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Rev. Sept. 17, 2019

The Multichannel Challenge at Natura in Beauty and Personal Care

Natura is headed for a big shake-up. We are sure that in 3 to 5 years our business is going to change
significantly.
—Alessandro Carlucci, Natura’s former CEO, January 20141

The business of Natura, Brazil’s largest direct-selling company with roughly 1.5 million independent door-
to-door sales consultants (ISCs), had started to change in recent years.2 On August 19, 2014, the company had
announced that board member Roberto Lima would replace Alessandro Carlucci as CEO.3 Carlucci had worked
at Natura for 25 years and had held the role of CEO since 2005. This CEO transition occurred when Natura’s
position in the cosmetics, fragrance, and toiletries (CF&T) market was being challenged by other, nondirect-
selling companies.

Following declining penetration and market share using only a door-to-door strategy, the new management
devised a multichannel strategy and started to sell its beauty and personal care products through new online
channels, physical stores, and other retail formats. It also expanded and repositioned Natura’s product line to
attract demographics such as males and millennials in these channels. Some within the industry saw this
multichannel strategy as contradicting the core tenets of a direct selling–based model that consisted of (a) face-
to-face sales away from a retail location, and (b) the relationship orientation between Natura and its ISCs.
Despite the continuing decline in stock price and market share (see Figure 1 and Table 1), and the internal
obstacles it faced as a direct-selling company choosing to focus less on the ISCs and more on reaching the end
consumers directly, Lima’s management team supported accelerating the shift in channel strategy.

Two years after the new management implemented its multichannel orientation, Brazil was in the middle
of the largest economic recession ever recorded. The company had reported a sharp net income drop in the
third quarter of 2016, down 44.6% from the same quarter in the previous year.4 Natura’s direct-selling operation
only achieved a brand household penetration of 37.13% in the second quarter of 2016, which represented a

1 Shasta Darlington, “Brazil’s Natura Turns to Internet,” CNN, January 3, 2014, http://edition.cnn.com/videos/business/2014/01/03/pkg-

darlington-brazil-cosmetics-natura.cnn (accessed Jun. 13, 2017).


2 We use the term independent sales consultant (ISC) to refer to a person that joins a direct-selling company. They are independent resellers who buy

products directly from a direct-selling company and resell those to end consumers. Natura calls them Natura consultants, Avon calls them Avon
representatives, and Mary Kay refers to them as independent beauty consultants.
3 “Roberto Lima to Take Over as CEO of Brazil’s Natura,” Reuters, August 19, 2014.
4 Paula Laier, “Brazil’s Natura Reports Q3 Net Income Drop, Revises Investment Plan,” Reuters, October 26, 2016,
https://www.reuters.com/article/natura-results/brazils-natura-reports-q3-net-income-drop-revises-investment-plan-idUSL1N1CW2G2 (accessed Aug.
27, 2019).

This case was prepared by Leandro A. Guissoni, Professor of Marketing; Fundação Getulio Vargas (FGV-EAESP); Paul W. Farris, Landmark
Communications Professor of Business Administration, Darden School of Business; Kusum Ailawadi, Professor of Marketing at the Tuck School of
Business at Dartmouth; and Murillo Boccia, Director of Ecommerce at Natura; based on reports from secondary sources. It was written as a basis for
class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 2017 by the University of Virginia
Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to sales@dardenbusinesspublishing.com. No part of this
publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or
otherwise—without the permission of the Darden School Foundation. Our goal is to publish materials of the highest quality; please send any errata to
editorial@dardenbusinesspublishing.com.

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decrease of 8.5% over the same period in 2015. In the face of these results and just two years into his role as
CEO of Natura, Lima decided to resign. On October 25, 2016, the company’s board accepted Lima’s
resignation. According to a company statement, “during his tenure as CEO of the Company, Lima formed a
solid Executive Committee and delivered important projects that included the digitalization of the business, the
entrance into new channels and the repositioning of the Natura brand.”5 The board appointed its commercial
vice president, João Paulo Brotto Gonçalves Ferreira, as the new CEO. Ferreira was tasked with revitalizing
Natura’s direct-sales business as part of the company’s growth strategy. At that moment, within the industry
and the company, there were opposing points of view about how and how quickly the multichannel transition
should take place. Specifically, Ferreira was challenged with creating a balance between ISCs and other channels
to market the brand while enabling Natura to thrive in the face of intense multichannel competition in Brazil’s
beauty and personal care market.

The Brazilian Beauty and Personal Care Market and Natura’s Position

Despite Natura’s success following its 2004 IPO, since 2012, the company had started to struggle. Its
market share decreased and its stock price declined, but the company was not alone: its main competitor in the
door-to-door channel had also faced difficulties in the same period. Avon did not achieve its targeted results
even though in the past Brazil had been one of the company’s most profitable markets, and represented its
largest operation in the world with more than 1.5 million ISCs.6

Figure 1. Natura stock price since the company’s IPO, May 2004 to February 2016
(in Brazilian real; close price adjusted for dividends and splits).7
BRL 60.00

BRL 50.00

BRL 40.00

BRL 30.00

BRL 20.00

BRL 10.00

BRL 0.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Data source: Yahoo! Finance.

Most competitors that used traditional retail channels grew sales during the same period. In 2014, Unilever
took the lead and Natura fell to second position in the CF&T market in Brazil. Table 1 shows market share
over time for the main companies in this industry.

