Avon: Re-Branding a Company that is Antiquated in the Consumers Perspective - Research Paper Example

? Avon: Re-Branding a Company that is Antiquated in the Consumer’s Perspective Contents Table of Figures 2 Executive Summary 3 Position 5 Sense 6 Uncover 8 Solve 9 Build 11 Achieve 12 Bibliography 12 Appendixes 14 Table of Figures Figure 1 Revenue Growth (Zacks) 16 Figure 2 Market Share for Cosmetics Industry (Saxena 762) 17 Figure 3 Timeline 18 Executive Summary The Avon Company, Inc. has provided cosmetics and empowered women through opportunities for income control for 125 years. The company was founded on the idea that being a woman should not limit the potential for success. As women have now successfully entered the public sphere and integrated into the business world, the idea of the ‘Avon Lady’ now represents ties to generations of women who were not empowered and were limited by the opportunities that were gender specific and defined by an inability to enter other types of careers. The company has developed a strong global presence and is increasing in different markets around the world, but in the United States the idea of Avon has become associated with what is old, outdated, and not in touch with the way in which the female gender expresses its existence in a modern context. The solution for the problem is to abandon the Direct-Sales Model as the primary resource of distribution. Although the company has returned to this model in recent years hoping to harness the poor economy as a foundation for a resurgence in this model, this has not been successful and the company has seen 4% overall losses per year in the number of representatives selling their products (Saxena 762). The global presence of Avon allows for women in developing nations to see this as an opportunity, just as women in the first half of the 20th century were able to grasp this opportunity in the United States. The cultural idea of gender has changed, however, and women are no longer relegated to the domestic sphere to an extent that their interaction with the public sphere is restrictive and oppressive. It is not that women are no longer oppressed, it is that in the struggle to gain a position in the public sphere, the idea of the door to door sales rather than engaging the world outside of their doors is difficult to reconcile with the ideals for the meaning of being female. In order to effectively revitalize the brand, an abandonment of the idea of the ‘Avon Lady’ must be achieved. To create a divorcement from this idea, going into the specialized retail division and expanding it across the United States would allow the brand to transform into a public space perspective. Opening up outlets in malls and shopping centers would allow for the brand to transform through the immediate availability that the modern woman in the United States has come to expect. While today’s woman is now shopping on the internet for the things that she needs, she is still shopping in malls and shopping centers for those products that she has to replenish, the hands on opportunity an important part of her experience. With the high level of competition in the cosmetics industry, waiting on delivery of a product is not always convenient. Creating a physical presence can allow Avon to engage their consumers in a new way in order to eliminate the antiquated idea of the ‘Avon Lady’. This does not require eliminating the Direct-Sales Model approach, but diminishing the focus on this model and creating outlets that represent a new vision for the company. If stores are available for walk-in customers who can then go home with their choices, the outlets can create an experience, which was the essence of the initial development of the Avon representative. The new stores should be designed in such a way as to reflect a high end product, with attention to service and in creating an experience in which the shopper feels as if they have had the same attention that they would have had from their sales representative in the old model. In creating this type of specialized experience, the consumer can leave feeling as if they have had the attention of a trained professional, similar to that which they experience in day spas which have become popular in the last decade. The sales model must be adjusted to meet the expectations of the modern shopper, and in creating a new experience for the shopper, the brand is then transformed. Avon: Re-Branding a Company that is Antiquated in the Consumer’s Perspective Position Avon Company, Inc is number 226 on the Fortune 500 list, having risen from 228, with revenue that is over $10,862,000,000 per year. As shown in Appendix 1, the company has shown increases in revenue, but a drop in overall profits of 3.1% (see Appendix 1 for the full financial breakdown from the CNN Money) (Fortune 500). The company is on the New York Stock exchange as AVP and on the NAIC under Toilet Preparation Manufacturing with the code 32562 as well as Other Direct Selling Establishments as 45439. The company was founded in 1886 under the name The California Perfume Company, David Hill McConnell when he started giving perfume samples with the purchase of books that was his primary product. He discovered the perfume samples were more popular, thus creating a shift to toiletries. As he developed his business, he saw an opportunity through the idea of using the Direct-Sales Model which allowed for independent sales associates to grow their own business, focusing on women as his sales representatives. The company currently has over 43,000 employees that are involved in the home office and development of products (Reference for Business). The current CEO of Avon Company, Inc is Andrea Jung who is the first female CEO for a company in 1999 that was begun in order to empower women through