GLOBAL ANALYSIS- AVON
MGT 795: Section G1
Professor: Patrick Saparito
Jennifer Callaghan
J.R. Longino
Rasa Navickaite
Meghan Quinn
Lia Torre
Table of Contents
EXECUTIVE SUMMARY/ABSTRACT .................................................................................................. 4
OVERVIEW ................................................................................................................................................ 5
History and Background ........................................................................................................................... 5
Mission Statement..................................................................................................................................... 5
Social/Corporate Responsibility ............................................................................................................... 6
BUSINESS ANALYSIS .............................................................................................................................. 8
Core Competencies ................................................................................................................................... 8
Management Structure .............................................................................................................................. 9
Current Objectives .................................................................................................................................... 9
Current Short Term Objectives ............................................................................................................. 9
Current Long Term Objectives ........................................................................................................... 10
Current Strategy ...................................................................................................................................... 10
Advertising and Representative Value Proposition (“RVP”) ......................................................... 10
Product Line Simplification(PLS) .................................................................................................. 10
Strategic Sourcing Initiative............................................................................................................ 10
Enterprise Resource Planning System ............................................................................................ 11
Zero-Overhead-Growth................................................................................................................... 11
Restructuring Initiatives .................................................................................................................. 11
SWOT Analysis ...................................................................................................................................... 13
Strengths ......................................................................................................................................... 13
Weaknesses ..................................................................................................................................... 15
Opportunities................................................................................................................................... 17
Threats............................................................................................................................................. 22
FINANCIAL INFORMATION .............................................................................................................. 23
SUMMARY OF RECOMMENDATIONS ............................................................................................. 25
Technology and Social Media................................................................................................................. 25
Focusing on International Growth- the BRIC Countries ........................................................................ 27
Brazil ................................................................................................................................................... 28
Recommendations for Brazil .......................................................................................................... 33
Russia .................................................................................................................................................. 34
Recommandations for Russia.......................................................................................................... 40
India .................................................................................................................................................... 41
Recommendations for India ............................................................................................................ 46
China ................................................................................................................................................... 48
Recommendations for China ........................................................................................................... 53
Conclusion ………….…………………………………………………………………………………….54
REFERENCES .......................................................................................................................................... 55
AVON- A GLOBAL COMPANY FOR WOMEN
EXECUTIVE SUMMARY/ABSTRACT
Avon is a powerhouse in the beauty industry with over $10 Billion in sales and claims its
stake as being the largest direct seller in the world. After performing extensive research on the
company using multiple online tools, journals, articles and texts, we have collected enough
evidence to make recommendations as to how Avon can continue its global expansion while still
maintaining long and short term company objectives and staying within core competencies. We
believe Avon can and should expand strategically into each of the BRIC countries while also
leverage the power of the technology and the Internet to increase business through social
networks.
OVERVIEW
History and Background
In 1886, thirty four years before women in the U.S. had even had the right to vote, a
visionary entrepreneur named David H. McConnell had the extraordinary idea to found a
business based on the premise of giving women an opportunity to earn money outside of the
home and build financial independence. From that one idea to a company of over six million
representatives in over 100 countries across the globe, the company has grown and prospered
(Avon, 2010). Currently, Avon is a leading global beauty company, with over $10 billion in
annual revenue. As the world's largest direct seller, Avon markets to women in more than 100
countries through 6.2 million independent Avon Sales Representatives. Avon's product line
includes beauty products, as well as fashion and home products, and features such wellrecognized brand names as Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon
Naturals, and Mark. Ticker AVP (Avon, 2010).
Mission Statement
“The Global Beauty Leader
We will build a unique portfolio of Beauty and related brands, striving to surpass our
competitors in quality, innovation and value, and elevating our image to become the Beauty
Company most women turn to worldwide.
The Women's Choice for Buying
We will become the destination store for women, offering the convenience of multiple
brands and channels, and providing a personal high touch shopping experience that helps create
lifelong customer relationships.
The Premier Direct Seller
We will expand our presence in direct selling and lead the reinvention of the channel,
offering an entrepreneurial opportunity that delivers superior earnings, recognition, service and
support, making it easy and rewarding to be affiliated with Avon and elevating the image of our
industry.
The Best Place to Work
We will be known for our leadership edge, through our passion for high standards, our
respect for diversity and our commitment to create exceptional opportunities for professional
growth so that associates can fulfill their highest potential.
The Largest Women's Foundation
We will be a committed global champion for the health and well-being of women through
philanthropic efforts that eliminate breast cancer from the face of the earth, and that empower
women to achieve economic independence. The Most Admired Company We will deliver
superior returns to our shareholders by tirelessly pursuing new growth opportunities while
continually improving our profitability, a socially responsible, ethical company that is watched
and emulated as a model of success” (“Corporate Responsibility Report”, 2009).
Social/Corporate Responsibility
Avon’s core values—trust, respect, belief, humility and integrity. Avon has been
committed to advancing women since the company was founded in 1886, and philanthropy has
always been a strong part of their heritage. In 1955 the company formalized philanthropic efforts
with the creation of the Avon Foundation, which advances the mission to improve the lives of
women and their families (“Corporate Responsibility Report”, 2009).
The Avon Foundation’s first grant, more than half a century ago, was a single scholarship
of $400. The Foundation’s main efforts are today focused on the critical issues of breast cancer
and domestic violence, and Avon global philanthropy is advancing these causes in more than 50
countries. As committed global citizens, Avon and the Avon Foundation also support emergency
and disaster relief, while a scholarship program for Avon associates and Sales Representatives
maintains the tradition of supporting education.
Avon’s commitment to the environment has been deeply rooted in Avon’s principles for
more than a century. At locations worldwide, they remain committed to reducing our global
environmental footprint, including the issue of climate change, by recycling, reducing waste,
conserving energy and water, and monitoring and reducing greenhouse gas emissions. New
Avon facilities are developed using green building standards.
To help drive institutional and individual “green” behavior, Avon launched Hello Green
Tomorrow in 2009 to empower a global environmental movement to nurture nature.
In 2004, they established environmental goals and targets for 2008 and have made
progress in pursuit of these goals.
A Director of Corporate Responsibility is based in the Avon global headquarters in New
York City, and collaborates with management in a wide array of relevant departments that
support the many pillars of corporate responsibility, including human resources, environment,
supply chain, research & development, the Avon Foundation and much more, both in the United
States and around the world (‘Corporate Responsibility Report”, 2009).
BUSINESS ANALYSIS
Core Competencies
Stronger brand.
Avon’s iconic brand has 90% awareness across the globe and sells four lipsticks every
single second of the day. To maintain that advantage, Avon has elevated their focus on
innovation and sustained advertising investment at almost triple the rate of 2005, even in the face
of macroeconomic challenges.
Stronger channel
Avon’s Sales Leadership — through which Representatives earn by both selling and
recruiting — has been rolled out to approximately 50 countries worldwide. They have also
launched the global Internet platform to help Representatives manage their business online.
Stronger Cost Management
Due to the restructuring plans of 2005 and 2009, and cost transformation programs
delivering well ahead of initial expectations, constant turnaround mentality is now fully
embedded in the organization. Avon is expecting an operating margin improvement in 2010.
Stronger organization
The company has made significant progress in its evolution from a confederation of local
businesses to a fully integrated matrix of global and commercial business units. Avon has
effectively leveraged its global strength in marketing, sales and supply chain, while also
remaining flexible and responsive to local consumers and Representatives (Avon, 2010).
Management Structure
Avon’s primary distribution channel is direct selling through more than 6.2 million Avon
Sales Representatives. The recruiting or appointing and training of Representatives are the
primary responsibilities of district sales managers and zone managers. Depending on the market
and the responsibilities of the role, some of these individuals are Avon employees and some are
independent contractors. Those who are employees are paid a salary and an incentive based
primarily on the achievement of a sales objective in their district. Those who are independent
contractors are rewarded primarily based on total sales achieved in their zones or downlines
(Avon, 2010).
Current Objectives
Current Short Term Objectives
In November 2005, Avon launched a comprehensive, multi-year turnaround plan to
restore sustainable growth. The following are the company’s short term-objectives.
• “Committing to brand competitiveness by focusing research and development resources
on product innovation and by increasing advertising;
• Winning with commercial edge by more effectively utilizing pricing and promotion,
expanding the Sales Leadership program and improving the attractiveness of Representative
earnings opportunity as needed;
• Elevating organizational effectiveness by redesigning the structure to eliminate layers of
management in order to take full advantage of their global scale and size; and
• Transforming the cost structure so that costs are aligned to revenue growth and remain”
(Avon, 2010).
Current Long Term Objectives
As more and more Representatives discover the power of the Avon Earning Opportunity,
Avon’s Long Term Objective goal is to retain them and increase their productivity by continuing
to innovate their business model (Avon, 2010). Avon also plans to leverage technology and the
viral power of the Internet to build communities that connect Avon to the Representatives and
the Representatives to their Customers. With more and more consumers discovering the smart
value of Avon’s store, Avon plans to broaden shopping opportunities with new product
categories that reinforce their beauty image and strengthen their customer relationships (Avon,
2010).
Current Strategy
Advertising and Representative Value Proposition (“RVP”)
“Investing in advertising is a key strategy” (Avon, 2010). Advertising investments also
included advertising to recruit Representatives. Avon continued to invest in their direct-selling
channel to improve the reward and effort equation for Representatives (Avon, 2010).
Product Line Simplification(PLS)
Avon developed the PLS program in order to develop a smaller range of better
performing, more profitable products. The continued goal of PLS is to identify an improved
product assortment to drive higher sales of more profitable products (Avon, 2010).
Strategic Sourcing Initiative
Avon launched the SSI in 2007. This initiative is expected to reduce direct and indirect
costs of materials, goods and services. The goal of this initiative is to shift purchasing strategy
from a local, commodity-oriented approach towards a globally coordinated effort which
leverages Avon’s volumes, allows suppliers to benefit from economies of scale, utilizes sourcing
best practices and processes, and better matches our suppliers’ capabilities with our needs.
