Planning
The firm has strategy to promote the products and increase the
market share of the company in the industry. There are 3 strategies that
recommended by the firm: Market penetrations, Market development and product
development. These strategies will pursue the growth of the company in other
regional areas and increase of generating profit in operation. Also, the company
pursues the growing of sales representatives through focusing of recruiting. This
Sales representative will enlarge the promotion of the products.
Organizing
In the organization, Avon is headed by Chairman Executive Officer
Andrea Jung and Susan J. kropf the president and Chief operating officer which
handling the operation in geographic areas. That presided by the senior vice

president in each areas. A SVP & president business support and Executive VP
for Asia, pacific, Middle East and Africa, Group VP finance treasurer, Senior Vice
President & president Global Marketing and GVP Global Marketing.

Figure1 Organizational Chart of Avon Products Inc.

Staffing

In the Staffing, there are 42,000 employees approximately,

composed of sales staff, zone manager/ district managers and manufacturing
workers. And approximate 3.9 million of sales representatives worldwide.
The zone manager is in charge of managing an Avon center which
recruits, motivates and directing sales representative. Also, they handle the
operation of the centers that checks the inventory, hearing the sales output in the
day, making decision on the particular store. The zone managers are either
employees of the company which give an appropriate amount of benefits and
compensate salary.

Independent contractors, on the other hand, is a zone

manager which renders his/her service in the given terms with given a substantial
amount to the contractors. Which is written contract that binds to them to the
company. A sales staff is a simply an employee of Avon centers which assists the
zone manager in operation of the firm. Manufacturing workers are workers in the
production plant. They assist the production of Avon products until they reach to
the finished goods. Manufacturer workers are entitled to compensate hazard pay
because of the chemical environment of the production, which can be susceptible
on their health. There are 3 types of manufacturing workers: full-time, part-time
and piece rate. Full-time worker, similarly, is a worker that renders service in
whole day of work. Which rate by the number of hours rendered. Part-time
worker is a worker that serves half of the day. Part-time workers are similar to the
full-time workers in terms of rate however they allowed to serve half a day and
compensate half of the payroll or salary of the full-time. Piece-rate workers are
workers that rate in numbers of units produced. That they are working any time
in the day. Sales representatives are the sales force of the firm, which they are
front liner which they sell the products and taking orders from the customers.
Motivating
The motivating technique of the firm to the sales representatives is sales
leadership program. Sales leadership program is a program which is a business

model that attracts and retains sales representatives through fascinating

incentives focused on business and beauty training. that each representative
signs up for the sales program gets the percentage of the sales of every
representative that she recruits and down through three generations of Avon
representatives. For the zone managers, manufacturers and other staff, the
company is giving benefits, bonuses and increase of salary to motivate on their
work.

Controlling
The controlling measure of the firm is evaluating the firm main points in
which the firm is benefited also, the performance of production and employees as
well. The quality of the products evaluates by the quality control. Quality control
is evaluating the products whether the quality pass or reject. It tests the quality
that can be harmful or not in apply the products. This evaluation is same as
research and development. In the performance of the employees, there are
based on the numbers of products sold and the sales of the center monthly and
annually. In production, they evaluate the number of the finished products
produced. In planning, they based the financial performance of the company
such as sales, profit, expense and cost of good sold.
IV.

Strategy Formulation

A. Input Stage
In this stage, assessing the external and internal audit where in the
external and internal factors is determined. Rate their corresponding
weights to derived weighted impact of the company. The purpose of this
stage is to measure the impact of external and internal factors. How they

make response in every factor that occurs in the company. It is also a tool
that helps the formulating strategies.