5 “CEO Succession,” Natura Investor Relations, October 25, 2016,


http://natu.infoinvest.com.br/enu/5785/2016%2010%2025_Fato%20Relevante_Renncia%20Roberto%20Lima_Ingles.pdf (accessed Jun. 20, 2017).
6 Tatiane Bortolozi, “Lucro da Avon Recua 40% no 2º Trimestre, para US$ 19 Milhões,” Valor, July 31, 2014,
http://www.valor.com.br/empresas/3633696/lucro-da-avon-recua-40-no-2 (accessed Jun. 20, 2017).
7 BRL = Brazilian real; USD = US dollars.

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Table 1. Value market share in the beauty and personal care market in Brazil.

Company 2008 2009 2010 2011 2012 2013 2014 2015

Unilever 10.6 10.5 10.4 10.5 11.7 11.9 12.1 12.2


Natura 13.6 14.2 14.9 13.8 13.2 12.4 11.4 11.1
Boticário 6.5 6.7 6.9 7.8 8.8 9.2 10 10.9
Procter & Gamble (P&G) 6.9 7.0 7.8 8.3 9.0 9.1 9.1 9.7
L’Oréal Groupe 5.0 5.3 5.5 5.5 5.4 5.4 6.7 6.8
Avon 8.8 9.0 8.8 7.8 7.2 6.4 5.8 5.7
Colgate-Palmolive 6.4 6.6 5.9 6.0 6.0 5.9 5.8 5.8
Johnson & Johnson 3.8 3.7 3.8 3.8 3.8 4.0 3.8 3.8
Hypermarcas 2.6 2.7 3.2 3.1 3.1 3.1 3.0 2.7
Data source: “Beauty and Personal Care,” Euromonitor International Report 2016, http://www.euromonitor.com/beauty-and-personal-care
(accessed Jun. 14, 2016).

One Brazilian company, Botica Comercial Farmacêutica, known as Boticário, outperformed others from
2008 to 2015 and was the fastest growing company in the beauty and personal care market. 8 Until 2008,
Boticário had a single channel. The company operated a franchising system of physical stores selling its
products, with over 900 franchisees and 3,700 stores in more than 1,500 Brazilian cities. Since 2008, it had
followed an aggressive growth strategy in Brazil by investing in brand development and multichannel strategies.
The growth of Boticário suggested that the reason Natura and Avon had achieved such unfavorable results was
not due to an overall market decline. In fact, the market size for beauty and personal care in Brazil had more
than doubled from 2008 to 2015, although an economic slowdown in the country led to a small decline after
2015. Table 2 illustrates the overall growth of the sales of beauty and personal care in the category’s largest
markets from 2008 to 2015.

Table 2. Beauty and personal care sales (in billions of US dollars).9

Country 2008 2009 2010 2011 2012 2013 2014 2015

United States 67.74 66.82 68.37 71.40 73.94 75.66 77.21 80.04
China 26.84 29.55 32.84 36.97 40.56 44.25 47.54 50.68
Japan 32.61 31.95 31.76 31.12 31.28 31.65 31.98 32.14
Brazil 14.43 16.83 19.18 21.19 24.42 27.51 30.48 30.24
United Kingdom 14.42 14.97 15.69 16.12 16.50 17.03 17.49 17.85
Germany 14.36 14.73 15.06 15.40 15.71 15.90 16.27 16.54
France 13.64 13.61 13.82 14.01 14.20 14.26 14.35 14.39
Data source: “Beauty and Personal Care,” Euromonitor International Report 2016, http://www.euromonitor.com/beauty-and-personal-
care (accessed Jun. 14, 2016). Prices as of 2015, using fixed 2015 exchange rates.

8 “Botica Comercial Farmacêutica Ltda in Retailing, Brazil,” Euromonitor International Report 2014.
9 Euromonitor currency conversions to US dollars based on year-on-year exchange rates (converted from Brailian real using exchange rates for each
year of the historic period).

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In this environment, executives of companies engaged in direct selling CF&T in Brazil had some important
questions: What factors were driving these results? What changes were needed to their business models and
channel strategies to succeed? What were the risks and potential gains of the new channels? Would changing
channel strategy alone produce increased market share, sales, and profitability in Brazil?

Natura: Company Background

For the belief in the sales’ power through relations, we chose the direct sale model to sell and distribute our
products with Natura’s brand. It’s a model that promotes a strong connection between buyer and seller.
—Natura’s Investor Relations website10

Natura’s vision statement

Natura, through its corporate conduct, through the quality relationships it establishes, and through its
products and services, will be a globally significant brand, identified with the community of people
committed to building a better world by means of a better relationship with themselves, with others,
with the nature they are part of, with the whole.11

Natura, a 100% Brazilian-owned company founded in 1969 by Antonio Luiz da Cunha Seabra, employed
7,000 people. Its brand was considered strong in Brazil, across many Latin American countries, and in France.
The company’s revenue grew from BRL5.5 billion (USD1.52 billion) in 2011 to BRL7.8 billion
(USD2.16 billion) in 2015.12 Despite experiencing approximately 30% ISC turnover per year, the number of
ISCs had grown from 1 million to almost 1.5 million in the same period. High turnover was inherent to the
direct-selling business model, which was traditionally driven by acquiring new ISCs rather them retaining them.

