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NORTHERN CARIBBEAN UNIVERSITY COLLEGE OF CONTINUING EDUCATION MONTEGO BAY CAMPUS

A Strategic Management Project Prepared In Partial Fulfillment of the Requirement for The Bachelors Degree in Business Administration & Management Studies

A Study Conducted on the case study Avon Products Inc.

Prepared By: Tabia Macfarlane Chrystal Brady Ricardo Hanson Denise Heaven Claudette Drummond Shermete Jones Joycelyn Thompson

Submitted to: Mr. Michael Isaacs

Due Date: December 20, 2010 Course: MGMT 490 – Strategic Management Table of Contents Title

Page number

Case Abstract................................................................................................................3-5 Vision statement for Avon Product Inc...............................……………………..........6 Mission statement for Avon Product Inc…………………..........................................6 Proposed Vision .............…………………………………………..............................7 Proposed Mission Statement……………………………………….............................7-8 Mary Kay Mission Statement………………………………………………................8 Internal Assessment Financial Ratios Analysis (Table 1.1)……………………..............................9-10 Avon Organizational Chart and analysis (Figure 1.1).....................................10-11 Proposed organizational chart (Figure1.2)……………………………….......12-13 Marketing positioning map and analysis..........................................................13-14 Analysis of Marketing Strategies…………………………………………….14-15 Map locating the firm’s operations…………………………………………..16-17 Strengths..........................................................................................................18 Weaknesses…………………………………………………..........................19 Internal Factor Evaluation (IFE) Matrix (Table 1.2)…………………….......20 External Assessments Avon Major Competitors............................……………................................21-22 Pie Chart (Figure 2.1)......................................................................................23 Pest Analysis (Table 2.1)…………………………………………….............24 Opportunities……......................................………………………….............25

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Threats.............................................................................................................26 External Factor Evaluation (EFE) Matrix (Table 2.2)........................................27 Competitive Profile Matrix (CPM) (Table 2.3)………………………………..28 SWOT Matrix (Table 2.4)……………………………………........................29-30 Strategic Position and Action Evaluation (SPACE) Matrix (Figure 2.2)………….....30-32 The Quantitative Strategic Planning Matrix (QSPM), (Table 2.5)…………………...33-36 Financing Options EPS/EBIT Analysis for Avon Product Inc.…………………………..............37-39 Avon Projected Financial Statement ………………………............................40 Avon Projected Balance Sheet……………………………………...................41 Project financial ratios........................................................................................42 Evaluation Balance Scorecard…………………………………………………...............43-46 Conclusion...................................................................................................................47-48 Reference.....................................................................................................................49

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Avon Product Inc Case Abstract David H. McConnell founded “The California Perfume Company (CPC) in 1886 with the first office located in New York. In 1906 the San Francisco earthquake destroyed CPC’s California office however, before long the company reopened. CPC’s first office outside United State was opened in 1914 in Montreal, Canada. In the 1920’s CPC sales doubled to $2 million during this time there were more than 25,000 representatives in the United States. The Company’s name was change to Avon Products Inc. after the British town Stratford-upon-Avon in 1938. Avon’s sales increased to about $16 million and in 1946 the company was announced publicly with advertising campaign such as “Avon Calling”. Avon expanded overseas to countries such as Puerto Rico, Cuba and Venezuela. In the 1970’s U.S sales top $750 millions and the first Avon Asian business was opened in Japan. Avon also acquired the Jeweler Tiffany’s during this period of growth. It was the first major U.S. cosmetics manufacturer to permanently end animal testing. Avon adopted five (5) core values which are Trust, respect, belief, humility and integrity which are evident in the mission statement to be a Global beauty leader, women’s choice of buying, premier direct seller, the best place to work, largest women foundation and the most admired company. Avon success lies within it channel of distribution, it is the world’s largest direct seller with 5.4 million Avon representatives in over 100 countries. Additionally, it is the largest micro lender to women and it among the world top global brands. The company [4]