financial resource opportunities in the form of direct sales that begun as a door to door sales model. The Direct-Sales model was the original design for sales which was intended to create a niche that was almost exclusive to women who were otherwise without many opportunities for creating income. Through concerns that the pyramid style structure of the Direct-Sales model was limited with too many impossible goals, the Leadership Model replaced the original form of created expansion within the business with a framework that eased the overall format for creating business partnerships for the independent sellers (Willet 32). Sense Problems with the structure for direct sales representatives occur in retention of associates. There are currently approximately 650,000 representatives in the United States, but this represents only a small portion of the overall sales of the products. Most of the sales, at a rate of between 70 and 75%, are from international subsidiaries (Willet 32). Although the primary sales method has been through the individual sales representative, there are three types of sales that the company utilizes. Avon operates through its primary model for independent sales representatives, with an online presence, and through a limited number of retail outlets. Hitt, Ireland, and Hoskisson state that “the purpose of changing strategy and structure is for Avon to control its costs and gain additional scale economies as paths to performance improvements” (337). Restructuring has occurred not only at the sales level, but throughout its system in order to create a savings of 450 million dollars in 2012 as the company has not seen the growth that it desires in the last few years (Hitt, Ireland, and Hoskisson 337). The problem that Avon has held in the last few years is that their primary demographic is aging and the reputation of the brand is hung up on the type of sales program that it promotes in combination with the view from consumers that the product is a dated and out of touch line that is relevant to their mothers and grandmothers. Even though the brand has been consistent in searching out new technologies and following trends – even setting trends, the image that the brand currently holds is tied to an antiquated idea about the abilities of women and careers. These ties are holding the company down as the new generations are making marks outside of female tailored careers, pursuing ambitions that they are trying to perceive as not relevant to their gender. Even though the company has seen relatively good revenue growth in the last few years, it is based on international markets rather than on United States sales, thus creating an anticipation of problems for the future (see Appendix 2). The year 2010 saw sales of approximately 10.8 billion dollars, with a fall in 2009 to 10.2 billion. Although there was an increase in revenue in 2010 to 10.9, this is deceptive as it was due to the sale of the Japanese subsidiary (Avon Company, Inc). While the total number of representatives rose by 6% in 2010, the number of representatives in the United States fell by 4%. The greater share of the overall revenue was earned in South America where a total of 4.6 billion dollars was brought into the company. This represents 42% of the total revenue for the year. Only 20% of the overall revenue for the company was earned in the United States (see Appendix 3). While a global presence is a valued asset for the company and is the primary resource, the goals of the company are to increase interest in the brand in the United States (Saxena 762). As an example, the Japanese subsidiary that was sold in 2010 only represented 2% of the company yearly revenue, with the sale allowing for 74.57% of the company to be sold to Private Equity (Avon Company, Inc). Rather than further cultivate the asset, Avon chose to release a majority of the asset to a buyer in order to help focus their efforts elsewhere, including the development of the market share in the United States. Avon has acquired the representation of Patrick Dempsey and Reese Witherspoon for perfume and cologne products in order to utilize their celebrity status to increase interest in the fragrance lines with which they are associated. Celebrity endorsement can be a valuable resource for increasing image and brand power. According to Choi, Marina, Lee and Kim, “Since celebrities echo the symbolic meanings and values that are closely tied to the culture in which they have attained their eminence, the selection of celebrity endorsers and the creative execution of this advertising strategy may also mirror the fundamental cultural orientations and values of that society” (85). This attempt by Avon to revive the brand, however, does not have enough foundation precisely for the reasons Choi, Marina, Lee, and Kim list for using this type of endorsement. These celebrities are valued to an extent in this time period, but are not as of yet a timeless representation of the culture, thus they also will have a limited effect on the brand. In addition, updates in the packaging and in creating innovative and cutting edge technology have also been used as a way to revamp the brand. The company claims 2,400 jars of their Anew line are sold throughout the world on an hourly basis (Avon Company, Inc.). The price point is medium to high on the product, the packaging is slick and modern, and the attraction of the product is to the middle aged female market that has the desire to look younger and the financial stability to afford the product. On the surface the product should be an example of how the brand can create a new image, the modern technology focused on the idea of cosmaceuticals which are designed to be pharmacologically created cosmetic products that use compounds that are intended for more than