Andrea_Jung's_Makeover_of_Avon_Products

Avon Case Study [pic] Andrea Jung’s Makeover of Avon Products, Inc. Summary: Avon Products, Inc. (Avon) is based I New York. The firm engages in the manufacture and marketing of beauty and complimentary products primarily in North America, Latin America, Europe and Asia Pacific. Avon’s Products are classified into three products categories: Beauty, Beauty Plus and Beyon Beauty. The Beauty category consists of cosmetics, fragrances, skin care and toiletries. Beauty Plus includes fashion jewelry, watches, apparel and accessories and Beyond Beauty comprises home products, gifts and decorative products, candles and toys. The company sells and markets its products through a combination of direct selling, marketing by independent Avon representative and via its consumer Web site, avon.com. On Andrea Jung’s commencement as CEO in 1999 she faced a number of strategic problems at Avon - there was no superior strategy for the company to initiate and thus no competent implementation and execution of this strategy. This leads to a number of symptoms such as poor image, slow growth and a decline in sales, which was a direct link to a vague strategic vision, lack of innovative technology and lock of leadership. With a new strategic vision implemented by Jung, Avon was able to move into the 21st Century with a clear view to compete with other Cosmetic, Fragrances and Toiletries (CFT) companies in the same industry. Question No.1: What is your assessment of Andrea Jung’s Performance as Chief Strategist at Avon Products' What has she done well' What overall grade would you give Andrea Jung for the job she has done as CEO': Andrea Jung was very strong as chief stragiest of Avon Products. She never feared to make any drastic change that could help drive Avon back to the top of Cosmetic, Fragnance & Toiletry Industry. She knew that serious issues were present & the company need to address them. These issues includes • Product appeal • Marketing strategy • Pricing • Process reengineering • Product innovation/employee motivation Her strategy plan was to fix these problems by fixing the entire company structure, which included changing the product packaging for better appeal to changing the distrubtion channel which was a major asset to Avon. After reading the case study, I felt that Andrea Jung performed well in her duties to help Avon move back to the top of cosmetics chain. She knew what needed to be done and did it, which is must to be an excellent CEO. I would grade Andrea Jung’s performance with an A, she developed an excellent strategy that helped push sales from 1.5% in 1999 to 6% in 2001. Its sales force was expected to expand by 15%, operating profit were expected to grow by 7% & operating margin were expected to reach the highest level in over a decade at 14%. Her first task, after becoming the CEO was to hit the streets of neighborhood, rining door bell to better understand the desires of customers and needs of sales agents. Andrea’s ability to unhesitatingly make bold decisions like cutting 40% of company catalog items & dismissing the company’s advertising agency which made her standout & landed her the position of president. At age 40, Jung became CEO and in 2001, at age 42, she was listed 4th on Fortune’s ranking of the 50 Most Powerfull Women in American Business. In October 2004, Andrea Jung the chairperson and CEO of Avon Products, was listed at the third position on Fortune Magazine. It was the fourth time that Jung had features in this list and analysts said the honor was well deserved. Under her leadership, Avon’s image in the market changed from “frumpy” to “fashionable”. Jung’s parents expected committement & determination from Andrea & her younger brother from early ages. In an October 2001 interview with a Fortune journalist, Jung suggested that her parents expectations for excellance contributed greatly to her successful career. She recalled an incident from her childhoold whens she asked her parents to by her a set of 120 color pencils. Her parent made her bargain with her & promised to buy it only if she could get grade A in all the subject at the end of the year. She didicated all her to time for studies just to get a color pencil from her parents. Key tips from Andrew Jung: • In difficult times, communication is key to maintainging employee morale. • Leaders must reinvent themselves regularly. Fire yourself on Friday and come in on Monday as if it were Day1. • Conserve cash when it does not hurt market share • Resist making acquisitions due to fire sale prices. Make certain of strategic rationale. • Prepare for a fundamental shift in consumer spending and an economy that may not grow for years. Question No.2: What is Andrea Jung’s strategic vision for Avon' Do you approve of the company’s new strategic direction' Why was it time for Avon to fundamentaly change direction': Under Jung, Avon Vision statement read as “Our vision is to be the company that best understands and satisfied the product, service and selfulfillment needs of woman globally. Our dedication to supporting women touches not only beauty – but health, fitness, self empowerment and financial independence” I