Beyond lower costs, the goals from SI include improving asset management, service for
representatives and vendor relationships (Avon, 2010).
Enterprise Resource Planning System
Avon is in the process of rolling out a multi-year global enterprise resource planning
(“ERP”) system, which is expected to improve the efficiency of their supply chain and financial
transaction processes (Avon, 2010).
Zero-Overhead-Growth
Avon institutionalized a zero-overhead-growth philosophy that aims to offset inflation
through productivity improvements. These improvements in productivity will come primarily
from SSI and their restructuring initiatives. The company has defined overhead as fixed expenses
such as costs associated with its sales and marketing infrastructure, and management and
administrative activities (Avon, 2010).
Restructuring Initiatives
2005 Restructuring Program
Avon launched their original restructuring program under the multiyear turnaround plan
in late 2005. In order to implement restructuring initiatives during 2005 through 2009 the
following specific actions are necessary:
• “Organization realignment and downsizing in each region and global through a process
called “delayering,” taking out layers to bring senior management closer to operations;
• The phased outsourcing of certain services, including certain finance, information
technology, human resource and customer service processes, and the move of certain services
from markets to lower cost shared service centers;
• The restructure of certain international direct-selling operations;
• The realignment of certain distribution and manufacturing operations, including the
realignment of certain North American and Latin American distribution operations;
• The automation of certain distribution processes;
• The exit of certain unprofitable operations and product lines
• The reorganization of certain functions, primarily sales-related organizations (Avon,
2010).
2009 Restructuring Program
In February 2009, Avon announced a new restructuring program under their multi-year
turnaround plan. The restructuring initiatives under the 2009 Restructuring Program focus on
restructuring the global supply chain operations, realigning certain local business support
functions to a more regional basis to drive increased efficiencies, and streamlining transactionrelated services, including selective outsourcing (Avon, 2010).
SWOT Analysis
Strengths
Diverse geographic presence enhances operations and mitigates local market risks
Avon is a global player in the cosmetics industry. The company operates in 65 countries
and territories worldwide through direct-sales channel. Additionally, Avon's products are also
distributed in 40 other countries through distributorships. The company derives its revenues from
six geographic segments: Latin America, North America, Central and Eastern Europe, Western
Europe, Middle East and Africa, Asia Pacific, and China. For the fiscal year 2009, Latin
America, Avon's largest geographical market, accounted for 39.5% of the total revenues (Avon,
2010). While North America; Central and Eastern Europe; Western Europe, Middle East and
Africa; and Asia Pacific and China accounted for 21.8%, 14.4%, 12.3%, 8.5% and 3.4%
respectively of the total revenues in the fiscal year 2009 (Avon, 2010). Given this diversity of
sales Avon does not depend on single market for its revenues. This geographic diversification
protects Avon from adverse economic development unique to one market area and given them
the capability to shift production base to cheaper and more lucrative locations. Apart from the
US manufacturing and distribution centers, the company runs four manufacturing facilities, and
11 distribution centers in Latin America; and four manufacturing facilities in Europe. It also has
seven distribution centers in Western Europe, Middle East and Africa; four distribution centers in
Central and Eastern Europe; two manufacturing facilities, and four distribution centers, in Asia
Pacific; and two manufacturing facilities and six distribution centers in China. The shift in
production base to cheaper location close to end-markets has resulted in lower cost of production
giving Avon a definitive edge over its competitors. This has also given the company an
opportunity to penetrate large customer base and cater to an evolving local consumer preference
so as to enhance its sales volume (Avon, 2010).
Low cost business model of direct selling
Avon is one of the largest direct-selling companies in the world. The company is
represented by nearly 6.2 million sales force and distributors worldwide, out of which 80% are
from the overseas market. Seventeen countries now have more than $1 billion (US) in sales
annually through this channel of distribution (Smith, 2010). The direct selling business model
and a large sales force has been one of the strengths of Avon over the years. Since direct selling
is by nature a low-cost business model with relatively low start-up costs, it helps the company in
expanding to new markets, but does allow for new entrants into the market through the same
direct selling channels. The additional costs involved with intermediaries and the threats posed
by the growing bargaining power of retailers are also negligible for the company. The direct
selling model also gives Avon flexibility to innovate and communicate its own brand
proposition.
Strong brand equity
Avon is one of the oldest cosmetic companies of the US. The history of the company
dates back to 1886. Over the period, the company has evolved and now is engaged in the
manufacturing and distribution of cosmetic products, fragrances, fashion jewelry and apparels
under some well known brands like Avon Color, Anew, Skin-So-Soft, Avon Hair Care, Avon
Wellness, Avon's Prestige Fragrance Counter, M - The Men's Catalog and Mark. The strong
brand image and recognition associated with Avon's products has helped the company in
becoming one of the world's largest beauty brands. The industry reports also support the brand
equity of the company as it has been consistently ranked as one of the top 100 global consumer
brands. The 24/7 Wall St website ranked Avon as the ninth most successful brand of 2010 with a
brand value of $14 million (McIntyre, 2009).
A strong brand recall and recognition enables the company to generate repetitive sales
and hence maintain its leadership position in the skincare products market. Based on customer
analysis, the strongest associations that customers have with Avon are ‘ding-dong’ and ‘Avon
Lady’ (Campbell, 2002). This branding therefore has worked against them when trying to
compete in more high-end markets. This strong brand value, however has allowed Avon to
further establish itself in emerging markets with ease.
Weaknesses
Chinese operations marred with controversy and poor performance
Avon was one of the first companies to obtain direct-selling license in China in 2006. As
Avon faced weakness in its US operations and therefore China, the world's most populous and
attractive cosmetic market, and Latin America became the critical sources of sales growth for
Avon. However, Chinese operations of the company lately have been marred with controversies.
The allegations related to bribery involving millions of dollars and improper accounting of
favors in the form of travel, entertainment and expenses has affected the goodwill of the
company. The company has suspended four key officials responsible for Chinese operations, in
the wake of the findings of the investigation. Besides, the bribery controversy which has diluted
Avon's brand value in China, the company is also facing operational problems in the country.
The company was following a hybrid business model in China, involving both direct selling and
beauty boutiques. However, the model failed to create the kind of platform for Avon, so that it
could leverage the lucrative Chinese market. In FY2009, the revenues from the boutiques
declined by nearly 40% as against the revenue growth in the direct selling by 24%. The company
plans to shift to the direct-selling mode in China in the coming fiscals. The active representative
ranks (company's sales representative) in China reduced by 25% in the first quarter of 2010, as
against 32% increase in 2009. The continuing operational problems in China will adversely
impact the company's revenue and sales in one of its primary market and will negatively impact
its overall operations.
Lack of clear-focus and strategy for non-beauty products
The company offers its products worldwide in three categories: beauty, fashion and
home. Avon's beauty product category is engaged in the manufacture and distribution of beauty
products such as cosmetics, fragrances, skin care and personal care.
The company's fashion product category is involved in the manufacture and distribution
of the company's non-beauty product line such as fashion jewelry, watches, apparel, footwear
and accessories. The company offers gift and decorative products, housewares, entertainment
and leisure products, and children's and nutritional products through its home product category.
In addition to these, the company also produces health and wellness products. However, the
company does not have a clear marketing and operational strategy for its non-core product line.
The lack of strategic focus has affected the company's non-core business; fashion and home
product lines. As a consequence, the non-beauty products business have lagged behind and
reported a poor performance for FY2009. The company's fashion and home product line
registered a decline of 5.1% and 1.2% respectively as compared to the previous year. In the
absence of a definite growth strategy, the non-core business could become a drag on the
company's revenue growth and profits.
Declining operating margins
Avon's operating margins have gradually declined from 15.9% in 2004 to 8.9% in 2006,
driven by intense competitive pressures in the North America and Asia Pacific regions. The
operating margins for the North American region declined by 1.3% in 2009, as compared to
2008. The decline was mainly due to the incremental costs of restructuring initiatives. Lower
revenues with fixed overhead expense and higher obsolescence expense were also contributing
factors for this decline. The operating margins from other regions also faced declines. The
Central and Eastern Europe registered a decline of 3.8%, Western Europe, Middle East and
Africa declined by 2.3% while the Asia-Pacific region reported a decline of 3.1%. The declining
profit margin indicates poor cost management and increase in the company's sales, general and
administrative expenses. It also indicates that the benefits of restructuring initiatives are yet to be
realized fully by the company. A further decline in the margins would decrease the company's
profit generation capability and increases the probability of loss in the future.
Opportunities
Restructuring initiatives for organizational effectiveness
The company has taken multi-year restructuring initiatives in the recent years. The move
is primarily aimed at increasing revenue growth, profit margins and strengthening overall
performance. The company reorganized its business into six geographic business units towards
the end of 2007 to increase its effectiveness. The company started managing Central and Eastern
Europe and China as separate operating segments since 2006, and increased the number of
reportable segments to six: North America; Western Europe, Middle East and Africa; Central
and Eastern Europe; Latin America; Asia Pacific; and China. Besides, the restructuring involved
realignment and downsizing in each region of operation, which resulted in a leaner management
with about 7 or 8 levels, as compared with the prior 15. The company also closed down its
unprofitable operations including the closure of the Avon Salon & Spa, the closure of operations
in Indonesia, the exit of a product line in China and the exit of the beComing product line in the
US. In addition to this, the company reorganized its certain functions, primarily sales-related
department. In February 2009, the company announced a new restructuring program under its
multi-year turnaround plan (the "2009 Program"). The restructuring initiatives under the 2009
program is expected to focus on restructuring its global supply chain operations, realigning
certain local business support functions to a more regional basis to drive increased efficiencies,
and streamlining transaction-related services, including selective outsourcing. The company
expects to incur restructuring charges and other costs to implement these initiatives in the range
of $300 million to $400 million before taxes over the next several years. Avon is targeting $200
millions as annualized savings under the program, upon full implementation by 2012-13. The
cost savings would give the company flexibility in product pricing. Since Avon operates in the
value cosmetic segment, flexibility in product pricing would give it an edge over its competitors
as the company can reduce prices so as to target greater market share. Besides, the cost-saving
initiatives would help the company in generating more free cash and profit margins essential for
further international expansion.