Besides the number of ISCs, an important metric for direct-selling companies was productivity, 13
represented by the average gross margin per consultant. Between 2011 and 2016, although the number of ISCs
had increased by 0.5 million, productivity had actually declined by 0.6%. Unit productivity had also gone down
from 21.6 items per Natura consultant in 2011 to 15.3 items in 2016. The reasons behind that decline were
unclear.

Natura had over 3,000 products spanning multiple product categories: body care (moisturizers, hands and
feet care), bath (soaps and cleansers, moisturizers and shower oils, exfoliators), hair care (shampoos and
conditioners), facial care (anti-aging products, moisturizers and protection, cleansers and toners, exfoliators and
masks), fragrances (for women and men), cosmetics and makeup (face, eye, lip, nails, acecssories, brushes), and
beard care (beard oil, shaving foam and cream, post shave balm and gel). The company’s strongest categories
were fragrances, cosmetics, and skin care. Natura marketed its large product line under several sub-brands. For
example, Ekos was a range of unique body care products and perfumes inspired by Brazil’s ancestral traditions
and was developed sustainably by working together with local communities; Chronos skincare combined the
best of biodiversity and high-tech research in its products; Aquarela was a line of ecologically packaged makeup
products for women with the face of Brazil and its diversity of races, colors, and styles; Faces was a line of
cosmetics and toiletries designed to suit the pace of life of the modern young woman; Homem was a complete
line of fragrances, beard, face, and body care designed for men; Kaiak had a line of fragrances targeted at men

10 Natura’s Investor Relations website, http://natu.infoinvest.com.br/static/enu/modelo-comercial.asp?idioma=enu (accessed Jun. 14, 2016).


11 http://natu.infoinvest.com.br/static/enu/modelo-comercial.asp?idioma=enu.
12 “Earnings Results. Natura 4Q15,” Natura, February 18, 2016, http://natu.infoinvest.com.br/enu/5579/Conference_4Q15ENG.pdf (accessed Jun.

14, 2016). We use a conversion rate of USD1 = BRL3.60.


13 Productivity in retail price = (gross revenue / average consultants) / 1 – % consultant profit).
http://natu.infoinvest.com.br/enu/5579/Conference_4Q15ENG.pdf.

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with an active, outdoors lifestyle; Mamãe e Bebe was a line of safe and gentle baby care products formulated
with minimum ingredients.

In 2012, Natura acquired a major stake in the Australian cosmetics manufacturer Aesop, which operated
stand-alone stores and department store counters in more than 10 countries. Natura was motivated to become
a global multibrand and multichannel company with products for different types of customers and markets.
Some main characteristics of Natura had stood out to the market over the years.

New products

Innovation was key, and Natura had invested in innovation and new product development and used
Brazilian biodiversity as one of the main drivers of innovation. The company launched a considerable number
of products every year based on Brazilian regional plants. In 2016, Natura invested 2.4% of its net revenue in
innovation, corresponding to BRL187 million (USD51.9 million) and launched 255 products.14 By the end of
2016, sales of products launched within the last two years represented 54.3% of the total gross revenue for that
year.

Sustainability

Corporate branding was important to the company, and it had been highly committed to social and
environmental goals. For example, Natura used inputs to their products obtained only in ways that would
preserve the standing forest in the Amazon. According to the 2016 annual report, since 2011, the company had
spent BRL972 million (USD270 million) in the Amazon region purchasing natural inputs and investing in local
communities’ development, education, and projects for offsetting carbon emission, generating income for more
than 2,000 families in the region.

Marketing push and pull

Natura had targeted marketing communications toward both ISCs (marketing push) and end consumers
(marketing pull)—even before it adopted a multichannel approach to the market—through considerable
spending in mass media advertising such as TV, online, and out-of-home campaigns. Natura believed its
spending on marketing to the end consumer had been key to strengthening the value proposition of the brand.
Further, the company had also invested in sponsorships to fund cultural projects to support the Brazilian music
and fashion events, such as São Paulo Fashion Week, which was the biggest fashion event in Latin America.
As a result of its investments in marketing and innovation, Natura had been recognized as the most valuable
cosmetics brand in Brazil. According to Brand Finance, in 2015, Natura was ranked as the 14th most valuable
beauty brand in the world with an estimated value of USD3.2 billion, up from the 17th position in the previous
year. The Global Top 50 Brands 2015 report stated the following:15

Consumers recognise Natura as a brand that promotes sustainability and reconnection with nature and
expresses the elegance of the Brazilian creative fusion. Sustainability is especially important for
Brazilian consumers—GfK research has shown that over half of Brazilian consumers consider the
environmental impact of cosmetics when purchasing beauty products, the highest for any country—
and sustainability remains a pillar of Natura. In fact, the company rounded off 2014 by becoming the
largest (and first publicly traded) company to attain B Corp sustainability certification.

Natura’s annual report, 2016.


14

“Global Top 50 Brands,” Brand Finance, 2015, http://brandfinance.com/images/upload/034_spc0415_top_50jw_09.49.33.pdf (accessed Jun. 11,
15

2017).

