Strategic Management

1
Strategic Management
Avon Products

• Amyn Jessa - 3640
• Shahmeena Khan - 3738
• Hafizuddin Halim - 3449
• Muhammad Iqbal - 3445
• M. Hanif Fatani - 2686

2
Table of Contents
3
Table of Contents
4
Executive Summary

• Avon has a three distribution channel Direct
  Selling, Limited Retailers, Online. Avon has a
  large number of sales representatives due to
  which it is the largest selling brand.
• From a few years there is a slow growth in the
  sales because change in the customer preferences
  and customers habit. The mobility of people are
  increasing, more women are working and many men
  now coming towards personal care products in
  order to make their personality attractive in the
  work environment.
• The older citizens like to shop in convenient
  place so that is why Avon is successful in this
  market. At the other side due to the lack of the
  new innovation for Generation Y and men, they
  have bad image in these markets.
• They need to improve their brand image by
  promotion in these areas. Baby boomers prefer
  high quality and they are the core customers of
  Avon but due to the lack of providing information
  and education about their products, the
  satisfaction of these customers. Avon needs to
  develop new products according to the specific
  needs of the specific customer segment.

5
Executive Summary

• The website of the company is not fully
  advertised and due to the decentralization system
  in the website. The brand image of the company is
  affecting so they need to have a centralized
  website system and providing other services like
  free coupon, free sample, price discounts, and
  tips of beauty.
• Avon needs to expand its business in Asia, and
  other emerging economies like Taiwan, Russia and
  China.

6
General Environmental Factors

• POLITICAL FACTORS
• Federal Food Drugs (FDC) and Fair Packaging and
  labeling act (FPLA )
• Present Impact
• Personal care Industry most of the products are
  used in the sensitive areas of the body therefore
  testing are important for ensuring the quality of
  products.
• Companies are implementing self inspections
  systems and the quality of products remain
  sustain.
• Future impact
• In future the key to success will depend upon
  
• Good relation with regulation officer
• Self Inspections

7
POLITICAL FACTORS

• No change in tax since 3 years
• Present Impact
• The Operating income in personal care industry is
  increasing because of no change in the income tax
  since 3 years
• Therefore numbers of new entrants are increasing.
• Future Impact
• The Fixed cost would remain same, the industry
  will remain profitable and investments will
  increase in this industry.

8
POLITICAL FACTORS

• PATENTS
• Present Impact
• The companies are protecting their products and
  manufacturing mechanism by patent.
• They can build their brand image and loyalty by
  giving consistent quality of products to
  customers.
• Future Impact
• Brand loyalty and image will increase due to
  patent of products and techniques.

9
Economical Factors

• Inflation Rate
• change Inflation
• USA 1.9
• Present Impact
• Inflation is increasing due to which profit
  margin is decreasing because of increasing in
  operating cost.
• Future Impact
• In future Industry will have to face increase in
  variable cost.

10
Economical Factors

• GDP
• In the third quarter of 2000, according to
  revised estimates, current- dollar gross domestic
  product (GDP) rose 3.8 ( US).
• Present Impact
• Personal Care industry shows growth in 2000 due
  to which sales of firms continue to grow.
• Future Impact
• Consumption of personal care industry will
  increase as result Personal care industry
  products will become the necessity.

11
Economical Factors

• NATIONAL INCOME
• Present Impact
• Use of cosmetics is increasing because the buying
  power of consumer is increasing in US.
• Future Impact
• Personal care industry will expand and become
  more attractive because of increase in the
  national Income of working women and Baby Boomers
  (expected growth 16).

12
Economical Factors

• CONSUMPTION PATTERNS
• Purchasing of Personal care Products
• Baby Boomers 98
• Generation X 97
• Generation Y 13.1
• African Americans 64
• Present Impact
• In personal care Industry most of the firm are
  focusing on the baby boomers because of the
  purchasing percentage of the personal care
  products. Womens are their core customer.
• Future Impact
• Generation X, Y and African Americans will be
  more attractive and profitable market in future

13
Socio-Culture Factors

• Change in the perception of males consumers
• Influence by services rather than advise of wife.
• Men prefer those companies which specifically
  target them
• Present Impact
• Companies offering masculine packages, services
  and to promote the brand image by advertising in
  which they are aimed.
• Future Impact
• The product line of male products of companies
  will increase to satisfy their male customers need

14
Socio-Culture Factors

• WORKING WOMEN
• Present Impact
• Consumption is increasing because currently more
  than half women are working and in future it
  will be high.
• And women are the core customers of the personal
  care industry.
• Future Impact
• Personal Care industry will be more profitable
  and they have to adopt the various distribution
  channels to access the working women.

