AVON Calls on Foreign Markets Case Study

Avon’s decision to create a highly distributed organization with regional and national new product development and supply chain operations was initially designed to increase time-to-market and speed of response to regional customers preferences. While that vision of decentralized efficiency and customer focus was a good one at the time, its actual performance is far below expectations and the duplication of effort is slowing down the entire corporation. The case shows how a highly decentralized marketing, new product development and merchandising organizational structure can become more of a liability than an asset however. The intent of this case analysis is to explain and recommend how Avon will be able to attain a higher level of efficiency and profits through more effective alignment of their research & development, new product development strategies, marketing, and ongoing supply chain operations to create a unified, global marketing strategy that will succeed.

Greater Accuracy of Marketing Strategy and Segment Definition Needed

Avon, like many consumer products companies, is dealing with the significant challenge of unifying how they are perceived and values across the many nations they operate on. The wide variations in cultural, national, and religious differences in how personal products are perceived and their needs communicated adds further to this challenge. Avon, during the time period of the case, is primarily focusing on Gen X and Baby Boomer women. The Baby Boomer segment is of particular interest as Avon’s research shows they have a need for appearing younger through the use of Avon products. It is ironic that in many other cultures, the Millennial and Gen Y women want cosmetics that make them look older and more mature. The reasoning is that Millennial and Gen Y women want to appear older so they can compete more effectively for higher-paying, more professional jobs. This is the first of many challenges that Avon faces in managing their new product development, supply chain and strategic sourcing, procurement and local marketing practices more effectively.

The beginning sections of the case provide insights into what happens within a global corporation when very high levels of decentralization cause fragmentation of the core functions of a new product development and marketing process. These functional areas were allowed to proliferate without a baseline of standards or governance to guide them. Without overarching governance and compliance, the core areas of new product development and supply chain strategies led to very high cost overruns due to the duplication of effort and wasted resources across the entire company. This massive duplication of effort also led to inconsistent messaging globally and a lack of consistency in cultural messaging and standards for localized marketing. The brand was atrophying based on the lack of governance and standards as a result. When regional product development, supply chain and marketing strategies begin to report negative Return On Investment (ROI) and cause confusion in global branding it’s time to re-evaluate the strength of a unified strategy (Cohen, Roussel, 2004). Despite these variations in regional strategies, Avon has excelled at unifying their global sales force to continually drive top-line revenue (Hill, Still, 1990).

Analysis of the Case

The deliberate decision to create a decentralized new product development and marketing organization initially appears to be a viable strategy for global brand Avon, who is contending with potentially conflicting market needs and preferences in their products (Grammenou, 2009). The capital investments made in new product development, strategic sourcing, supply chain management systems, and the customization of manufacturing all are aimed at being responsive to the widely different needs women have for cosmetics. In conjunction with these significant investments, Avon continued to build out a global multichannel management selling and service organization that did standardize on core processes and training (Grammenou, 2009). Avon encountered a quickening pace of change in product lifecycles, new product definitions and requirements, and a continual increasing of customer expectations that all varied significantly across all regions (Tozzi, 2010). Inevitably the comp[any became much more balkanized, with each country division defining its own product launch schedule, pricing and decisions of whether to participate in global marketing programs. The extreme balkanization of the Avon subsidiaries was fragmenting the brand and causing it to eventually lose its equity and power in the market (Grammenou, 2009). As is often the case with a highly balkanized organizational structure, new product introduction costs began to spiral out of control, as did supply chain, marketing and selling expenses (Cohen, Roussel, 2004). With no governance or auditing of the supply chain operations, the profitability of Avon was at stake (Tozzi, 2010).

Demographic Analysis

In many respects Avon had been fortunate to not encounter greater challenges earlier in the 20th century and in the early years of the 21st century. The massive amount of economic and socio-political turbulence globally during the 20th century alone had derailed many of the most successful women’s cosmetics and personal care companies (Grammenou, 2009). In the context of the case study, Avon faced the greatest challenge it has seen in a century, and that is staying relevant to women consumers with more options than ever for personal care products. This challenges’ boundaries were the Millennial women who were becoming disenchanted with the Avon brand, Baby Boomer and Gen Y women across multiple regions and nations that were relying on Avon products to meet or exceed their expectations for beauty and personal care products. Accentuating these challenges was the fact that more women than ever were entering the workforce, which left fewer of them to work in the Avon global selling organizations. Avon had long built a very strong distribution model that primarily relied on housewives that want to earn extra money by hosting parties in their homes and communities. In conjunction with many housewives working to help their families make ends meet, there was a marked increase in women who were earning college degrees and seeking higher paying jobs where they wouldn’t have to take part-time work to make ends meet. This also was a very significant shortcoming for Avon’s core strength, which is its sales force which in the past was comprised of housewives looking to earn extra cash. Avon had adopted the Web for e-commerce yet that had not been as successful as the company had hoped. These significant changes in demographics, socio-economic, and socio-political roles of women globally were having an immediate impact on the performance of subsidiaries, impacting every area of their operations from new product development to go-to-market strategies (Tarquinio, 2004). These massive shifts in socio-economic and socio-political values was also having a major effect on how Avon as a brand was perceived by the younger generation of women just beginning to use cosmetics. The top priority of these youngest consumers was the eco-friendly nature of Avon products including how their production and use impacted the global ecosystems (Prior, 2010). This segments’ specific focus was on how Avon products were sourced, produced and sold and if Fair Trade Practices were taken into account, and if suppliers were abiding by proper employment guides for ethical treatment of their workers (Grammenou, 2009). In short, this customer segment demanded a high level of Corporate Social Responsibility (CSR) and accountability from Avon as a supplier of their cosmetics. In many respects the demands of the Gen Y customer for increased accountability and CSR-based focus on how their products impacted the environment, in conjunction with the size of this market globally, led Avon to recentralize new product development, marketing and service (Tozzi, 2010).

