Avon Products Inc.
Business Strategy
To: XXX
From: Petra Mertusova
Subject: XXX
Date: September 5, 2010
Business Strategy Avon Products Inc.
Table of contents
TABLE OF CONTENTS ....................................................................................................................... 1
EXECUTIVE SUMMARY .................................................................................................................... 3
COMPANY DESCRIPTION................................................................................................................. 4
VISION .................................................................................................................................................. 5
MISSION ................................................................................................................................................ 5
GOALS .................................................................................................................................................. 6
KEYS TO SUCCESS ................................................................................................................................. 6
PRODUCTS AND SERVICES ..................................................................................................................... 7
ORGANIZATIONAL STRUCTURE / MANAGEMENT................................................................................... 8
BUSINESS LOCATIONS ......................................................................................................................... 11
FINANCIAL STATUS ............................................................................................................................. 12
STRATEGIC FOCUS AND PLAN 2010 - 2014 ................................................................................ 12
OBJECTIVES ........................................................................................................................................ 12
PROJECTS AND STRATEGIES ................................................................................................................ 13
Pricing Strategy ............................................................................................................................. 15
INDUSTRY ANALYSIS ...................................................................................................................... 16
DESCRIPTION OF THE INDUSTRY ......................................................................................................... 16
MARKET ANALYSIS ............................................................................................................................. 17
United States .................................................................................................................................. 17
Europe ............................................................................................................................................ 17
Russia ............................................................................................................................................. 18
China .............................................................................................................................................. 19
COMPETITIVE ANALYSIS .............................................................................................................. 20
ENVIRONMENT ................................................................................................................................. 20
STRATEGIC POSITION AND RISK ASSESSMENT..................................................................... 22
STRATEGIC POSITION .......................................................................................................................... 22
OUR Mission .................................................................................................................................. 22
OUR Vision .................................................................................................................................... 22
Target Market ................................................................................................................................ 22
Prices ............................................................................................................................................. 22
Quality............................................................................................................................................ 23
Market shares ................................................................................................................................. 23
Environment ................................................................................................................................... 23
SWOT ANALYSIS ............................................................................................................................... 24
Internal focus ................................................................................................................................. 24
Strengths .................................................................................................................................................... 24
Weaknesses ................................................................................................................................................ 24
External focus ................................................................................................................................ 24
Opportunities.............................................................................................................................................. 24
Threats ....................................................................................................................................................... 25
4P’S OF MARKETING ....................................................................................................................... 25
FOUR P’S OF MARKETING ................................................................................................................... 25
Product ........................................................................................................................................... 25
Price ............................................................................................................................................... 25
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Business Strategy Avon Products Inc.
Distribution & Marketing Program (Promotion)........................................................................... 26
MANAGEMENT AND ORGANIZATION ....................................................................................... 27
CODE OF ETHIC ................................................................................................................................ 27
FINANCIAL PLAN.............................................................................................................................. 28
GENERAL ASSUMPTIONS ..................................................................................................................... 28
INCOME STATEMENT ........................................................................................................................... 28
BALANCE SHEET ................................................................................................................................. 29
STATEMENT OF THE CASH FLOW ......................................................................................................... 30
PROFIT ANALYSIS AND FORECAST ....................................................................................................... 32
OPERATING PROFIT ESTIMATION FOR FINANCIAL YEARS 2010, 2011, 2012 ......................................... 33
ESTIMATION OF TOTAL REVENUE FOR FINANCIAL YEARS 2010, 2011, 2012 ........................................ 33
