MAKEOVER OF

AVON PROUCTSANDREA JUNG

FACTORS OF EARLY CRISIS/DOWNFALL

The oldest beauty company in the United States, Avon Products, Inc. has grown from a modest
line of perfumes sold door-to-door to one of the world's leading brand of cosmetics. It
manufactures and sells cosmetics, fragrances, toiletries, accessories, apparel, and various
decorative home furnishings. Avon employs a unique direct-selling method, which was greatly
responsible for its incredible success in the 1950s and 1960s, when women were easily found in
the home for sales purposes. After unsuccessful efforts at diversification into the health-care
service industry left the company with massive debts in the late 1980s and early 1990s, Avon
began

to

refocus

on

its

roots:

beauty

products

and

direct

selling.

Some of the factors of Avons downfall are: customer complaints about Avons image, poorquality products, lack of interesting new lines, and unattractive catalogs.
The 1970s presented Avon with its greatest challenges in the company's history. Though sales
topped $1 billion in 1972, and its profitable costume-jewelry line--begun in 1971--had made
Avon the world's biggest jewelry manufacturer in just five years, Avon's growth stalled in 1973.
The company was hit hard by a recession and the mass entry of women into the workforce. The
direct-selling system, Avon's innovation and strength, was nearly toppled by social changes that
management had not anticipated. The status of the U.S. dollar reduced the company's
international profits; recession and inflation crippled its high-sales decanter products line; in
1975, about 25,000 Avon Ladies quit; and Avon products were outpaced by retail cosmetic firms
offering jazzier products to women with new attitudes. All of these factors converged and led to
trouble times--and Avon's eventual restructuring.
COMPETITIVE ANALYSIS
To understand whats gone wrong at Avon, you first have to understand what it means to be a
direct seller. While Avon is the fifth-largest beauty company in the world, its by far the biggest
direct-selling enterprise globally, with 6.4 million active representatives marketing its products.
What Avon is actually selling is an earnings opportunity to its sales representatives, who then
turn around and sell Avons lipsticks and lotions to the end user.
Effective direct-selling companies are 25% about the brand and 75% about the sales channel.
Direct selling grew about 30% between 2006 and 2011 into a $136 billion global market. Avon
gained only 1.1 percentage points of share in the direct-selling industry during the same time
frame, with 11.4% of the market in 2011.

Still, for a time all seemed golden under Jungs leadership. From her start as CEO to June 2004,
Avons stock tripled, topping $46 a share. Profits grew at nearly the same rate and reached $846
million in 2004, up from $287 million in 1999. Avon went into international markets early, and
non-U.S. business made up about 70% of sales.
But soon other beauty brands started aggressively pursuing Avons customers; multinationals
such as P&G made inroads in the developing world, and drugstores and big-box retailers
expanded their selection of affordable cosmetics. By 2005, profits were flat after three years of
double-digit growth.
Market Share : 31.6%
2013 1st QTR : 4%
Operating Profit: $172 million
Operating Margin: 6.9

Financial Strength for the Year 2008

AVON

REVLON

Market Cap

$ 9,710 M

$ 242.84 M

Employees

42,000

5,600

Revenues

$ 10.37 B

$ 1.34 B

Gross Margins

63.03 %

63.48 %

EBIT

% 1,440 M

$ 171.40 M

Operating Margin

12.07 %

11.42 %

Net Income

$ 807.9 M

$ 28.5 M

Growth

7.5 %

5.6 %

EPS

$ 4.72

$ 1.422

Performance Indicators:

Leading global beauty company

World's largest direct seller
Top of the Customer Satisfaction Survey
Ranked #2 in Top 50 cosmetics brands
Oracle Hyperion-based EPM

SWOT Analysis
Strengths:

Direct Selling Leader

Committed Workforce
Self-Own Facilities

Weaknesses:

Decrease Sales
Low Brand Loyalty
Weak Brand image

Opportunities:

Green Products Trend

Anti-Aging Products
Urban Trendsetter

Threats:

Inflation Rates
Rising Costs of commodities
Low Internet Selling

STAGES OF DEVELOPMENT (HISTORY)

Founded
In 1 8 8 6
B y D a v id
H.
M c C o n n e ll

P ro d u ct
D iv is io n
s
B e a u ty
Fa s h io n
Hom e

S a le s /D i
s t r ib u t io
n
D ir e c t
S e llin g
S a le s
L e a d e r s h ip
L im it e d
R e t a il S to re
S a le s
E - S a le s

F ir s t
O ffi c e s
Head
O ffi c e a t
N e w Yo r k
M o n t re a l,
F ir s t
O v e rse a s
O ffi c e
Ja p a n ,
F ir s t A s ia n
O ffi c e i n
1969

G lo b a l
D iv is io n
s
N o rth
A m e r ic a
L a t in
A m e r ic a
E u ro p e a n d
W e s t A s ia
A s i a P a c i fi c

LEADERSHIP CHANGE AND ITS CONTRIBUTION & SHORTFALLS

Jim Preston, who served as CEO of Avon from 1989 to 1998 and hired Jung.
Named CEO at 41 in 1999, Jung had been dubbed a marketing wunderkind and credited with
reviving the direct seller. Despite her companys relatively small size, $11.3 billion in revenue in
2011, she exerted her influence in broader circles.
In 2000 Jung launched Avons Lets Talk campaign, the companys first global advertising
initiative, and signed Venus and Serena Williams as spokespeople. Advertising spend climbed
from $63.4 million in 1999 to its peak of $400 million in 2010. Jung tried to refresh existing
brands, and launched new ones. Mark, a hipper, trendier line aimed at college-age women,
attempted to both raise the companys image and attract a younger demographic.
The year Jung became CEO, Avon adopted the slogan the company for women. The change
was meant to modernize Avon, but it also paralleled a shift in focus within the company.

Shortfalls

Avon started moving out of America and by the time Ms Jung took over foreign markets
accounted for 40% of its sales. But the sprawl created cultural and organisational strains. Ms
Jung struggled to balance the needs of a global corporation with the independence of regional
chieftains. She tried to modernise Avon by shifting some sales to shops, a move that angered
executives who saw the Avon ladies as the heart of the business. A series of mishaps, including
corruption scandals in emerging markets and the ill-considered acquisition of a silver-jewellery
business, eventually toppled Ms Jung.

LEADERSHIP OF JUNG
For all the problems under Jungs watch at Avon, she did articulate a powerful purpose for the
company: that Avon empowers women around the world by giving them an earnings opportunity.
Avon pushed the idea of the company for women in its philanthropic work as well. The Avon
Foundation, with a focus on domestic violence and breast cancer, approved nearly $38 million in
grants last year. In 2010, Jung declined her bonus because of Avons poor performance, and
donated the $5.4 million to the foundation.
Andrea Jung used the directive style to solve Avons financial problems. In this particular story,
Jung set up goals to solve the financial problem and keep Avon continuing growth in a global
scale.

Transactional leadership occurs when the leader rewards or disciplines the follower depending
on the adequacy of the followers performance. She cut off 7 layers of management and
changed her mindset, changed Avons marketing and product development and also herself
worked with a high enthusiasm. In this particular story, Jung started to change her leader style
with active management-by-exception. She started to serve Avon Company as a role model
and even sacrificed her family time. Her performance and enthusiasm encourage employees.
Jung herself was also an inspirational force with the rank and file, who viewed her as a visionary
leader with a true love of the company. Andreas tenure has been underscored by a deep
commitment to its representatives. Jung pushed a new incentive system for reps and made it
easier for them to do business online. Avon executives who previously worked directly with Jung
were more critical. She was image-conscious, they said, looking to outsiders such as consultants
and new hires for affirmation. Early in her tenure, in a leadership-derailment assessment, which
measures a leaders vulnerabilities when under stress, Jung tested as a pleaser. The label meant
she had difficulty with conflict and a natural inclination to meet expectations of others.