think their new strategy direction made sense. She knew products had to be made to fill the needs of different age group & races. It wa time for Avon to become more modern and up to date. Jung’s view of new Avon was that of a company beyond selling cosmetics as trusted products which is needed by any woman. She was in customer convenient strategy in beauty and financial services. She insisted that supporting women touches not only beauty, but health, fitness, self empowerment and most important financial independence. Yes, Avon’s new strategic direction would launch an entirely new line of business, the development of innovative products, new packing, new channels to the distribution, a new approach to supply chain management, new sales models and new approach to image building. This is the company that puts mascara on lashes and food on tables, that fights wrinkles with one hand and Breast Cancer with the other. That knows the of a perfect lip, but still open its mouth and speaks out against Domestic Violance and for women’s financial independence. This is the company that not only bring beauty to doors, but also opens them. The company that supports 6 million Representatives in over 100 counteries. This is Avon. The company, that for 125 years, has stood beauty, innovation, optimism and above all for women. (Avon Annual Report, 2009). In late 1999, Avon Company was far away from from Jung’s envisioned. In an era when 75% of American women worked & direct selling accounted for less than 7% of Cosmetic & Toiletries Industry in the United States. The sales model developed by David McConnell was outdated for two generations. However, 98% of Avon’s Turnover is came from the sale generated by 3.5 millions sales agents. Avon’s representative were vigilant in protecting their customers & sales and they were aggressive in reversing strategies that might increase sale for Avon but limit sales growth opportunities for sales representatives. In 1997, When Avon launched the website for selling few avon products online, sales representative where not ready to take this initiative & they even placed their own name & contact number on the catalogues where website address is mentioned. Avon sales representative are not ready to take recommendation to make available avon products for sale in departmental stores or malls. The company was also limited by its dowdy brand image, market research found that most women see avon product as “grand mother brand” or “not for me”. In addition, Avon had not developed any new product in the fastest growing CFT Categories & also not introduced hit products for decades. Other problem at Avon included distribution inefficiencies, limited income opportunityf for the average sales representative & difficult for selling the products to busy women. When Andrea Jung became Avon’s new CEO in November 1999, the company’s annual sales growth had slowed to less than 1.5 percentage and its stock price had fallen from a high of $55 to a three year low $25. The strategies initiated by Charles Perin had resulted in some improvement in1998 with modest sales growth, but in late 1999 Avon was in need of bold direction. When Perin resigned because of his lack in direct sales limitation, Andrea Jung need a fundamental change in direction. Jung understood the desires of customers and needs of sales agents. She heard the customer grips over product colors, mishandles orders, unattractie packing , lack of innovative products and confusing promotions. Ultimately she discovered the structural obstacles to achieve in success. Policies for placing orders made difficult for sales agents to increase sales volume and commissions. When Andrea Jung stepped in as CEO of Avon, she brough with her many new, fresh ideas that helped make Avon what it is today. Her strategy didn’t agree with what consultants thought, but she willingly took risks to enforce what she believed to be the best strategy for Avon. We believe that her strategy was good, solid foundation that will continue to keep Avon at the top as America’s number one selling Cosmetic and Beauty Company. Question No.3: What is your assessment of the financial and strategic objectives Jung has set for Avon' Do they contain too much stretch' Too little stretch' Several things happened once Andrea Jung was named CEO of Avon. First, she decided to reverse the current trend of losing sales. She did this by creating a strategy that would turn the company around. Jung’s suggested strategy to partner with Sears and JC Penney department stores was an idea that would help to promote the stragey she had come up with. It would introduce a new, upscale product line, thus increasing profits, sales and nationwide exposure to the baby boomer segment. Retail sellng increased with in store ustomer traffic and expected growth of spending power to 16 percent within five years. Face to face selling comprised 79.7% og direct selling, preferred among senior citizens. The marketing budget would be increased to target customer traffice at Sears and JC Penney. Invstment costs were limited to $15 - $29 million to launch retails products, with a bulk of expenses being absorbed by the department store. Jung