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ISCs

Another characteristic that stood out for Natura was its business model and strong relationship with ISCs.
Natura had a network of more than 1.5 million ISCs in Brazil to support and implement its vision of marketing,
innovation, and sustainability. The channel traditionally worked as follows:16
 Natura consultants were independent resellers who purchased products directly from Natura for resale
to their own network of clients. The consultants, who typically started as consumers of Natura’s
products before beginning to sell them, were not employees of Natura and were not required to sign
exclusivity contracts.
 Natura consultant advisers were consultants who—in addition to selling products—recruited new
consultants. They then served as advisers to those consultants.
 The sales cycle began with the publication of a Natura magazine (catalog) every 21 days. The catalog
contained the portfolio of products as well as the suggested prices the ISCs should charge their
customers. It included also new product launches and new promotions. The catalog was an important
marketing tool that Natura used to transmit its beliefs and values in addition to presenting its product
line.
 The consumer placed an order with their ISC. ISCs, once they met Natura’s minimum order, placed
their orders through the company’s website or over the phone. It took at least a week for the consumer
to receive their products through the consultant. ISCs had between 21 to 60 days to pay Natura once
the order had been fulfilled. They had a line of credit that increased with the length of time they had
worked as consultants and based on their payment history.
 Natura had a strong relationship with its consultants. ISCs were invited to meetings where the
promotions and product launches contained in new Natura catalogs were reviewed. The company also
offered training on products and categories, which helped boost the ISCs’ business. In addition, the
consultants were recognized annually for the length of their relationship with Natura and for their
volume of sales.

Brand performance

Although the company had started to provide its consultants with a variety of tools such as new technology,
new channels, additional payment methods, and many delivery options to enable them to sell to their customers
better, the company was facing major challenges. For example, in Brand Finance’s 2016 report on the global
top 50 brands revealed a 67% decline in Natura’s brand value, down to USD1.05 billion, due in part to the
combined effects of recession, inflation, and the depreciation of the Brazilian real against the US dollar. Avon,
which had Brazil as its biggest market, also went down 54% to USD1.8 billion, with a declining base of
representatives, profitability, and serious problems in the US market.17

Although Natura’s overall brand penetration was higher than other direct-selling companies such as Avon
and Mary Kay, it had decreased by 4.6% as of 2016. Frequency of purchase had also decreased by 12.1%.
Unilever outperformed Natura in those two performance measures, and Boticário had increased its brand
penetration during the same period. Key performance measures provided in Table 3 compare Natura with its
main competitors.

“Commercial Model,” Natura.com, http://natu.infoinvest.com.br/static/enu/modelo-comercial.asp?idioma=enu%20 (accessed Jun. 20, 2017).


16

“L’Oréal Paris - Once, Twice, Three Times a Winner,” Brand Finance press release, http://brandfinance.com/news/press-releases/loral-paris-
17

once-twice-three-times-a-winner/ (accessed Jun. 11, 2017).

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Table 3. Natura brand performance (as of June 2016, based on the past 12 months).

Brand Performance Natura Avon Mary Kay Unilever L’Oréal Boticário

Brand penetration %
51.62 48.88 5.23 95.86 46.97 37.86
(proportion of people buying)

Frequency of purchase (per


3.26 3.31 1.57 8.14 2.50 2.12
person in the last 12 months)

Amount purchased per


shopping trip (number of 2.13 2.60 3.25 2.58 1.51 1.75
items)

Amount spent per shopping


54.01 32.79 141.86 11.92 15.31 78.36
trip (in BRL)

Source: Created by author based on information in Natura’s 2016 competitive intelligence report.

Boticário: Natura’s Fastest-Growing Competitor

Boticário was founded in 1977 in south Brazil. In 2009, the company created a business unit (BU), which
was headed by a former Natura executive and charged with designing new channel strategies and brands. One
year later, the company launched a cosmetics retail chain called Eudora and started a door-to-door operation
linked to it. At the same time, it expanded the direct-selling channel to the Boticário network of franchised
stores. At the beginning of this operation, it had avoided conflict with the store-based channel by encouraging
store clerks that worked for the franchisees to sell Boticário’s products through catalogs away from the store’s
physical location. Then, those clerks and the franchisees started to recruit more ISCs, and Boticário also began
to directly recruit more ISCs. Thus Boticário stores were also being used as logistic operators to carry
inventories, supply products, and support the ISCs’ sales.18 As a reference point, Natura and Avon had fewer
than 10 distribution centers apiece to serve the whole Brazilian market.

By the second quarter of 2016, Boticário had 37.8% brand penetration overall and had reached 16.07%
brand penetration in the direct-selling channel, an increase of 4% in the previous 12 months. The direct-sales
channel was already estimated to account for roughly 30% of the company’s sales. It also ran an e-commerce
operation that had become stronger over the years and was invested in by the company mainly after 2011. Only
a small percentage of Boticário’s sales was attributable to the e-commerce channel.

Besides the multichannel strategy, as of 2012, Boticário had launched two new retail chains—Quem Disse
Berenice? and The Beauty Box (see Exhibit 1). Quem Disse Berenice? sold women’s cosmetics products that
were exclusive to the chain and e-commerce, most of which were manufactured by Boticário. The Beauty Box,
on the other hand, resold well-known third-party CF&T brands targeted to both women and men. Brands
included Clinique, Calvin Klein, and Carolina Herrera, among others, including Boticário’s competitors such as
L’Oréal Paris.

