avon analysis
...onal areas of business. Internal strengths and weaknesses, coupled with external opportunities and threats and a clear statement of mission, provide the basis for establishing objectives and strategies. Performing an internal audit requires gathering, assimilating and evaluating information about the firm’s operations. Strategic management is a highly interactive process that requires effective coordination among management, marketing, finance/accounting, production/operation, and R&D and management information managers. A failure to recognize and understand relationship among the functional of business can be detrimental to strategic management and number of those relationships that must be managed increases dramatically with firm’s assets. In Avon, we had determined those factors that be our main strengths and weaknesses in order to make our operation and management moves smoothly. From our observation, the strengths of Avon are: Strong Financial Position Largest direct selling company Had good public image Direct selling strategy World leader in anti-aging Competitive position While for the weaknesses, the factors are: Not established in retail stores High rate in turnover of sales representatives Decreased in operating margin STRENGTHS STRONG FINANCIAL POSITION Since in 1999 our company had positive growth in net sales and earning per share but in 2004, the measures were impressive. We had a positive percentage increases in our sales, and our net income which gives 13% increased and 27% compared to 2003. Our Beauty product’s sales are accounted approximately 69% of our total sales and it contributed overall growth for the company. This growth was driven by the exceptional performance of Avon’s three international regions of Europe, Latin America and Asia Pacific, which comprised as 27%, 25% and 14% in net sales. Each of this international regions delivered double digit growth in local currency sales, operating profits, active representatives and number of units sold. DIRECT SELLING STRATEGY Our company, Avon that has pioneered direct selling for over a century, currently has a 4.9 million army of sales representatives all over the world. From this sales force, which contributes more than 90% of total sales, it has been the major driver behind the company’s growth. Our company has also developed a multi-level selling program, named Sales Leadership program, which enables representatives to increase their earnings further by recruiting and training others, which in turn expands the company’s sales force. In markets where this program has been implemented, Leadership Representatives have significantly increased overall recruiting and product sales. Our company has also taken up beauty-advisory training programs for its representatives, which has enhanced sales. Each representative who signs up for this leadership program gets percentage of sales (20%-50% commission) of every representative she recruits and every representative that the recruit herself recruit – and so on down through three “generations” of Avon representatives. Our company will not stop adding number of active representatives because if we stop it, it believes; the sales will automatically slow down. LARGEST DIRECT SELLING COMPANY We are known as the largest direct selling company and merchandiser of beauty related products. We are also known as a leader in many of world’s fastest growing beauty markets. Currently, we had approximately 4.9 million active independent Avon Representatives; approximately 483,000 of who are in the US these representatives are independent contractors or independent dealers, who are not employees of Avon. With this approach, our company is able to market our products to 143 countries based on geographic operation in 4 regions. The regions are North America, Europe, Latin America and Asia Pacific. We had approximately 600 items in their product line, which all these products are divided into 3 categories. The categories are Beauty consists make up, fragrance for women and men, toiletries and skincare while Beauty Plus is including fashion jewelry, watches, apparel and accessories. For Beyond Beauty, is consists home products, gift, decorative products, candles and toys. PUBLIC IMAGE DONATE TO CORPORATE FUND Avon Products Foundation Inc. or known as “The Foundation” was incorporated in the state of United States of New York in 1955. The mission is to improve the lives of woman and we had bring along this mission through our two main activities programs names Avon Breast Cancer Crusade and Speak Out Against Domestic Violence. This foundation is focusing on the issues of breast cancer and domestic violence. These are the funds that Avon focusing more: - AVON BREAST CANCER CRUSADE This “Avon Breast Cancer Crusade” has more that a decade raised funds and awareness for access to care and finding a cure for breast cancer. This “Avon Breast Cancer Crusade” had raised and donated more than $350 million in 50 countries worldwide in helping for medical research, access to treatment, screening, support services and education. SPEAK OUT AGAINST DOMESTIC VIOLENCE This “Speak Out Domestic Violence” is committed to helping educate and empower women and bring an end to domestic violence. Avon Foundation had partnership with an Oscar nominated actress – Salma Hayek on this program to focus more on awareness and prevention