15
Socio-Culture Factors

• HEALTH AND EDUCATION
• Usage of computer is increasing
• More health conscious
• Present Impact
• Personal care firms are adding natural
  ingredients in their products because people
  have strong believe about the benefit of natural
  ingredients.
• Trends in online selling is increasing. Companies
  offer tips of health and beauty.
• Future Impact
• In personal care Industry those companies will
  survive who will educate and inform customers
  about their products well.

16
Socio-Culture Factors

• LIFE STYLE CHANGE
• Less time for shopping
• Fashion and trend follower
• Increase in mobility of people
• Present Impact
• Due to above changes in the lifestyle of the
  people, the Industry is focusing in various
  distribution channels to access the customers
• They need a strong analysis of fashion and
  trends, and innovation of a new trendy product
  which are tailored to specific needs of
  consumers.
• Future Impact
• More innovation will be needed in the products
  and distribution channels .

17
Socio-Culture Factors

• Asian Americans prefer quality
• Y generation prefer quality with affordable
  prices
• Males are less price sensitive
• Baby Boomers prefer high quality
• Present Impact
• The companies which are targeting Baby Boomers ,
  Males and Asians Americans they offer average to
  high quality products at high prices.
• The companies focusing on the Y generation they
  give products at affordable prices.
• Future Impact
• The companies will have to offer product lines of
  different quality to different markets. The
  selection of distribution channel will be more
  important.

18
Technological Factors

• Rapid change
• Innovation in products
• Present Impact
• Life cycle of product is very short because of
  development of new products.
• Companies are focusing on research and
  development of new products to fulfill the demand
  of the customers.
• Future Impact
• Industry will be more hyper competition because
  of rapid development of products.
• The innovation of a products will be the corner
  stone of success.

19
Technological Factors

• STANDARD OF PACKAGING
• Contents of the products
• Specification of particular consumer needs( like
  skin color)
• Container filled in standard manner
• Present Impact
• In personal Care Industry companies apply self
  testing to check the packaging and manufacturing
  up to the standard.
• Future Impact
• Companies will focus on the good manufacturing
  practices and self inspection to survive in this
  industry.

20
Technological Factors

• USE OF INTERNET
• Online Selling
• Present Impact
• Use of internet is increasing and firms are
  focusing on web-based selling because now people
  like to do shopping online because of the
  following reasons
• Increase in mobility of people
• Increase in the usage of computers
• Convenient distribution channel
• Future Impact
• Online selling will be the most efficient
  distribution channel

21
PORTERS FIVE FORCES ANALYSIS

• PLEASE REFER TO EXCEL SHEET FOR APPENDIX A

22
Strategic Group

• PLEASE REFER TO EXCEL SHEET FOR APPENDIX B

23
INDUSTRY DOMINANT TRAITS

• The types of distribution channels used to access
  consumers
• Direct Selling
• Retail selling
• department stores
• specialty stores
• drugs stores
• Kiosks
• 3. Online selling
• Product innovation Rapid, due to intense
  competition and product innovation
• Differentiated Products Products are
  differentiated through features, which tailored
  to specific needs.

24
Driver of Change in Industry

• Internet ( Online selling)
• One of the most important drivers of change is
  the use of internet therefore the companies are
  focusing online selling in order to success in
  the personal care industry.
• They are offering online samples and trials,
  tips, advisories for beauty.
• Customer Preference
• The consumer buying habit is changing due to
  which the companies have to analyze the market
  constantly and develop new products according to
  the culture and the needs of specific customers.
• Life styles
• Men are becoming the important customers of the
  personal care industry because they like to build
  their personality in working environment.
  Companies needs to develop product tailoring to
  their specific needs.

25
Key Success Factors

• Quality
• Price
• Distribution Channels ( Relations , various type)
• Brand Image and loyalty
• Product Innovation (RD)
• Marketing Strategies ( Target Segments)
• Products Lines
• Services

26
External Factor Analysis Summary (EFAS)

• PLEASE REFER TO EXCEL SHEET FOR APPENDIX C

27
Internal Factor Analysis Summary (IFAS)

• PLEASE REFER TO EXCEL SHEET FOR APPENDIX D

28
MISSION STATEMENT

• The Global Beauty Leader
• The Women's Choice for Buying
• The Premier Direct Seller
• The Largest Women's Foundation

29
Objectives
Marketing Transformations
Supply chain improvement
Sales Leadership
30
Objectives
E-Commerce and Internet
International
31
Value Chain Activity of the Avon Inc.

