Strategic Mgmt (AVON) Assignment

STRATEGIC MANAGEMENT ASSIGNMENT - March 2010

Done By:

Mr Syed Tasaduq

Q1 “Ding Dong Avon calling” is one of the best -known branding catch phrases for the 1950s, but the Avon Ladies have moved on from the iconic-smiling American homemaker to the working mother on-the-go of today. In response, Avon has had to rethink, reevaluate and redefine its customers, products and business strategies to reclaim the market power and presence it once had. This was done by none other than Andrea Jung. I would definitely give Andrea Jung an “A” because of the way she transformed a company which was going down in all the terrains to a company which was looked up and seen as one of the major players in the industry. She transformed people’s visions, thoughts or even the way people worked in the Organisation and ensured to climb the ladder of success for both herself and her Organisation. The makeover of Avon Products by Andrea Jung greatly transformed the company in all aspects - the stakeholders, whether they are customers, employees or shareholders have undeniably benefited from the change. She was very strong as chief strategist of Avon Products. She never feared the need to make drastic changes that would help drive Avon back to the top of the Cosmetics, Fragrance and Toiletry Industry. She knew that serious issues were present and the company needed to address them. These issues included

product

appeal,

marketing

strategy,

pricing,

process

reengineering,

and

product

innovation/employee motivation. Her strategic plan was to fix these problems by fixing the entire company structure, which included changing the product packaging for better appeal to changing the distribution channel which was a major asset to Avon. After reading the case study, I felt that Andrea Jung performed well in her duties to help Avon move back to the top of the cosmetics chain. She knew what needed to be done and did it, which is a must to be an excellent CEO. She developed an excellent strategy that helped push sales from 1.5 percent in 1999 to 6 percent in 2001. That's a major jump in just a two year span. She also increased the sales in Europe and Asia. I am sure she is one of the most recognized successes of all time. 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 daughter of Chinese immigrants, Jung earned respect from both industry peers and the Avon direct sales force comprised largely of suburban mothers. Jung led one of the world's largest sellers of an operation with sales of $6.8 in 2003 and a presence in about 137 countries. In one of her first contributions to the company, she unified 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. But embracing these new distribution channels was not without risk. Ever since the first Avon representative, armed with makeup samples and catalogs, knocked on her neighbor's doors, direct salespeople had been the backbone of the company. The danger of alienating those reps became painfully clear with the advent of the Web. In the late 1990s, Avon printed its Web site on catalogs, only to find that its outraged reps covered them up with their own stickers. Additional criticism followed Avon's decision to sell online while prohibiting sales reps from setting up their own sites. Until Jung found a way to resolve those issues and integrate the reps into her new vision for the company, Avon's future would rest on a foundation. Jung noted, "If we don't include them in everything we do, then we're just another retail brand, just another Internet site, and I don't see the world needing more of those" (BusinessWeek, September 18, 2000). To that end, Jung announced her decision to invest $60 million to build a Web site that would involve, not alienate, Avon's reps. Reps could sign up to become "e-representatives" for $15 a month, earning commissions of 20 to 25 percent on orders shipped directly or 30 to 50 percent for orders they delivered to customers themselves. The initiative promised additional income for Avon reps as well as considerable savings for the company. The cost of processing an order from the Web is 30 cents, or roughly one-third the cost of processing the paper order. The site gave customers the option of shopping with Avon directly or with the help of an e-representative in their zip code. Said Jung of the new opportunities for an Avon rep "She can actually sell at retail in a licensed way; she can have in a mall today”. Avon reps responded enthusiastically to Jung's initiatives, made all the more remarkable by how little in common the CEO had with the suburban moms who sell Avon's products. In the early 21st century, Jung expanded Avon's lines of cosmetics, jewelry, and clothing by adding nutritional supplements and vitamins manufactured by Roche Holding, a line that the company said could generate $300 million in five years. Taking from the Avon competitor Mary Kay, Jung launched Beauty Advisor, a program that turned Avon reps into beauty consultants who help customers choose the clothing and makeup that work best for them. She even floated the possibility of offering financial and legal services to women. Throughout Jung's ambitious expansion, her management style was to emphasize open communication, goal orientation, and feedback from her sales force. To that end, she set up a CEO advisory council of 10 top salespeople from every level of the company internationally. In addition, she brought panels of Avon representatives to New York City to share their concerns and react to her ideas. She even enlisted as an Avon lady in New York City. "I was terrible," she said (London Times, June 29, 2002). In the first half of 2000 Jung received a report card—sales and earnings were up 9 percent and 40 percent respectively. As the investor Robert Hagstrom, senior vice president of Legg Mason Fund