Re-branding strategy to drive consumer demand
The company, as a part of strategic initiative, plans to engage in aggressive marketing
and focus on the development of innovative products. The company has increased its advertising
outlay since 2006 with the exception of 2009 when advertising expense was flat due to difficult
economic conditions. Advertising investments were $390.5 million, $368.4 million, and $248.9
million during 2008, 2007, and 2006, respectively while it declined by $38 millions in 2009 as
compared to the previous year. However, the advertising expenditure is expected to rise in 2010.
The huge advertisement outlay has supported the new product launches, such as, Anew
Reversalist Serum/Cream, Anew Dermafull Helix, Spectra Lash mascara, SpectraColor Lip, 24K Gold Lipstick, Supercurlacious Mascara and Spotlight fragrance. Besides, the company is also
focusing on enhancing the representative value proposition, the benefits given to sales
representatives. During 2009, the company invested approximately $56 million incrementally in
the Representatives through Representative Value Proposition program (RVP) by continued
implementation of the Sales Leadership program, enhanced incentives, increased sales campaign
frequency, improved commissions and new e-business tools. The aggressive marketing would
help the company in increasing the brand awareness and boost sales. Besides, direct-selling
companies like Avon depend upon the motivation of its representatives. Measures like RVP
would help to boost their motivation levels and encourage the sales.
Moreover, the company has been innovating and introducing new brands in its portfolio
through celebrity associations. Bond Girl 007 women's fragrance, Spotlight and In Bloom line of
fragrances, among others, were developed in partnerships with some of the big names of the
entertainment industry. Such associations have provided an alternate way of endorsing the
company's value proposition. Further, the company can leverage the status of the celebrity to
effectively communicate the values associated with Avon brand. The company, hence, through
these aggressive advertising and branding strategy can effectually interact with its target
consumer groups and strengthen its position against rivals such as L'Oreal and Revlon.
Use of Social Media and Technology to drive online sales
The popularity of social media continues to gain ground with internet sites such as
Facebook, Twitter and MySpace. Avon already has a presence on the social media giant
Facebook’s site with their brand “Mark”. They have been on the forefront of leveraging this
technology to produce more sales.
There are currently more than 500 million active users on Facebook, which is about one
person for every fourteen in the world. Half of these users log on in any given day and Facebook
users spend 700 billion minutes per month on Facebook. There are more than 70 translations of
Facebook, and about 70% of the users are outside the US and more than 150 million people
engage with Facebook on external websites every month, and there are more than 200 million
active users currently accessing Facebook through their mobile devices, and these users are twice
as active on Facebook as non-mobile users (“Facebook”, 2010).
Late in 2009, Avon revolutionized the direct-selling model for the next generation of
women. “Mark” the beauty and fashion boutique brand of Avon Products, launched new digital
social selling application that connected shoppers with Representatives on Facebook for the first
time. (Exhibit 2) The “Mark” e-commerce boutique allows Facebook users to shop on the
“mark.girl” Facebook Page and connect directly with “Mark” Reps. Reps can also use this new
tool to build their business and build their sales by opening a digital dialogue with new clients.
Avon’s “Mark” is the only company currently to have a social selling component that connects
shoppers on Facebook with “Mark” representatives. To create this new social selling tool, Avon
partnered with Alvenda, a social shopping platform. The technology, created with Alvenda, is
not proprietary to Avon. They plan to introduce additional iterations of the technology, some of
which extend beyond the virtual borders of Facebook and its more than 350 million members.
“Mark” will allow Facebook members to create wish lists and share them with friends through
the site’s news feed, and “mark” representatives will be able to create offer lists or product
promotions that also will pop up in friends’ news feeds, appearing as a small dialog box. Also,
Google’s new pronouncement that it will be supplementing its search engine results with updates
posted each second to blogs and social networking sites, like Facebook, bodes well for “Mark’s”
viral effort (Prior, 2009).
Emerging markets enhances the scope of growth for the Avon's value cosmetic products
The increasing popularity of beauty contests and increasing disposable incomes have
spurred the emerging markets such as Brazil, Russia, India and China. These markets are
becoming increasingly important to cosmetics companies like Avon. In China, Avon Products
was granted a direct selling license by China's Ministry of Commerce in 2006. The company has
expanded its operations in China since then becoming the second largest cosmetics market in
Asia after Japan. According to Datamonitor, the Chinese cosmetics market was worth $1,117.8
million in 2009, an increase of 8.1% over the previous year. The market is estimated to grow to
approximately $1,535.3 million by 2014, an increase of 37.4% since 2009. GDP continues to rise
and disposable income and a growing middle class are also increasing the demand for cosmetics
and personal care products. (SWOT Analysis, 2010)
The beauty market in another emerging country, India, has been booming, making it an
attractive market to all global cosmetics' companies. The Indian market for beauty products was
worth $141.6 million in 2009, representing an increase of 9.5% over the previous year. The
market is expected to further go up to $198.7 million by 2014, representing an increase of 40.3%
since 2009 (“Make-Up in India”, 2010). Competitors like Oriflame, Revlon and others have
already established a presence in the Indian cosmetics market. Here Avon’s traditional image as
a value cosmetics product and its brand proposition of being a product of "Housewife" could be
well suited for Indian psyche. Avon could benefit from the positive outlook in these emerging
cosmetics markets which enhance the chances of improving revenue and sales growth.
Threats
Competitive environment in the global cosmetics industry
Like all companies in the cosmetics industry Avon has faced considerable competitive
pressures in recent years, both from its direct selling rivals as well as established retail brands.
The company has been witnessing strong competition in beauty segment from companies such as
Oriflame, Revlon, L'Oreal, Procter & Gamble, Unilever and Estee Lauder. These companies
have increased their focus to gain market share in beauty and personal care products in the US as
well as emerging markets. Also, in non-beauty segments, global brands such as Amway and
PartyLife have remained a cause of concern for the company. In addition, even drugstore
operators such as CVS, Walgreen's are also increasing their focus on beauty products due to
better margins. In recent years, brand recognition has emerged as key differentiator and
companies across the globe have invested heavily on advertising, promotional campaigns and
innovative marketing strategies to increase market share. Avon has also increased its advertising
outlay considerably as mentioned above. The rise in advertising expenses would further put
pressure on already eroding operating margins. (SWOT Analysis, 2010)
Company's revenues are tied to the performance of the sales representatives
Avon sales, both in the domestic and global markets, are contributed largely from the
company's global sales representatives. The 6.2 million Representatives that Avon employs are
independent contractors that receive a percentage commission for their sales. Negative
sentiments like lower commissions and negligible employee benefit create dissent which could
result in lesser interest by the representatives in enhancing the Avon sales. Allegations and other
dissatisfaction among the representatives could bring down the productivity of the sales force
hampering the growth of Avon in the longer run. (SWOT Analysis, 2010)
A diversified global operation exposes Avon to currency fluctuation risks
Avon derives nearly 80% of its revenues from the markets outside the US, making the
company very sensitive to currency fluctuations and the strength of the dollar. In 2009, the
adverse dollar movement against other currencies negatively impacted the company's revenue
and operating figures. Total revenues declined by almost 9.0% and operating margin declined by
an estimated 2.5 points (Avon, 2010). Further, in the first quarter of 2010, Avon had a 64%
decrease in net income compared to first quarter of 2009, due to the devaluation of Venezuelan
currency, despite total revenue increasing 14% (“Avon Products Q1…”, 2010). Unfavorable
currency fluctuation, if not hedged properly, could adversely impact the profits and revenue of
the company in the future.
FINANCIAL INFORMATION
As mentioned in our SWOT Analysis, Avon is sensitive to currency fluctuations and
experienced revenue and operating margin decreases in 2009 due to unfavorable effects of
currency fluctuations. This resulted in earnings per share (EPS) of $1.45 in 2009, a significant
decrease from 2008’s EPS of $2.04. Despite this, Avon declared a 5% increase in their dividend.
Stock process fluctuated significantly in 2009 with a low of $15.20 in the first quarter and a high
of $36.12 in the fourth quarter (Avon, 2010).
The global economic crisis is also working against Avon’s bottom line in 2009 because
weak economies put pressure on manufacturers and retailers to reduce prices. Most regions are
still experiencing dangerously high levels of inflation with Venezuela posing the biggest risk.
Inflation in Venezuela has been at high levels over the past few years and beginning in its 2010
fiscal year, Avon has treated Venezuela as a highly inflationary economy for accounting
purposes. In January 2010, the Venezuelan government devalued its currency and moved to a
two-tier exchange structure, with official exchange rates moved of 2.60 for essential goods and
to 4.30 for non-essential goods and services. The previous exchange rate was 2.15. Avon
expects most of their products to be classified as non-essential which they expect to cause a onetime, after-tax loss of approximately $50 million in 2010 (Avon, 2010).
Avon has continued to experience the negative effects of currency fluctuations in the first
quarter of 2010 with a 64% decrease in net income compared to first quarter of 2009 despite a
14% increase in total revenue (Avon, 2010). This was due to the devaluation of the Venezuelan
currency and the required change in accounting for operations in Venezuela on a highly
inflationary basis (“Avon products Q3 profit…”, 2010). Things began to turn around after that
and by the end of the third quarter of 2010, Avon’s operating margin was negatively impacted by
the devaluation of the Venezuelan currency and the required change in accounting for operations
in Venezuela on a highly inflationary basis (Avon, 2010). By the end of the third quarter
operating profit was negatively impacted by $80.6 million (“Avon products Q3 profit…”, 2010).