ESTIMATION OF COST OF GOOD SOLD & SELLING, GENERAL AND ADMINISTRATIVE EXPENSES & ....... 34
Operation profit ............................................................................................................................. 34
ESTIMATION OF OTHER EXPENSES PLUS COMPUTATION OF TOTAL PROFIT ........................................... 36
SUM UP ................................................................................................................................................. 37
APPENDIX ........................................................................................................................................... 41
REFERENCE LIST ............................................................................................................................. 46
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Business Strategy Avon Products Inc.
Executive summary
Avon Products Inc., one of the largest worldwide cosmetic companies, went
through different challenges in the last decade; from prohibition of direct selling in
China, to big worldwide recession, to trying to be better than competition.
Avon has prestigious position on the cosmetic market for more than 120 years,
which the management and all stakeholders have been building with bringing
innovations, technology updating, educating employees and obeying trends, ethical
rules and pro-environment behavior. Avon is one of the companies that fight with the
recession with minimum loses – its value of shares is still increasing.
Even if the Avon is successful company, top management realizes that they
always have to come up with news to stay the prestigious worldwide company.
Therefore new objectives for the company are to reach the new target market and
always spread within the world. By reaching the objectives Avon fully follows its
mission and vision, according which they were, are and will be the successful
company.
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Business Strategy Avon Products Inc.
Company Description
Avon Products, Inc. is cosmetic World Wide Company of which history is
counted from 1886.
Till now, our company operates in more then 100 countries where take care more
than 42,000 customers around the world. (About Avon, 2009).
Andrea Jung pointed out: “Our primary distribution channel is direct selling by
our more then 5,8 million Avon Sales Representatives.” (About Avon, 2009).
(Avon Annual Report 2009, 2010)
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Business Strategy Avon Products Inc.
Vision
Our vision is “be the company that best understands and satisfies the product,
service and self-fulfillment needs of women – globally.” (The Avon vision, 2009).
Mission
Our mission is divided into 6 main parts:
1. Reaching the market – to be a 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 world’s
most trusted beauty company.” (The Avon mission, 2009).
2. Considering on the customer relationship: “We will become the shopping
destination for women, providing a personal, high-touch experience that helps
create lifelong customer relatio006Eships.” (The Avon mission, 2009).
3. Selling strategy: “We will expand our presence in direct selling, empowering
women to achieve economic independence by offering them a superior
earnings opportunity as well as recognition, service and support, making it
easy and rewarding to be affiliated with Avon.“ (The Avon mission, 2009).
4. Working environment: “We will be known for our leadership edge, including
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 Avon mission, 2009).
.
5. Philanthropic interests that help disease-ridden women worldwide: “We will
be a committed global champion for the health and well-being of women
through philanthropic efforts, with a special focus on breast cancer, domestic
violence and women’s empowerment.” (The Avon mission, 2009).
6. To Become “the most admired company: We will deliver superior returns to
our shareholders by tirelessly pursuing new growth opportunities while
maintaining our commitment to be a socially responsible, ethical company
that is watched and emulated as a model of success.“ (The Avon mission,
2009).
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Business Strategy Avon Products Inc.
Goals
The goals of Avon are strictly contiguous with the individual mission parts.
However according to the business plan the mission should be little bit reworked and
strength their key parts to fulfill the stated objectives – mainly the first and fifth parts
which are to be a global beauty leader with considering on the new target market and
to be a company considering on the developing pro-environment products.
Keys to success
The main keys to success are:
 to follow product quality management system
 to follow Code of Business Conduct and Ethics
 to extend and empower “Green Behavior” (Environment, 2009).
(Avon Annual Report 2009, 2010)
 no animal testing
 to satisfy customer needs and requirements
 extend Worldwide face to face selling (direct sales)
 “Taking Aggressive Cost Actions” (Avon Annual Report 2009, 2010)
 Philanthropy involvement
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Business Strategy Avon Products Inc.
Products and Services
Avon Products, Inc. has split the products into three main categories:
(About Avon, 2009).
(Online Avon Katalog, 2010)
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Business Strategy Avon Products Inc.
Organizational Structure / Management
Board of Directors
Chairman and Chief Executive Officer
Andrea Jung
Former Chairman and Chief Executive Officer, Granite Broadcasting Corporation
W. Don Cornwell
Former Chairman, President, and Chief Executive Officer, Tambrands, Inc.
Edward T. Fogarty
Former Chief Financial Officer, Gilt Group, Inc.
V. Ann Hailey
Former Chairman and Chief Executive Officer, Schering-Plough Corporation
Fred Hassan
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Business Strategy Avon Products Inc.
Chief Executive Officer, GenSpring Family Offices
Maria Elena Lagomasino
Chairman and Chief Executive Officer, Time Inc
Ann A. Moore
Advisory Partner, Clayton, Dubilier and Rice, Inc.
Paul S. Pressler
Chief Executive Officer, ConAgra Foods, Inc.
Gary M. Rodkin
Chairman, The Stern Group, Inc.
Paula Stern, Ph.D.
Managing Director, Yankee Hill Capital Management LLC
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Business Strategy Avon Products Inc.
Lawrence A. Weinbach
(Avon Annual Report 2009,2010)
Board and Committees
(Avon Annual Report 2009,2010)
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Business Strategy Avon Products Inc.
Business Locations
Avon Products, Inc. headquartered is based on:
1345 Ave of the Americas,
New York,
NY 10105+0302,
United States.
(Avon markets, 2009).
Besides, our company is operating over the main six geographic regions:
 North America (dark blue colour)
 Latin America (violet colour)
 Central and Eastern Europe (light blue colour)
 China (red colour)
 Asia Pacific (orange colour)
 Western Europe Middle East and Africa (green colour)
Geographical Map:
(Avon markets, 2009).
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Business Strategy Avon Products Inc.
Financial Status
Based on the below attached financial consolidated statement from 2009 Annual Report, our company is proving its success as not only Total Assets are
increasing year by year, but also Total shareholder’s equity increased from 2007 up to
2009 while total debt decreased in 2009 comparing to 2008, slightly increased in
2008 and flowingly decreased in 2007, 2006 and 2005. Total Revenue was increasing
since 2005 till 2008 while in 2009 decreased by $307.3 mill. (Avon Annual Report
2009, 2010)
All numbers in the enclosed financial consolidated statement are in Dollars in
millions, except per share data.
(Avon Annual Report 2009, 2010)
Strategic Focus and Plan 2010 - 2014
Objectives
The business plan is going to describe the directions and propose steps for the
company as a whole, including top management and shareholders to achieve
following objectives:




Change the worldwide reputation of the Avon Company
Reach the new target market - lower class customers
Achieve the competitive advantage within chosen products
Stabilize the position of social responsible company – protect environment
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Business Strategy Avon Products Inc.
Projects and Strategies
The company’s product portfolio is dividing to three categories, as was
mentioned above those are beauty, fashion and home. Each category has its customers
however according to the last surveys the sales within the beauty products increased
for about 17%. (Avon products (AVP), 2010).
Therefore this segment became the most important to compare it with the
others. On the other side, there should be movement also within the other segments
for reaching the stated objectives. Company has huge portfolio, and are spending huge
amount of money for research and development of those products. For stabilizing the
reputation of the social responsible company, the products contain the highest quality
ingredients. However, consumers usually certain on the prestigious brands, that have
long time history and good name on the market. Therefore for achieving the new
target market – lower class, the product strategy is proposed as follow. First of all
there should be chosen one exact product from each segment through which it would
be possible to attract the new target market.
- First Segment - beauty includes all possible cosmetic products from make up,
through nail cosmetic, to hair and body cosmetic products. Avon has already
developed the strategy of using qualitative and quite expansive products for women
upper 40 years, however also younger generation likes to use prestigious brands.
Therefore the company should concentrate on the product for the women ages 25 to
40 who prefer qualitative but price accessible products. Here helps the cooperation
with celebrities and reputable people, who recommend the products. Avon is
cooperating with the celebrities to propagate their philanthropy programs; however
the reputation would increase the advertisements assigned especially for the usage of
individual beauty cosmetics.
- Second segment – fashion includes accessories as well as jewelries and watches.
Within this part of industry the competition is huge mainly by prestigious brands.
Therefore the strategy for increasing the revenue within this segment should be to
cooperate with those brands. Avon has already had the experience with the
cooperation with the other brands. In 2010 Avon bought the Slipada company that is
making and direct selling jewelries. This was good step as it can increase the revenue
for fashion segment as it creates $1,77 billion of its $10,38 billion revenue. (Avon
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Business Strategy Avon Products Inc.
buys Slipada for $ 650 million, 2010). It is not needed to buy the company, as it was
within the Slipada, but make a cooperation agreement within which the profit will be
shared (all depends on the contract). This step can help not only to Avon Company,
but also to the mentioned brands as well. The reason is that the Avon is worldwide
known as social responsible company, that offer products produced from high quality
material that save environment and are using the high tech solutions, however
developed by the environment saving techniques. By this step the reputation of Avon
will attract also lower class as they realize that even qualitative products that save
environment are reachable for them.
- Last segment - the decorative products, for home is the weakest segment of the
Avon product portfolio. Therefore within this business strategy, the proposal is take
this segment as additional and not to spend special effort for these products. It can be
re-evaluate after the successful applying all mentioned steps, then Avon can concern
on this segment.
(Avon products (AVP.)
As can be seen on the graph above, the main revenue comes from the beauty segment
which makes all in all 72% of all sales worldwide. (Avon products (AVP.)
Within the product strategy it is needed to continue with the social
responsible approach. The company is using principles for saving the environment in
following ways: „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
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Business Strategy Avon Products Inc.
developed using green building standards, and we are proud of recent LEED,
BREEAM.“ (Environment, 2009).
Another stage for the product strategy is to point out on the regional
differences. As the business plan is worldwide the same product strategy will be used
for every continent. However there have to be signed specification according to
different consumption within countries. For the first quarter of the FY 2010 the Avon
faced following changes within their sales in the individual regions: “2% sales decline
in North America, a 22% sales increase in Latin America, a 31% sales decrease in
China, a 28% sales increase in Eastern Europe, and a 23% sales increase in Western
Europe and Africa. “(Avon products (AVP), n.d.). Therefore for planning the product
strategy the company can use the lessons learned from previous experiences and focus
mainly on the countries, where customers react on the brand in positive way. With the
new consideration only on the few products, that will attract the lower class, the
company should focus on regions as Latin America, Eastern Europe, Western Europe,
Africa and China. The reason is also because of the purchasing power of the
inhabitants within these regions. Therefore for these regions, the product strategy will
be to attract new target market by products and prices which are capturing the
attention of potential customers.
Pricing Strategy
Based on the analyst statement, pricing strategy of Avon is very attractive due to the
fact that it is “attracting beauty consumers who are looking to keep a close eye on
their spending.” (Guy Montague, October 8, 2008).
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Business Strategy Avon Products Inc.
Industry analysis
Description of the Industry
Avon’s products belong to the group of personal care products. This market is
basically divided into four major sub-sectors. Among first sub-sector belong face
care products, which are very important as “the beauty of a person is described by
the look of one’s face.” (Personal Care Industry Overview, 2009).
(Personal Care Industry Overview, 2009).
The secret is not within the make-up and covering the deficiencies, but within
the taking care about the skin. Therefore this sub-sector includes mainly soaps, face
creams and other products helping to have healthy skin of the face. The second subsector is Hand and foot care products, this segment is growing up every year, and
therefore cosmetic companies put severity to this part of the industry. The third subsector is hair care products, which is the segment with largest jump from the period
when the conditioners were developed. The last but not least is the cosmetic subsector, which includes products such as eye makeup products, face makeup, and lip