Manager and director of Focus Capital, remarked, "She bit off a lot. The challenges are great. But at this point, it would be very hard to give her anything less than A's" (BusinessWeek, September 18, 2000).

Q2 Under Jung, Avon's vision statement read: "Our vision is to be the company that best understands and satisfies the product, service and self-fulfillment needs of women globally. Our dedication to supporting women touches not only beauty, but health, fitness, self-empowerment and financial independence”. Here is my argument that Jung's strategy is properly focused and directed: CURRENT ENVIRONMENT Single digit growth Volatile stock Archaic and limited distribution channel (which would impede the intermediate and long-term) Jung's strategy: Broaden Avon's reach in the U.S. TACTICS Partner with Sears and JC Penney department stores and create store-within-a-store where it could introduce more upscale exclusive product lines. Done in conjunction with "Direct selling" BENEFITS Increased profits, sales, nationwide exposure; continue to attract baby boomer segment; financially appropriate as only $15 to $20 million to launch products in these locations and department stores would carry bulk of expenses JUNG'S ARGUMENTS "FOR" THIS STRATEGY Retail selling was on the rise Increase in customer traffic in virtually all traditional department stores Baby boomers' spending power expected to grow 16% in next five years Baby boomers are among Avon's main customers Baby boomers sought alternative distribution with personal care products, especially traditional department stores Direct selling feasible since personal care products second most popular product group sold via this channel Direct selling key to senior citizens, who were Avon's most loyal customers

This strategy would win against competitors Mary Kay, L'Oreal, and retail brands in traditional department stores Edge against Mary Kay: Mary Kay was weak in traditional department stores and if Avon diversifies here, it would win a greater baby boomer customer base Edge against L'Oreal: Traditional department stores sought new products to add to their mix as well as high turnover personal care merchandise Edge against retail brands: Avon could match the medium- to high-priced products and is globally recognized brand name and image To defend her strategy: Avon could allocate portion of following year's marketing budget to increase cosmetic traffic to Sears an JC Penney; Avon could promote certified Beauty Advisors to build traditional department store personal care infrastructure; Avon could increase monetary incentives to sales reps WHY I THINK THE STRATEGY IS FOCUSED AND DIRECTED: There are various routes that Avon can take and even the outside consultants had offered several suggestions. However, Jung's grand strategy remained focused on emphasizing WHERE to sell its products, WHO would be the target market, and WHICH product lines best fit its brand image. WHERE: Nation-wide in department stores Sears and JC Penney WHO: Baby Boomers mainly and also senior citizens WHICH: Exclusive upscale new product lines THIS STRATEGY avoids a marketing position that tries to aim at too many target groups in too many geographic locations where resources will be spread too thinly to be effective. Since Avon seeks to go WHERE they are not already represented, then these two particular department stores would be a great choice. Namely, this avenue represented an opportunity for Avon to "help" these two retailers build cosmetic consumers especially with Avon's "Beauty Advisors." In other words, Avon could focus on being a "specialist" to these consumers and would be credible experts given that it is a globally-known brand name. Also, there would be less competition at these two outlets. As for aiming at Baby Boomers, this group is desirable because of their potential spending power expected to increase over the next five years. They traditionally "outspend" all the other customer group categories, so they would be a great target group for Avon. Again, the key to success would be to aim at Baby Boomers and what they want is high quality and high value products. Jung's vision of developing an upscale line to suit them would be in line with their needs. Furthermore, this group liked having various distribution channels and by offering Sears and JC Penney, this would be another way to capture more shoppers from this group. Comment about the outside consultant's strategy: Cost too much and had too many focuses.

