Read Chapter 1, Case #3: Making Over Avon. Answer questions 1-4 in a 3-5 page APA style paper (excluding title and reference pages), and support with the concepts outlined in your text and from your previous classes.
- Explain how strategic management and the strategic management process are illustrated in the Avon case.
- What are some performance measures that Avon’s strategic decision makers might use to evaluate the results of the restructuring initiatives?
- Andrea Jung is Avon’s first female CEO, which you might find surprising considering that Avon’s target market is overwhelmingly female. Do some research on the number of female CEOs and female board members in U.S. companies? (Check out Catalyst, an organization that researches women’s workplace issues.) Have these numbers changed over time? What conclusions might you draw from these data?
- Go to Avon’s website (www.avoncompany.com). What are Avon’s vision and mission? How might these statements affect strategic decisions and actions? Check out the company’s executive team. Select one top manager other than Andrea Jung. Describe that individual’s job responsibility. Finally, select one of the company’s brands and describe what strategies are being used for that brand.
CASE #3: Making Over Avon
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As the world’s largest direct seller of cosmetics and beauty-related items, Avon Products wants to continue building its global reach (more than two-thirds of Avon’s sales revenues come from outside North America) and attracting younger customers. To do so, however, Andrea Jung, chairman and CEO, must continually juggle the strategic challenges of guiding this almost $10.7 billion company and its worldwide army of over 5.4 million independent representatives.
Jung was named Avon’s first female CEO in 1999. Since that time, she has overseen some significant strategic initiatives. One of these was the company’s $100 million investment in a state-of-the-art product research facility outside of New York City. Avon had always lagged behind its competitors in R&D (research and development), spending less than 1 percent of sales while Esteé Lauder Companies was spending over 1.3 percent of sales and L’Oreal SA about 3 percent of sales. Because this industry is one in which customers continually look for new products that make them look good and that are also good for the skin, R&D is critical. In addition, Avon is primarily a direct sales company whose representatives pitch new products to customers every two weeks, so it’s important to invest in new product development.
Another of Jung’s strategic moves was a revamp of Avon’s old-fashioned image through new marketing and advertising. Avon—best known for its troops of mostly middle-aged women selling skin creams and cosmetics to their neighbors from catalogs—needed a serious overhaul of that dated image. Jung ordered a new design for the company’s all-important sales brochure using heavier, glossier paper that was more visually appealing. Also, the company is “going Hollywood.” MTV star Lauren Conrad, Patrick Dempsey of the TV drama Grey’s Anatomy, and actress Reese Witherspoon (who is Avon’s Global Ambassador) are a few of the celebrity relationships that Avon has initiated. Even with its revamped marketing strategies, Avon has work to do. In a study of mass-market cosmetics brands, it lagged behind seven others in terms of customer loyalty, while one of its main competitors, Mary Kay Cosmetics, topped the list.
Another strategic initiative was a line of cosmetics for young women aged 16–24. The company’s first push into the youth market was a dramatic change from its core customer group that was aged 35 and older. Deborah Fine (who has since left the company) was president of the company division responsible for the line. She said, “We wanted to capture a younger customer, bring in new reps, and create a new global youth brand.” According to Avon, 17 million young women in the United States spend at least $75 billion a year on beauty and fashion. If Avon could capture part of that spending with appealing products, it had the potential to add significantly to its bottom line. Avon’s “young” brand, called mark, launched in summer 2003. Thousands of career-savvy young women signed on as representatives and have helped propel mark to the number two trend brand in the world. Jung is confident that mark will continue to help the company “pass the makeup brush” to a new generation of Avon customers. The strategic challenge, obviously, will be to keep mark’s customers and sales force (a notoriously fickle age group) excited and hooked.
Despite these actions, Avon’s sales during 2005 slowed significantly as U.S. revenues sagged, and even the previously strong overseas markets slowed. Jung’s response—a multiyear restructuring program aimed at saving at least $300 million a year. This restructuring involved downsizing (eliminating corporate positions); doubling advertising spending; focusing R&D resources on product innovation in an attempt to make its brands more competitive; simplifying the manufacturing structure; outsourcing some services to low-cost countries; and improving the attractiveness of the representatives’ earnings potential in the United States, Russia, and Brazil. In addition, the company implemented a zero-overhead-growth philosophy targeted at offsetting inflation through productivity improvements. At this time, Avon’s greatest market potential appears to be in China. It was the first company to be granted a direct selling license there and the number of active sales representatives has increased significantly. One analyst says, “Avon has a great brand; they’ve got a product lineup that’s appealing … Its [business] model is not broken.” The turnaround that Jung put into place seems to be working.