makeup products. With globalization this sub-sector growth to enormous amount,
because of “strong macroeconomic trends creating opportunities for new product
niches.“ (Personal Care Industry Overview, 2009).
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Business Strategy Avon Products Inc.
Size and growth rate of cosmetic industry worldwide:
(Avon Annual Report 2009. 2010).
Market analysis
As the business plan is proposed world widely, it is needed to describe the
individual continents which are the most important for Avon business – United States,
Europe, Russia and China.
United States
As Karen grant, the vice president and senior global industry analyst stated:
“the year 2009 was one of the hardest in the history of beauty industry. All the US
categories experienced dollar declines, with the biggest decline being in fragrances,
followed by prestige make-up and skin care.” (Katie Nichol. January 27, 2010).
Within United States “a 6 percent drop in sales compared to 2008 puts the value of the
US prestige beauty market at $8.19bn.“ (Katie Nichol. March,23 2010). Because the
recession brings problems to the ´beauty industry´ the next years will be very
challenging. People will look not only for perfect quality of products, but for good
prices as well. Therefore, Avon has big chance to success on the reaching new target
market, offering the products with the highest possible quality for prices that will be
interesting for consumers in the US region.
Europe
During last few years European market went through the recession as well as
US market. Therefore manufacturers concerned mainly on the innovations of the
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Business Strategy Avon Products Inc.
products. They hoped for better changing situation on the market, as the forecasts
stated that in 2014 there will be an increase of 12% in total overall retail sales.
According to head consultant at Mitel Beauty Innovations Europe has not found out
the potential within online beauty retailing. Therefore when the companies focus more
on this type of selling, there is a big chance to reach the broader market base. (Nichol
Katie, April 16, 2010).
Russia
Russian market was considered as the heaven for the beauty market, however
this was the true for the years 2004 to 2007, where the increase in the growth rate was
more than 10% from year to year. However this trend has stopped with the recession.
Nowadays the growth is only something more than 5%. Even if this trend is occurring
the brands can benefit also from this situation. (The Russian market has been
something of a haven for beauty players in recent years, 2009). According to Vladimir
Sudarikov – business development manager at Gradient – the Russian distributor
Russian market can benefit form the crises: “with the possibility to strengthen our
brands’ positions and occupy a bigger share of the market ceded by former
competitors“. (The Russian market has been something of a haven for beauty players
in recent years, 2009). Main players within Russian market are 3 brands: Procter &
Gamble, L´oreal and Avon, and create 23% of the whole market. Professionals see the
next trends within the popularity of natural based products. People trust products
offered in the drugstores (78%) and specialized stores (65%), more than those offered
in supermarkets (47%) or internet (18%). Even though the Russian beauty market
faces problems, there are huge place for achieving interesting market share for new
companies. (The Russian market has been something of a haven for beauty players in
recent years, 2009).
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Business Strategy Avon Products Inc.
China
This market is the fastest growing market within international beauty and hair
care industry out of all other countries, with its consumer spending more than $5 BN
in year 2008. (China beauty market, 2009).
To look at the Chinese market from segmentation point of view, as can be
seen in the graph below, the most successful segment is products using for facial
moisturizers.
(Tang Ros, 2010).
On the other side the recession affected also the Chinese market. There was
decrease in the sales in the color cosmetics at 3%, also other segments dropped down.
However with the big boom of cosmetic industry there was an expansion of the stores
offering the cosmetic products. (China´s beauty markets continuous to boom, 2010).
In 1998, China forbid the direct selling as a selling strategy, as it was hardly separated
from so called ´pyramid sales´. However in 2005, China finally authorized the direct
selling, which bring huge opportunities for cosmetic companies to penetrate on the
market. (Pitman Simon, 2006).
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Business Strategy Avon Products Inc.
Competitive analysis
Avon Products Inc. has oligopoly position on the World market due to the
large number of main competitors who are influencing each other decisions and
strategies:
-
Revlon
-
L’Oreal
-
Mary Kay
(Avon Prods Inc. Top Competitors, 2010).
Finance comparison provided by Daily Fince.com as of September 3rd 2010
shows our strong position on the marker even if our main competitors are performing
well too. See appendix No1.
Environment
(Environment, 2009).
Within the product strategy it is needed to continue with the social responsible
approach. The company is using principles for saving the environment in the
following ways: „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, and we are proud of recent LEED,
BREEAM.“ (Environment, 2009).
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Business Strategy Avon Products Inc.
Moreover Avon in 2009
began with „green
behavior “launching the
approach „Hello Green
Tomorrow“, by which
they „empower a global
environmental movement
to nurture future.“
(Environment, 2009). As
can be seen in the graph,
the water consumption has
decreased by 24%, even the greenhouse gas emissions and energy consumption
decreased for more than 30%. Because of the good results with this type of the
developing products, and the nowadays trend to produce products that are
environment friendly, the company can reach even more upper class clients, which is
the company’s goal and objective for this business plan. (Environment, 2009).
Other important step within product strategy is to point out that the products
developed by Avon do not consist of any raw ingredients that were testing on the
animals. Avon also cooperates only with the suppliers that supply products which
were not testing on the animals. The company tries to find out all other possible ways
for testing and except the same from the companies they are cooperating with.
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Business Strategy Avon Products Inc.
Strategic position and Risk Assessment
Strategic position
We have build very strong, persuasive and fully covered Mission and Vision
which are being still expanding.
OUR Mission
 (To become) “The Global Beauty Leader” (The Avon mission, 2009).