Jung also addressed the problems brought up about her strategic plans and came up with good remedies to those problems. In short, she FOCUSED on what was the way to go for Avon (i.e. saw an opportunity ("Opportunity"), knew what it was good at ("Strengths"), understood their weaknesses and came up with solutions on how to counter them ("Weaknesses"), and thought about the threats out there as well ("Threats"). Jung's strategy was an OFFENSIVE one rather than DEFENSIVE. She saw an area where Avon could grow (internal expansion) and wants to go after it. Q3 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. Through my analysis of Avon’s objectives it is evident that Avon will experience an increase in sales and growth due to the introduction of the erepresentation scheme, which targets one of their main problems: selling products to the busy and workingwomen of society. 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. We need to keep in mind that after becoming the CEO sales jumped 45 percent, from $5.3 billion to $7.7 billion in 2004 and the company's stock has risen 164 percent. She focused on the younger generation in the rapidly changing personal care industry. College girls started peddling Avon products on campuses, from a new line called Mark that includes Hook Up for the 16- to 24-year-old crowd. Jung thought that high-end brands can scale down for the masses, but moving in the other direction is hard when you're competing on a crowded store shelf. All Avon needed to do was upgrade its act and stick with the direct sales. She also thought that almost all women have similar notions of beauty, and therefore they would buy the same products. There is no need to customize so much for local markets. This strategy helped her to reduce a great portion of costs. However Jung missed many opportunities in traditional cosmetic retail for a long time in her period because of the fear of competing against its own representatives. But in order to avoid the possible oppositions, she thought that the kiosks can be franchised to them. Jung’s idea is simply to rebuild the organization from the ground up into a company that does much more than sell lipstick door-to-door. She envisions that Avon can be a source for anything and everything a woman wants to buy in the future. Q4 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. 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. 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. Lack of a 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 firms 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. Q5 Under Jung, Avon's vision statement read: "Our vision is to be the company that best understands and satisfies the product, service and self-fulfillment needs of women globally. Our dedication to supporting women touches not only beauty, but health, fitness, self-empowerment and financial independence". Trying to match up the company's strategic initiatives with the vision leaves one thing uncertain: financial independence. It is true that bigger companies are forced to hold broader vision statements that those with few employees and less market power. But this vision statement is lacking due to the fact that it is supposed to show "who we are, what we do, and where we are now”. The financial independence is in no

shape or form reflecting Avon's position at the current moment - 2001. The vision is clearly too broad and ambitious. Another Avon initiative we would like to examine more closely is the store-within-a-store concept. This concept puts a mall kiosk - an Avon Center within a JCPenney store to promote it's becoming line of cosmetics. Although Avon is desperately in need of acquiring younger customers they are, in fact, keeping themselves back due to the wrong choice of department store. If the company wants to attract younger customers the management should realize the fact that the shoppers of JCPenney stores are in the same age range as their current customers. While on a quest to attract younger buyers, Avon teamed up with super stars Venus and Serena William "to an exclusive three-year global advertising and promotional agreement". At the same time, acquiring young role models for access to the teen market, the company did not utilize this opportunity enough to its advantage. As any sports stars, the Williams sisters were not able to effectively promote the company's image; instead, they were seen wearing Puma and Reebok athletic clothes. The Williams sisters' image would have been more valuable in promoting the Wellness line of Avon instead of "Let's Talk" campaign, which was too generalized and ineffective. "Over the past 20 months [Andrea Jung] has overhauled nearly everything about the way Avon does business: how it advertises, manufactures, packages and even sells its products". (Fortune, 10/15/01) Under Jung's management, the company has set strategic and financial objectives that are in line with the company's mission and vision statements. There are 6 areas of development the company is looking at: marketing transformations, supply chain improvement, sales leadership, e-commerce and internet, international, and financial objectives. Marketing transformations "The transformation of Avon's image called for new products, new packaging, celebrity endorsements, stylish new catalogs, and new advertising campaigns." Seeing women who cannot afford department store brand cosmetics but still yearning for them, Jung asked for a new, more glamorous look for Avon's products. Since they would be selling for much less than the department store brands, Avon cosmetics were able to attract more customers through this strategy. Supply chain improvement As the aggressive campaign to turn the company around, Jung needed more funding for research and development, e-commerce initiatives, global image building, and more. Under Susan Kropf, COO business process reengineering efforts achieved great success. Just cutting its number of suppliers from 300 to 75 saved the company $56 million dollars.