increased it’s investment in 2007 by over $120 million which aided in the development of new sales leadership opportunity, improved training, technology tools and changes in commission structure. There are three (3) product categories which Avon distributes, they are beauty, fashion and home. In 2008, Avon changed its marketing approach of concentrating mostly on a homey image and is now including celebrities as apart of their promotions. The company advertising cost increased from $136 million in 2005 to $249 million in 2006 and $368 million in 2007. Reese Witherspoon is the Avon Foundation first global ambassador and honorary chairwoman who appear in advertisement for Avon make up, skin care products and fragrances. “Spotlight” the new fragrance was launched in 2009 with celebrity Courteney Cox as the face of the brand. Avon’s largest manufacturing plants, Brazil, China and Poland received the ISO 14001 certifications in 2008. Various awards were granted during this period such as the Clean Industry Certificate to the manufacturing plant in Mexico. During the same period Avon’s revenues increased 7.5 percent and net income increased by 65 percent. Avon Products Inc. closest competitors are Revlon, Inc and Mary Kay Inc. Mary Kay Inc uses the same approach as Avon which is direct marketing approach which Revlon sells its products through cosmetics counters in department stores are pharmacies. Avon revenues far exceed that of its competitors in 2008 Avon’s revenue was $10.37 billion compared to Mary Kay $2.40 billion and Revlon $1.35 billion. Avon implemented reconstructing programs in 20098 which included closing two manufacturing facilities. In addition, there is heavy investment in online search engines

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and internet carrier sites to help increase Avon’s revenue. Andrea Jung is the Chief Executive Office who is leading the management team of thirteen to achieve its goal.

Avon: Beauty, Home and Fashion Vision Statement (Actual) To be the company that best understands and satisfies the product, service, and selffulfillment needs of women globally. Mission statement (Actual) The Global Beauty Leader—We will build a unique portfolio of Beauty and related brands, striving to surpass our competitors in quality, innovation and value, and elevating our image to become the Beauty company most women turn to worldwide. (1, 2) The Women’s Choice for Buying— We will become the destination store for women, offering the convenience of multiple brands and channels, and providing a personal high touch shopping experience that helps create lifelong customer relationships. The Premier Direct Seller— We will expand our presence in direct selling and lead the reinvention of the channel, offering an entrepreneurial opportunity that delivers superior earnings, recognition, service and support, making it easy and rewarding to be affiliated with Avon and elevating the image of our industry. (3) The Best Place to Work— We will be known for our leadership edge, through our passion for high standards, our respect for diversity and our commitment to create exceptional opportunities for professional growth so that associates can fulfill their highest potential. (9) [6]

The Largest Women’s Foundation— We will be a committed global champion for the health and well-being of women through philanthropic efforts that eliminate breast cancer from the face of the earth, and that empower women to achieve economic independence. The Most Admired Company—We will deliver superior returns to our shareholders by tirelessly pursuing new growth opportunities while continually improving our profitability, a socially responsible, ethical company that is watched and emulated as a model of success. (5, 7) The five values of Avon are: Trust, respect, belief, humility, and integrity. (6, 8) Vision (proposed) To be the leading provider of home, fashion and beauty products that will satisfy our customers while preserving the environment. Mission statement (proposed) Avon is committed to being the leading global provider of home, fashion and beauty products that will enhance the lives of our customers. We will utilize latest technology and will pursue new growth opportunities that will bring about wealth for all our stakeholders. At Avon we firmly believe in respect: respect for people and respect for the environment. The vision statement was improved to include “customers” instead of women, since the company is now offering products for women, men and children. Additionally, in light of the fact that the world is going green we thought that it was prudent to include