• The Value chain activities plays a vital role in
  the demand and supply chain of Avon Inc Products
  .
• The heart of Avons strategy implementation
  efforts was its ability to eliminate non-value
  adding costs from its value chain,
• Kropfs (COO of Avon Inc) business process
  reengineering (BPR) efforts achieved great
  success in 2000, with cost savings of more than
  150 million delivered.

32
Supply chain improvement

• Supplier management/sourcing savings
• Leverage supply chain planning tools to reduce
  cost and inventory levels
• Consensus-based forecasting
• Strong linkages and focus between marketing and
  supply chain operations
• ABC planning and product segmentation
• Centralized inventory distribution hubs

33
SUPPLIERS

• SuppliersAvon have different suppliers for its
  different product lines. Using BPR systems in
  the supplier Avon Inc saved 56 million
  annually after cutting its number of suppliers
  from300 to 75.
• Strengths
• Avon Inc greater bargaining power with its
  suppliers due to large number of orders.
• Weakness
• Threat of Quality standards problem from
  suppliers side
• Threat of Inventory problem from suppliers side.
• Threat of on time delivery problem from
  suppliers side

34
OPERATIONS

• Operations The Operations division supports the
  development, procurement, manufacturing, and
  fulfillment of Avons leading-edge products.
  Continues Information and feed backs are given by
  the RD department to operational Department.
• Strengths
• On time linking of activities
• Weaknesses
• Too much work load may disturb the whole value
  chain
• Incorrect data of inventories may lead to
  increase costs.

35
LOGISTICS

• Avon Inc, outsourcers different Logistics
  Companies to handle and deliver its outbound
  shipments (materials, supplies, finished goods)
  to its different located regions for its
  manufacturing zones, warehouses and retailers.
• Uses information systems to automate order
  processing and logistics to reduce transportation
  costs by 22 million,
• Avon Inc distributes its products directly i.e.
  by internet ordering systems its own online
  stores and by the help of its direct selling
  model i.e. sales representatives using catalogues
  and brochures.
• By Retailing using Avon Beauty centre Kiosks ,
  free standing mini display stores. Which was
  designed to display an upscale beauty image,
  showcase the beauty brands and encourage customer
  trail of product

36
LOGISTICS.

• Strengths
• Avons Own online store creates a global image
  for Avon and its consumption rate.
• Kiosks increase learning experiences for
  consumers.
• Weaknesses
• Threat i.e. too much dependant on Logistic
  companies for its transportation of supplies
• Threat i.e. too much dependant on sales
  representatives for its distribution of
  supplies
• Non accuracy of sales figures using Kiosks.
• Weak relationship with retailers

37
SALES MARKETING

• According to the current trend of the market
  Avon Inc trains their own employees and service
  contract sales representatives for direct
  selling,Avon products are marketed through
  sales campaign brochures( based on changing
  fashion trends) frequency of which is 12-26
  individual sales campaigns each year. Avon
  publishes 600 Million sales brochures, one idea
  to target women (age 20) of cosmeceutical
  products the company was also developing
  global brand campaign featuring new themes Lets
  TalkAvon has also developed brand image by
  various charitable activities such as Breast
  Cancer Awareness Crusade, the Avon Global Running
  Womens circuit, Women of enterprise programs and
  the Avon worldwide Funds for women.

38
SALES MARKETING

• Strengths
• Excessive promotions, good relationship with
  customers and brand loyalty
• Weaknesses
• Imitablility of marketing campaigns
• Too much cost on advertising and brochures

39
R D

• Product RD Technology and System Development,
  Human Resource And General Administration
• Strengths
• Supportive and corrective actions
• Weaknesses
• No action taken, over costs (input) by RD than
  its results in sales,
  quality (output)

40
FINANCIAL ANALYSIS

• PLEASE REFER TO EXCEL SHEETS FOR ALL FINANCIAL
  DETAILS

41
BCG, GE AND GRAND STRATEGY

• PLEASE REFER TO EXCEL SHEET FOR APPENDIX OF BCG,
  GE AND GRAND STRATEGY

42
SPACE MATRIX

• PLEASE REFER TO EXCEL SHEET FOR APPENDIX

43
Key Issues Faced by the company

• Following are the issues / problems faced by the
  company.
• Successful internet Presence (Online Selling)
• Avon is using direct selling since many years
• 92 of revenues were generated from direct
  selling
• but from few decades they had to face drop in the
  sales growth rate because of the use of internet
  in personal care industry.
• It is difficult to switch to online selling
  rapidly because of so many reasons. Other reasons
  to avoid internet was cannibalization in sales.

