Avon Case Study

Executive Summary

Avon Products, Inc. (Avon) is based in New York. The firm engages in the manufacture and marketing of beauty and complimentary products primarily in North America, Latin America, Europe, and Asia Pacific (Yahoo Finance, 2005). Avon's products are classified into three product categories: Beauty, Beauty Plus, and Beyond Beauty. The Beauty category consists of cosmetics, fragrances, skin care, and toiletries; Beauty Plus includes fashion jewelry, watches, apparel, and accessories; and Beyond Beauty comprises home products, gift and decorative products, candles, and toys (Ibid). The company sells and markets its products through a combination of direct selling, marketing by independent Avon representatives, and via its consumer Web site, avon.com.

This paper will explore how the company is fairing under the leadership of its current CEO, Andrea Jung. There are two opposing views regarding the company's current and future success. One group feels that the firm has a promising future with Jung at the helm while the other group does not. This paper will analyze the pros and cons uncovered by each team member and discuss which view prevailed in the debate and why.

Pros and Cons

Pros of Jung and Avon

Andrea Jung became president and CEO of Avon in 1999 and has totally revamped the company. Under her leadership, the company has updated its product line, launched new advertising, and created a new image (Fact Monster, 2005). Avon's sales have increased by 30 %, profits 40%, and the stock price has dramatically improved (Ibid). Jung's has been able to align the firm's core capabilities with its strategic targets which has lead to phenomenal results. It appears that Jung has been able to establish a clear vision for the firm that has been incorporated in every aspect of the firm's operating system. This vision is shared by all employees and representatives of Avon priming the company for continued success.

Under Andrea Jung's direction, Avon is focusing on developing nations especially China. Many developing countries are more receptive to direct selling by women since jobs with Avon are opportunities for women who want to be independent in the male dominated cultures. Avon has also recognized that the demographics has changed and recruiting younger women to sell to the younger customer base.

Other strategies of Jung include cost cutting by reducing number of raw material suppliers, shifting production from smaller plants to larger ones, moving manufacturing from high cost nations like Great Britain to lower cost countries such as Poland (Tarquinio, 2004). As mentioned in the Avon case study, the e-representative initiative also has helped Avon cut costs. The direct sellers are asked to fill in the order online. This would save the company 60 cents per order (Pearce & Robinson, 2004). As a result of these strategies, Avon had a 27.3% gain in earnings in 2004 and the fourth quarter profit increase of 10.5% (Derby, 2005).

Cons of Jung and Avon

There are a number of missteps that Avon has taken under Andrea Jung's leadership. They include partnering with companies that image does not adequately match Avon's and the company's problems with launching its online business segment. Recently, Avon announced plans to partner with Sears and JC Penney's. One of the potential negative aspects for Avon partnering with JC Penny and Sears would be the possible lowering of brand name for Avon. As stated by Pearce and Robinson (2004), "...considered to be the weakest portion of brand retail market, the company ran the risk of possible further reduction of its brand name." Since its inception Avon has worked very hard in tailoring its niche market towards women.

Avon's brand has definitely resonated for women through the years. However, as noted in Datamonitor (2004), during the 1980s, the company began to diversify by investing in retirement properties and healthcare products, and launching catalogs for men and children. During the initial stages of this strategy, Avon started to remove itself from its core market of selling to women. The results were downward revenue trends and slow growth throughout the 1990's which resulted in several takeover bids.

Unfortunately, Sears Roebuck and JC Penny do not really resonate well with being a carrier of women's beauty supplies. The name "Sears" have been associated with appliance and not beauty products. The move of aligning with this companies and trying to sell higher end beauty products will only push Avon in the opposite direction that it should be heading, which is to move back towards tailoring to women domestically and globally.

Over the years, Avon has experienced several problems leveraging its brand in many of its product lines. As a result, positive net sales and earnings growth for the past five years have been in single digits and steadily declining year after year (Pearce & Robinson, 2004). Specific problem areas are stagnated sales, slow earnings growth, limited distribution capabilities and shift in personal care preferences and spending habits.

Andrea Jung's proposal to expand into certain retail markets will only perpetuate Avon's trend of declining net sales. The proposed plan will indeed create an additional distribution outlet and cater to this market segment. However, the question to examine is at what expense or cost will Avon endure making this decision? Avon has faced tremendous pitfalls marketing its product lines to effectively increase brand loyalty and recognition. Examples of this include the hair care product line. Avon did not effectively develop products for ethnic hair types. Additionally, Avon did not have a hair coloring product line. As a result, Avon suffered in building brand awareness and loyalty with the younger generation as well as the older generation that also demanded this product.

Avon has lost loyalty and brand recognition as a result of its decision to diversify into different industries and different product lines. This has resulted in a loss of market share drastically affecting annual profit margins. To examine the previous question of what cost will Avon endure deciding to move into the retail markets? It is clear and evident; the cost will be a further extension of the existing internal problems that Avon faces. Deciding to move into the retail market to create a store inside a store is not in Avon's best interest. This move would be a further expansion of Avon's previous decisions to diversify into markets that do not have synergy and thus will hurt the overall branding of the company. Finally, implementing Andrea Jung's