Case Study -AVON

CASE STUDY: AVON Cosmetics ANDREA JUNG’S MAKEOVER OF AVON PRODUCTS INC On Andrea Jung‟s commencement as CEO in 1999 she faced a number of strategic problems at Avon. There was no superior strategy for the company to initiate and thus no competent implementation and execution of this strategy.

Lack of well defined strategic vision: Avon did not have a well-defined strategic vision – which stated who are we, where are we going and how we are going to get there. Without this vision for the company, employees had no sense of organizational purpose and no motivation and as a result Avon‟s image declined. Many customers commented that Avon‟s products were „dull‟ and „not for me‟. Alongside this, were comments regarding poor product packaging, distribution and advertising campaigns. All of these were symptoms of a lack of strategic vision and clear-cut objectives.

Lack of innovative technology (Managerial Problem): A problem that was evident for Avon was the inability of the company to change with the new technological world, which was fast emerging. As times were changing Avon did not implement vital technological processes that could manage the firm‟s inventory and sales more efficiently. Rather Avon continued with onerous paperwork which consequently lead to mishandling customer orders. This contributed to losing sales as Avon were unable to sell products to busy and workingwomen which as a consequence lead to the slow growth which occurred in 1998 99. The inability to move with changing times illustrates a lack of strategy on the management‟s behalf to meet their objective outcomes.

Lack of leadership: A third problem evident at Avon was the lack of leadership displayed by all management. Avon had no clear cut direction that could be facilitated to staff at all levels, the objectives seemed unattainable and there was incompetent implementation of strategies. This lack of leadership on the management‟s behalf left Avon without being able to release a new product into the market in over a decade. Without correct leadership, advertising campaigns and product innovation

could not be successful nor could Avon remain competitive with other companies within the same industry. This lead to a number of symptoms such as poor image, slow growth and a decline in sales, which was a direct link to a vague strategic vision, lack of innovative technology and lack of leadership. Jung left her job at Neiman Marcus and joined Avon in 1994. Immediately she made her mark. In one of her first contributions to the company, she unified Avon's assortment of disparate regional brands into powerful global lines like Avon Color. She fired Avon's ad agency and oversaw a complete packaging redesign. Her decisiveness caught the eye of then CEO James E. Preston, who appreciated her bold take on the business. Said Preston,"We looked at the market through one set of glasses. She had a fresh take on what Avon could be" (Business Week, September 18, 2000). Preston became her mentor and ally, asking her to speak at board meetings and increasing her exposure to upper management, ensuring a quick climb up the corporate ladder. Just three years after joining the company, Jung was named head of global marketing at age 37. In 1997 the Avon board began a search for Preston's successor, and Jung was temporarily passed over due to her lack of experience in operations and overseas business. But the board had noticed her talent, and she was promoted to COO in 1998. As COO, Jung got the necessary grooming required to become the leader of Avon. When former CEO Charles Perrin stepped down, Jung was promoted to CEO in November 1999.

Strategies of Andrea Jung: * Her first task as CEO was to hit the streets of her neighborhood, ringing doorbells, to better understand the desires of customers and needs of sales agents. She pushed for the addition of attractive new products to Avon's product lines. * Outlined a bold 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 processes.

* make the internet a critical direct link in its direct selling business model; rebuild its image; enter the retail sector; and most important, update its direct sales model to better fit the 21st century which was developed in late 1800s * She was responsible for developing E-commerce opportunities for Avon and its sales representatives. Andrea listened to the customers and grew global beauty category sales by new product development, sampling, and more up to date advertising.

