Avon - Case Analysis

Avon

As of November 1999, Avon was experiencing economic troubles. Avon's growth rate of annual sales was less than 1.5 percent during the greatest economic boom in history. This prompted a transfer in leadership which appointed Andrea Jung as CEO. Since that time, Avon has experienced remarkable growth.

Under the direction of the new CEO, a new strategy was developed to reinvent Avon's image, improve customer satisfaction, and to increase profit margins and market share. Avon has gained an outstanding reputation as the best direct seller of beauty products. Through the continued efforts and achievements of its sales representatives, Avon is now known worldwide. Avon's core competence has mainly been its direct selling busniess model. This led Jung and the management team to implement a Sales Leadership program that provided incentives to acquire, train, motivate, and retain the number of active sales representatives it needs to sustain significant growth. Avon also has a representative development program that focuses on the professional training of representatives. This enables the representatives to provide valuable information on Avon brand products. Avon also keeps its superior customer service in other ways of distribution such as the Internet and in the department store sales by having a timely and correct order delivery, one on one information exchange and personalized professional advice.

Forces of Competition

Rivalry among competing sellers in the CFT industry is strong. The creation of innovative products is crucial to success. This industry focuses on continually developing cutting edge products using the latest science and technology. Rivalry is stronger when customer's costs to switch brands are low. Switching costs in the CFT industry are very low, due to the large amount of different brands of similar products. This cost is due to the higher number of competitors in the CFT industry and their tendency to copy new products in order to stay competitive.

Another Avon objective that aims to alleviate pressures coming from competing sellers includes consists of reinventing their antiquated image. The organization had been a major player in the CFT industry for decades. However, Avon's management took a reactive approach and failed to evolve with the changing times. Because the CFT industry centers on mage conscious consumers, Jung determined this to be a fatal mistake. The major segment of the CFT market is comprised of women/girls less than 30 years of age. Realizing this, Jung endorsed the Williams sisters. Venus and Serena Williams were popular teen icons that portrayed the image Jung hoped to achieve for Avon; young, powerful, and ambitious.

Avon is highly backward integrated, self-manufacturing many of the items that they sell. This causes the competitive pressures of suppliers to be weak. Avon can get supplies from many parts of the world because they have entered foreign markets and produce products in different countries. A lot of Avon's supplies such as packaging, may be easily substituted if a supplier raised prices.

Competitive pressures stemming from customer buying power is moderate because switching costs are low and customers have the ability to fulfill their needs by switching brands. Buyers tend to be well informed about Avon's product prices and costs largely due to the Internet and this puts customers at a position of higher bargaining power. Customers do not pose a threat of integrating backwards, because it would not be easy for women to develop their own make-up, perfume or skin care products. Due to the dirct selling business model, there is an extremely large number of buyers. Losing one will not significantly impact the company's market share or financial position.

While there is strong competition in the CFT industry, there is a weak threat of new entrants and an even lesser threat of substitute products. The market is comprised of major players who have the ability to invest millions in marketing and R&D. This makes keeping up with innovative products extremely difficult. These organizations also have established relationships with retailers and suppliers and hold a certain amount of leverage within the industry. New company products are viewed as fads and are short lived. Small companies cannot compete in store with the bigger companies for shelf space. To sell products in department stores or specialty store, the product must have a favorable quality image. New firms will have trouble entring the CFT industry due to the high learning curve. Avon would be able to produce products in the same product line for a lot less due to their acquired expertise and experience they have gained by being in the business for over a century. New entrants will have a hard time competing with the prices, advertising, loyalty of customers, and the years of experience that firms like Avon have acquired over the years. Incumbent firms may not pay much attention to a new entry until it survives for a period of time or if they launch an innovative product that needs to be copied under the larger name. As for substitute products, women might switch to different brands of cosmetics but it is doubtful that a replacement short of surgery will substitute cosmetics from a different industry. The only substitute products are similar products from another company within the CFT industry. Because there are no true substitute products from a different industry the threat of substitutes is very weak.

Driving Forces

In order to analyze how the CFT industry is changing and how competition might change over the next 3-5 years it is important to discuss the driving forces relevant in this case. The most important driving force in the CFT industry is the growing use of the internet and emerging new internet technology applications. For example, "Avon improved its web site under Perrin by making it easier for customers to purchase products online and began testing a Web-based ordering system for the company's sales representatives in Japan." Most if not all major competitors have also been focusing on the internet as a distribution channel; an example is Estee Luader marketing its products through www.Gloss.com.

Product innovation is also a major driving force in the CFT industry. Avon, as well as its competitors, has been focusing on product innovation to increase their market share. For example, Cover Girl and Max Factor both offered highly popular Outlast and Lipfinity products that contained Permatone, a semipermanent lip color that kept lipstick in place for up to eight hours. New hair