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the environment to emphasize our responsibility to society as we all work towards a sustainable future. The proposed mission statement incorporates all nine components that are essential to a good mission statement. The essential elements are customers, products and service, markets, technology, concern for survival, growth and profitability, philosophy, self concept, concern for public image, and concern for employees. The ‘proposed mission statement also speaks to the company’s values of trust, respect, belief, humility, and integrity. The old slogan for Avon states “the company for women” we have decided to change this slogan to “Avon: the company for everyone – committed to the enrichment of lives” Mary Kay’s mission “Enriching Women’s Lives” Mary Kay’s mission is to enrich women’s lives. We will do this in tangible ways by offering quality products to consumers, financial opportunities to our independent sales force, and fulfilling careers to our employees. We also reach out to the heart and spirit of women, enabling personal growth and fulfillment for the women whose lives we touch. We will carry out our mission in a spirit of caring, living the positive values on which our company was built. The components identified were customers, products, philosophy and concern for employees; hence it lacked the identification of the market, technology, concern for survival, growth and profitability, self-concept, and concern for public image. Mary Kay does not have a formal vision statement.

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INTERNAL ASSESSMENT Table 1.1 Ratios

2006

2007

2008

Current Ratio

0.75

1.15

1.22

Quick Ratio

1.1

0.93

0.88

Operating Profit Margin

0.09

0.09

1.25

Net Profit Margin

0.05

0.05

0.08

Return on Stockholders Equity Total Asset Turnover

0.60

0.75

1.29

1.67

1.73

1.76

Debt/Equity Ratio

5.62%

7.03

7.99%

Earnings Per Share

2.60

2.87

4.72

Financial Ratio Analysis

Avon Product Inc. Current ratio have increased from 2006 to 2008 which states that they may not face complications in liquidating its assets, if needed in the short – term Profitability ratios have seen an increase which is a clear indication that Avon Products Inc. is much more well in terms of profitability in 2008 than in previous years. Additionally, more operating income means that more projects can be undertaken which is in synchronization with strategic management processes. [9]

Total Asset Turnover ratio has steadily increased over the period which shows that the business is generating sufficient volume for the size of its asset investment Debt/equity ratio has increased from in 2008 compared to 2006 and 2007 which indicates that Avon Products Inc holds much more financial leverage in terms of debt and equity financing.

AVON’S ORGANIZATIONAL CHART

Figure 1.1

Chairman and CEO

Vice President, Chief Finance and Strategy Officer

SVP, Global Communica tions

President Avon Products

SVP & General Counsel

SVP, Chief Information Officer (CIO)

SVP Human Resource

SVP and Global Brand President

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SVP and President Avon Asia Pacific

EVP, Avon Latin American and Central & Eastern Europe

EVP, Global Direct Selling and Business Innovations

SVP & President North American

SVP Global Supply Chain

NOTE:

1. Andrea Jung, Chairman and CEO 2. Charles Cramb, Vice Chairman, Chief Finance & Strategy Officer 3. Elizabeth Smith, President, Avon Products 4. Nancy Glaser, SVP, Global Communications 5. Kim Rucker, SVP & General Counsel 6. Donagh Herlihy, SVP, CIO 7. Lucien Alziari, SVP Human Resources 8. Jeri Finard, SVP and Global Brand President 9. Bennett Gallina, SVP and President, Avon Asia Pacific 10. Charles Herington, EVP, Avon Latin America and Central & Eastern Europe 11. John Higson, EVP, Global Direct Selling and Business Innovation 12. Geralyn R. Breig, SVP & President, North America 13. John Owen, SVP Global Supply Chain Analysis: •

There are different divisional areas outlined

•

The structure shows direct communications from the CFO to the CEO

•

Reporting structure is not clearly identified

•

There should be no dual title such as Chairman and CEO

•

It is not clear why the regional divisional presidents are on the same level as the SVP, human resource

•

Research and Development Officer cannot be identified

•

It is not clear who reports to the Chief Finance and Strategy Officer although this person is on the same level as the President of the products

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•

There could be communication problems since all high level manager report to the president of the products who then reports to the CEO.