18 Camila Fusco, “O Boticário vai Bater à sua Porta,” October 10, 2010, Exame.com, http://exame.abril.com.br/negocios/noticias/boticario-vai-

bater-sua-porta-565116 (accessed May 10, 2017).

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Channel Performance in the CF&T Market

In 2015, direct selling represented 25.2% of the total CF&T market in Brazil (see Table 4). The country
was actually the industry’s most important one for this channel even when compared with other important
CF&T markets such as the United States, China, the United Kingdom, and Mexico (the second-largest beauty
and personal care market in Latin America).

Table 4. Market share by channel for beauty and personal care products (%).
United United
Channel Brazil China Mexico
States Kingdom
Grocery retailers 34.5 24.1 29.4 55.7 30.8
Direct sales 25.2 5.7 11.9 23.8 3.2
Beauty specialist retailers 18.8 9.6 9.7 1.3 8.5
Drugstores 17.4 14.7 7.9 1.8 10.6
Department stores, mixed
1.0 30.0 19.2 8.7 11.9
retailers
Online retailers 2.0 7.7 18.1 0.6 10.5
Hair salons 0.1 2.8 0.1 0.1 1.2
Data source: “Beauty and Personal Care,” Euromonitor International Report 2016, http://www.euromonitor.com/beauty-and-
personal-care (accessed Jun. 14, 2016).

Despite the importance of direct selling for CF&T in Brazil, in response to competitive pressures, Natura
and Avon had started to consider using different distribution channels for selling their products (see Exhibit 2).
Table 5 shows the share of each distribution channel for beauty and personal care in Brazil. Grocery retailers
remained the most important channel for this industry even though their share had declined from 2008 to 2015.
Although the share of CF&T sales from door-to-door operations had declined over time, direct selling reached
a market penetration of 60.73% by late 2015 for the overall population and remained the second-most relevant
channel after grocery retailers. Other physical store formats continued to be important as well. Beauty specialist
retailers and drugstores had become more relevant, and together in 2015, they accounted for 36.2% of the
CF&T sales.

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Table 5. Channel distribution of beauty and personal care in Brazil (%).

Channel 2008 2009 2010 2011 2012 2013 2014 2015

Grocery retailers 37.80 37.30 36.30 35.90 35.80 35.70 35.40 34.50
Direct sales 28.70 28.60 28.10 27.50 26.90 26.10 25.70 25.20

Beauty specialist retailers 15.90 16.20 17.40 17.60 17.90 18.00 18.30 18.80

Drugstores 14.50 14.90 15.00 15.50 15.90 16.60 16.90 17.40

Department stores,
0.90 0.90 0.90 0.90 0.90 1.00 1.00 1.00
mixed retailers

Online retailers 1.10 1.10 1.20 1.50 1.50 1.60 1.70 2.00
Hair salons 0.00 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Others 1.10 0.90 1.00 1.00 1.00 0.90 0.90 1.00
Data source: “Beauty and Personal Care,” Euromonitor International Report 2016, http://www.euromonitor.com/beauty-and-personal-care
(accessed Jun. 14, 2016).

Direct Selling

In Brazil, two large direct-selling companies had coexisted in the CF&T market: Natura (local) and Avon
(multinational). Direct selling was often important where socioeconomic development was low,19 which was
one of the reasons why it was still important in Brazil. The most likely consumers of the direct-selling channel
were older people in the less-developed regions. They tended to be less comfortable with technology and had
limited access to other channels. Industry experts believed that if Natura hadn’t started its operations in 1969
with a single door-to-door channel strategy (which until 2014 was its unique channel), direct selling would not
have flourished in the CF&T market. Additional characteristics of the direct-selling model in Brazil included:
 Direct-selling companies had large salesforces made up of independent salespeople. This position was
viewed as an opportunity for someone to earn extra money as a complement to regular household
income even without an advanced formal education or specialization.
 The growth of direct selling was supported by areas and regions in the country where there was a lack
of retail development of strong brands.
 Avon and Natura were pioneers of this model in Brazil and introduced brands and products that had
achieved a high level of preference among consumers.

Although direct selling was still important in Brazil, its importance had decreased over the years (see
Table 6). As Natura quickly moved to become a multichannel company with less dependency on the door-to-
door channel, industry experts believed that direct selling in Brazil would decrease its importance even more.
Further, from research conducted in Brazil and accessed by Natura, the higher the Municipal Human
Development Index (MHDI) in a particular city, the more retailers were important (physical stores), whereas
the lower the MHDI, the more important door-to-door sales were. 20 Brazilian cities had become more

Author interview with Murillo Boccia, September 2016; unless otherwise noted, all subsequent inferences derive from this interview.
19

The computation of the MHDI is adapted from the United Nations Development Programme’s (UNDP) Human Development Index, which is a
20

summary measure of a country’s human development along three dimensions: health, education, and standard of living.

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developed, and as a result, direct selling was expected to become less important. Finally, it was believed that
the direct-selling channel in CF&T had reached a saturation level such that growth potential was more likely to
happen only in less developed regions and cities (e.g., not in capital cities such as São Paulo).

As of 2016, both frequency of purchase and market penetration of direct selling in Brazil had decreased.
However, Mary Kay (650,000 new households) and Boticário (525,000 new households) had increased their
brand penetration within this channel.

Table 6. Direct selling: Key measures as of June 2016.


