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Name: Surabhi Sharma

Serial Number: 24
Section: F
Roll number: 140101181
Case Analysis
Avon.com (A)
Introduction:
Avon has been the worlds largest direct seller of beauty products and fifth largest beauty
company overall with annual sales of over $5billion. It wants to leverage its sales
representatives and is contemplating new channels for reaching out to the customers.
Analysis:
Target market of Avon includes 25-50 years of women. Total 25 million U.S. women included
the target set. It was positioned as a brand for average and less than average income group.
Not positioned for luxury segment.

High
Quali
ty

Highly
innova
tive
produc
ts

AVO
N

Purchase order cycle of Avon:

Outst
anding
value

Following is the purchase order cycle of Avon:

Each
representative gets
catalogs from Avon

The catalogs are


distributed to
friends, families or
put at conspicuous
locations

Delivery after 5
days of receiving
the order

Representative
collects orders
from customers for
2 weeks

The order is placed

All the orders are


aggregated

Purchase order
form is filled up,
some extra
products ordered
for inventory

The sales process included selling the products through woman sales representatives. The
leadership program allowed a rep to earn additional money by encouraging other women to
become Avon Sales rep. The Beauty Advisor Program included 26 two week selling
campaigns. Full color brochure featured the products available for sale. On an avg. each
customer on a representatives list ordered $20 worth of products per campaign. Avon
provided 100% satisfaction guarantee.
A choice needs to be made between two models that can be adopted:
Eve.com model
iVillage.com
Commerce-only site
Active online community site for women
Only well known products sold directly from Only information exchange
manufacturer
Fit to Direct Selling Model
Image of Company for women
Eve.com model will restrict the content and functions of the site. Hence, iVillage.com model
should be adopted. In this way, Avon will maintain its sales force and retain its loyalty.
Advertising cost will be saved as the reps will be carrying on with their roles.
Since over 70% of the total sales of Avon were through its sales reps, the company
should use the B2B path and ease the ordering style for the representatives by
eliminating the filling of the archaic purchase orders
The company should also use the B2C path because a significant 18% target
customers would buy independently
The website should be more attractive and there can be a forum so that the reps as
well as the customers can discuss about the Avon products

Q1) Examine the existing retailing system of Avon.


The existing retailing system of Avon included the following aspects:
Direct Selling: The representatives used to do door-to-door selling. They included their
friends, family members and colleagues at work place.
Direct Marketing: Direct mails were sent to customers. But this system failed as the margins
were not covered.
Buying Services: Avon products were sold to the representatives at discounted price.
Catalogue Marketing: Catalogues with all the products were distributed to the consumers for
creating brand awareness. The orders were placed to the representatives.

Building a customer list through


networking/referrals
Buying brochure or catalog from reps
Collecting orders from customers after
distribution of brochures and counselling
Submission of orders to Avon by reps
through a 35 page purchase order
Processing of orders by Avon
Shipments received by Sales rep within 5
days of ordering
Delivery by Avon reps to customers in
person at home/workplace
Delivery by courier to customers living far
away

As the representative turnover ratio was quite high, many customers handled by
representatives were stranded customers.
U.S. along had 5 million stranded customers.
Programs like Leadership Program and Beauty Advisory program were started for
greater involvement of reps and to reduce the rep turnover ratio.

Q2) Should Avon establish other forms of retailing? Sell directly to consumers? If so,
provide details.
Analysis of B2B option
For updating 1997 version of Avon.com= $5 million
Fully functional online ordering system=$60 million (5 years cost)
Total Cost= $65 million (5 years)
Present cost of processing orders
Order processing cost= $1 per order (shipping cost is borne by the representative)
Cost of brochures=$ 0 (the price charged for the brochures just covers all the costs, hence
neglected here)
No. of Avon sales reps= 0.5 million
1 rep participated in 12 Avon campaign (1 year)
15 customers under each rep
Total orders for 5 years =0.5*12*15*5 million
= 450 million
Cost of processing 450 million orders=450 million*$1

= $ 450 million (5 years)


Cost saving by using the online system=$ 450 million - $ 65 million = $ 385 million
Hence, Avon should go for B2C sales, i.e. it should sell directly to the customers.
In this way, it will cut down its cost.
Will save on the commissions to be given to the sales representatives.
It will account for the 18% of customers who do not want to buy through reps.
Online communities can help the customers to connect and create brand awareness.

Q3) How, if at all, should Avon include the representatives in the new retail strategy?
The sales representatives play a crucial role in the advertising and brand awareness of Avon
products. Avon cannot and should not completely do away with this asset.
Even though the costs are at $ 450 million for the whole sales process, it can be
reduced by including the representatives in the online retailing system.
The representatives can be given the access to premium accounts with discounts for
their purchases.
They can be accounted for every purchase in their coverage area. The reps can place
order online so that they do not have to fill the hefty form.
The positioning of the brand is that if a direct selling company. Integrating reps and B2C
format might create conflicting brand messages. But some steps can help Avon retain its
image.

The delivery to direct customers (who order directly online) can be made through
representatives. This will lead to interactions on reps and customers. It can also help
in developing the network for the rep.
The site can be made available for both the reps and direct customers. In this away,
reps will not have the threat of being sidelined.

As per the Exhibit 3, the sales reps have helped in growing the cosmetics, fragrance and
toiletries section. They can continue to do that. As per the exhibit 3, jewellery section has
been growing through online sales. Hence, it should be continued as such.
3500
3000
2500

Products

2000

Cosmetics ,
fragnances , toiletries
Gifts and decorative

1500

jewelry and accessories


Apparel

1000
500
0
1

Q4) What would be the gain from such strategy?


The mixed structure of online retail and direct selling can have various advantages.
1. The representatives will save their time which they used to spend on ordering by
filling the form. They will not be loaded by the 2 weeks window and can order
anytime.
2. This mixed approach will help cater to the 18% segment that wants to buy from Avon,
but not through a representative. These will be able to order online.
3. Out of the 12% people who do not want to buy from Avon, some will be those who
are not aware of product portfolio of Avon. Online catalogue and buying option can
cater to this segment.
4. Advertising cost for Avon is $ 45 million. Out of which $ 38 million is for the U.S. By
implementing digital marketing, the cost of traditional marketing can be reduced.
Cost through digital componemt=$65 million
Cost through the current setup=$450 million
A cost reduction of approximately 85.5% is possible through B2C model. A mixed approach
might lower down the cost benefit. But it will be a trade-off between the brand image and the
cost.