Results of Andrea’s Strategy: * Even though the US economy had officially entered a recession in mid-2001 and had slowed further following September 11 terrorist attacks on the World Trade center and Pentagon, the great strategy developed by Andrea helped Avon to increase the sales from 1.5% in 1999 to 6% in 2001. * The company business process reengineering effort had improved operating margins by more than 350 basis points. Avon's international sales grew at double-digit rates, with the strongest performance in Eastern Europe and Asia. * During Jung‟s first 24 months as CEO, Avon‟s common shares had increased by approximately 90%; where as indexes such as S&P 500 had fallen by nearly 25%. * Just prior to completion of Andrea Jung‟s second year as CEO, Avon‟s board had endorsed her performance by announcing to investors that Jung would become chairman of board in addition to CEO

After becoming CEO of Avon, Andrea Jung developed a strategy based on the market position or core competencies of Avon products. Andrea Jung‟s Eight Strategic Priorities as the catalyst of change in the company after having presented a daring vision for Avon to be the “ultimate

relationship marketer of products and services for women” which at first seemed implausible are as follows. * Grow global beauty category sales through continued investment in new product development, advertising, and sampling. Through research development Avon was able to launch innovative products that opened doors of beauty products industry. Research has also contributed to the study of breast cancer early detection, prevention and recently for the cure. They also invested for improvement of brochure, broadcast advertisements, interactive voice response system, fax and toll-free ordering of products took substantial savings and also it had gained enormous returns. * Provide representatives with greater career opportunities through sales leadership, enhanced sales Internet capabilities, and training. The implementation of Sales Leadership program in the Avon community was designed to give better chances of accumulating income for career-minded women. The said program imparts business savvy, opportunity to recruit, mentor and train new sales representatives while they gain commission from it. They can make use of Internet system – Avon.com, and become eRepresentatives. Therefore, the Avon Company had successfully activated Sales Leadership plan globally, engendered representative occupation, enhanced efficiency, in addition to that had vied with further direct-selling enterprises in order to utilize and retain sales representatives. * Reduce inventory levels while at the same time improving service to representatives The policy behind the new procedure of accounts cataloging is that inventories are stated at the lower cost of or market. As a result, it improved the assessment or evaluation of stocks, supply fitting balancing of profits and operating cost and expenses, and appraisal of company accounting to comparable bookkeeping system. It is also designed to reveal non-recurring charges for inventory write-downs and eliminate cease manufacture of product lines, closures of

facilities, reductions of size-of-line, and unseen product nature modification. The company had also executed an effective centralization of product inventory distribution hubs. * Improve operating margins by 50-100 basis points thru business process redesign The process reengineering is utilized to eliminate non-value adding costs. The company had allotted premeditated expenditure of more than $100 million every year to buttress manufactured goods improvement, effectively implement e-commerce initiatives, improve commission prospects for self-sufficient sales representatives, and large-scale branding build up. In consequence, the company had a pretax charges of $97.4 million 2001 and $43.6 million in 2002 associated to expenses to speed up business renovation schemes, and were projected to upgrading operating margins by 250 basis points and operating cash flow by $500-$800 million by year end 2004 which more than materialized. * Successfully launch the Avon Wellness line of nutritional supplements and vitamins Avon planned to polish its brand image by the expansion of its line of products by the invention of wellness products that promoted women‟s health and well-being. It was a new business venture, a new opportunity for revenue gaining for sales representatives. It is designed to help women of all ages and lifestyles to enhance their health and vitality, promoting that woman‟s concerns is Avon‟s concerns thereby opening a high-potential new arena that would portray the “we care” attitude of the company particularly to their women consumers. It was first offered in selected markets in late 2000 and was followed by an aggressive roll-out in 2001. * Begin to build a profitable retail business to fuel future growth To fuel future growth around the world through retail business venture is one of the newest field Avon successfully entered. A test basis was first employed in 1999, to find out of retailing would be bring another profit venue for the company. This retail business as better known as Avon Beauty Centers was operated by Reaching-Out-To-Retail representatives. These kiosks or beauty counters were located in shopping malls to reach new customers and serve these “stranded customers” for them to have a free trial of the experience of using Avon products. In a typical Avon retail boutique, Avon products are displayed like Anew, becoming, Mark and Planet Spa