(To become) “The Women’s Choice for Buying” (The Avon mission, 2009).

(To become strongest) “The Premier Direct Seller” (The Avon mission, 2009).

(To become known as) “The Best Place to Work” (The Avon mission, 2009).

(To become) “The Largest Women’s Foundation” (The Avon mission, 2009).

(To become) “The Most Admire Company” (The Avon mission, 2009).
OUR Vision
“To be the company that best understands and satisfies the product, service and
self-fulfillment needs of women—globally.” (The Avon vision, 2009).
Target Market
Avon Products, Inc. target market is defined as following:
-
No Gender difference – female (top priority) as well as male
-
All age categories
-
Worldwide
-
Different color
-
Middle class
Prices
All the prices are reaching market levels to keep pace with the main competitors.
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Business Strategy Avon Products Inc.
Quality
All products that Avon sells are high-quality products which are not being
tested on animals and up-to-date technologies are in use.
“Product responsibility - our pledge to deliver safe and effective products - will
always be our top priority.” (Product Responsibility, 2010).
(Product Responsibility, 2010).
Market shares
Our stocks are publicly traded through NYSE international stock exchange market.
See Appendix No.2 & No. 3
Environment
“While we face the challenges that are typical of any global organization that
strives to reduce environmental impacts, we remain determined to address them, and
we are more committed then ever to meeting our environmental goals and our
stakeholders' expectations” (Environment, 2009) which ended up we are launching
very successful “Hello Green Tomorrow” project.
(Environment, 2009).
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Business Strategy Avon Products Inc.
SWOT Analysis
Avon’s SWOT analysis included all the strengths, weakness, opportunities and
threats.
Internal focus
Strengths
 Strong brand name

Strong position on the global market

ISO 14001 certificate for factories developing the products – China, Brazil,
Poland, Mexico, Philippines (Assurance & Certification, 2010).

Know-how (124 years of experiences in the cosmetic industry)

Over-experienced management leadership (due to board of directors set up)

No animal testing

Pro environment approach

Philanthropy activities

Cooperation with the best producers of ingredients needed for the Avon
products

Strong Marketing
Weaknesses
 The way of Direct Selling – not all countries sales representative are strong in
direct selling way because of the culture
External focus
Opportunities
 To develop and adapt employees direct selling skills based on the region,
country and culture

Lower or Higher class of the customers not launched so far
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Business Strategy Avon Products Inc.

Expand to mixed cosmetics stores such as Marionaud, Fann- Perfumeries,
Douglass, and pharmacies if applicable
Threats
 Direct selling prohibition (past experiences from China 1998 – described
above in Market Analysis)

New competitors entering the market
4P’s of Marketing
Four P’s of Marketing
Product
Because of the huge amount of individual products our company is offering, it is
better to mention only segments with few examples.

Beauty
o Color, Skin Care, Fragrance, Personal care

Fashion

Home
Price
Prices of our products are accessible for the target market with the competitive
advantage.
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Business Strategy Avon Products Inc.
Distribution & Marketing Program (Promotion)
Different channels for the distribution of the products are used:

Advertisement – all above the line communication

Individual philanthropy activities - campaigns, actions, conferences

Avon Ladies - Direct selling representatives – face to face introducing of the
products

Sponsorships - support different activities

Media communication – web page, articles, discussions, fashion magazines
Avon´s promotions are divided into 3 categories:
 Business category – motivational speakers, professional seminars, ecommerce, different leadership programs
 “Fun” category – celebrities participating in talk shows and describing the
products or company, offering free products
 Serious category – professional discussions and articles regarding to
marketing, financial, product and other strategies
Marketing program has been concerned on the cause-related marketing. Due to the
fact of globalization of the company and developing the customers’ loyalty into the
company’s products, Avon is supporting women’s health such as fighting against the
domestic violence and breast cancer.
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Business Strategy Avon Products Inc.
Management and Organization
Avon’s Organizational Structure consists of:
 Executive Committee (13 members)
 Board of Directors (11members
 Board Committees (12 members)