% Change
Total
(12 months)

Penetration % (proportion of the 52 million households) 60.73 –2.9

Frequency of purchase (per person in the last 12 months) 4.54 –7.8


Amount purchased per shopping trip (in volume) 2.61 +0.7

Amount spent per shopping trip (BRL) 54.79 +0.4

Total unit sales, last 12 months (millions) 378,010 –7.5

Total sales, last 12 months (BRL millions) 7,909,960 –7.8

Source: Created by author based on information in Natura’s 2016 competitive intelligence report.

Online Channels

As of late 2014, direct-selling companies Avon, Natura, and Mary Kay had initiated e-commerce as a new
direct-to-consumer channel.21 Each company operated in this new channel in a different way. For example,
Avon came out with a new brand of color cosmetic, Luxe, at first sold only online, then later was available
through its catalogs. Since then, Avon quietly expanded its e-commerce to sell its complete product portfolio
directly to consumers without proactively advertising the company’s online store. When shopping through the
company’s online store, consumers did not have to pick a consultant.22 The prices were usually higher on
Avon’s online store than in its catalogs, and promotion was not as intense in this channel as for door-to-door
sales.

In contrast with Avon, Mary Kay operated in Brazil with an online store where consumers had to pick an
independent consultant according to their location (i.e., zip code), who then received a percentage of the sale.23
This alternative avoided conflict with Mary Kay’s independent beauty consultants.

Natura had analyzed different possibilities before it launched its e-commerce operation, including the
models that had been adopted by Avon and Mary Kay. Natura’s executives considered several factors before
launching its e-commerce website, such as: (a) What role would it play in the control of the brand (i.e., price

21 Tatiane Bortolozi, “Só a Venda por Catálogo Não é Mais Suficiente,” Valor.com, December 18, 2015,
http://www.valor.com.br/empresas/4363066/so-venda-por-catalogo-nao-e-mais-suficiente (accessed May 10, 2017).
22 See www.avonstore.com.br.
23 See https://www.marykay.com.br/pt-br/locator.

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and communication)?; (b) How could it best avoid potential conflict with traditional ISCs that sold products
only through catalogs?; (c) What was the best way to establish a relationship with consultants as part of the
website’s strategy?; (d) What were the potential profitability and revenue streams?; and (e) How could it
minimize the tax and labor risks?

In 2014, Natura created Rede Natura (translated as “Natura Network”) in which an ISC (or any other
person) could become a digital consultant. Consumers made online purchases through the digital consultants’
personalized web pages, which were sponsored by Natura. It first experimented in two cities within São Paulo
State, Campinas and São José dos Campos. Based on the results from the experiment, Rede Natura was
introduced throughout the entire country. It worked as follows: each Natura digital consultant received a
personalized Rede Natura URL that could be used to promote a personal web page to this person’s own
network through email, Facebook, or any other touchpoint. Importantly, when consumers accessed this
website, they perceived it as the company’s own e-commerce website.

In the traditional door-to-door commercial mode, ISCs bought the product, delivered it, and charged the
consumer. In the new digital franchise model, Natura took responsibility for payment and delivery. Thus the
digital consultant’s role was to promote the products, generate the lead to the website, help consumers go
through the shopping process, and close the sale. As a consequence, the digital consultant’s commission was
lower than the direct-sales’ commission. In terms of price and margin composition for the two channels,
traditional ISCs purchased products from Natura with a 30% discount to resell to end consumers. The
suggested price was published in the catalog they used to show the products to their customers and make the
sale. Traditionally, ISCs had not been allowed to carry inventory and Natura would remove them from the
network if they did so. As part of the multichannel transition, ISCs, especially high-performing ones, could
form their own inventory by buying certain products when Natura ran promotions and offer them for sale later
when the products’ suggested prices rose. As for the digital consultant model (Rede Natura), the price was set
by Natura, but the digital consultants could use specific coupon codes to run price promotions with consumers.
However, this affected their standard 20% online sales commissions.

In this business model the Natura Digital Consultants (CND) uses the Natura Network, that allows
the Natura Consultants to create their own website through which to relate with customers and sell
Natura products, combining this format with the traditional direct-selling model and increasing their
productivity. For the client, this channel serves as yet another option for acquiring Natura products
that are delivered directly by Natura and may be paid [for] using credit cards or bank payment slips in
a secure environment.24

In April 2016, Natura launched its own company website and started to sell Rede Natura directly to
consumers as well as through consultants. Consumers were no longer obligated to select a digital consultant to
purchase the company’s products. After six months, the sales through their own website represented roughly
30% of Natura’s total online sales. Sales through Natura digital consultants’ personalized websites made up the
rest.

Natura’s promotional intensity through the online channel was higher than its direct competitor Avon on
their online store, and the prices on Natura’s website were sometimes lower than the price of products sold
through catalogs (i.e., by traditional ISCs). In fact, a few of Natura’s ISCs observed that once in a while the
price of a product was cheaper if they bought from Natura’s own website through the same process as a
consumer rather than through the traditional buying process where sales consultants purchased products
through the catalog at a discount. As a consequence, approximately 8% of Natura’s own website sales were
attributable to Natura consultants and not to end consumers. This evidence showed that this channel, even

24 http://natu.infoinvest.com.br/static/enu/modelo-comercial.asp?idioma=enu.

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though it was not intended to act as a wholesale distribution method, provided consultants with an opportunity
to occasionally find better offers online than through the catalogs.