and support for victims. This partnership hopes that it will break the cycle of domestic violence. From these two programs, Avon Foundation awarded these funds to New York City Family Justice Center, a new organization that makes it easier for victims of domestic violence to find help and justice by bringing up so many services together under one roof. The services are law enforcement assistance, counseling and housing assistance, employment assistance and social services. The other program is created for women by our company is Women’s Economic Empowerment which our foundation supports a range of women’s empowerment causes including career development, seminars, mentoring, educational support, counseling and life skills training. From all this programs, it will definitely shows to the public that our company is concern the problem of women and give a good image of our company. WORLD LEADER IN ANTI AGING TREATMENT FOR SKIN CARE FIELD We had done so many researches on behalf of women. So the other strengths of our company is that we are the first major company to stabilize the anti aging ingredient retinal, for use in an anti aging treatment. We are also the first to mass market consumer product utilizing alpha-hydroxyl – acid (AHA) and the first beauty company to announce a permanent end to animal testing. COMPETITIVE POSITION Our company believes that the personalized customer service offered by our Representatives, the high quality, attractive designs and reasonable prices of products, the high level of new and innovative products, our easily recognized brand name such as Avon Colour, Anew Skin So Soft and Avon Naturals and the guarantee of satisfaction are significant factors in establishing and maintaining our competitive position. Our management team has done a good job of recent taking risks and experimenting with the company’s business model. WEAKNESSES RETAIL SALES Though the company sells a small portion of its products through the retailing route and operates a few company-owned outlets and kiosks, it has not been able to grow further along these lines. In 2001, company had launched "beComing" a retail brand to be sold in about 90 stores of J. C. Penney. However, in 2003, we ended the alliance and transferred the sales operations to its specialized direct selling channel (Avon Beauty Advisors). By not fully developing its retail strategy, our company loses customers who prefer the retail shopping experience as well as opportunities such as window and cash counter displays, which spur sudden purchase decisions HIGH RATE OF TURNOVER IN SALES REPRESENTATIVES While high turnover is a typical feature of direct selling, the turnover rate of Avon representatives is higher than average. For instance, in the multilevel selling program, two out of three new representatives leave in their first year. The Avon ladies are increasingly finding their job tougher because as more women are working, there are lesser potential customers at home. In addition, the reps have voiced concern over the company’s attempts to expand its sales channels to include retail outlets, catalogs and online shopping. A high turnover leads to high costs in terms of recruitment, training, and missed sales opportunities. DECREASED IN OPERATING MARGIN There are decreased in operating margin in America, Canada and United States. The profit margins of the company have been low primarily due to an unfavorable expense ratio. The unfavorable expense ratio was driven by incremental consumer and strategic spending in support of ’mark’ brand as well as increased advertising. Higher customer service expenses and pension-related costs also caused the company’s margins to decline. Low profit margins as compared to its competitors put the company at a competitive disadvantage. THE EXTERNAL ASSESSMENT OPPORTUNITY AND THREAT External forces can be divided into five broad categories and they are:- 1. Economic forces 2. Social, cultural, demographic, and environmental forces 3. Political, governmental, and legal forces 4. Technological forces 5. Competitive forces The external trends and events significantly affect all products, services, markets, and organizations in the world. To perform an external audit, a firm must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends. Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These are the key external factors. THE OPPORTUNITIES AND THREAT OF AVON Avon is the world’s largest direct- selling organization and merchandiser of beauty and beauty- related products and it is also the world’s largest manufacturer and distributor of fashion jewelry, and it markets an extensive line of gifts and collectibles. It is also a multinational firm, which needs a systematic, and effective external audit system because external forces among foreign countries vary so greatly and the important key external factors of Avon is opportunity and threat. OPPORTUNITIES GLOBAL MARKETING Avon has been reached the global market by satisfying the subtleties and intricacies of customer demand around the world. Avon had started the business by the traditional door – to – door method and now it became the world’s largest cosmetics firms and number one direct seller. The cosmetics and personal care industry is thriving with an estimated $124 billion in sales around the world. By 2006, the global market of Avon for natural beauty products is