Avon Products, Inc. Case Study

Paper Type:  Case study
Pages:  7
Wordcount:  1651 Words
Date:  2022-04-04

Introduction

The case Avon is an American Corporation headquartered in New York City. Other than being the leading direct seller firms, Avon is the first of its kind to establish a business model of such magnitude to sell cosmetics and beauty products. This study examines various aspects of strategic management as employed in this leading corporation.

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The Organization's Internal Strengths and Weaknesses

Avon has a clear mission and vision which gives the company a concrete sense of direction. Through the vision and mission, the company instills values into its globally dispersed teams thereby motivating them to take over the market as the champion for women's best products, gain a reputation as the best organization to work and to lead in global beauty products (O'Reilly & Tushman, 2011). As a source of internal strength, this gives employees something to believe in and a goal to achieve.

Products

Avon has a strong brand with a broad portfolio segmented into beauty, fashion, and home. This segmentation allows for easy targeting.

Marketing strategies

Avon leverages the power of real people doing the door-to-door selling. Additionally, the company uses brochures for advertising. The corporation owns training facilities for honing the skills of new members in who wish to represent company through its comprehensive product portfolio. The training is advantageous and essential in workforce development and overall organizational performance (Elnaga & Imran, 2013; Keep, 2014). It equips the salespersons with sales techniques; makes them extensively knowledgeable regarding the use and quality of products among other essential properties; and it is economical - enabled the company to reduce advertisement spending by $57.6 million in 2012. Moreover, after undergoing training process, the sales personnel can educate consumers while popularizing Avon brand in a persuasive manner that boosts sales. Also, the company uses websites and social media to promote the brands. The marketing mix adopted favors and resonates with women worldwide. Avon equally has a R&D facility in place to identify and help the corporation.

Sustainability and Philanthropy

Avon is the most prominent corporate-affiliated philanthropic organization globally. The company can leverage its reputation to raise millions of dollars in campaigns to fund their projects. Also, the robust reward schemes - scholarship awards for representatives and Avon associates' children - motivate the team of 6.5 million reps to strive for excellence (David & David, 2017).

A major weakness is that despite having a state of the art R&D facility, the company has not kept pace with the growing demand for superior innovative products that demand ongoing investment in research (Demirel & Mazzucato, 2012). In fact, it even cut spending dedicated to research and development in 2012 by 2.5 million down from $77.7 million in 2011. Also, the organizational structure lacks a chief operations officer; which implies that all top executives report directly to the CEO. This reduces efficiency in management. Additionally, the corporation's profits are dwindling. Accordingly, dividends dropped from $0.92 in 2011 to $0.75 in the following year. To the list also adds a 1.1 billion debt that may worsen the corporation's borrowing terms..

Avon's SWOT Matrix

SO Strategies ST Strategies

Use financial might to acquire companies of companies to help in penetrating profitable but unfamiliar markets (Lebedev et al., 2015).

Celebrity licensing/advertisement - Avon can sell more by through celebrity fragrance brands (Sridevi, 2014)

6.5 million representative to expand into international, markets

R&D facilities and funding to developing new brands, such as Avon Care, which specifically targets women located in developing countries. Maintain competitive edge by developing products that are highly demanded as a way of boosting sales.

Strives to establish a sustainable point of difference from rivals by continually researching and developing the Avon brand.

Conduct market research to facilitate value driven production instead of performance driven approach - invests in constant research to determine what is trending and what is in demand and providing it (Khosla & Sawhney, 2012).

WO strategies WT Strategies

Identify and use low-cost but effective ways to advertise products, e.g., through brochures.

Global market growth of 6% means the company can offset low sales in the U.S. by exploring external markets.

Form joint ventures with marketing experts in new markets to train individuals interested in representing the brand in developing countries. Developing affordable products for low income customers

Organizational realignment to minimize operational costs (Zeschky, Winterhalter, & Gassman, 2014) - enhances workflow efficiency, eliminate red tapes, streamline functions, consolidate operation and lay off employees to cut operational costs in the face of dwindling profits.

Merging with successful businesses in the same industry to regain market command

Increasing involvement with representatives to induce a stronger feeling of affiliation to the company. Avon's External Factor Evaluation (EFE) Matrix