superficial use. They are intended to repair and make changes to the physiology of the skin. The price reflects quality, the claims for the product reflect technological development, and the marketing of the product allows for the idea that it is part of the modern woman’s lifestyle and need. Still, it is not enough to combat the image problem. Uncover Today’s female consumer of cosmetic products expects all that Avon has worked towards providing through high technology and the feeling of modernity in packaging and presentation. The consumer does not want to use what her mother used, as she saw the ravages of age that her mother experienced. The consumer does not want to be associated with the ‘Avon Lady’, an image that suggests the pearls, heels, and dresses of the 1950s, the chains of oppression that the sexual revolution of the 1960s released. The modern woman wants to be a part of the public sphere, her life defined by a fast pace that allows for her to leave the domestic space and enter the world either through a career or through the act of shopping. CEO Andrea Jung intends to create new packaging and advertising in order to combat the problems they have had with the image of Avon and the association with antiquated ideas about cosmetics (Witt 119). Advertising is not going to be enough. Solve One of the more modern ideas in retail is the idea of the ‘experience’. In creating an experience for the consumer, the brand is emphasized and the concept of purchasing a product is associated with the way in which the experience of the purchase influences the buyer. The experience of the consumer increases impulse buying, encourages brand loyalty, and creates a brand culture (Cox 30). The phenomenon that expresses the brand is embodied in the experience. Avon has had a very specific experience associated with the products they sell which is associated with the independent representative. In shifting that experience to a retail environment, the shift away from the stale experience of the in home sales environment can be achieved. Using Helena Rubinstein as an example, the retail experience in the Rubinstein salons has been an important part of creating the overall retail environment. Clifford discusses in relationship to the invention of the experience for the Rubinstein salons that “the space actively participates in the construction of fashionable femininity” (83). The way in which the stores were designed was an important part of the building of the culture in which the Rubinstein line was sold. The salons were started in 1937, but because they were dedicated to the height of fashion and the experience of the individual in such a way that it was timeless, the methodology has endured, creating a place and experience that enhance the line. Avon created a specific experience with the individualized attention of the independent sales associated, but the gender culture has changed in such a way that this experience no longer carries the same value. There was a time when the female gender was relegated to the domestic sphere, her days spent alone with the children in her home. The break from the monotony of that experience came from the knock on the door as sales people entered her space, creating a consumer opportunity without her having to leave the home. The value of this experience created an environment in which the purchase of the items was only a part of the overall interaction. The time of the encapsulated female who spends all her time in the domestic space has past, creating a situation in which the environment needs to change in which the experience, as in the Rubenstein salons, can provide a sense of something new and exciting. This will lead to the transformation of the brand. Creating exciting and experiential retail spaces will solve this brand dilemma. Avon has always been a conservative company where manufacturing and distribution are concerned, utilizing subcontractors and filling orders that are prepared so that inventory is controlled through the distribution process. The biggest risk will be in creating and holding inventory in retail outlets as opposed to direct to the sales representative formats. Avon, however, has already proven that this format can be utilized to breach markets. In China, the idea of the Direct-Sales Model was banned. The pseudo-religious charismatic meetings that are used to create the Direct-Sales Model looked to the government to be too close to creating cultures that were adverse to Chinese interests. In 1998 the government banned Direct-Sales Model selling and Avon had to find a new way to exist in the market. The company designed high end retail outlets, creating a successful niche in the market (Karabell 88). This proves that the company can support the high end retail model of sales. Build The ethics of creating an expansion into a retail model of sales structure easily passes for legality. The consideration of stakeholder interests becomes a bit more complicated as those women who are dependent upon Avon sales might have to adjust their approach. This has been the course of the business, however, ever since the changes in commerce through internet connectivity have occurred. Independent sales representatives have included trade and flea market outlets as a part of their business as well as creating their own personal websites to sell Avon products. According to Carroll, a good way checking for the ethics of an action is to consider if it is legal, if it is a part of the shared values of a business, does it feel right, does it play to the public well, and does it feel like a positive move. The move to transform the Avon brand through a retail experience feels like a positive move, as long as care is taken to protect the independent representatives. In the 1980s Avon experimented with putting