The second and third quarters showed improvements in net income but they were not
enough to offset the huge loss realized in the first quarter. EPS is expected to decrease again in
2010. Currently, EPS for the first three quarters of 2010 is $0.87 (“Avon products Q3 profit…”,
2010). Common stock as of November 30, 2010 had a share value of $28.56 (“Avon products Q3
profit…”, 2010). Despite this, Avon is still committed to its long-term strategic growth plan as
well as the achievement of its corporate objectives (“Avon products Q3 profit…”, 2010).
SUMMARY OF RECOMMENDATIONS
Technology and Social Media
We recommend that Avon continue to leverage the power of Technology and Social
media to drive worldwide sales. As the popularity of social media continues to grow, with sites
like Facebook which boasts 500 million active members, Avon has an opportunity to continue to
invest in this market for the sale and promotion of its products. We recommend that a minimum
of 25% of their increased advertising dollars be spent on these social media websites. Overall
for 2010 there was a 30% increase in spending on advertising on social media sites, bringing it
up to $1.68 billion, and that total is expected to increase to over $2 billion in 2011. In addition,
spending is growing quickly outside the US. Worldwide, $4.3 billion will be spent on social
networks in 2011, a 29% boost from this year’s expected $3.3 billion. Only 6.7% of all US
online advertising spending in 2010 will be on social networks. (Dugan, 2010) However, as of
June 2010, Americans spend 22.7% of their time online on a social network according to a recent
study by the Nielsen Company (Exhibit 3&4). So while advertisers are amping up their visibility
on social networks, the dollars are not matching the viewers. We see this as an opportunity for
Avon to continue its early starter advantage in this market by advertising to this captive
audience. At a recent meeting with analysts, Avon declared its plans to commit $50 million
over the next several years to its social networking strategy. This is a step in the right direction,
but historically Avon, who allocates about 4 percent of its revenue to advertising and marketing
(including representative programs), does not spend as much as other beauty firms from a
marketing point of view (Prior, 2009). We see this as a vital strategy for Avon to achieve and
maintain a competitive advantage in the online sales arena.
Avon should also continue to upgrade its online marketplace. Carly Syme, retail analyst
at Verdict Research, the leading authority on retailing in the United Kingdom, predicts trouble
ahead for the company's reliance on door-to-door sales: "The mail-order market itself is a
declining one and that is really impacting on Avon's sales. While it is putting more focus on the
online channel…this needs to be a real focus for it over the coming years if it is to attract new
customers to the brand" (Weisman, 2010). As mentioned earlier, late in 2009 Avon revolutionized the direct-selling model for the next generation of women. They created a new digital social
selling application that connected shoppers with Representatives on Facebook via online
application for “Mark” the beauty and fashion boutique brand of Avon Products. We
recommend Avon continue to invest in this sales forum by creating online markets for each of
their product lines.
We are only beginning to see the power of applications for Smartphones/Tablet
computers (e.g. iPad) and web tools in the promotion and sales of retail products. We believe
Avon should continue its plan to overhaul the way it manages its nearly 6 million sales
representatives around the world using technology. In the past, "sales leaders," who help manage
reps but are not employees of the company, mainly checked in with the salespeople through faceto-face meetings and phone conversations. About a year ago, Avon equipped 150,000 sales
leaders with a cloud-based computing system accessible via Smartphones and PCs. The
technology keeps them much more up-to-date on the sales of each rep, and alerts them when reps
haven't placed orders recently or when they have payments overdue to the company (Hamm,
2009).
Focusing on International Growth- the BRIC Countries
Growth opportunities in BRIC (Brazil, Russia, India and China) countries were identified
long ago. For the beauty industry, this meant a shift in focus away from the traditional, maturing
markets (predominantly those in North America and Western Europe) and a chance to reach a
vast and mostly untapped consumer pool. BRIC countries are characterized by rapid
urbanization, large populations with low beauty product usage and emerging middle classes.
These countries have come to the fore as world economic hot spots, and are acting as prime
contributors to dynamism in the global beauty products industry. With the exception of Russia,
BRIC has far outgrown the 4% global growth in beauty 2008–2009, according to market
research from Euromonitor International (Lennard, 2010).
Brazil and China are the star performers and are set to add around US$8 billion and
US$10 billion to the size of their respective beauty industries by 2014. All of the BRICs are set
to be pivotal to future growth. These four countries alone will contribute over half of the total
US$43 billion absolute growth in the global beauty industry over 2009-2014.
Although there is a general trend towards urban dwelling in the BRICs, rural areas
continue to account for the majority of consumers in nearly all of them. While the number of
chained stores is beginning to grow in the big cities, the distribution infrastructure is often very
poor and still developing in these markets, meaning that it would otherwise be very difficult to
reach rural consumers. Furthermore, there is still a very strong emphasis on community living in
the BRICs. Direct selling, therefore, is probably the ideal way to reach these rural consumers
(Lennard, 2010).
Brazil
With an 8.6% share of the world market, Brazil has become the world's third-biggest
market for beauty products after the US and Japan. And it is not only the lower end of the market
that is expanding. In plastic surgery, Brazil is now the world's second-biggest market after the
US (Gallon, 2009).
The market for cosmetics has experienced exponential growth rates and is an important
sector in many countries—particularly Brazil, where the cosmetics sector rose 8.6 percent in
2008 despite the global financial crisis. Accordingly, Brazil rose in consumer market rankings,
becoming the world's second-largest consumer of beauty products—surpassing the Japanese
market, which shrank during the same period. Until 2007, Brazil lagged behind both the
Japanese and American markets.
Founded in 1969, Natura is the industry leader in the cosmetics, fragrances and personal
hygiene market in Brazil. It is also the industry leader in direct sales, surpassing even the giant
American company Avon. Natura offers a full range of products with solutions for consumers’
various needs, regardless of age, including products for the face and body, hair care and
treatment products, make-up, fragrances, bath products, sun protection products, oral hygiene
products and product lines for children (Azevedo, 2009).
Today Brazil has a healthy economy. Its gross-domestic-product growth is estimated at
close to 6 percent this year. Further, Brazil's young and ethnically diverse population is growing
quickly (as is its middle class); in two decades, the country's expected to have 20 million more
people than its current 220 million denizens. More than 20 million Brazilians have emerged from
poverty over the past six years. Since last year, for the first time ever, more than half of Brazil’s
200 million people can be classified as middle income (earning an income between 1800 € and
450 €) (Weil, 2010).
The resulting boom in Brazil's cosmetics market, along with the recent slump in the US,
has made it the biggest in the world for Avon, since the third quarter of last year. Avon said sales
in Brazil were worth $1.67 billion in 2008, compared with $2.1 billion at the year-end for
Natura, the Brazilian market leader (Weathley, “Brazil Avon: more…”, 2010).
The Brazilian make-up market generated total revenues of $1.3 billion in 2009,
representing a compound annual growth rate (CAGR) of 10.7% for the period spanning 20052009. Lip make-up sales proved the most lucrative for the Brazilian make-up market in 2009,
generating total revenues of $440.2 million, equivalent to 32.7% of the market's overall value.
The performance of the market is forecast to decelerate, with an anticipated CAGR of 7.6% for
the five year period 2009-2014, which is expected to lead the market to a value of $1.9 billion by
the end of 2014 (“Make-Up in Brazil”, 2010). Please refer to Appendix 1 for more information
on Brazil’s share of sales divided by product category (Brazil’s share of sales).
Institution-Based Considerations
The institutional framework is made up of formal and informal institutions governing individual
and firm behavior. Formal institutions are laws, regulations and rules while informal institutions
are norms cultures and ethics (Peng, 2009).
Formal
Brazil hasn't long been a free market. In the Seventies, it was sealed off under military
dictatorship, and, subsequently, its economy was slammed by financial instability (Weil, 2010).
The recent transformation in the lives of ordinary Brazilians owes much to the low inflation and
economic stability brought by orthodox economic policies since the mid-1990s — a floating
exchange rate, inflation targeting by the central bank and steady reductions in public debt — and
to the expansion of income transfer programs under President Luiz Inacio Lula da Silva since
2003. These programs pay poor people to keep their children in school and make sure they have
medical check-ups. But while Brazil's overall economic growth since the mid-1990s has been
erratic, the market for beauty products has been rising steadily, according to Abihpec, the
personal hygiene, perfumery and cosmetics industry association. "Income began to be
redistributed with the [inflation-busting] Real Plan 15 years ago and since then we've seen a
fantastic curve of growth," he says (Weathley, “Beauty Industry…”, 2010). It's key for
executives to continually deal with Brazil’s fiscal complexity. Import tax can run up to 150
percent, for instance, and taxes can vary by state, by product and by category (Weil, 2010).
Informal
"The role of women in the economy has been growing steadily," says Alessandro
Carlucci, chief executive of Natura ( Wheatley, “Beauty Business…” 2010). "Women are often
the source of a family's income and as they start to have disposable income they spend some of it
on themselves" (Wheatley, “Beauty Business…” 2010 ). He further points out that only 40
percent of Brazilian women own a lipstick, so the potential for growth remains enormous. Brazil
is correlated with personal hygiene. Women in Brazil will take up to three showers daily in
summertime and use up to four to five products, making hair care the number one beauty priority
for Brazilian women. In contrast to Europe, the Brazilian market is characterized by a preference
for long hair. Consequently, the hair care market is the biggest segment in Brazil, and the one
where Brazilian companies are the most innovative. According to Euromonitor, Brazil holds one
fifth (20.6%) of the world’s conditioners market (Gallon, 2009).