1.) (EFE) External Factor Evaluation Matrix

External Analysis

Weight

Opportunities:
Growth oppurtunities in China, Indonesia and India
Fast Inventory through unprecedented consumers
Avon Russia rebounded in 2000 after reversing downturn 1999-2000
Countries like Cambodia, Vietnam and Laos have a growth opportunity
low inflation rate in some countries
higher sales from improved economy
high GDP rate in America
the market open for ages of 18 - 24 yrs old.
the foreign government is secure the firm in intellectual property
Threats
Other countries undeveloped structure
China is poor in legal aspects in terms protecting the intellectual rights
Revlon is multidolllar business
the database is susceptible in earthquake, virus, fires, power failure and other
Government in foreign countries imposed taxes on the sales rep
unprecedented taxes and other financial obligation in foreign government
Total

1= Not Responsive

3= Average

Response

0.1
0.1
0.05
0.05
0.1
0.05
0.05
0.05

4
3
2
4
3
3
3
4

0.05
0.05
0.1
0.1
0.1
0.05
1

2
3
2
2
3
2

2= Less Responsive

4= Highly Responsive

In the table, the overall weighted score of the firm is 2.85 which is
average. The company employ it is efforts to pursue strategies which exploiting
the External opportunities and avoiding the External Threats.
In the opportunity aspects, the company is exploiting the economic
opportunities. Such as growth opportunities in developing countries, Increase of
GDP of America and secure the intangible property by the government.
In the Threat aspects, the company is minimizing the impact of the threat
factors or avoids the poor Government policies in other countries, imposing taxes
to the sales representatives in other countries, and susceptible of the database
system from virus attacks, fire, power failure and earthquakes.

2.) (IFE) Internal Factor Evaluation Matrix

Internal Analysis
Strength:
igh profiled Research & development facility
Corporate Social Responsibility for women upholding to their rights
Avon has 53 markets especially distributorship appointed licenses rep in 143 countries
Avon traditional door to door is still effective
Avon website for e-reps
Avon has Creative Artist Agency which provide great advertisements and market
strategies
Avon introduces new product called mark
Avon kiosk very attractive to consumers
Weakness:
the sales commissions rate 20 to 50 percent of
the problem in hiring, staffing, training and managing
Avon spend huge in advertising
Number of reps buying Avon products dwindling by 2 to 3 percent.
Shareholder's equity have deficit

weight

response

total
score

0.1
0.1
0.05
0.05
0.05

4
4
3
3
3

0.4
0.4
0.15
0.15
0.15

0.2
0.05
0.1

4
3
3

0.8
0.15
0.3

0.1
0.05
0.05
0.05
0.025

2
2
2
1
2

0.2
0.1
0.1
0.05
0.05

poor security system in database

Total

0.025
1

1= Not Responsive
2= Less Responsive

0.05
3.05

3= Average
4= Highly Responsive

In the table presented, the overall weighted score is 3.05 which is

average. The company it is efforts to pursue strategies to use the Internal
Strength and improve the Improved the Weaknesses.
In the Strength perspective, the company uses the high profiled research
and development facility, a websites for sales representatives and kiosk that are
attractive.
In the Weaknesses perspective, the company improves the sales
commission, lessens the advertising costs and improves the database system.

3. (CPM) Competitive Profile Matrix

AVON
Critical Success
Factors
Advertising
Product Quality
Market strategies
management
Information
Technology
seminar
Brand Loyalty
Financial Position
Global Expansion
Total

L' oreal

Revlon

Procter & Gamble

weight
0.3
0.1
0.05
0.1

rating
4
3
2
1

score
1.2
0.3
0.1
0.1

rating
3
3
3
3

score
0.9
0.3
0.15
0.3

rating
2
3
2
2

score
0.6
0.3
0.1
0.2

rating
2
4
4
3

score
0.6
0.4
0.2
0.3

0.05
0.05
0.05
0.2
0.1
1.00

3
1
3
3
4

0.15
0.05
0.15
0.6
0.4
3.05

1
1
4
4
4

0.05
0.05
0.2
0.8
0.4
3.15

1
1
2
2
3

0.05
0.05
0.1
0.4
0.3
2.1

2
4
4
4
4

0.1
0.2
0.2
0.8
0.4
3.2

The Competitive Profile Matrix is a tool to determine the critical

success factors of the company and its competitors. Compare them to
identify the weak factors and improve these factors through formulating
strategies. In order to improve the weak factors and to be competitive firm
in the industry.
The companys the overall weighted score is 3.05 that relatively
indicate the competitive position of the firm is in the cosmetic industry.
However, they must maintain the company and improve the performance,
through improving the weak factors.
.