identified the following strategies will help correct Avon’s competitive liabilities & set the company on new course. • Grow global beauty category sales through continued investment in new product development, advertising & sampling • Provide representative with greater career opportunities through sales leadership,enhaned Internet capabilities and training. • Reduce inventory level while at the same time improving service to representative. • Improving operating margin 50-100 basis points through business process redesign. • Successfully launch Avon Wellness line of nutritional supplements and Vitamins • Begin to build a profitable retail business to fuel future growth • Develop e-commerce opportunities for Avon and its sales representatives • Pursue market opportunities in China and Eastern Europe. All these factors would affect Avon’s long term goals by forcing Jung to find new, creative ways to stay fresh in the market. Jung had created a strategic plan that met the vision of Avon, she had created goals that were measurable and geared toward future company growth. The goals seems to obtainable in the current business market. In addition, Jung’s idea that technology may be the answer was in response to a changing business environment which included movement towards e-business. This ideal would be synergistic and build upon their present success. It is too little stretch because the objectives were not set boldly and aggressively high. These goals were not impossible targets. Question No.4: What have been the key elements of Avon’s strategy been under previous CEO' What new & different strategy elements have been initiated by Andrea Jung' How well does Andrea Jung’s new strategy seem to match features of the global cosmetics industry and Avon’s resource strengths, competitive capabilities and culture': Key elements of Avon’s strategy under previous CEO: Key elements to Avon’s strategy under previous CEO were set to sell diretly to consumers via independent sales representatives who where working on commission. Avon catered to ostly upper middle income females and focused almost exclusively on US cosmetic market. A failed diversification strategy tartgeted several takeover atttempts. Turnaround plan of $400 millions restructing program was first initiated by CEO James Preston & it was continued by his successor Charles Perrin. The Company business process reengineering efforts freed upt $120 millions, which was later used to develop new products, increase advertising, increase dividends, buy back outstanding shares, improve gross margin by 1.7 points & operating margin by 1.5 by year end 1998. The key elements of Perrin’s strategy for Avon are • To improve the product image for consumers around the world. • Shorten product development times, develop new brand & products that can be marketed world wide. • Use latest technology to aid sales representative in placing & tracking orders. • Modify its outdated direct sales model & create more income opportunites for sales representatives Key strategy elements initiated by Andrew Jung & James Perrin: • Product appeal: Avon’s Global Development Center which replaced the duplicate local product development efforts with a cordinated global approach to develop brand that has worldwide appeal. • Product image: The improvement of Avon’s image among consumers was one of the key strategy initiated by Jung & Perrin. Market research found that many consumers of avon’s products where under the impression that avon’s product lack quality & product innovativeness. Avon changed its image drastically by new global produt, new global advertising campaigns & opening of new avon centre in New York Triump Tower to show luxuriousness of Avon’s products which also includes spa and saloon, meeting point to select the beauty products for its consumers. • Improvement of Website: Avon improved its website for making it easier for the customers to purchase product online. They introduce a web based ordering system for the company sales representatives in Japan. • Sales Representatives National Convention: In 1998, Avon held its first ever Representative National Convention during which 6000 representatives learned about new products, received sales training & areas of improvement. They also discussed number of barriers as abstocle for representative success. • Pilot Program for Sales Representative: Avon launch a pilot program in Japan that helps representative to order more than once during sales campaigns. It also set up telephone, fax & interactive computer voice ordering to speed up the delivery in order to improve sales representative satisfaction. • Beauty Centre: Avon’s products can also be purchased through beauty centre, it’s a free standing kiosks, where bypassers can purchase avon products without the intervention of sales representatives. It was first test with 40 malls across USA. The beauty centre ware modeled after the company’s 200 beauty boutiques in Malaysia. It accounted for 68% of its sales in that country. • Leadership Opportunity Program: The Network marketing plan allowed sales representative not only eary commission on their own sales, but also received bonuses on the sales