Avon, the world largest direct seller of a beauty and beauty-related products promoted Andrea Jung as their new CEO in November 1999. On that time the company was in serious trouble, with annual sales growth of less than 1.5% and crashing stock price during the greatest economic boom in history.Andrea Jung build new vision and strategic plan for Avon that called for it to introduce highly innovative new products; build new lines of business; transform its value chain and business process; make the internet a critical link in its direct selling business model; rebuild its image; enter the retail sector; and update its direct sales model.
At the second year as CEO, she gains a number of strategic successes. Sales growth had increased from 1.5% into 6% in 2001; Company sales force was expected to expand by 15%; Operating profits were expected to growth by 7%; and operating margins were expected to reach 14% (the highest level of more than 10 years).Main Issue:Developing a strategic vision, setting objectives ,and crafting strategies.Problem Statements:How Andrea Jung implemented the strategy for achieving the successes for Avon.Analysis:Andrea Jung build new vision and strategic plan for Avon that called for it to introduce highly innovative new products; build new lines of business; transform its value chain and business process; make the internet a critical link in its direct selling business model; rebuild its image; enter the retail sector; and update its direct sales model.
For boost up the sales in CFT industries, product innovation is vital. Product innovation needs a strong R&D team. With strong R&D team, Avon R&D team succeed developing new product called Retroactive, an antiaging cream ,with total sales $100 million in the first year on the market.Avon also created new line of business collaborated with Roche Holding,Ltd in the development of vitamins and supplements to promote general health. Avon new products gain market share 0.8% in color cosmetics, 2.
2% in antiaging, and 0.3% overall among mass market brands.The increase of sales by product line categories shows by exhibit 8. There is an increase in total net sales and sales of each product line. This proves that the product development can increase the sales for the company.The heart of Avon's strategy implementation effort was its ability to eliminate the cost of low-value added activities from its value chain.
Jung wants to spend $100 million annually to support product development, e-commerce, better commission for independent reps, and global image building. Funding for the activities need fund, it can be achieve if Avon's president and COO Susan Kropf being able to squeeze $100 million in cost saving elsewhere. Kropf's business process reengineering (BPR) efforts achieve cost saving more than $150 million in 2000. She also improved Avon's operating margin by 3.2 points from 5.
1% in 1998, 5.7% in 1999 into 8.43% in 2000.Kropf reengineering had to do with improving the company's manufacturing and distribution system. The company saved $56 million annually after cutting its number of supplier from 300 to 75, and it used information systems to automate order processing and logistics to reduce transportation cost by $22 million, shipping segmentation costs by $17 million, and order entry costs by $8 million. Other BPR implementation efforts focused on continued efficiency improvement, improved demand forecasting, and an overall end-to-end supply chain reconfiguration.
Jung and Kropf saw the internet as the driver of transformation in the relationships between representatives, customers, and company's marketing and supply chain operations. At the first time, Avon site was rejected by the sales representatives with covering the address behind the Avon catalog with stickers. Jung initiated the eRepresentatives sales concept ,which allowed representatives to direct the customers to the website to purchase products .Using internet, the company can reduced internal cost of order processing from 90 cents to 30 cents per order. The website not designed for online purchasing only, but also for virtual makeovers, online appointments, and sales training.This strategy found success when management found that 4 to 6% visitors made purchased compare 1 to 2% purchased rate for most of B to C sites.
The sales from eRepresentatives also increased by 30% because the web's ability to keep representatives constantly connected to customers. Within the first nine months of the programs, almost 12,000 of 50,000 sales representatives in the US each paid $15 per month to become an eRepresentatives.Market survey indicated that Avon's product considered by consumers as a commodity-like and not glamour. To rebuild image, Avon create new products, new packaging, celebrity endorsement, stylish new catalog, and new advertising campaign. The company's expenditure for advertising has increased for about 50% in 2000, and Jung want it to grow fro 2% into 4% of total beauty sales by 2004. The advertising focused on "Let's Talk" campaign, which attempted to portray Avon as a lively, energetic, fashionable brand.
The new catalog design which is associated with more glamour , and the test in UK , the new catalog not only improve sales, average order size, and market share but also move from number four to number three in UK market.For changing the image involved new approaches to market intelligence, marketing strategy, new product development, and marketing planning. Better and timely market intelligence for knowing what the consumer needs and wants (consumer needs based marketing strategy) so the company can provide the products that the customer wanted. The market research has indicated the rebuild Avon's brand image has achieves some success in 2001.
Avon needs entering retail sectors because there is a big market opportunity from the retail sales for cosmetics and there are some customers that can not reach by the direct selling. Avon builds Avon Centers in 75 JCPenny stores and launch of its beComing CFT line of product with 400 SKUs, upscale prestige packaging, and value pricing. The product that sale in the retail is different with the product that sale by the sales representatives. This thing make no competition between the sales representatives with the retailer because the different of product lines and target market.Another strategy from Jung is updating its direct sales model. In the past, the sales representatives only get commission from the sales of the product by them selves and without proper training.
Now with the new system called Sales Leadership program, the sales representatives can get bonuses based on the sales of their recruits and trainees. This program also required the ales representatives to sell at least $500 per month.Using this strategy, Avon direct sales force growth very fast because every sales representative wanted to have recruits as much as possible. And the total sales automatically increased because the requirement for minimum sales of $500 per month per representatives. Avon success also for recruiting younger sales representatives, when before the Sales Leadership program is hard to get.
Avon also introduced their new products to China, Poland, Russia, Middle East Asia, etc because the good market opportunity there. Eastern Europe and Middle East Asia is a new market for Avon. They implemented sales leadership and sales representatives training, and increasing spending on promotion and advertising. The result is Avon can increase their market share and getting very good brand image in some country.
In exhibit 9 about Net Sales and operating Profit by Geographic Region, we can see the sales outside United States is bigger than the sales inside US and the growth is high.