Sales Leadership The company had two issues with the representation: there was trouble in the retention of representatives, and there was difficulty recruiting younger representatives. The solution proposed by Jung solved those problems simultaneously. "With the launch of Sales Leadership, Avon representatives could earn commission on the sales of their recruits." E-commerce and Internet This initiative has launched the eRepresentative idea of doing business. Internet served as key in the relations between representatives, customers, and the company's marketing and supply chain operations. The results were: saving significant amounts of money in internal costs, and promoting Avon to the younger generation who could access information over the web interface. Through eRepresentatives the customers did not lose the personal touch that Avon always offered, even on Avon's website the customers was asked how to address them besides using their formal name. International With Andrea Jung's vision Avon realized the importance of emerging markets globally. Management recognized China "...as an attractive market because it had 20 percent of the worlds' population, its population was relatively young, and it represented a large and growing market for beauty products." There was a need for an effective battle with the competitors in the market. As a result, Avon brand awareness improved from 41 to 53 percent and sales improved by 47 percent in China. "Also, Avon had the highest beauty brand image index among global CFT brands in Hungary, Poland, Russia, and Ukraine”. Q6 The successes achieved by Avon have been tremendous. There are, however, a few recommendations we would like to address. One suggestion to Avon concerns the vision statement. It is the case where the analysis shows that the vision statement promises more than Avon is at the moment. None of the strategic initiatives touches upon "financial independence", and it doesn't seem likely that it would in the near future. Another recommendation to Avon concerns the spokesperson(s). While enhancing Avon's image and promoting new products, the firm should have been more careful as to choosing their spokesperson. The Williams sisters' publicity would have probably achieved greater results if they would have been promoting the Wellness line of Avon, not the generalized "Let's Talk" campaign. That way, the image of sports star who puts their physical fitness above all would have been more victorious.

The third identified problem would be the store-within-a-store concept. Although JCPenney carries teen apparel and such, if Avon would do research on which stores teenagers and young adults visit and buy at most, the launch of kiosks would have yielded greater numbers in sales. Hopefully, Deborah I. Fine who was recently hired as President, Teen Business will steer Avon in the right direction. In the end, the accomplishments of Avon in the past year have been astonishing. Q7 All businesses must create strategies that will see them into the next phase of their growth. It is through assessment, generic and grand strategy development, and implementation that a corporation can move beyond just existing in the market, to becoming a powerhouse in their arena, as well as increase shareholder wealth. Andrea Jung, in 2000, faced having to create growth strategies for the 115-year-old company of Avon Products, Inc. This company had shown recent single digit growth in many areas, and this paper will offer analysis as to why we believe Andrea Jung developed a grand strategy for this organization that is properly focused or directed. Grand Strategy is properly focused and directed Several things happened once Andrea Jung was named CEO of Avon. First, she decided to reverse the current trend of losing sales. She did this by creating a strategy that would turn the company around. This strategy included the following plans: Reinvigorating the brand (new products, new packaging, and a new ad campaign) Instituting beauty-advisory training Expanding the multilevel sales program Suggested a strategy to partner with Sears and JC Penney department stores Jung's suggested strategy to partner with Sears and JC Penney department stores was an idea that would help to promote the strategy she had come up with. It would introduce a new, upscale product line, thus increasing profits, sales and nationwide exposure to the baby boomer segment. Retail selling increased with in-store customer traffic and expected growth of spending power to 16 percent within five years. Face-to-face selling comprised 79.7 percent of direct selling, preferred among senior citizens. The marketing budget would be increased to target customer traffic at Sears and JC Penney. Investment costs were limited to $15 – 20 million to launch retail products, with a bulk of expenses being absorbed by the department stores. Diversification channeled through retail was a win-win situation for Avon against its competition Mary Kay and L'Oreal. Mary Kay was simply weak in this market and despite L'Oreal's strong market position in the retail market manufacturers were looking for new product lines, competing brands and consistent price range.