of their recruits & trainees. With strategy implementation under Perin’s management, Avon’s able to increase its sale by 3% & 17% earning. Andrew Jung also initiated expansion into markets outside US making Avon products available online, and began selling Avon products through retail channels. She also instituted a more upscale packaging to match the look of prestige cosmetic brand. She focused on a low cost / low price strategy and focus to sale to low and middle income families. Andrea’s new strategy was likely to improve Avon’s financial performance and help build a competitive advantage. Her approach is sensible in light of what competitors are doing and the position they hold in the market place. Avon is highly backward integrated, self manufacturing many of the items that they sell. This causes the competitive pressures of suppliers to be weak. Aon can get supplies from many parts of the world because they have entered foreign markets and produce products in different countries. A lot of Avon’s supplies such as packaging, may be easily substituted if a suplier raised prices. Under Andrea Jung’s direction, Avon is focusing on developing nations especuakkt China. Many developing countries are more receptive to direct selling by women since jobs with Avon are opportunities for women who want to be independent in the male dominated cultures. Avon has also recognized that the demographics has changed and recruiting younger women to sell the younger customer base. Competitive pressures stemming from customer buying power is moderate because switching costs are low and customers have the ability to fulfill their needs by switching brands. Buyers tend to be well informed about Avon’s product prices and costs largely due to the internet and this put customers at a position of higher bargaining power. Customers do not pose a threat of integrating backwards, because it would not be easy for women to develop their own make up, perfume or skin care products. Due to the direct selling business model, there is an extremely large number of buyers. Another Avon objective that aims to alleviate pressures coming from competing sellers includes consists of reinventing their antiquated image. Realizing this, Jung endorsed the Williams sisters. Venus and Serena Williams were popular teen icons that portrayed the image where Jung hoped to achieve for Avon, young, powerful and ambitious. Question No.5: How well has Avon’s new strategy been implemented so far' What are Avon’s strategy successes so far' What problems or missteps do you see' How important has Susan Kropf been to Avon’s implementation efforts' Was she a good choice as chief operating officer' Why or why not'  Andrea Jung’s highly successful career would not be possible without effective and insightful management.”Throughout Jung’s ambitious expansion, her management style was to emphasize open communication, goal orientation, and feedback from her sales force.”  Avon routinely brings in the top performing sales reps from across the globe to Avon’s headquarters in New York City in order to gather first hand feedback from the employees in the field.  Ms. Jung herself even attempted to sale Avon’s products as a traditional Avon lady.  An attempt she acknowledges was not one of her more successful endeavors.  The attempt however, showed Ms. Jung’s commitment to understanding all aspects of the Avon business.  A common theme in Ms. Jung’s leadership speeches encourage women empowerment and promote a belief that more women will continue to hold key executive roles.  Under Ms. Jung’s leadership, Avon management supports flexible work schedules and encourages employees to create a healthy balance between work and family responsibilities.    There are a number of missteps that Avon has taken under Andrea Jung’s leadership. They include partnering with companies that image does not adequately match Avon’s and the company’s internal problems with launching its online business segment. Recently, Avon announced plans to partner with Sears and JC Penney’s. One of the potential negative aspects for Avon partnering with JC Penny and Sears would be the possible lowering of brand name for Avon. The company ran the risk of possible further reduction of its brand name.”  Since its inception Avon has worked very hard in tailoring its niche market towards women. Ms. Kropf’s most recent responsibilities included certain global staff functions.  She retained responsibility for global marketing as well as the companywide Business Process Redesign efforts that have freed up nearly $400 million in the past three years for reinvestment in consumer brand building and other growth initiatives. Yes, Susan Kropf was a good choice as a chief operating officer of Avon Products Inc. with full profit-and-loss responsibility for all of Avon’s worldwide operations, including global marketing and supply chain. Susan has played a critical role in Avon’s success by sharing her insights on Avon’s rich history and the company’s successful strategies for sustaining brand power for over a century.  