Finance Committee (5 members)
o Audit Committee (5 members)
o Lead Independent director
o Compensation Committee (4 members)
o Nominating & Corporate Governance Committee (4 members)
(Avon Annual Report 2009).
Detailed Organization structure is in the section 2.6 pgs 7,8,9.
Based on 2009 Annual Report, company was employing 41.000 employees (out of
which 6.000 in the US and 35.000 in the rest of the World). (Avon Annual Report
2009).
Code of Ethic
Our company has strictly described how to behave ethically and according to
the values and beliefs of the company, in the Code of Business Conduct and Ethics.
“As Avon associates, we all share a proud heritage of maintaining the highest
standards of integrity and ethical conduct. These values trace directly back to the
premise upon which David McConnell founded this business more than a century ago.
And today, we hold steadfast to these values and principles because they are the
bedrock not only of Avon’s past, but of its future.” (Code of Conduct & Ethics, 2010).
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Business Strategy Avon Products Inc.
All our employees have no limited access to our Code of Business Conduct and
Ethics side:
http://www.avoncompany.com/investor/corporategovernance/pdf/code_of_conductold
.pdf#search="ethical codex"
Financial Plan
General assumptions
Main economical highlights for the financial year 2009 ending December 31:

Total cost & expenses are stood pretty much in line with the last year showing
a slight increase for 0.15% (Avon Annual Report 2009, 2010)

Net sales decrease by 2.8% for a year (excluding other revenue – shipping &
handling fees paid by sales representatives). (Avon Annual Report 2009,
2010)

So the net income ($ 625.8 million) – represents a significant decline of 28.5
% to revenue reached at the end of the financial year 2008. (Avon Annual
Report 2009, 2010)

In spite of that the company was able to decrease its total debt by 1.67%
reaching $ 2,445.9 million at the end of year 2009. (Avon Annual Report
2009, 2010)

Cash flow for operating activities increased by 4.5%, it was able to decrease
the loss on investing activities by 45% but increased its loss on financing
activities by 155% (Avon Annual Report 2009, 2010)

Total shareholder’s equity rose to $ 1,312.6 million representing a increase of
84.27 % (compared to $ 712.3 in 2008) (Avon Annual Report 2009, 2010)
Income statement
Income statement table for years 2007, 2008 & 2009 below shows that the
economical recession has affected sales & incomes and that is loosing money on the
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Business Strategy Avon Products Inc.
profit. The new strategy followed by corrective actions with the new set up should
decrease the cost of sales, support an increase in total sales but increase the general
sales. (Avon Annual Report 2009, 2010)
(Avon Annual Report 2009, 2010)
Balance sheet
The balance sheet for financial years ending 2007, 2008 & 2009 is shown
below. In general, continuous increase might be noticeable on both sides.
Avon continued to buy back outstanding stocks from the market that generates
loss of $ 4,545,800 million. Also, retained earnings are higher at the end of 2009 than
they were on 2008 that means Avon retained another significant portion out of the
total net income. (Avon Annual Report 2009, 2010)
29
Business Strategy Avon Products Inc.
(Avon Annual Report 2009, 2010)
Statement of the cash flow
Statement of the cash flow for years 2007, 2008 & 2009 might be found in the
table below. As shown, Avon ended up with lower loss on investing activities as well
as increased the cash on operating activities. Unfortunately, the loss in financing
activities has been deepen one and half time more than it was at the end of 2008.
30
Business Strategy Avon Products Inc.
31
(Avon Annual Report 2009, 2010)
800000000
600000000
400000000
200000000
0
-200000000
-400000000
-600000000
Net cash
provided by
operating
activities
Net cash used
by investing
activities
Net cash used Effect Effect of
by financing
exchange rate
activities
changes on
cash and
equivalents
Net change in
cash and
equivalents
2009
2008
2007
Business Strategy Avon Products Inc.
Profit analysis and forecast
Two tables need to be shown in order to get a clearer picture what segment
and region generated the most significant part of the total sales:
(Avon Annual Report 2009, 2010).
(Avon Annual Report 2009, 2010)
It is not a surprise that Beauty segment is the most dominant revenue maker
for Avon (70%). Moreover, America is without any doubts the largest market and
therefore stands for 70% of the total revenue. Latin America plays the most dominant
role and it is reasonable as for the economical parameters its countries operate under
supplemented by portfolio that Avon offers. (Avon Annual Report 2009, 2010)
Our strategy for incoming years is to gather as much as possible of the market
segments introducing low costs products. In the matter of finance, we need to estimate
and realize what the additional marketing cots would be and how would they affect
32
Business Strategy Avon Products Inc.
our general costs. Introducing new or re-new products trying to attract new segment
of target market, changing the manufacturing (packaging, ingredients) definitely
affect the cost of good sold and selling & administrative expenses. The recent
purchase of Slipada definitely affects the total revenue – increasing revenue for the
fashion segment) as well and will increase the company’s dept.
Operating profit estimation for financial years 2010, 2011, 2012
Company’s sales were hurt by recession in 2009. We don’t expect the falling trend to
continue and try to stabilize and even increase the sales. The year 2010 revenue would
be higher due to the purchase of Slipada – if not occurred the rate we count on with is
3%. (Avon Annual Report 2009, 2010)
Estimation of total revenue for financial years 2010, 2011, 2012
All numbers in mil.$
Financial Year
2009
2010
2011
10,284.70
10,823.24
12,688.23
19,273.84
Other revenue
98.1
103.005
111.2454
120.145
Total revenue
10,382.80
10,926.25
12,799.47
19,393.99
Net Sales
2012
Total revenue chart in $ million:
20,000.00
18,000.00
16,000.00
14,000.00
12,000.00
10,000.00
Other revenue
8,000.00
Net Sales
6,000.00
4,000.00
2,000.00
0.00
2009
2010
2011
2012
33
Business Strategy Avon Products Inc.
Estimation details:

the first year increases in net sales represented by 3% increase in 4th
quarter for beauty segment (marketing strategy revenue results) + $ 230
million revenue for segment fashion – purchase of Slipada