Opportunities weight Rating Weighted Score
Emerging markets in the developing countries promise a comparative advantage for the representatives who invest in market penetration strategies. 0.07 3 0.21
Avon's current ratio and debt service coverage ratio shows that the company has adequate liquidity for survival in the short run. It can use this to restructure it's the business and strengthen brand. 0.02 3 0.06
Global beauty market's growth is at 6% which can help Avon regain its lost market dominance. 0.08 4 0.12
Rebranding to create the impression of an improved quality and attract consumers to Avon products. 0.09 1 0.09
Company-wide restructuring to streamline business operations. 0.06 2 0.12
Underexploited online market has great potential for growth without spending heavily. Online advertising and selling is cheaper. 0.05 2 0.10
Direct selling grew by nearly 30% into $150 billion within six years ending 2012. 0.07 2 0.14
With 6,5 million representatives in more than 100 counties that lack developed retail infrastructure, Avon Inc. enjoys an upper hand against its competitor. 0.04 4 0.16
Steadily rising interest; Avon's stock price registered the highest record in 52 weeks ($24.30) as of June 2013. 0.04 3 0.12
Direct selling is an effective way of penetrating emerging markets (Gupta, 2016) in Africa, Brazil. 0.06 3 0.18
Threats
Avon Inc. is facing cutthroat competition both domestically and internationally, which, according to Zekiri and Nedelea (2012), demands more time and resources for major strategic changes. 0.07 3 0.21
Avon's debt is threateningly huge ($2.62 billion) and other than depressing profits (Kapeller & Schutz, 2015), it will affect company's ability to repay it and will lead to worse terms should the company seek further credits. 0.08 4 0.32
A 4-year pending global bribery investigation intensify general negative feeling about Avon, yet ethical dimension of a company's decisions directly impacts profitability (McMurrian & Matulich, 2016). 0.09 3 0.27
Limitless uncertainties may emerge from the rising global macroeconomic pressure (Lee & Song, 2012), and it may impact Avon - a multinational corporation - if measures to cushion the company are not put in place in time. 0.05 3 0.15
While Avon's earnings per share and profit margin remain negative, its competitors, L'Oreal Revlon , enjoy an EPS of 1.12 and 0.78 respectively. 0.06 3 0.18
Avon overly relies on third party supplies which gives competitors an added advantage. 0.07 1 0.07
TOTALS 1.00 2.5

The weighted score is 2.5, implying that the company is averagely capitalizing on opportunities while avoiding external threats (David & David, 2017).

Implications

From the income statement and balance sheets, it is clear that Avon still the capacity to weather current market turbulent. The company is not quite promising regarding profits, but it has enough assets to offset its liabilities. The fall in revenue can be attributed to the reduced budget for advertisement; a deduction that is informed by extensive literature proving the significant relationship between advertising and sales revenue and profitability (Abdulahi, 2014; Karray, Martin-Herran, & Zaccour, 2017). The brand is not as strong as it may appear. And overreliance on personal selling is not enough to create the needed publicity. Accordingly, when Avon lowered advertising expenses to $252.6 in 2012 from $311.2 in 2011 it registered a loss; the cut was destructively huge.

Recommendations

Avon must act fast to salvage its reputation and position in the market. To achieve this goal, it must conduct elaborate reengineering in three areas: consumer-oriented production, public image, and marketing. It is time to do extensive research to come up with innovative products and efficient productions methods to minimize operations costs. Also, the company should consider the ethical implications of its conduct, because a positive customer perception is vital to business success (McMurrian & Matulich, 2016). Likewise, there is need to exhaust digital marketing options like the social media advertisement to reach a broader audience at a lower cost.

Conclusion

Avon Products Inc. is a huge corporation whose products sell worldwide. However, the corporation is operating during one of the most turbulent times when competition is rife, and the consumers are savvy. The analysis has shown that Avon has the potential to regain its popularity in the cosmetics industry; nonetheless, it must take deliberate measures to cut expenses, enhance product image and reputation and, above all, ensure that the products meet customer needs as superiorly as possible.

References

Abdullahi, D. (2014). Assessment of advertising on the sales revenue and profitability of Nigerian Bottling Company Plc. Assessment, 6(37).

David, F. R., & David, F. R. (2017). Strategic management: Concepts and cases ; a competitive advantage approach (15th ed.). Pearson.

Demirel, P., & Mazzucato, M. (2012). Innovation and firm growth: Is R&D worth it?. Industry and Innovation, 19(1), 45-62.

Elnaga, A., & Imran, A. (2013). The effect of training on employee performance. European Journal of Business and Management, 5(4), 137-147.

Gupta S., R. (2016). Direct selling and its benefits to the market place.

Kapeller, J., & Schutz, B. (2015). Conspicuous consumption, inequality and debt: the nature of consumptiondriven profitled regimes. Metroeconomica, 66(1), 51-70.

Karray, S., Martin-Herran, G., & Zaccour, G. (2017). Assessing the profitability of cooperative advertising programs in competing channels. International Journal of Production Economics, 187, 142-158.

Keep, E. (2014). Corporate training strategies: the vital component?. New Perspectives, 109-125.

Khosla, S., & Sawhney, M. (2012). Blank Checks: Unleashing the Potential of People and Businesses. Strategy+ Business, (68).

Lebedev, S., Peng, M. W., Xie, E., & Stevens, C. E. (2015). Mergers and acquisitions in and out of emerging economies. Journal of World Business, 50(4), 651-662.

Lee, S. H., & Song, S. (2012). Host country uncertainty, intraMNC production shifts, and subsidiary performance. Strategic Management Journal, 33(11), 1331-1340.

McMurrian, R. C., & Matulich, E. (2016). Building customer value and profitability with business ethics. Journal of Business & Economics Research (Online), 14(3), 83.

O'Reilly III, C. A., & Tushman, M. L. (2011). Organizational ambidexterity in action: How managers explore and exploit. California management review, 53(4), 5-22.

Sridevi, J. (2014). Effect...

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Avon Products, Inc. Case Study. (2022, Apr 04). Retrieved from https://proessays.net/essays/avon-products-inc-case-study

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