Figure 1.2 PROPOSED ORGANIZATIONAL CHART

Andrea Jung CEO

SVP, Human Resource Research & Development

SVP, Global Communicati ons

EVP, Global Direct Selling and Business Innovations

EVP, Avon Latin American and Central & Eastern Europe

VP, Chief Finance & Strategy Officer

SVP & President North American

SVP Global Supply Chain

SVP and President Avon Asia Pacific

SVP & General Counsel

Chief Information Officer

President Western Europe Middle East and Africa

Analysis: For the proposed organizational chart we recommend that dual titles should not be used such as SVP and CIO. Additionally, we separated the divisional presidents from the same line of communication as the SVP, Human Resource. Also directly below the CEO, we moved the Chief Finance & Strategy Officer who we thought could be view as the COO. We recommend that the divisional presidents report to the COO who would then [12]

SVP and Global Brand President

report to the CEO. We thought it would be necessary to include a Research and Development (R&D) Officer would report directly to the CEO. This individual would be responsible for overseeing all the aspects of a research project eg. repositioning the Avon brand. The R&D officer would aim to develop eco-friendly products through means which are more environmentally friendly also such an individual would have the responsibility to be fully aware of all the things that are happening especially in terms of the scientific facet of the projects being created.

Marketing Positioning Map

Customer Service (High) Avon Revlon Mary Kay Quality (Low)

Quality (High)

Customer Service (Low) Analysis: The top-to-bottom approach was used to narrow down two important variables, customer service and quality of products. The key feature of a market positioning map is that only key or immediate competitors should be plotted. The competitors Revlon and Mary Kay are well-established firms with Revlon plotted with higher quality products

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(Cosmetics). Avon was strategically plotted to show that they lead in customer service. However, when compared to cosmetics quality Revlon and Mary Kay are leading. Superior customer service compared to rivals: Avon has gained an outstanding reputation as the best direct seller of beauty products. Through the continued efforts and achievements of its Sales Representatives Avon is now known worldwide. Avon's core competence has mainly been through direct selling, knowing this Jung and the management team implemented a Sales Leadership program in its ten largest markets and provided these markets with incentives to acquire, train, motivate, and retain the number of active Sales Representatives it needs to sustain significant growth. Analysis of Marketing Strategies: Avon Diversification of product line to appeal for greater market shares. Direct selling to customers Products differentiation: Beauty, fashion and Home Heavy investment in online search engines and internet carrier sites to improve on delivery Improve in advertising by using celebrities to promote products such as, Avon make up New and innovative products which are embraces by celebrities eg. ‘Spotlight’ which was a new fragrance introduced with Courtney Cox being the face of the product. Focus mainly on women [14]

Avon lacks brand image – the name ‘Avon” is not associated with most of the products. Revlon  Different categories of distribution: Prestige – Department stores, specialty stores and chain department stores such as JC Penny (international) o Broad – Drugs stores, food stores, cosmetics discounters Products are regularly promoted with coupons Brand Strategy - high price link to quality of products and brand image Products are sold through their websites www.revlon.com Constantly having new products and developments Mary Kay Direct Selling to customers Highly motivated sales force Uses several programs to motivate, recognize, and develop It’s beauty consultants, which include recognition in a monthly magazine, annual events, gifts and prizes and most importantly, financial incentives

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Map locating the firm’s operations: Avon Products, Inc. markets its products to women in over 100 countries through over 5 million independent Avon Sales Representatives. The map below shows the six (6) geographic regions where Avon products are marketed and sold.

• • • •

Albania Belarus Czech Republic Finland

• Armenia • Bulgaria • Estonia • Georgia

• • • • •

Lithuania Moldova Poland Russia Slovakia

• Macedonia • Montenegro • Romania • Serbia • Slovenia

• United States • Puerto Rico • Aruba • Barbados • Curacao • Grand Cayman Island •Guyana •St. Kitts & Nevis [16] • St. Maarten • Suriname • Trinidad & Tobago

• Canada • Dominican Republic • Antigua & the Bahamas • Bermuda • Dominica •Grenada •Jamaica • St. Lucia • St. Vincent • Tortola • Virgin I...