2011 - 15% increase in sales for beauty segment applying the new strategy
and expanding on the new target market + revenue for fashion segment
increased by 5%

Another 5% increase in sales in year 2012 for beauty segment and
stagnation for the fashion segment as most of the activities spend on
marketing and expanding the target market

We expect the home segment to be stabilized for the following three years

Follow on strategy would be concentrated more on fashion and home
segment as soon the beauty segment is stabilized at the end of 2012

Other revenue – represented by shipping and handling fees paid by the
sales representative is expected to increase in the first year by 5% and
expand by another 8% for years 2011, 2012 following the average annual
increase before 2009
Estimation of Cost of good sold & selling, general and administrative
expenses &
Operation profit
Financial
Year
all numbers in mil.$
2009
2010
2011
2012
cost of good sold
3888.3
3966.066
3807.423
5711.135
Selling, general and
adm.expenses
5476.3
6023.93
5722.734
5894.416
1,018.20
936.25
3,269.32
7,788.44
Operating profit (total revenuecosts)
34
Business Strategy Avon Products Inc.
35
Operating profit with cost of good sold & selling, general and admin. sales
prediction chart – amounts in $ million
9000
8000
7000
6000
cost of good sold
5000
Selling, general and
adm.expenses
Operating profit (total revenuecosts)
4000
3000
2000
1000
0
2009
2010
2011
2012
Estimation details

Cost of good sold will increase by 2% in line with sales & considering the
expansion of fashion segment in 2010, decreases in 2011 mostly by
economy of scope for the expanded fashion & beauty segment. Finally will
increase by 50% due to expected sales boom in 2012

Selling, general, and administrative expense will grow by 10% explaining
by the aggressive marketing strategy; will decrease by 5% in 2011 as the
marketing strategy will be dissolute. Finally costs are expected to increase
by 3% in 2012 to copy the rapid sales increase

In total, year 2010 estimation is slightly lower to reflect the decreasing
sales/vs. total expense rations + the pay the price of the massive marketing
strategy. Year 2011 is predicted to be a wealthier year for the marketing
campaign fruits and economy of scope adaptation on new product lines.
Finally, year 2012 is expected to be the wealthiest year if the concept of
this strategic plan is going to be followed.
Business Strategy Avon Products Inc.
Estimation of other expenses plus computation of total profit
all numbers in mil.$
Financial Year
2009
2010
2011
2012
Interest expense
104.80
110.04
121.04
112.57
Interest income
-20.20
-20.60
-25.76
-26.40
Other expenses
7.10
6.92
7.03
7.13
Total other expenses
91.70
96.36
102.32
93.30
Earning before taxes
926.50
839.89
3,167.00
7,695.13
Taxes
298.30
264.56
997.58
2,423.90
Net Income
628.20
575.33
2,169.42
5,271.23
Net Income estimation chart in $ million:
Financial Year
2012
2011
2010
2009
0.00

1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
Interest rates are lower each year affecting the interest income decreases in
both 2009, 2008. The interest income are expected to recover in 2010 by 2% ,
increase in 2011 by 25% and by another 2.5% in 2012 in the match with
recovering interest rates predictions.
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Business Strategy Avon Products Inc.

Interest income represents the interest paid for purchased money and we
expect to show higher numbers at the end of 2010 for the purchase on debt
(5% higher), increase in 2011 by 10% due to the interest rates recovering and
decreasing by 7% in 2012 for many matured debts.

Other expenses affected by foreign change rates losses will show slight
decrease in 2010 for stabilizing dollar (2.5%). Pretty stabilized expenses are
expected for 2011 & 2012 showing only 1.5% increases each year.