The products’ lower online prices made it difficult to avoid conflicts with the ISCs even though the initial
idea was that the e-commerce channel would balance the interests of consumers and sales consultants (i.e., that
the two models could operate independently but at the same time). Consequently, the online channel was not
viewed positively by some of Natura’s ISCs:

It is fair to have the online store. What is not fair is to apply the same commercial conditions on their
direct website and in the online channel of the consultants. The direct online store would be better if
it worked with full price and not with the whole portfolio.25

Regardless of any potential damage to other channels, Natura had achieved positive results through the
two types of e-commerce operations:
 Over 70,000 digital consultants and more than 500,000 consumers registered during the first year of
operation (2015). By late 2016, Natura had 100,000 digital consultants, 1.6 million registered customers,
and doubled revenue in 2016 in comparison with 2015.
 Natura opened the possibility for people to become “digital entrepreneurs” through the digital
franchisee model. It further attracted a different profile of digital consultants (e.g., younger, more
digital, social influencers, male and female) in contrast to the profile of the traditional door-to-door
Natura consultant (e.g., older, less digital, female). Half of the digital consultants were purely digital
and were not selling through traditional door-to-door methods.
 The new online model helped the company gain more customers from the higher income A and B
social classes as opposed to the door-to-door channel, which mainly had customers from middle-
class C.26
 Due to greater shopping convenience, sales increased in product categories that were previously below
potential (e.g., daily-use products like shampoo). Natura developed what is known as a long tail
business model in relation to e-commerce. New product launches were part of Natura’s culture, but
the space to promote all the existing and new products in the printed catalog was limited. E-commerce
was a way that Natura continued to offer some potential products that were no longer being displayed
in the catalogs.

In response to any negative effects the online channel had on its relationship with the ISCs, Natura started
to focus on the internet as a tool to help ISCs boost sales using data analytics from the company’s customer
relationship management (CRM) team. While Natura as a whole was still figuring out the wide range of website
functions beyond sales, the CRM team had realized that datasets from the new interactions between the brand,
consultants, and end consumers could provide valuable insights to strengthen the relationships among them.
For example, the analytics team employed next-product-to-buy models and identified cross-selling
opportunities. The insights from this analysis generated suggestions to the digital consultant through an internal
online platform and mobile apps offered by Natura. This way, digital consultants were able to track the brand’s
recommendations and some key measures from their personal website. The analytics team also provided
recommendations to improve traffic, conversion rates, and profitability.

25 Benjamin Rosenthal, “Natura Sales Channel Evolution and the Consultant’s Perceptions and Emotions,” a research report from a focus group

coordinated by the author made up of six high-performing Natura ISCs. Quote is from a Natura consultant that attended the focus group.
26 According to the Brazilian Market Research Association, in 2014 the average annual household income of social classes A and B ranged from

USD14,757.87 to USD67,575.20 (25.8% of the total population); the middle-class C ranged from USD4,820.80 to USD8,030.03 (47.5% of the
population); and lower D and E classes averaged USD2,132.60 (26.6% of the population).

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Physical stores: Beauty specialists and drugstores

The traditional business model of Natura and Avon in Brazil did not support sales to other companies
(i.e., retailers), but only to individuals (i.e., ISCs). However, as these companies had moved toward a
multichannel approach, some embedded processes and commercial policies were being revised to serve physical
stores. Many different retail formats had been tested by direct-selling companies in the beauty and personal
care market.

Drugstores. In 2015, Natura started to sell one product line, Sou, which consisted of moisturizers and
shampoos, through the drugstore channel at one of the country’s largest drugstore chains, Droga Raia. By 2016,
the Sou line was available through three drugstore chains at more than 3,000 stores. The company planned on
adding more drugstore chains and other skin-care brands in addition to the Sou line.

Flagship stores. Before adopting the multichannel orientation, Natura had opened a small number (less
than 10) of temporary flagship stores as a way to have direct access to consumers and to learn how to operate
physical stores. The stores were in locations with access to A and B social class consumers.

Natura-branded retail stores. In 2016, Natura opened five stores, at mall locations in São Paulo, to target
consumers from A and B social classes and to offer a more premium portfolio (e.g., Ekos, Chronos, and Una
brands) with a focus on makeup and skin care. Natura planned to add more than 300 stores in the next three
years.

Vending machines. Natura activated vending machines carrying the Sou line at malls, airports, train stations,
and other high-traffic locations.

Emergent retail channels—ISCs that became beauty specialist retailers. In general, ISCs sold multiple brands. Most
of them sold Avon and Natura at the same time. Some ISCs (approximately 1,000) opened multibrand beauty
retail stores selling Natura, Avon, and other CF&T brands such as Boticário, L’Oréal, and Unilever. They
carried inventory and had shelves to display the products to consumers. These ISCs were no longer operating
in the traditional door-to-door sales model (i.e., away from a fixed location and without carrying inventory). At
the same time, they had Avon and Natura catalogs on hand in case a consumer preferred to purchase a product
that was not immediately available at the store.

Multibranded retail stores existed in a space somewhere between a beauty specialist retailer format and a
direct-selling channel. They operated as retail companies or corporations, which led industry observers to
conclude that the ISCs that operated in this store format were part of an informal (i.e., emerging, unstructured,
and “unauthorized”) channel for Natura and Avon. The main issue with respect to this operation was that the
ISCs purchased the product from Natura and Avon as individuals (i.e., sales representative or ISC). Other
beauty and personal care companies, such as Boticário and L’Oréal, also monitored the emerging channel as a
potential opportunity for selling their own brands.