lines into retail outlets such as department stores. The Avon brand was not used, but individual lines were created through cooperation with Liz Claiborne and Catherine Deneuve. Avon expanded by buying Giorgio and Red, both very successful lines, as well as purchasing Louis Ferard which held the rights to such brands as Valentino, Oscar de la Renta, and Perry Ellis fragrances. The timing was not right for learning and integrating new lines, however, so those lines were eventually sold (Klepacki np). The key to creating a new brand through a shift in sales model is in defining the market, creating budgets that can withstand the learning curve, and in utilizing designers who can create a unique and transformative experience for the consumer that can change the Avon culture. Wit and Meyer suggests that “As the new generation of new women have new needs, maybe Avon needed to rethink how women can best be served, instead of only focusing on a direct sales model” (123). Achieve Estimating the costs of opening a set of retail outlets is difficult. The benefit to the rejuvenation of the brand, if aggressive measures are taken to change the brand culture, is the potential to create trending lines and desired experiences. A mock estimated budget, should the beginning of the project after a pilot test or two has been established, would be to open in 2,000 locations across the United States at a cost of 50,000 per store for startup costs. That would require a budget of $100,000,000.00. In addition, the design costs in creating the concept and in rejuvenation of the brand would likely cost a minimum of $500,000.00. An additional cost of $100,000.00 would be allotted for pilot studies to perfect the concept. Therefore a cost analysis would result in an approximate budget of $100,600,000.00. The timeline for implementing the process would be two years. The first six months would be used to develop the concept, creating an experience for the consumer and designing an environment that is exciting and thought provoking. The initial stages would also involve creating studies and making decisions on where and when to open the projected number of stores. The next six months would involve opening pilot study stores in which the concepts are perfected for the consumer, the experience sufficient to be transformative. Evaluations should be done on a weekly basis at this stage. At the beginning of the second year, the 2000 stores for the first phase of developing the retail environment of Avon would be opened. See Appendix 4 for the timeline. The process to change the brand image should be accomplished with the growth of the retail outlets and the change in the perspective of the consumer through the Avon experience. Bibliography Avon Company, Inc. (2011). Avon. Avon Company, Inc. 2011. Web. 16 January 2012. Carroll, Archie B. Business & Society: Ethics & Stakeholder Management. Mason, OH: South- Western Cengage Learning, 2009. Print. Choi, Sejung Marina, Wei-Na Lee and Hee-Jung Kim. “Lessons from the Rich and Famous: A Cross-Cultural Comparison of Celebrity Endorsement in Advertising”. Journal of Advertising. 34.2 (Summer 2005): 85-98. Print. Clifford, Marie J. “Helena Rubinstein's Beauty Salons, Fashion, and Modernist Display”. Winterthur Portfolio. 38.2/3 (Summer/Autumn 2003): 83-108. Cox, Emmett. Retail Analytics: The Secret Weapon. Hoboken, N.J: Wiley, 2011. Print. Fortune 500. 226. Avon Products. CNN Money. 23 May 2011. Web. 16 January 2012. Karabell, Zachary. Superfusion: How China and America became one Big Economy and Why the World’s Prosperity Depends on it. New York: Simon & Schuster, Inc, 2009. Print. Klepacki, Laura A. Avon: Building the World's Premier Company for Women. Hoboken, N.J: John Wiley & Sons, 2005. Print. Reference for Business. Avon Products, Inc. - Company profile, information, business description, history, background information on Avon Products, Inc. Advameg Inc. 2011. Web. 18 January 2012. Saxena, R. Marketing Management. New Delhi: Tata McGraw-Hill, 2009. Print. Willett, J. A. The American Beauty Industry Encyclopedia. Santa Barbara, Calif: Greenwood, 2011. Print. Wit, Bob , and Ron Meyer. Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive Advantage : Text and Readings. Andover: South-Western Cengage Learning, 2010. Print. Wohl, J. Avon Shakes up Structure, looks for Latin Leader. Reuters. 24 February 2011. Web. 20 January 2011. Zacks Investment Research. Avon Products, Inc.. Zacks Investment Research. 2011. Web. 20 January 2011. Appendixes Appendix 1 Key financials $ millions % change from 2009 Revenues 10,862.8 4.6 Profits 606.3 -3.1 Assets 7,873.7 — Stockholders' equity 1,656.5 — Market value (3/25/2011) 11,788.7 — Profits as % of   Revenues 5.6 Assets 7.7 Stockholders' equity 36.6 Earnings per share   2010 $ 1.39 % change from 2009 -4.1 2000-2010 annual growth rate % 3.4 Total return to investors % 2010 -4.9 2000-2010 annual rate 4.1 Industry: Household and Personal Products Rank Company 500 rank Revenues ($ millions) 1 Procter & Gamble 26 79,689.0 2 Kimberly-Clark 130 19,746.0 3 Colgate-Palmolive 160 15,564.0 See all More competitors Issue date: May 23, 2011 Appendix 2 Figure 1 Revenue Growth (Zacks) Appendix 3 Figure 2 Market Share for Cosmetics Industry (Saxena 762) Appendix 4 Timeline   Jan/Feb Mar/Apr May/June Jul/Aug Sept/Oct Nov/Dec Jan/Feb Mar/Apr May/June Jul/Aug Sept/Oct Nov/Dec Devlopment                         Pilot Stores                         Evaluation                         Initiate Program                         Launch 500 Stores                         Evaluate Initial Launch                         Launch 500 Stores                         Evaluate Second Launch                         Launch 1000 Stores                         Evaluate                         Figure 3 Timeline Read More