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Avon's Marketing Strategy

Essay by   •  October 30, 2010  •  Case Study  •  1,784 Words (8 Pages)  •  2,589 Views

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Avon's mission statement is to be the company that best understands and satisfies the product service and self-fulfillment needs of women globally. They state on their web site that their dedication to supporting women touches not only beauty-but health, fitness, self-empowerment and financial independence. This is a good mission statement for a company selling beauty products to women all over the world.

Avon started selling beauty products door to door in 1886. For generations women have been purchasing Avon products from small catalogues through a representative calling on consumers in their homes. During the days when most women were at home rather than building their own careers this method of direct selling was appropriate. In 1979 Avon purchased Tiffany & Co Jewelers as well as a chemical maker and health-product company. By the year 1988 Avon was removing themselves from the health care industry. Their debt had reached $1.2 billion and stock prices had bottomed out. During 1989 Avon was the target of two take over attempts. The company was successful in warding off both bids. Avon launched their new web site in 1997. This was a turning point for the company as they were offering products directly to the customers thus cutting out the need for the representatives that they had spent decades relying on. Avon estimated that they had 500,000 sales representatives in the United States alone. The sales results from this Internet site have not produced the gain the company had hoped for. In 1998 Avon set up mall kiosks around the United States. This was their first attempt at operating retail stores. This was a major departure in the way the company has done business in the past. The intention of the kiosks was to aim sales at younger consumers not already aware of the Avon brand. To help the relationships between Avon and its sales representatives these kiosks are now franchised to the representatives. Andrea Jung was named CEO of Avon in 1999. During the year 2000 Avon relaunched its web site emphasizing the availability of Avon representatives on line to help potential customers with their needs. At the same time Avon created a new product line to be carried by major retailers and sold only in stores.

Avon's sales have increased but at a rate of only 5% per year during the past ten years while profits have increased by only 4% per year. On line sales of health and beauty products had reached a staggering $756 million in the first six months of 2001. Marketing techniques used in the traditional sales methods are not viable for the online segment. Research has found that on line customers have higher incomes and are more educated. Competition is this market is fierce. When the web site was initially launched they offered only a small portion of their products. The company was very timid at that time of alienating the sales representative. Management could not agree on the strategy to be used for their Internet sales and consequentially came on line later than many of their competitors.

Avon's product line has become deeper as the decades have passed. They at one time were selling only a limited line of make up and fragrances. Avon added jewelry, some clothing items, and children's books, among other offerings. At the time the case was printed two thirds of Avon's sales were generated overseas. The case cites examples of the sales in Taiwan. Five years prior to the printing of the case sales were growing at a rate of less than 5% per year in that country. Then Avon's management introduced multilevel marketing and opened retail stores selling Avon products to customers directly. The company is now enjoying 20% per year growth in Taiwan. Stock prices are increasing from the troubled times cited earlier in this report however they along with the sales have not rebounded as much as Avon would like.

The fundamental problem that Avon is currently facing is that although profits are slowly increasing, they are not increasing to their full potential. In fact, Avon's sales growth has only been up 5% a year for the past decade, but that number has now reach an even further low of 1.5% increase in the year 1999. With this problem, Avon's CEO Jung must now try to find a way to merge the company's current direct-selling model with the idea of selling Avon products over the Internet. Jung must determine how to implement the online selling aspect and at the same time try to change the negative views that some of the sales representatives have with regards to potential lost sales from customers who will use this method. Another problem that the company faces is the fact that the company is now behind competitors who have already established their lines of beauty products to be sold online. The company will need to fight for its fair share of the $1 billion online beauty-products business and make new and existing customers aware of this new alternative purchasing method.

The first recommended solution would be that Avon adapts the current plan set out by Jung with regards to the implementation of the online business. This plan includes the concept of creating an "eRepresentative" title to all sales representatives who are willing to pay $15 per month to be eligible to earn online commissions. These commissions will range from 20-30% depending on the selected delivery method. This would mean that an eRepresentative would need to sell a minimum $70 worth of products at the 20% commission rate in order to break even with the monthly fee. Also, in order for the commission to be allocated to the correct sales representative, the customer will be required to input their Zip Code. The expected outcomes of this possible solution may be placed on the two extremes of the spectrum: Avon's online business could very well become the dominant force in the nearly $1 billion dollar industry or it could fail to even break even with the amount invested into this project. Based on the attitudes of the sales representatives, this alternative has been faced with much criticism as only 11,800 of the 500,000 US representatives, or 2.36%, have signed up for this alternative. One possible reason why the representatives are reluctant to sign up for this new concept may be because no data was provided to show estimates as to how much customers would spend

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