Brazilians appear to be obsessed not only with hair care, but also skin-care and body care
overall. Brazilians have an obsession with having white teeth and clean nails; they don't go out of
the house if they're not impeccable. The main preoccupation is hair. It is a weapon of seduction
for the Brazilian woman. Brazilian women wash their hair nearly daily and use up to four to five
products. The second main beauty priority is body care, followed by skin care (Weil, 2010).
Industry-Based Considerations
Porter’s Five Forces: Brazil Beauty Industry (Datamonitor)
Overview
Buyer Power

Brazil’s make-up market is tending towards concentration (top three players
holding 63.2% of market)
 Market leaders own a variety of recognized brands and operate in various
segments of the market, such as: eye make-up, face make-up, lip make-up and
nail make-up.
 Fashion is a major influence on the make-up market
 The wide range of brands available, with accompanying variations in quality and
price, means that buyer power is prevented from becoming disproportionately
strong in this market.
 Entry into this market would be highly dependent on the growth prospects and
also on the size of the existing players. Furthermore, make-up products have few
substitutes wherein manufacturers may face indirect competition from traditional
cosmetics, such as henna or kohl.
Moderate;
 Retailers are positioned at the end of the value chain, which implies that they are
obliged to offer buyers what they want, in a market that is subject to
unpredictable changes in fashion. This reduces buyer power, as most retailers
must stock popular brands in order to maintain their own sales volumes.
 Moreover, fashion has a major influence on the make-up market. Consumers can
differentiate themselves quite strongly through the styles and brands of make-up
products they choose, which also weakens buyer power.
 Retailers often occupy a strong position in the supply chain, which allows them
to negotiate favorable contracts with manufacturers, thereby enhancing buyer
power.
 Where brand loyalty exists, it is more likely that customer would prefer designer
Supplier Power
New Entrants
Substitutes
brands over retailer brands, although some designer labels also have their own
retail operations for which a large market exists.
 Direct selling is possible: for example, Avon avoids the conventional retail
distribution network, by using a direct sales force. This is made up of third party
independent contractors (not employees), who buy Avon products at a discount
and then sell to end-users. This limits the power of contractors to set the prices,
thus weakening the buyer power.
Moderate;
 The quality of many of the raw materials is important and chemicals used in
these products must be of a suitable standard for manufacturing consumer
products.
 Supplier switching costs are negligible for make-up manufacturers; inputs are
typically undifferentiated; and products can be made with a range of alternative
raw materials, which reduces supplier power.
 Suppliers are often small in scale compared to large manufacturers and
consequently their power is reduced, but this is offset by the fact that chemical
producers gain revenues from a wide variety of sources, reducing their
dependence on cosmetics manufacturers.
Moderate:
 The Brazilian make-up market comprises a small number of brands, some
widely recognized, which have strong market position. Large firms benefit from
scale economies which allow them to compete more effectively on price,
consequently, new companies entering the market may find it difficult to
compete.
 Retaliation by existing players, such as the launch of a price war, is a possibility,
especially where a new entrant moves into a more concentrated segment.
Furthermore, the brand strength of major manufacturers is considerable, which
may negate much of the effect of low switching costs.
 New entrants may be able to start on a small scale, operating within a particular
niche, such as make-up with anti-ageing components. However, product testing
and research would be both: time-consuming and costly. In addition, new
entrants will need to persuade stores to stock their products, and major retailers
aware of their importance in the distribution chain, may be unwilling to risk
displacing existing brands for the sake of new ones.
 Substantial funds are also needed to start a business in this market, with capital
required for investment in production, distribution, and also advertising (which
is crucial for success in this market).
 Due to the high sales volumes of make-up products and low product
differentiation, it is common for the companies to enter the lower end of the
make-up market.
 Due to the high brand strength of leading make-up manufacturers, it is difficult
for new companies to develop their brands to compete at an international level.
Overall, the threat of new entrants with respect to the make-up market is
moderate.
Weak:
 Make-up products have few substitutes
 Conventional manufacturers may face indirect competition from mineral makeup products. They are believed to be more natural, light and allergy free as there
are no chemicals, fragrances or preservatives in their contents. Mineral make-up
products are available in the form of foundations and loose powder. These claim
to remove the wrinkles which one gets due to aging process, acne, pimple scars
or any other blemish present on the skin. Overall, the threat of substitutes is
assessed as weak.
Rivalry
Moderate:
 Many large players have their own production facilities; fixed costs are
relatively high, which serves to enhance rivalry.
 Retailers may be unwilling to switch between market players, as their customers
are likely to seek the leading brands.
 The diverse product range offered by some major players, including skincare
and hair care products, reduces their reliance on the make-up products, and thus
somewhat eases rivalry. This diversification protects the company’s business
against competitive pressures in any one particular market. As most companies
own large production facilities, the need to divest such assets on exiting the
global market constitutes an exit barrier and therefore a driver of competition.
However, most of these companies are geographically diversified which
weakens rivalry to some extent.
(“Make-Up in Brazil”, 2010)
Recommendations for Brazil
Despite Avon’s sales growing at a 27% rate last year in Brazil, Avon’s success in the
country has just begun (Wheatley, 2010). Avon should continue to focus its efforts and resources
in Brazil. Aligning with Avon’s corporate objectives to invest in advertising and increase efforts
to recruit new representatives, the company should be focused in Brazil due to several factors.
From an institutional standpoint, with the military dictatorship lifted, the economy booming and
the middle class gaining more income, Brazil is ripe for continued expansion. Additionally,
from a cultural standpoint, Brazilian women’s growing obsession with beauty and perfection and
consumers differentiating themselves through the styles and brands of make-up products is also a
sign that Avon should continue its strong presence in the country.
In addition, aligning with Avon’s objective to focus on product line simplification, Brazil
is a country where lipsticks and hair-care are very profitable and expected to grow in the future.
Currently, lip make-up is the largest segment of the make-up market in Brazil, accounting for
32.7% of the market's total value (“Brazil”, 2010). This makes Brazil a great place for Avon to
focus on its lip segment. As far as hair-care goes, with Brazilian women showering so frequently
and using so many hair products, this is an opportune time to start simplifying their hair care
lines and focusing on promoting long-hair care specific products. It would also be an excellent
location to simplify their ‘lip’ product lines.
DataMonitor suggests that rivalry in the make-up market is moderate and tending towards
concentration, with the top three players holding 63.2% of the total market by value. We believe
that rivalry is moving from moderate to high very quickly in Brazil. Other companies such as
L’Oreal have gained almost 40 million new consumers in Brazil in the last eight years. It is the
fourth-largest beauty player there, 50 years after its arrival. In 2009, the company registered 15
percent growth and had 8 percent market share, and in first-quarter 2010, the company posted 32
percent gains in the country (Weil, 2010). Additionally, Brazil has a wealth of natural resources
due to the Amazon rainforest so demand for natural products and exotic plants. That is, Brazil is
home to 250,000 native botanical species of which only 300 have been tested for properties that
may be useful to the cosmetic industry. This has led most of the world’s largest cosmetics
companies to Brazil for ingredients like maracujá (passion fruit), açaí, acerola, mango and
castanha do pará (Brazil Nut) (Gallon, 2009). This is a potential opportunity for Avon to harbor
some of those resources and take advantage of their economies of scales and produce products
locally with natural ingredients farmed right in the country. We feel that there will only be more
companies to join and capitalize on the growing Brazilian make-up market and readily available
resources. Hopefully at this point, Avon has an early mover advantage and has already built up
significant brand loyalty among Brazilian consumers.
Russia
Cultural and demographic factors in Russia have created a prime market for cosmetics
and perfume. In 2009, the size of the market was approximately $1.6B, representing an annual
growth rate of 9% from 2005-2009. It accounts for approximately 15% of the European make-up
market value. Eye make-up represents 33% of the market’s value, or $520 million (“Make-Up in
Russia”, 2010).
With women outnumbering men, “looking good” is considered a key competitive factor
in finding a husband (Kolchik, 2010). It’s also considered an important factor in finding a job.
The beauty industry, “which grew at a rate of around 25 percent year on year during the
economic boom of the mid-2000s”, remained one of the most recession-proof in Russia in late
2008 (Kolchik, 2010).
Despite out-growing other industries in Russia, the beauty industry did not keep up with
the growth rate of this industry in other countries, registering just 5% value growth 2008–2009,
versus the 12% seen from 2007–2008 globally (“Make-Up in Russia”, 2010). The main reasons
for the reduced growth in Russia were consumer trade down to less-expensive brands, and
cutbacks on non-essentials. Unlike Brazil and India, where mass products make up the bulk of
the sales, premium cosmetics rule the Russian market. Growth in these premium beauty products
slid down from 20% during 2006–2007 to flat growth in 2008–2009 (Lennard, 2010).
While the Russian economy suffered greatly during the economic crisis, it is expected to
recover in 2010 and 2011. Euromonitor International forecasts consumer expenditure to rise by
3.6% and 4.8% respectively. Consumer credit is likely to see healthy development in the short
term as a growing number of Russian consumers gain access to banking services. Russia’s
primary challenge for growth in the long term is its demographic crisis. The population has been
declining since 1995 and will continue declining through 2020, dropping from 142 million in
2009 to 139 million (“Consumer Lifestyles in Russia”, 2009). Russia’s challenge will be its
shrinking labor force and therefore it will have difficultly to developing the labor skills needed to
sustain economic growth.
Institution-Based Considerations
Formal
Russia is a challenging environment for foreign investors to do business in. The business
environment remains challenging due to over-regulation, lack of reform, insufficient public
investment and corruption. Following the turbulent transition out of communism in the 1990s,
the economy grew at a healthy pace in the 2004-2008 period, at an average rate of 7.0% per year.
During the recession of 2009, it contracted 9.0%, but is respected to recover in 2010 and 2011.
However, challenges still face foreign trade. The delay in World Trade Organization
(WTO) accession is the biggest challenge. This prevents lower trade barriers and tariffs and can
make doing business in Russia more difficult and less lucrative for the international firm. The
tax system is also complicated in Russia, and tax evasion is widespread.