Susan Kropf reconfigured the value chain thereby cutting costs of non-value adding areas. Kropf’s efforts also improved Avon’s operating margin by 3.2 points in 2000, as she left no component of the company’s value chain untouched. Much of Kropf’s reengineering had to do with improving the company’s manufacturing and distribution systems. The company saved $56 million annually after cutting its number of suppliers from 300 to 75 and it used information system to automate order processing and logistics to reduce transportation costs by $22 million, shipping segmentation costs by $17 millions and order entry costs by $8 million. Other BPR implementation efforts focused on continued efficiency improvement, improved demand forecasting and an overall end to end supply chain reconfiguration Question No.6: Has Andrea Jung been effective in evaluating the company’s performances, monitoring new developments, and initiating corrective adjustments' Does Andrea Jung appear to have Personal traits well suited to refining and fine-tuning the company’s strategy and implementation efforts' Are her strengths better suited to instituting sweeping changes and quickly moving to a new project' Andrea Jung represents a great strength to Avon Products Inc.  Regardless of gender, any CEO who can take a company with a 50 percent drop in share price and raise company stock by 164 percent in five short years shows insightful leadership and effective management.  In addition to the financial success, Ms. Jung has also played a vital role in Avon’s public relations arena.  She shows an amazing ability to connect with a variety of shareholders and the public.  Her ability to communicate with all levels of an internationally diverse Avon staff and public contribute to Avon’s ability to successfully implement strategic changes in direction.  Yes, Andrea Jung’s vision of what she wanted to accomplish as CEO of Avon included a strategy to; improve brand image, introduce new products, increase use of the internet as a channel of distribution, provide greater incentives and opportunities for the sales force, reduce unnecessary costs in the value chain, and continue to expand into global markets. Product innovation was a large part of Jung’s strategy for Avon. In fact, in 1999 she challenged Avon’s R&D team to develop a new product within two years. In less than one year Avon introduced Anew Retroactive, an anti-aging skin cream. It achieved record sales for Avon and led to the development of other successful lines of business. For example, Avon Wellness products exceeded sales estimates by 300%. One problem that Avon faces is the strong competition within fields they are trying to expand into. Avon is marketing a nutritional product line called Wellness, which includes vitamins, supplements, bars, etc. This market is competitively strong. Being ahead of the industry in introducing new products combined with the company’s already strong market position could further improve Avon’s brand equity and therefore revenues. In particular, Avon should continue to integrate sales representative into all aspects of sales. This is Avon’s own key success factor and what sets them apart from their competitors. With the growing popularity of the internet as an outlet of commerce, Jung was compelled to implement internet sales into her strategy, realizing that the “Avon Lady” is the distinctive core competency for Avon in new projects. Question No.7: What additional actions would you recommend Andrea Jung take to help the company to achieve its long term strategic and financial objectives' Are any changes needed in the company’s vision' Its objectives' Its strategy' Its implementation efforts' What challenges might the new strategy present to Avon’s top management team' What risks do you see' Based on demographic data, China holds 20% of the world’s population. This represents a vast market of which Avon has only begun to cover. Avon should continue to focus on the expansion of retail outlet sales in China. Also, because the only sales in China are generated through retail outlets, Avon should further develop their Beauty Advisors training. Europe should also be a continued focus for Avon. Industry leader, L’Oreal’s attributes 50% of their total sales to the European market. Avon had a successful growth rate in Europe but only 23% of the total 2003 sales came from Europe. There is still room to expand in this market.   Based on one of the industry’s key success factors, product innovation, Avon should focus even more resources on R&D especially in the areas of anti-aging products and teen products. Because 23 million teenagers have an average weekly disposable income of $85, Avon should continue with innovative teen marketing such as the current “mark” brand but also work on products for problem teen skin. Avon Products Inc under the leadership of CEO Andrea Jung is at a point where there are opportunities for growth for the organization.  However Ms. Jung appears to be indisposed towards taking steps to take advantage of Avon’s position.  Also her approach is flawed.  Let’s take a look at her approach and then also look at viable alternatives.  