Before Natura’s multichannel orientation, the company did not allow the existence of this channel as it
contradicted the fundamentals of direct selling. However, more recently it had found ways to serve this channel
due to its importance and potential in the beauty and personal care market. To help the high-performing ISCs
who had started to open stores, Natura began to offer visual standardization of the stores’ interior and exterior
and encouraged them to experiment with product offerings and different payment methods. Natura’s selected
stores targeted B and C social classes in high–foot traffic neighborhoods. The company had activated more
than 105 of these emergent channel stores since December 2014 and saw a 15% gain in productivity and 4.4%
gain in market share at those stores. Avon also wanted to put its visual stamp on these multibranded stores, but
they were trailing Natura.

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Other retail formats. Executives in the direct-selling industry also saw hair salons as an opportunity to be
further explored. Hair salons were a very fragmented retail type to serve, and costs to distribute through this
channel were quite high for massive consumer goods companies such as Unilever and P&G. The grocery
channel could also be an opportunity due to its importance in beauty and personal care sales, but the distribution
model to serve this channel, the type of competition faced within this format, and the potential conflict with
other channels were some of the concerns that had kept direct-selling companies away from grocery stores so
far.

Natura’s Multichannel Challenge

In hopes of reversing the nonfavorable market trend in 2014, Natura recognized through its multichannel
strategy that each of the formats could have a different role along the consumer decision journey. Physical
stores such as beauty specialist retailers were important to promote product awareness and trial. They also
created an overall interesting shopping experience that used retail clerks’ knowledge and store displays to
influence the purchase of the brand. The drugstore channel helped Natura to market its Sou brand in
neighborhood locations and offered convenient purchase options that had become increasingly important for
beauty and personal care. Online sales supported the brand when shoppers made repeated purchases and
attracted a new consumer profile to the brand (e.g., young people and A and B social classes). Also, the online
presence, Rede Natura, generated more customer reviews and word of mouth. Further, Natura’s large salesforce
in door-to-door operations helped the brand reach consumers in a multitude of ways, especially consumers
from the C and D social classes and those who lived in less developed or smaller cities.

Finally, direct-selling companies had not yet developed capabilities in order to operate in retailing and
compete with Boticário, Unilever, and P&G. They had never worked through distribution channels that
required different approaches in terms of service level, assortment composition, promotion, price,
merchandising, and incentives to sell their products to end consumers. Instead, the direct-selling companies’
core capability was to manage the relationship between the company and ISCs, where traditionally there were
no shelves and not even a complete assortment or immediate availability of products for consumers. They were
skilled at creating incentives for salespeople, persuading new people to become ISCs, and developing products
to be sold through catalogs. Despite their shortcomings, direct-selling companies acknowledged the changes in
shopping behavior, demographics, and psychographics in Brazil (e.g., women working outside of the house),
and other environmental events would shape new business models in this industry.

When Ferreira became the CEO at the end of 2016, the previous management’s strategy had caused a
deteriorating relationship between the brand and the ISCs because they were no longer the exclusive sales
channel. As Natura moved to sell through its own stores, drugstores, vending machines, and online store, some
consultants argued they did not know what their role would be in the future and if they would become less
important to Natura.

At the same time, Natura’s new management recognized that there was no stepping back from a
multichannel orientation for the brand. New players in the Brazilian market with strong global brands, such as
Sephora, had started to operate their own stores and e-commerce operations in the country. How should
Ferreira approach the transition from a single-channel to a multichannel company? How should he balance
Natura’s origins as a direct-selling company with ISCs at the center of its strategy while at the same time
developing new channels to access the market and overcome intense competition in beauty and personal care?

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Exhibit 1
The Multichannel Challenge at Natura in Beauty and Personal Care
Boticário Multichannel and Multibrand Strategies

Boticário store as of April 2017. To see Boticário’s other strategies (such as recruiting representatives, allowing consumers to search
for representatives, and offering online shopping without ISC support), visit http://www.boticario.com.br,
http://www.thebeautybox.com.br, and http://www.quemdisseberenice.com.br.

Source: Author photograph.

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Exhibit 2
The Multichannel Challenge at Natura in Beauty and Personal Care
Emerging Channels for Direct-Selling Companies—E-Commerce (Natura)

Source: https://www.google.com/#q=loja+online+natura. Google and the Google logo are registered trademarks of Google Inc., used
with permission.

Source: http://www.rede.natura.net as of 2016. Used with permission.

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Exhibit 2 (continued)

Emerging Channels for Direct-Selling Companies—Retailing


(ISC with Stores that Sell Natura and Display Its Products on Their Shelves)

Source: “Natura,” presented at 2017 Brazil Conference—Bank of America Merrill Lynch, March 29, 2017,
http://natu.infoinvest.com.br/enu/5981/ML%202930%20Mar2017%20-%20Ingles.pdf (accessed Jun. 20, 2017). Used with
permission.

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Exhibit 2 (continued)

Emerging Channels for Direct-Selling Companies—Drugstores, Vending Machines,


Airports, Natura-Branded Stores

Source: Author photographs.

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