Direct Selling laws often fall under Russia's Civil Code of the Russian Federation, the
Law of the Russian Federation "On Consumer Rights' Protection," and the Resolution "Rules of
Selling of Specific Types of Goods." These laws limit the sales of certain goods, such as
precious metals. They may also require a salesperson to show his or her photograph, full name
and name of the company. The prices of all products must appear on a certified price list, and a
detailed receipt must be given for each transaction.
The complicated regulations are also quick to change. Avon looks to be on top of it.
"Ever-changing regulations can be a disadvantage to companies," explains Ferenc Der, Avon
Russia and Kazakhstan General Manager. "Avon stays abreast of latest developments and works
closely with government regulators to be sure we meet all requirements" (Direct Selling in
Russia, 2006).
Russia has also seen a decline in competitiveness according to The World Economic
Forum's global competitiveness index. It ranked Russia 63rd out of 133 countries for 20092010, which represented a significant decline compared to the country's ranking of 51st in the
2008-2009 report. This was primarily due to the tougher economic conditions both domestically
and internationally.
Russia also struggles with corruption. In 2009, Russia was ranked 146th out of 180
countries in Transparency International's corruption perception index, as problems with corrupt
officials at all levels of government persist and no significant measures to tackle corruption have
been implemented.
Informal
The last 15 years have brought forth a new affluent segment in Russia. Russia’s top
earners view themselves as belonging to the global elite of the richest in the world. As a result,
demand for luxury goods has increased. This demand has trickled down to the middle class as
well. There is a continuing desire to showcase exclusivity and social status. This thinking is
translating more and more into the beauty industry, driving a preference for premium brands.
Russian women are very particular about their appearance, and in fact, don’t believe in
“natural beauty”. They believe that beauty should be made and that all aspects of a woman’s
appearance can be enhanced through usage of cosmetics. The Dove Beauty campaign with the
tagline “you are beautiful the way you are”, which was highly successful in other countries, was
a complete failure in Russia (“Russia: An overview…”, 2009).
Beauty products are very important to Russian women. They have become an integral
part of a Russian women’s identity in uncertain times and “usage is equivalent to liberation”
(“Russia: An overview…”, 2009). Russian women expect miracles from their products and are
highly engaged in the science behind them. A Russian consumer will commonly spend up to
thirty minutes at a cosmetics counter, to truly understand the features and benefits of the
products. Russian women do not skimp on cosmetics, but rather consider them as a sign of
status, which is very important to them.
The luxury goods market has grown in Russia. The growing affluent population, as well
as the culture of “glamour and status” has driven this growth. Russians are now believed to be
the world's fourth largest spenders on high-end goods, behind the USA, Japan and China (“New
Global Report: Russia…”, 2010).
There are different attitudes towards this category among different age groups of women
those ages 18-30, those ages 30-39, and those 40+. They all highly value beauty products and
are willing to spend on premium products. Up to 80% of Russian women use cosmetics every
day, which is the highest usage rate in Europe. While Russian women have not embraced “the
western feminine ideology”, they have embraced the idea of designer fashions and cosmetics
indicating status (“Russia: An overview…”, 2009).
The 18-30 year old consumer segment is motivated by money and career opportunities.
Given the aging population, the labor market demand for graduates is expected to increase, in
turn raising the income of the younger generation. This segment is also becoming increasingly
educated, with most universities offering a master’s program as the norm after undergraduate.
These more material-oriented consumers seek out high status and fashion products.
The younger generation is also the most active in usage of cosmetics and is willing to try
out new products. They consider cosmetics as an attainable indulgence. Similar to the rest of the
population, they are preoccupied with status and often display high end fragrances in their
homes. French beauty brands are particularly coveted.
The Russian beauty consumer in her 30’s uses both premium and mass market products.
She uses a wide variety of cosmetics and is also using anti-aging products preventatively. She is
very concerned with premium brands and the status that they carry. She is well-educated and has
a higher income than her younger counterparts (“Russia: An overview…”, 2009).
The beauty consumer that is 40+ is also using premium products. She is also engaging in
beauty procedures, such as Botox. This segment will see the largest growth over the next decade
with the aging of the population.
Industry-Based Considerations
The Russian Beauty Industry has moderate to high barriers to entry. Avon has been
successful in Russia since entering in 1993. Its direct selling capability is a key driver of its
success.
Porter’s Five Forces: Russian Beauty Industry (Datamonitor)
Overview
Buyer Power
Supplier Power
New Entrants

Russian make-up market is tending towards concentration (top three players
holding 50.4% of market)
 Market leaders own a variety of recognized brands and operate in various
segments of the market, such as: eye make-up, face make-up, lip make-up and
nail make-up.
 Fashion is a major influence on the make-up market
Moderate;
 Wide range of brands available
 Accompanying variations in quality and price
 Buyer power is prevented from becoming disproportionately strong in this
market.
Moderate;
 Raw materials for the end product are commonly available.
Moderate:
 Entry into this market would be highly dependent on the growth prospects and
also on the size of the existing players.
Substitutes
Rivalry
Weak;
 Make-up products have few substitutes
 May face indirect competition from traditional cosmetics, such as henna or kohl.
Unlikely to be a serious threat in the major markets.
Moderate;
 Most of the companies are geographically diversified but relatively high fixed
costs.
(“Make Up in Russia”, 2010).
Recommandations for Russia
Avon’s constant dollar revenue in Russia grew 18% in 2009, despite its deep economic
crisis. This was “due to a strong growth in Active Representatives” (Avon, 2010). While it may
be thought slower to recover from the recession than other BRIC countries, Russia should remain
a focus area for Avon, given its size. The cosmetics industry fared better than most industries
during the recession in Russia, and is poised for a comeback. The beauty market itself is
considered to have moderate rivalry, with the top competitors holding more than 50% of the
market, according to Datamonitor. However, the market is really very competitive examined by
market segment.
Women in their 30s tend to favor premium brands, which makes it an extremely
competitive market for the Avon brand to compete in. However, its buyer power is moderate,
given the small number of retail outlets that sell the products. This gives Avon an advantage,
given its differentiated direct selling channel.
These conditions present a few opportunities for Avon in Russia. First, Avon should
promote its “Mark” brand to women ages 16-30. This brand is value priced, and has a great
digital presence. It encourages young women to sell online, helping them set up their own “eboutiques”. It is also not associated closely with the Avon brand, which represents “value”
instead of the coveted “status”. This could represent a large growth opportunity for Avon.
To capture the 30-39 year-old market, Avon should form a joint venture with L’Oreal.
As mentioned before, this consumer is highly focused on premium brands, specifically French
brands (Exhibit 5), with L’Oreal as the market leader. They are also very engaged in the
products they are buying. Therefore, the direct selling model could be very desirable for
L’Oreal, while the L’Oreal name could generate additional business for Avon in this segment.
Finally, Avon should capitalize on the aging population by promoting its ANEW line,
an anti-aging brand based in science, to the market segment of women in their 40s and older.
Given that these consumers are highly engaged in the science behind their products, Avon could
win with its personalized selling and superior formulations. These three segments can represent
significant growth for Avon in Russia in 2011 and beyond.
India
The market for make-up in India has shown substantial growth over the past few years
and is projected to continue growing. Between 2005 and 2009 the Indian make up market
experienced a compound annual growth rate (CAGR) of 12.9% (“Make-up in India”, 2010). In
2009, the market generated total revenues of $141.6 million (“Make-up in India”, 2010).
Over
the next five years, they expect there will be CAGR of 7% which will produce a market value of
$198.7 million by the end of 2014 (“Make-up in India”, 2010). This will represent an overall
growth of 40.3% from 2009 (“Make-up in India”, 2010). The majority of revenue from make-up
sales came from lip make-up which produced sales of $72.5 million and is equal to 51.2% of the
market's overall value. Nail make-up sales were a distant second making up 17.6% of the
market’s value (“Make-up in India”, 2010).
The Indian economy experienced an average GDP growth rate of 8.4% from 2003 to
2008 which was driven by the services sector and supported by industrial activity (“India”,
2010). Growth declined the following year because of global economic downturn but still
showed growth of 7.2% from 2008 to 2009 (“India”, 2010). Growth fell again in from 2009 to
2010 to 6.5% (“India”, 2010). However, the Indian economy is expected to grow at a rate of
7.9% during 2010–11 and to continue to grow at a rate of 7% or more a year from 2010 to 2013
(“India”, 2010). This is credited to the fact that India has a large working age population, with
approximately 64% of the population is between the ages of 15 and 65 and a median age of 25.3
(“India”, 2010).
Companies are beginning to recognize that the rural market has the potential to occupy a
major share of the market but few companies have made their products available in these areas.
Avon’s direct selling model would benefit in this type of environment because their sales
consultants could reach consumers in these untapped rural areas.
Unilever, a global manufacturer and marketer of consumer goods in the food, personal
and homecare segments, is the leader in the make-up market in India and generates 34.7% of the
market’s value while Revlon is in second place holding 25.5% of the market (“Make-Up in
India”, 2010).
Companies like Avon who use a direct selling model with a sales force made up of third
party independent contractors further weaken buyer power because they limit the power of
contractors to set the prices (“Make-Up in India”, 2010).
Institution-Based Considerations
Formal
As a way to work towards a favorable business environment, India has laws in effect that
protect both consumers and corporations. The Competition Act of 2002 ensured free and fair
competition in the market (“India”, 2010). The Consumer Protection Act of 1986 protects
consumers from unscrupulous traders or manufacturers (“India”, 2010). Further protection is
offered by the comprehensive legal framework for business entities. Some of the important laws
regulating business in the country include the Companies Act, Patents Act, Copyrights Act,
Trademarks Act, Special Economic Zones (SEZ) Act, Labor Laws, and Right to Information
Act, Information Technology Act, Environment Protection Act and Foreign Exchange
Management Act (FEMA) (“India, 2010).