Andrea advocates: partnering with Sears and JC Penny department stores so as to create a store-within-a-store, downsize direct selling The review board criticized Andrea’s approach and pointed out that: • Brand name erosion and sending mixed messages to consumers is a risk when going into partnership with low-end department stores.  If Avon goes retail then one might assume that retail products sold in stores being exclusive, and then brochure products were of inferior quality.  • Sears and JC Penny stores have a low end image and are recognized as being on the weakest end of the retail market.  These stores also lack cosmetic customers. • The direct sales personnel would resent being transferred to retail sales positions and also would feel their job security threatened if Andrea’s plan were implemented. After the review, Andrea hired an outside consulting group to get up a strategic plan for Avon.  These were their recommendations: • Three-step retail approach 1. Distribution of high end spa products in specialty stores. 2. Sell a more affordable product line in discount stores 3. Extend unique kiosks in the domestic market. This strategy said the consultants would benefit Avon by: • Specialty stores are growing 4% per year and are attracting affluent baby-boomers which are ever growing segment of the population • Full line discount stores have high customer traffic, pointing towards high volume sales of the more affordable Avon products. Based on this, the board of directors felt that Jung’s original options did not provide the same amount of increased sales and revenues, attraction to increased clientele base, motivation and acceptance by current sales representatives, or increase shareholder wealth as the consultant’s options did. The consultant’s options provided a means to Avon Products, Inc. to become a household name to those whom were not attracted by limited previous distribution channels, and Jung’s choices of  re-invigorating the brand, instituting beauty advisory training, expanding multilevel sales programs or partnering with department stores.    Kiosks were admittedly a risk.  At $6,000 per kiosk and lack of information on kiosk performance, Andrea indicated these would be too expensive.  Perhaps a trial run of a low number of kiosks in the environment would settle this question. In conclusion, the Avon CEO strategy did not impress as very well thought out and it was a good thing she went to the review board first. Avon should stick with their bread and butter – the sales representatives as it is the channel where they were recognized and where they became one of the largest beauty products in the world. The website should be a complement to the services that Avon offers. Recommendations: For promoting direct-sales through consumer and the business; one is to offer incentives to its customers and second is to motivate the business to promoting its products by advertisements, establishing sales competition for employees, participating in conventions, and by endorsing franchise of its products to retail stores. Promoting Avon’s products and high chance of increasing direct-sales is to offer incentives to its consumers. Incentives provide a positive motivational influence to encourage and excite buyers to buy the products. Such incentives, appropriate for this situation, are coupons, rebates, product samples and awards. Coupons can be attached in mail, beauty magazines, newspapers, and advertisements on mail or on the internet company’s official website. Rebates can be offered also to attract more buyers to buy the products. Rebates can be advertised also on coupons through mail or the internet. Another successful way of attracting consumers is by offering samples of Avon’s cosmetic products, which can be done door-to-door or attached on an advertisement through mail. Finally, awards through prizes, contests or sweepstakes can offer consumers the chance to win something small or big like cash or free-trips. Also, prizes can be offering a free gift whenever a consumers purchase one of Avon’s products. This last incentive option attracts more attention from consumers than the three other options. Motivate the Avon business to reach its goals of promoting its products and gaining sales through advertisements, sales competition, participating in conventions and endorsing franchise. Advertising is the key to attracting consumers and the outcome is high sales. Such advertisement is done through media (television), mail, or the internet. The more awareness from the public of the company likely to attract more buyers and the outcome is high sales. The next option is to encourage Avon’s sales representatives with awards/prizes that reached their sales goals within a period of time. Another is participating in conventions and this is more likely to increase sales through direct contact with customers. Last is to endorse franchise of Avon’s products with small and big cosmetic-related retail stores, such as Macy, JC Penny, etc. This option can be most likely increase sales and in turn profit which is any company’s ultimate aim. References: 1. www.avon.com 2. Jon E. Gamble, 2001, University of South Alabama, Cases in Strategic Management, Andrea Jung’s Makeover of Avon Products, Inc. 3. www.essayinfo.com/sample/essay/725- 4. www.ranjitmalayath.wordpress.com/