tax rate is predicted to be stable, therefore 31.4% average for last 3 years is
being used to compute the rate.
Sum up
Avon divided their initiatives and strategy into few steps. First of all their
main intention is to be in close contact with the customers, know all their needs and
problems and react flexible. Second important step is to follow up the trends on the
market, however in advance – to have an advantage of being first on the market with
the new innovative product. Third step is most known worldwide and that is to
concern on the lives of women, who have crucial problems - those diseased by breast
cancer and tortured women. Fourth step was more about the finance – where the
company decided to restructure their costs structure.
Avon is the number one company uses direct selling method for doing the
business. Avon decided to sell its products mainly by direct/selling channel and using
the website. The company has three stage sales forces. On the first stage are franchise
managers whose responsibilities are to hire and recruit new dealer and motivate them
as well. Second stage belongs to the franchise dealers who have network belong them
full of certified beauty consultants. The strategy of hiring consultants is built up on
the trust of those people. All they need to have is creativeness, and hardworking
propositions. Third stage - the direct selling is based on the direct contact with
customers and selling the products “from home to home”. This strategy was very
efficient for impaling on the market, however with the new business strategy, there
37
Business Strategy Avon Products Inc.
should be reworked this approach. To build up the new prestige of the company also
the selling strategy needs to be changed. (Avon cosmetic dealer and direct selling.
2008).
The Company for last 2 decades bet on the fight with the breast cancer of
women and home violence against the women, which is nowadays one of the most
crucial medical problems among women. The public charity of the Avon was found
out in 1955 to improve women’s lives. This laid the foundation of philanthropy of the
brand and started the ambitious to be the sign for women. Through buying the
products of Avon the customer can help to individual women with problems. Two
major philanthropy projects – Speak out against domestic violence and Avon breast
cancer crusade are helping the women worldwide by financing medical researches,
support medical services, diagnostic and screening, and education as well. Thanks to
these activities the company has prestige to be the most care company of the world
which brings them the uniqueness on the market. (Avon cosmetic dealer and direct
selling. 2008).
On the other side Avon Company initiated some restructuring actions in 2009
considered on transformation of their cost structure for achieving efficiency across
their worldwide operations. “Avon said that it expects total costs to implement the
initiatives approved to date to be approximately $165 million, including a charge of
approximately $77 million pretax in the second quarter of 2009. When combined with
costs of approximately $13 million to implement initiatives from its 2005
restructuring program, the company said that it will incur a total charge of
approximately $90 million in the quarter, or $0.19 per share, including $0.05 per
share for a one-time restructuring tax charge.” (Avon highlights restructuring plans;
Jobs supply chain impacted, 2009). “When fully implemented, the initiatives
approved to date reflect almost half the costs to implement the 2009 restructuring
program, and are expected to generate approximately 60% of the targeted annualized
savings. As a result, we are on track to achieve our stated goal of approximately $200
million in total annualized savings by 2012-2013, with costs to implement all
initiatives expected to be in the range of $300-$400 million."“ said Charles Cramb,
vice chairman, chief finance and strategy officer, Avon. (Avon highlights
restructuring plans; Jobs supply chain impacted, 2009).
38
Business Strategy Avon Products Inc.
There are different initiatives to reach the goal:
“Realignments in its global supply chain manufacturing
footprint and improvements in operating model effectiveness
in key geographies, costs-to-implement realignments of supply
chain manufacturing operations, primarily in North America,
Western Europe, and Central and Eastern Europe, close its
facility in Springdale, Ohio, by mid-2012. Production will
shift to its manufacturing sites in Morton Grove, IL, and Celaya,
Mexico, and to contract manufacturers, to close its manufacturing
facility in Neufahrn, Germany, and that it has entered
into the required formal information and consultation
processes with the economic committee and works council
in Germany, to improve processes, reconfigure equipment
and streamline operations at its facility in Naro Forminsk in
order to meet increasing demand more cost-effectively, to
continue improving Avon's operating model effectiveness in
Latin America and Western Europe. In Latin America, it is said
that it plans to regionalize commercial marketing and
leverage other key business support functions such as sales
support, supply chain and administration across
multiple markets. Avon also said that it plans to integrate
its commercial marketing departments in the U.K. and Spain
to create a single consolidated commercial marketing
organization to better serve the company's markets across
Western Europe, the Middle East and North Africa.“ (Avon highlights
restructuring plans, Jobs supply chain impacted, 2009).
39
Business Strategy Avon Products Inc.
“Avon’s dedication to the principles of corporate responsibility has
been part of the company’s DNA for more than a century” Andrea Jung, Chairman
and Chief Execute officer. (Corporate Responsibility, 2010).
“To meet fully the obligations of corporate citizenship by
contributing to the well-being of society and the environment in which it functions.”
David H. McConnel, Founder of Avon Products, Inc. 1886. (Corporate
Responsibility, 2010).
40
Business Strategy Avon Products Inc.
Appendix
Appendix No. 1
(Avon Prods Inc. Top Competitors, 2010).
41
Business Strategy Avon Products Inc.
Appendix No. 2
42
Business Strategy Avon Products Inc.
(NYSE Euronext, 2010).
43
Business Strategy Avon Products Inc.
Appendix No. 3
44
Business Strategy Avon Products Inc.
(NYSE Euronext, 2010)
45
Business Strategy Avon Products Inc.
Reference List
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The Russian market has been something of a haven for beauty players in recent years. (2009).
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Business Strategy Avon Products Inc.
Tang Ros. (2010). Chinese beauty experts media workshop. Retrieved August 29, 2010, from
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Pitman Simon. (2006). Avon goes full throttle in China. Retrieved August 29, 2010, from
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http://responsibility.avoncompany.com/page-49-Assurance-and-Certification
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http://responsibility.avoncompany.com/page-60-Code-of-Conduct-and-Ethics
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47