In the past India was subject to strict trade barriers. Beginning in 1991, India has
gradually opened up its markets through economic reforms and reduced government controls on
foreign trade (“India”, 2010). Trade in India is regulated by the Foreign Trade Act of 1992
which lets the central government make provisions for the development and regulation of foreign
trade (“India”, 2010). They do so by making it easier to bring in imports to India and expanding
the exports that are sent out of India (“India”, 2010).
India’s currency could potentially work against revenue generated in India’s make-up
market. The rupee is subject to inflationary and fiscal risks (“India”, 2010). Fortunately, in
2010 the rupee is expected to appreciate about 7.6% compared with its value in 2009 (“India”,
2010). The trend is expected to continue in 2011 and beyond (“India”, 2010).
Informal
In recent years, India has improved their relationships with regions outside of Asia
including Western Europe, the U.S., and Canada. As a result, India has formed new R&D
agreements with these nations. Further, the government is expected to further build their
relationship with the U.S. in the future making doing business in India very promising for a U.S.
based company like Avon (“India”, 2010).
With the introduction of satellite television and a number of television channels as well as
the Internet, the Indian consumers are constantly being updated about new cosmetic products,
translating into the desire to purchase them (Gallon, 2009). Additionally, the flourishing Indian
film industry is fuelling growth in the industry by making Indians to realize the importance of
looking good (Gallon, 2009). These trends will likely help the make-up market in India continue
to experience the upward growth that has been predicted.
Herbal and mineral make-up products have been regarded as being in indirect
competition with traditional make-up products (“Make-Up in India”, 2010). However, these new
segments as they have emerged as new trends in the Indian cosmetic market (Raina, 2010). This
seems to be happening because consumers are becoming more aware of what is in the products
they are using. They are also learning more about the benefits of plant products and the harmful
effects of chemical ingredients (Raina, 2010).
Indian consumers are considered to be extremely selective and the average consumer in
India spends considerably less on make-up products than consumers in any other part of the
world (Gallon, 2009). The Indian domestic market has been found to be price sensitive which
implies that new entrants will need to take their time and develop innovative strategies to gain
market share (Gallon, 2009).
With the make-up industry in India experiencing rapid growth, there is a great deal of
opportunity for new-to-market companies to enter and become successful. This growth of the
market is also driven by the emergence of a young urban elite population in India (“Trade
mission to India…”, 2010). This growing segment of the population brings also has an
increasing amount of disposable income. More specifically, there is a growing number of
working women and their desire for lifestyle oriented and luxury products is the main driver of
demand for imported cosmetics products (“Trade mission to India...”, 2010). Indian consumers
tend to look towards international brands, instead of brands from their own country, as lifestyle
enhancement products (“Trade mission to India…”, 2010). In particular, U.S companies have
increased chance of success because products from the U.S. are perceived to be very high quality
in India (“Trade mission to India…”, 2010). This puts them in high demand.
As Indian consumers are becoming wealthier, and as they do, they become more aware
of high-quality personal care products, including make-up products (Banerjee, 2009). A few
foreign cosmetic companies have recently made steps to enter the Indian make-up market. Pola,
a Japanese cosmetics company, will focus on selling their products in India but only plan to
concentrate on selling skin care products (Gallon, 2010). This leaves plenty of opportunity for
selling make-up products. Another company, JAFRA, plans to move into India and sell products
via a direct sales method (“Avon Products, Inc. selects…”, 2010).
Aside from understanding Indian culture, it is important to realize how immense a
population the country of India has. India is the second most populous nation in the world, with
1.1 billion people, many of whom are young. Additionally, the number of females relative to
males is steadily increasing (“India”, 2010). The population of India has experienced improved
literacy rates, increased advertising and promotion of cosmetic products, rising awareness about
the importance of personal care, and an increase in western culture influence, which all drive the
growth of the cosmetics market (Maheshwari, 2010).
Industry-Based Considerations
Porter’s Five Forces: Indian Beauty Industry
Overview



India’s make-up market is fairly concentrated (top three players holding 68.1% of
market)
Market leaders own a variety of recognized brands and operate in various segments of
the market, such as: eye make-up, face make-up, lip make-up and nail make-up.
Fashion is a major influence on the make-up market

Buyer Power
Supplier Power
New Entrants
Substitutes
Consumers differentiating themselves through the styles and brands of make-up products
offered
Moderate
 Key buyers in this industry are retailers selling make-up products.
 Major manufacturers work to create brand loyalty
 Retailers are dependent on popular brands to maintain sales volumes
Moderate
 Chemicals and mineral products used to produce make-up are widely available
 Suppliers have little dependence on cosmetic companies
Moderate
 Opportunity for new entrants to start on a small scale by operating within a particular
niche in the Indian make up market.
 Entry requires substantial funds for production, distribution, and advertising giving
established companies the best chance of entry
 More opportunity to enter the lower end of the market as a result of high sales volume
and low product differentiation
Weak


Few substitutes for make-up products
Indirect competition from mineral make-up and herbal make-up products. They are
believed to be more natural, light and allergy free as there are no chemicals, fragrances or
preservatives in their contents. Fortunately for make-up companies, these substitute
make-up products are only available in the form of foundations and loose powder.
Moderate
 Each company has their own production facilities with relatively high fixed costs
 Companies offer a diverse range of products, their reliance on make-up products is
reduced and are geographically diverse
Rivalry
(“Make-up in India”, 2010)
Recommendations for India
Avon has yet to move into India, but there are many reasons that it would be an ideal
market for Avon to enter. India has a large working age population with a great deal of
disposable income (“India”, 2010). India also has a strong economy and their currency is
expected to steadily increase in 2010 and beyond (“India”, 2010). The fact that the make-up
industry is rapidly growing is an additional incentive for Avon to move into India. According to
“India” (2010), there is moderate rivalry in this market in India, which should give Avon enough
opportunity to enter. More specifically, Avon should focus on the untapped rural areas which
will give them the opportunity to reach consumers who do not have easy access to make-up
products.
Avon should consider looking to develop new products to introduce into this market.
According to Avon (2010), “developments of new beauty products are affected by the cost and
availability of materials such as glass, plastics and chemicals”. Indian consumers are becoming
more aware of what is in the products they are using and are beginning to turn towards herbal
cosmetic products (Raina, 2010). For these reasons, Avon should focus on developing cosmetics
made of herbal products to appeal to Indian consumers and make development less dependent on
the availability of glass, plastics, and chemicals.
Furthermore, there are several ways that Avon should consider streamlining products
lines that will be introduced into India. Lipstick sales comprise the majority of make-up sales in
India (“India”, 2010). Therefore, Avon should focus on introducing their lipstick products.
Indian consumers are extremely discerning about the products they purchase and tend to favor
low cost, high quality products (Banerjee, 2009). As a new entrant in this market, Avon must be
careful not to drastically increase prices immediately because the Indian domestic market is price
sensitive. They will need to take their time and develop innovative strategies to gain market
share (Gallon, 2009). Avon has an advantage of being a U.S. company which Indian consumers
associate with high quality products (“Trade mission to India…”, 2010). Once they gain market
share, they could potentially begin to introduce their higher end products.
Lastly, Pola, a well known cosmetic company, is entering the market and focusing on
selling skin care products (Gallon, 2010). Since Pola is already well known in this region, Avon
should also wait to introduce their skin care products in this market. Avon should move into this
market quickly since other corporations have plans to enter in the near future.
China
Just 40 years ago women in China were forbidden to reveal any kind of femininity, and
were required to wear masculine, military-style clothes, as in 1966 “China's Communist Party
chairman Mao Zedong launched his Cultural Revolution and banned the pursuit of beauty”,
which lasted for 10 years (“China’s Beauty Boom”, 2010). However, times are changing and
beauty industry is booming in China (“China’s Beauty Boom”, 2010). Women began to
emphasize the importance of beauty, as they believe that being beautiful, to some extent, would
guarantee the success at work and in life overall. In 2009 make-up industry in China grew 8.1
percent reaching $1,117.8 million, and it is expected that it will increase by 37.4 percent between
2009 and 2014 (“Make-Up in China”, 2010). Similarly, to other BRIC countries lip make-up is
the largest segment within the make-up industry and accounts for “52.5 percent of the market's
total value” (“Make-Up in China”, 2010). Hence, it is apparent that the importance of the beauty
is on the rise in China, and thus AVON could take advantage of this market by targeting the
specific needs and wants of the local consumers.
Institution-Based Considerations
Formal
As business opportunities have grown in China, many business leaders realized that
China is a very unique country to operate business in. However, not only businesses’ operations
are impacted by the formal institutional aspects, but also informal institutional ones.
The business culture has been influenced a lot by the historical events in China, as well as
communism, which still reflects in current practices. That is, Chinese government still controls
many businesses, still influences the everyday business of the privately owned firms, and the
bureaucracy level is still high. Some business may find it challenging to deal in China, and Avon
is no exception. Surely, Avon has a first mover’s advantage, as it entered the Chinese market in
1990s (“Avon Products Supports…”, 1999). However, this alone did not assure the smooth
business in China and the company had experienced some challenges.
First of all, Avon is famous for their “core competence” direct selling. By offering their
products to end consumers via direct selling, Avon managed to grow to be world’s largest directselling company. However, Chinese government has challenged direct-selling and put a ban in
1998, accusing direct selling companies “for ‘evil cults, secret societies and lawless and
superstitious activities’”(Barboza, 2009). In 2006, Chinese government lifted the ban “after
heavy lobbying from American companies” (Barboza, 2009). Since then, direct selling has
grown into an $8 billion industry marketing a diverse array of product in this manner (Barboza,
2009). However, direct selling companies in China have to comply with many regulations that
are unique to China, and in some way challenge the direct selling business model overall.