As the Gen Y customer base was aging, the opportunity to gain them as customers was elapsing daily for Avon. The company had to move with urgency to capture this market segment with a centralized new product development, supply chain and marketing strategy. The hard reality for Avon was that their decentralized organizational structure, once so powerful, was losing focus and beginning to alienate the largest customer segment necessary for the company’s growth.

Assessing the Impact of the Global Recession

Trust, not price, is what has made Avon so successful over the decades of using a unique and highly differentiated distribution and selling systems. There is nothing more powerful than word-of-mouth for gaining the trust and loyalty of prospective customers (Villanueva, Yoo, Hanssens, 2008). This aspect of friends and neighbors being trusted advisors is center to the success of Avon over its initial decades of operations. As their sales force was comprised primarily of trusted advisors who could get the attention and focus of their social circles, Avon was able to still continue selling their products through the severe economic downturns between 2007 and 2010. As of January, 2012 when this paper was written, the recession continues to be problematic to Avon and their launch of new cosmetics globally. Avon is continually pursuing their proven success with the more expensive selling strategy of having their sales reps meet face-to-face with prospects and customers as of this writing. While direct selling is always more expensive than using distributors or dealers, and exponentially more expensive than online transactions, Avon still believes in pursuing the role of trusted advisor in cosmetics. This strategy of investing face-time has continued to scale extremely well in the U.S., yet has faced many challenges in other nations that value data, hard numbers and strong methodologies to validate the claims of products. One nations’ buyers of cosmetics in particular, the Japanese, are more focused on the specifics of the how a product is produced and want to know in great detail what the ingredients are in specific measures. The level of data analysis presented by cosmetics providers in Japan is often taken as a measure of the elegancy and exclusivity of a given cosmetic product over another (Grammenou, 2009). Due to these wide variations in how cosmetics are sold, Avon continues to excel in westernized cultures with the U.S. being their flagship market. In Asian cultures were the depth and sophistication of data is an indicator of exclusory and elegance, Avon continues to struggle in other nations and cultures, a point inferred from the case analysis.

Assessing Avon’s Supply Chain And Its Implications On Performance

The highly fragmented and distributed nature of the new product development process within Avon is putting exceptional stress on the supply chains of the company as well. These are hidden costs however, as the time and resources lost in negotiating with suppliers of comparable ingredients, packaging and services is hidden from one subsidiary to the next. Further complicating the performance of the Avon supply chain and contributing to its increased costs is the fact that each product is in a completely different stage of its lifecycle across each nation or region globally. This staggered performance of the product lifecycles are different across each culture and nation, which adds exponentially higher levels of stress and costs on their supply chains. Adding even greater urgency to fixing this strategic issue with their supply chains tis the rapid change occurring in their core Gen X, Y and Baby Boomers markets (Prior, 2010). The Avon supply chains need to be transformed into a competitive advantage by being more responsive to Gen X, Y and Bay Boomer customers (Tozzi, 2010).

References

Shoshanah Cohen, & Joseph Roussel. (2004, November). Avon Gets Its (Supply Chain) Makeover. Fortune, 150(9).

Grammenou, E.. (2009, April). WHAT’S NEXT? FOR COSMECEUTICALS AND NUTRICOSMETICS. Global Cosmetic Industry, 177(4), 38.

Hill, John S., & Still, Richard R. (1990). Organizing the Overseas Sales Force: How Multinationals Do It. The Journal of Personal Selling & Sales Management, 10(2), 57.

Molly Prior. (2010, March). Avon Launches Environmental Effort. WWD, 199(57), 5.

J. Alex Tarquinio. (2004, September). Aging Gracefully at Avon;. Kiplinger’s Personal Finance, 58(9), 49.

Tozzi, J.. (2010, December). Borrowing from Avon and Dell to Sell Shirts. Business Week,1.

Amy Tsao. (2004, October). A Bit Less Blush at Avon. Business Week (Online),1.

Villanueva, J., Yoo, S., & Hanssens, D.M. (2008). The impact of marketing-induced vs. word-of-mouth customer acquisition on customer equity growth. JMR, Journal of Marketing Research, 45(1), 48.

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