expected to be worth more than $10 billion and the market for cosmeceuticals in the US alone is expected to be worth more than $5 billion. TECHNOLOGICAL FORCES Avon’s management feels that by consolidating worldwide advertising, it can expand its global presence and communicate a more unified brand image throughout its international markets. Avon is using all the latest technologies to improve its business. Internet and E – commerce is playing an important role between Avon dealers and customers to communicate. Customers also could order the product and contact the dealers via e – mail, fax, and e – catalogs and 1 – 800 – FOR – AVON telephone number. There are many websites where all the customers can view and update all the latest news of AVON by surfing the AVON.com webpage. By using the latest technologies, Avon’s management could expand the business all over the world, reach the target market and fulfill the customers’ expectation. SOCIAL, CULTURAL, DEMOGRAPHIC, AND ENVIRONMENTAL FORCES Avon beauty products are sold around the world, and they all were developed at its Suffern research laboratories, which were founded more than 100 years ago. Today, Avon's laboratories are in a white, four-level building on Route 59 that houses the company's research and development facilities for fragrances, skin and hair care products, "color" products including lipstick and mascara, and personal care products such as antiperspirants. Avon has even more R&D in its future. Last year it invested almost $46 million in research and development. In addition, over the next three years, the company said it expects to invest $100 million, mostly in the new and larger R&D laboratories it plans to build on its Suffern property to replace the current labs. Avon does not conduct animal testing on any of its products or raw ingredients and does not require that suppliers of raw ingredients and finished products produced for Avon conduct animal testing on our behalf. Avon will conduct animal testing only when required by law, at the request of government health or medical authorities, and only after having first attempted to persuade the requesting authority to accept non-animal test data. THREAT RISING PACKAGING COST The cosmetics and personal care products manufacturers have been incurring high packaging costs. The prices of Polystyrene (a versatile plastic that can be rigid or foamed used extensively for protective packaging, making of containers, lids, cups, bottles and trays) have been steadily rising. This increase in prices was attributed to the increase in naphtha (a fraction derived from crude oil refining used for producing ethylene and propylene) prices. Further increase in the packaging costs of cosmetics and personal care products could pull down margins for companies such as Avon, and adversely affect their profitability. ECONOMIC FORCE IN JAPAN Avon management considered that Japan to be one of the most significant trouble spots for the firm. The sluggish Japanese economy, combined with intense pricing pressure as well as operating issues, contributed to Avon Japan’s disappointing performance. However, at the end of 2000, growth was driven by a 10% increase in orders and units. ONLINE SALES ISSUES It is necessary for the company to pursue online shopping in order to counter competition from companies such as Gloss.com, Beauty.com, Eve.com, and Proctor & Gamble’s Reflect.com. In addition, it estimates that it saves between $1 and $3 for every order transmitted over its Web site. This would amount to annual savings of nearly $1 billion if all of its orders worldwide were handled through the Internet. This apart, a high profile Web site may attract more technically upscale customers. However, an expansion of its online sales may alienate its door-to-door representatives, who currently contribute over 90% of its total sales. Avon’s move to address the problem by encouraging sales reps to set up their own Web pages linked to the Avon site is yet to catch on in a big way. COMPETITIVE PROFILE MATRIX AVON L'OREAL PROCTER & GAMBLE Critical Success Factors Weight Rating Score Rating Score Rating Score Advertising 0.20 1 0.20 4 0.80 3.00 0.60 Product Quality 0.10 4 0.40 4 0.40 3.00 0.30 Price Competitiveness 0.10 3 0.30 3 0.30 4.00 0.40 Management 0.10 4 0.40 3 0.30 3.00 0.30 Financial Position 0.15 4 0.60 3 0.45 3.00 0.45 Customer Loyalty 0.10 4 0.40 4 0.40 2.00 0.20 Global Expansion 0.20 4 0.80 2 0.40 2.00 0.40 Market Share 0.05 1 0.05 4 0.20 3.00 0.15 Total 1.00 3.15 3.25 2.80 According to this Competitive Profile Matrix, the financial position of AVON is the best between other two companies and the score is 0.60. Other than that, the score of the AVON management is 0.60 and this shows that the performance of AVON management is better than other two companies. The global expansion of AVON is nearly reached the target and the score is 0.80. MANAGEMENT ISSUES Strategies should be involved as much as possible in strategy-implementation activities. The management issues central to strategy implementation include establishing annual objective, devising policies, allocating resources, revising reward, incentive plans and others. In Avon, they are looking for a caseworker with at least three years experience of all aspects of employment and discrimination advice work and representation. Beside that, they will meet the supervisory standard...