Among some them are “The investor should have sound business credit with no record of illegal
operations during the past 5 years. If the investor is a foreign company, it must have experience
in conducting direct selling business for at least 3 years outside China; (ii) The DSE must have a
registered capital of not less than RMB 80 million; (iii) A guarantee deposit, in the sum of RMB
20 million, should be paid into a designated bank account at the time of establishment of the
DSE; (iv) The DSE should establish and maintain an information reporting and disclosure
system”(Lo, 2005). Hence, Avon’s business and success in China was challenged by various
country specific rules and regulations.
Informal
In China, the importance of beauty goes back to the ancient times, and “the modern
Chinese standards of beauty often mimic those from thousands of years ago” (“Chinese
Philosophy of Beauty”, n.d.). However, the Chinese women focus more on dealing with aging by
changing their lifestyles, rather than treating the aging symptoms with various products. For
example, “Traditional Chinese Medicine (TCM) targets the entire body and the factors that cause
wrinkles” (Young, 2007). “TCM strengthens…internal organs, freeing blood to move smoothly
to…face and distributing energy and fluid evenly through [the] body, [which]
nourishes…complexion” (Young, 2007). Thus, as China’s population is aging, there will be
more aging women as well, and hence companies that will be able to target and satisfy the needs
of these women most likely would experience growth in this industry. Additionally, the life
expectancy of the Chinese population is increasing, which may suggest an opportunity for Avon
in terms of offering various anti-aging products.
Carrie Lennard (2010) in her article “BRIC Key for Future Growth” points out that “By
2013, China’s urban population is forecast to swell by 200 million people from the level it was at
in 2003. This results in very high absolute growth in beauty of more than $10 billion 2009–
2014”(Lenard, 2010). That is, as numbers of people, especially women, are migrating from the
countryside to urban areas beauty becomes more important.
Additionally, the same article points out some other important facts about the Chinese
population and the effects on the beauty industry. For example, “although China’s disposable
income levels are set to roughly double 2009–2014, the per capita spend on beauty and personal
care will still be just $22 per person per annum in 2014, far lower than the predicted $175 per
person in Brazil. This is due to China’s culture of children financially supporting parents in old
age, and means that even with a forecast value of $31 billion by 2014, there is much room for
China to become the largest beauty market in the world” (Lennard, 2010).
What is more, “the Chinese government is facing another serious problem, especially in
the context of the global economic downturn. Around seven million students graduated in 2009
from the Chinese universities and it is estimated that the number would reach nearly 7.6 million
in 2011. With ever-increasing numbers of students graduating from Chinese universities, the
government is expected to be extremely anxious about campus stability. Decreasing employment
opportunities in the current depressed market conditions could spark widespread protests and fan
political volatility in the country” (“China”, 2010). This could be seen as an opportunity for
Avon, as many of these educated students are looking for employment, and being an Avon
representative may serve as a start for their careers.
David Barboza (2010), the author of the article “Direct Sales Flourish in China”,
indicated that Avon recruits about 50,000 representatives a month, and at the end of 2009 had
approximately a million “agents”. So what makes Avon and their way of business so attractive to
the Chinese women? Barboza (2010) also points out that usually these direct selling companies
provide jobs “often for disadvantaged or poorly educated young women.” Women in China have
very few opportunities to open their own businesses in China, thus direct selling model of
business to some extent allows entrepreneurship.
Furthermore, China is a collectivist culture, which means that social and family ties are
very important in forming relationships. Hence, representatives of direct selling companies have
better chances to approach and sell to those people that are “within their circle”.
Therefore, there are quite a few niches within the Chinese society that Avon would be
able to take advantage of.
Industry-based considerations
Porter’s Five Forces: Chinese Beauty Industry (Datamonitor)
Overview
Buyer Power
Supplier Power
New Entrants
Substitutes
Rivalry

Chinese make-up market is tending towards concentration (top three players holding
about 53% of the market)
 Market leaders own a variety of recognized brands and operate in various segments of
the market, such as: eye make-up, face make-up, lip make-up and nail make-up.
 Fashion is a major influence on the make-up market
Moderate:
 greater amongst larger retailers (supermarkets/hypermarkets) as switching costs for
buyers are not particularly high
 Wide range of brands available
 Accompanying variations in quality and price
 Buyer power is prevented from becoming disproportionately strong in this market.
 retailers must stock popular brands in order to maintain their own sales volumes
 Consumers differentiate themselves through styles and brands of make-up products
they choose (weakens buyer power)
 Customers prefer designer brands over retailer brands
Moderate:
 Raw materials for the end product are commonly available.
 Supplier switching costs are negligible for make-up manufacturers
 products can be made with a range of alternative raw materials
 Suppliers are often small in scale compared to large manufacturers
Moderate:
 Entry into this market would be highly dependent on the growth prospects and also on
the size of the existing players.
 a small number of brands, some widely recognized, which have strong market
position
 Large firms benefit from scale economies which allow them to compete more
effectively on price
 Retaliation by existing players, such as the launch of a price war, is a possibility
 The brand strength of major manufacturers is considerable
 New entrants may be able to start on a small scale, operating within a particular niche
 New entrants will need to persuade stores to stock their products
 Substantial funds are also needed to start a business in this market
 High sales volumes of make-up products and low product differentiation
Weak:
 Make-up products have few substitutes
 May face indirect competition from traditional cosmetics, such as henna or kohl.
Unlikely to be a serious threat in the major markets.
 Conventional manufacturers may face indirect competition from mineral make-up
products
Moderate:
 Most of the companies are geographically diversified but relatively high fixed costs.
 Many large players have their own production facilities, fixed costs are relatively high

Retailers may be unwilling to switch between market players
(Datamonitor, “Make-up in China”, 2010)
Recommendations for China
China, being a country with strong economic growth in recent years with an average
GDP growth of 10.3% during 2003–09, has been attractive to many business leaders (“China”,
2010). Not only the country’s economic situation, but also its demographics offer many
opportunities. In fact, based on the above analysis of China Avon Company has quite a few
opportunities in this market. Not only does this country have an enormous pool of people, but
also the habits and behaviors of these people are changing as well. For example, the Chinese
population is becoming more urban, which suggests that Avon has great opportunities, as the
importance of the appearance among urban population seems to be growing. Thus we
recommend Avon to put a significant amount of effort as well as money in utilizing this urban
market. This would be consistent with their current strategies of investing in advertising and
increasing the number of representatives. We recommend Avon to focus on their make-up
segment for this target market, by targeting the specific needs of these consumers. It is critical
that they adhere to the specific needs and keep up with the current fashion trends, since Chinese
women are fashion-conscious (Cheng, n.d.)
Furthermore, as the research indicates, the Chinese population is aging and the life
expectancy is increasing; thus, we recommend focusing on various anti-aging products, which
would be consistent with Avon’s product line simplification strategy. By focusing on this
particular target market, Avon would be able to reap higher profits, as their anti-aging product
line is more expensive compared to other skin-care products offered by Avon.
On the other hand, Avon’s various anti-aging products are cheaper than those offered by
their main competitors such as L’Oreal, which may also suggest an opportunity for Avon. In fact,
we recommend emphasizing the competitive price of Avon’s anti-aging products, since the
research suggests that the women of older generations are more price sensitive, as in many
instances they are financially supported by younger generations (Lennard, 2010). Furthermore,
Chinese beauty consumers, especially older generations, seem to prefer the natural “look”.
Therefore we recommend Avon focusing on supplying such products that would enhance natural
beauty.
Additionally, women in China do not have many opportunities to start their own
businesses, and as the pool of educated people in China is increasing, we recommend Avon to
attract and recruit new representatives by emphasizing the entrepreneurial opportunities. We also
recommend Avon to emphasize the fact that being an Avon Representative is an employment
opportunity, which is critical especially with the increasing number of university graduates
entering the job market.
Hence, it can be observed that Avon has many opportunities for growth in China;
however, it is critical for the company to focus on the specific needs of the fashion-conscious
Chinese beauty consumers, as well as utilizing their direct business model to reach new
consumers, as well as recruit new representatives.
CONCLUSION
In conclusion, Avon can capitalize on global expansion and technological advances while
still staying within its core competencies. In fact, taking advantage of these opportunities while
also being cost conscious will assist Avon in achieving its short and long-term corporate
objectives. If Avon strategically enters each of the BRIC countries and harnesses the power of
technology, it will be on track for continued global dominance.
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Appendix
Exhibit 1
1
1
http://www.abihpec.org.br/english/dadosdomercado_dados_mercado.php
Exhibit 2
Exhibit 3
Top 10 Sectors by Share of U.S. Internet Time
1
Social Networks
Share of
Time
June 2010
22.7%
2
Online Games
10.2%
9.3%
10%
3
E-mail
8.3%
11.5%
-28%
4
Portals
4.4%
5.5%
-19%
5
Instant Messaging
4.0%
4.7%
-15%
6
Videos/Movies**
3.9%
3.5%
12%
7
Search
3.5%
3.4%
1%
8
Software Manufacturers
3.3%
3.3%
0%
9
Multi-category Entertainment
2.8%
3.0%
-7%
10
Classifieds/Auctions
2.7%
2.7%
-2%
Other*
34.3%
37.3%
-8%
RANK
Category
Share of
Time
June 2009
15.8%
43%
% Change in
Share of Time
Source: Nielsen NetView – June 2009-June 2010
*Other refers to 74 remaining online categories visited from PC/laptops
**NetView’s Videos/Movies category refers to time spent on video-specific (e.g., YouTube,
Bing Videos, Hulu) and movie-related websites (e.g., IMDB, MSN Movies and Netflix) only. It
is not a measure of video streaming or inclusive of video streaming on non-video-specific or
movie-specific websites (e.g., streamed video on sports or news sites).
Exhibit 4
Exhibit 5