Avon's strengths would help increase global recognition of brand name and image. Jung suggested promoting certified Beauty Advisors in department stores and increased incentives for sales representatives. In addition, having department stores sell via the Internet would increase the channels of distribution, thus increasing consumer loyalty. The economic factors that Jung used to help create her proposal included: Slow earning, stagnant sales, limited distribution capabilities and shifts in personal care preference and spending habits Single digit growth Volatile stocks Limited distribution channels All these factors would affect Avon's long-term goals by forcing Jung to find new, creative ways to stay fresh in the market. Jung had created a strategic plan that met the vision of Avon; she had created goals that were measurable and geared toward future company growth. The goals seemed to be obtainable in the current business market. In addition, Jung's idea that technology may be the answer was in response to a changing business environment which included movement toward e-business. This ideal would be synergistic and build upon their present success. Grand Strategy is not properly focus or directed Upon consultation with an outside auditing group, Jung was provided with a detailed prospective of options, which did not match the ones she originally discussed with the Avon Operating Council. Their assessment of the company's situation recommended a three-step approach Distribution of higher priced better-quality spa products in specialty stores, Sell a more affordable line in full-discount stores, and Extend Kiosks in the domestic market Based on this, the board of directors felt that Jung's original options did not provide the same amount of increased sales and revenues, attraction to increased clientele base, motivation and acceptance by current sales representatives, or increase shareholder wealth as the consultant's options did. The consultant's options provided a means to Avon Products, Inc. to become a household name to those whom were not attracted by limited previous distribution channels, and Jung's choices of re-invigorating the brand, instituting beauty advisory training, expanding multilevel sales programs or partnering with department stores.

Recommendations Clear Cut Strategic Vision (Image Enhancement) 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. However as Avon is still in the implementation phase phase this vision may open the door to many products that are unrelated to beauty products and may place a burden on the company in the future unless Avon can remain competitive in this area by vigorously keeping up to date with new innovative products. It is in my view that for Avon to expand the company horizontally they should enter into a market 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. Leadership (Implementation of Strategic Vision) 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. My 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 use of the Internet and newly introduced products seem to be doing well as do the sales leadership program with an increased number of employees in 2000. However I recommend that Avon should prioritize its strategic objectives in an effort to keep up with its strategic vision as Avon could find itself in the same position they were in before Jung’s appointment as CEO. Conclusion Avon's multilevel selling has helped reenergize a flagging U.S. sales force. During most of the 1990s, the number of new reps -- who were brought in by company managers rather than Leadership reps -- had stalled. While Avon was growing in Latin America, Eastern Europe, and Asia, by 1999 the number of Avon ladies in the U.S. had fallen by 1% from the year before . When Andrea Jung stepped in as CEO of Avon, she brought with her many new, fresh ideas that helped make Avon what it is today. Her strategy didn't agree with what consultants thought, but she willingly took risks to enforce what she believed to be the best strategy for Avon. We believe that her strategy was a good, solid foundation that will continue to keep Avon at the top as America's number one selling Cosmetic and Beauty Company.

Overall my research has shown 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. Avon needs to continue to expand globally, especially those, which are not being accentuated by competitors. Avon needs to be wary of having a broad product line as by introducing too many new innovative products could be costly to the firm and Avon also may lose sight of their vision of a company that ‘best understands the products of women’. In the end, Andrea Jung has achieved success through "not by abandoning the seemingly outdated Avon Lady, but by reviving her".

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