44
Key Issues Faced by the company

• Protest of sales representative
• Problems were occurring among sales
  representatives and company management and its
  marketing strategies.
• when firms (Avon Inc ) decided to start online
  selling through its brochures, sales
  representatives did not agree on posting the web
  address of the company as result other
  competitors gain competitive edge.

45
Key Issues Faced by the company

• Loss Of market share
• From few decades Avon Inc is loosing share
  because of the success of the less established
  firms and the barriers to entry is dropping due
  to which number of competitors are increasing.
• Weak relation with Distribution Channel
• The channels used were Direct selling, Internet,
  Limited Retail selling (Kiosk).
• Avon has less capability of distribution because
  it is weak in good relation with distribution
  channels therefore its is difficult for them
  access the customers.
• They have to use various distribution channels to
  increase the growth of sales

46
Key Issues Faced by the company

• Financial Problems were face while planning for
  expansions
• One of the important issues which they faced when
  they are planning enhance their market share by
  specialty stores, full line discount stores and
  Kiosks but they planned to expand gradually
  rather than simultaneously because of the
  financial.
• Brand Image /Brand Awareness in Latin and Asia
  America
• Avon Inc is focusing on African American rather
  Asian Americans and Latin Americans, due to which
  they have weak brand image and awareness in these
  areas.
• Avon Inc are not providing hair colors according
  to the fashion and trend as a result weak brand
  awareness in Y generation.

47
Key Issues Faced by the company

• Direct selling no longer effective (Baby Boomers
  are more mobile)
• The Baby Boomers are the core customers of Avon
  Inc most of them are working in offices and they
  are more mobile due to which direct selling is no
  longer effective.
• Low Product Line Extensions for men
• Avon Inc was weak in promotions in generating
  brand awareness because they did not provide
  trial and samples .
• Most of the males perceived the image of Avon
  products aimed to women products.

48
TOWS MATRIX

• PLEASE REFER TO EXCEL SHEET FOR APPENIX TOWS
  MATRIX

49
Three Alternative strategies

• Extension in the main products
• The sales of the personal care products are
  increasing in the main sectors because of the
  following reasons.
• To become attractive in working area.
• Becoming more Health Conscious
• Due to change in fashion Trends.
• So Avon should increase its product line.
• Strengths
• Synergies in distribution channel possible.
• Aware about the existing culture trends
  factors.
• Good R D.
• Weakness
• Bad image in men market.
• Limited distribution channels
• Lack of coordination from sales representative

50
Three Alternative strategies

• Expand In Taiwan, Malaysia Russia
• Asian countries like Malaysia, Taiwan Russia
  are a huge market because of the two reasons
• Stability in economies
• Population growth
• Strengths
• Strong Brand Image
• Innovation
• Avons product qualities are proffered in these
  countries.
• Weakness
• Bad relationship with the retailers
• Lack of product promotion in these segments.
• Less market share
• Changes in Political scenario

51
Three Alternative strategies

• Build a brand image in Latin American and
  Generation Y in existing markets by promotions
  and innovation of new product which are tailored
  to their specific needs
• The Generation Y is the second largest population
  segment which is not focused by Avon and due to
  the lack of a proportion Avon has not a good
  image in Latin America. But Avon has a
  competitive advantage to expand in these markets.
  
• Strength
• Innovation
• Synergies
• Existing marketing channels
• Brand Image
• Quality at affordable price
• Weakness
• Lack of awareness
• Bad Relationship with the retailers

52
RECOMMENDED STRATEGY

• Build a brand image in Latin American and
  Generation Y in existing markets by promotions
  and innovation of new product which are tailored
  to their specific needs.
• Expand In Taiwan, Malaysia Russia

53
Yearly objectives

• First year
• In first year we would get the market share 18
• Cost Reduction by 10 in 1st year.
• Market share is 40 in 1st year
• Second Year
• In 2nd year we would get the market share 20
• Cost Reduction by 15 in 2nd year.
• Market share is 45 in 2nd year
• Third Year
• In 3rd year we would get the market share 23
• Cost Reduction by 16 in 3rd year.
• Market share is 52 in 3rd year

54
Implementation of Strategy

• We need to change the mission of our organization
  because till now Avon considered premium brand
  for women. So do due to the environment we have
  to change our mission. The new mission is
• The Premium brand of personal care products for
  everyone

55
Drawback of Old organization structure

• Bad image of organization because of
  decentralized website
• Lack in flexibility in the organization structure
  because high number of sales representatives.
• Awards were based on measures, not on creativity.

56
Structure Culture of Organization

• Recruitment Appointment of more men employees
• Centralize the website
• Online selling
• Degrees in number of sales representatives.
• Award should be based creativity.