(all from Avon‟s Wellness division). Other than the expansion of outlets in China, the company was also able to establish a customer club in China and thereby triple their advertising to 7 percent of sales. * Develop e-commerce opportunities for Avon and its sales representatives Avon through Miss Jung, considering that they can redefine direct selling method though the use of information technology systems for the new generation of women bringing into line the technological change that will provide a substantial instrument for dynamic selling aid and enhanced earning prospects. For instance, in Avon Japan, there is an ordering facility that is made flexible for the sales representatives. The e-Representatives can now order from a variety or ordering products through the use of telephone, fax, interactive voice systems or the Internet. Nowadays, there is more than 50 percent of orders are electronically received. The Internet proved to be a great device and an important method to achieve Avon‟s goal to create a renewed vibrancy and energy for the Avon‟s image and branding. * Pursue market opportunities in China and Eastern Europe Avon had been impervious in envisioning to even take up widening of the company‟s horizon by entering the market of the Eastern Europe and China when the there are risks of encountering regulatory and legal restrictions, governmental licenses, primarily unfavorable net foreign exchange. To widen these enlargement of the business opportunities globally, their first step is dividing and defining the varied audience by lifestyles, interests, socio-economic backgrounds, cultural differences and target price points. And Avon plans to seek and serve new segments- the younger audience and further geographic expansions in countries like China, Russia, Turkey and eventually India. With a new strategic vision implemented by Jung, Avon was able to move into the 21st Century with a clear view to compete with other Cosmetics Fragrances and Toiletries (CFT) companies in the same industry.

MANAGEMENT PERSPECTIVE

According to me Andrea Jung is an amazing leader. She has skillfully managed to get Avon at the top position. At age 40, she became CEO, and in 2001, at age 42, she was listed on Fortune's ranking of the 50 Most Powerful Women in American Business.

The strategic vision developed by Andrea Jung incorporates many useful functions. For example the vision specifies where the company is headed (into fitness and health), it provides long-term direction and illustrates to customers and staff the type of company Avon wants to become. Avon should focus on products for men as it is evident in today‟s society that many men are interested in hair and beauty products based on competitors enter into this market. With a correct image and advertising campaign Avon should be able to enter into the market for men‟s products thus stimulating the growth of the company as a result.

Andrea Jung‟s Financial and Strategic Objectives are in line with her strategic vision for Avon. All objectives are future orientated, are measurable and attainable and are specific in meeting her vision. This motivates staff as they are aware of the new products available and they know what is expected of them, which can encourage growth for the company. Avon needs to ensure that they keep up to date with the latest technology and use the Internet to their advantage in promoting and gaining sales in the future as failure to do so could be detrimental to their strategic vision and implementation of their strategic plans.

It is evident that a lack of management leadership in Avon lead to disappointing results in 1999. Andrea Jung‟s new vision for Avon, created strategy elements that were well matched to the changes that have occurred in the cosmetics industry. The strategies are sensible and are related to what Avon‟s competitors are doing in the marketplace, which in turn will lead to Avon creating a competitive advantage and thus an improved financial performance. Analysis of Avon indicates that Andrea Jung and Charles Perrin leadership in developing a good sustainable

strategy for Avon and Jung‟s implementation of this has resulted in increased revenue and growth for the company. The successes achieved by Avon have been tremendous, under the leadership of Andrea Jung. At the second anniversary of Jung‟s appointment as Avon‟s CEO, all indicators suggested that the new vision, strategy, and implementation efforts were working to near perfection. * Avon's sales growth had increased from 1.5% in 1999 to 6% in 2001. * The company business process reengineering effort had improved operating margins by more than 350 basis points. Avon's international sales grew at double-digit rates, with the strongest performance in Eastern Europe and Asia. * Avon‟s common shares had increased by approximately 90%, whereas indexes such as the S&P 500 had fallen by nearly 25% The case shows that Andrea Jung‟s efforts in rejuvenating Avon should be commended as all her strategic and financial objectives are outlined within her vision for Avon. Apart from all this various other alternatives are there which Avon can adopt. Few of them are: * Since many young women are wearing make-up these days, Avon should develop an inexpensive, teen line. * Sharing advertising/branding costs among all countries will lower the operating costs. * Use Avon product placement in popular movies and television shows. * Launch the men line products to cover the market need. * Recruit the male representatives to generate more income. * Promote a nutritional product line by sponsoring the sport event.

* Educate the representatives to point out the need of introducing the new distribution channels. * Full line discount stores have high customer traffic, pointing towards high volume sales of the more affordable Avon products.