business analysis
Global Analysis - Avon Page 1
GLOBAL ANALYSIS- AVON
MGT 795: Section G1
Professor: Patrick Saparito
Jennifer Callaghan
J.R. Longino
Rasa Navickaite
Meghan Quinn
Lia Torre
Global Analysis - Avon Page 2
Table of Contents
Global Analysis - Avon Page 3
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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.
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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.
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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
Global Analysis - Avon Page 7 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).
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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).
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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).
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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
Global Analysis - Avon Page 11 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;
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• 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
2010).
• The reorganization of certain functions, primarily sales-related organizations” (Avon,
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).
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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
Global Analysis - Avon Page 14 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
Global Analysis - Avon Page 15 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
Global Analysis - Avon Page 16 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
Global Analysis - Avon Page 17 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
Global Analysis - Avon Page 18 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 millions to $400 millions 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
Global Analysis - Avon Page 19 outlay since 2006 with the exception of 2009 when advertising expense was flat due to difficult economic conditions. Advertising investments were $390.5 millions, $368.4 millions, and $248.9 millions 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, 24-
K 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 millions 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.
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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. (Exibit 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
Global Analysis - Avon Page 21 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%
Global Analysis - Avon Page 22 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)
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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
Global Analysis - Avon Page 24 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).
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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 years 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
Global Analysis - Avon Page 26 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
Global Analysis - Avon Page 27 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
Global Analysis - Avon Page 28 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
Global Analysis - Avon Page 29 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 2005-
2009. 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).
Institutional Framework
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
Global Analysis - Avon Page 30
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
Global Analysis - Avon Page 31 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 you'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
Overview
Buyer Power
Porter’s Five Forces: Brazil Beauty Industry (Datamonitor)
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 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
Global Analysis - Avon Page 32 and then sell to end-users. This limits the power of contractors to set the prices, thus weakening the buyer power.
Supplier Power
New Entrants
Substitutes
Rivalry
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.
Moderate:
Many large players have their own production facilities; fixed costs are relatively high, which serves to enhance rivalry.
Global Analysis - Avon Page 33
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.
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.
Global Analysis - Avon Page 34
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. It accounts for approximately 15% of the European make-up market value (“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
Global Analysis - Avon Page 35 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 (Euromonitor International, 2010). 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.
The Russian Beauty Consumer
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
Global Analysis - Avon Page 36 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. This growth has been driven by the growing affluent population, as well as the culture of “glamour and status”. Russians are now believed to be the world's fourth largest spenders on high-end goods, behind the USA, Japan and
China (Euromonitor International, 2010).
There appears to be three distinct segments of beauty consumers in Russia; 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.
Global Analysis - Avon Page 37
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.
Institutional-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.
Global Analysis - Avon Page 38
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 2009-
2010, 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
Global Analysis - Avon Page 39
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.
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.
Overview
Buyer Power
Supplier Power
New Entrants
Substitutes
Rivalry
Porter’s Five Forces: Russian Beauty Industry (Datamonitor)
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.
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.
Global Analysis - Avon Page 40
Recommendations 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 30 + 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.
Global Analysis - Avon Page 41
Finally, Avon should capitalize on the aging population by promoting its ANEW line to the market segment 40+. Given that these consumers are highly engaged in the science behind their products, Avon could win with its personalized selling and superior formulations. ANEW could carve out a unique positioning apart from Avon, and perhaps halo back the notion of quality to other Avon products among this target. 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
Global Analysis - Avon Page 42
(“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).
Institutional-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
Global Analysis - Avon Page 43
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 and imports into 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
Global Analysis - Avon Page 44 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
Global Analysis - Avon Page 45 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
Consumers differentiating themselves through the styles and brands of make-up products offered
Buyer Power 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
Global Analysis - Avon Page 46
Supplier
Power
Moderate
Chemicals and mineral products used to produce make-up are widely available
Suppliers have little dependence on cosmetic companies
New Entrants 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
Substitutes
Rivalry
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 makeup 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
(“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. Additionally, 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
Global Analysis - Avon Page 47 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
Global Analysis - Avon Page 48 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.
Institutional-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 direct-
Global Analysis - Avon Page 49 selling 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.
Formal
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]
Global Analysis - Avon Page 50 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
Global Analysis - Avon Page 51 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
Overview
Porter’s Five Forces: Chinese Beauty Industry (Datamonitor)
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 makeup, lip make-up and nail make-up.
Fashion is a major influence on the make-up market
Global Analysis - Avon Page 52
Buyer Power
Supplier Power
New Entrants
Substitutes
Rivalry
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
Global Analysis - Avon Page 53
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.
Global Analysis - Avon Page 54
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.
Global Analysis - Avon Page 55
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Global Analysis - Avon Page 61
Appendix
Exhibit 1
1
1 http://www.abihpec.org.br/english/dadosdomercado_dados_mercado.php
Global Analysis - Avon Page 62
Exhibit 2
Global Analysis - Avon Page 63
Exhibit 3
Top 10 Sectors by Share of U.S. Internet Time
1
2
3
4
5
6
7
8
9
RANK
10
Search
Other*
Category
Social Networks
Online Games
Portals
Instant Messaging
Videos/Movies**
Software Manufacturers
Multi-category Entertainment
Classifieds/Auctions
Share of
Time
June 2010
22.7%
10.2%
8.3%
4.4%
4.0%
3.9%
3.5%
3.3%
2.8%
2.7%
34.3%
Share of
Time
June 2009
15.8%
9.3%
11.5%
5.5%
4.7%
3.5%
3.4%
3.3%
3.0%
2.7%
37.3%
% Change in
Share of Time
43%
10%
-28%
-19%
-15%
12%
1%
0%
-7%
-2%
-8%
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).
Global Analysis - Avon Page 64
Exhibit 4
Global Analysis - Avon Page 65
Exhibit 5
