STRATEGIC MANAGEMENT

ASSIGNMENT - March 2010

Done By:

Mr Syed Tasaduq
Q1

“Ding Dong Avon calling” is one of the best -known branding catch phrases for the 1950s, but the Avon
Ladies have moved on from the iconic-smiling American homemaker to the working mother on-the-go of
today. In response, Avon has had to rethink, reevaluate and redefine its customers, products and
business strategies to reclaim the market power and presence it once had. This was done by none other
than Andrea Jung.

I would definitely give Andrea Jung an “A” because of the way she transformed a company which was
going down in all the terrains to a company which was looked up and seen as one of the major players in
the industry. She transformed people’s visions, thoughts or even the way people worked in the
Organisation and ensured to climb the ladder of success for both herself and her Organisation. The
makeover of Avon Products by Andrea Jung greatly transformed the company in all aspects - the
stakeholders, whether they are customers, employees or shareholders have undeniably benefited from
the change.

She was very strong as chief strategist of Avon Products. She never feared the need to make drastic
changes that would help drive Avon back to the top of the Cosmetics, Fragrance and Toiletry Industry.
She knew that serious issues were present and the company needed to address them. These issues
included product appeal, marketing strategy, pricing, process reengineering, and product
innovation/employee motivation. Her strategic plan was to fix these problems by fixing the entire company
structure, which included changing the product packaging for better appeal to changing the distribution
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 the cosmetics chain. She knew what needed to be done and did it, which is a must to be an
excellent CEO. She developed an excellent strategy that helped push sales from 1.5 percent in 1999 to 6
percent in 2001. That's a major jump in just a two year span. She also increased the sales in Europe and
Asia. I am sure she is one of the most recognized successes of all time. At age 40, she became CEO,
and in 2001, at age 42, she was listed on Fortune's ranking of the 50 Most Powerful Women in American
Business. The daughter of Chinese immigrants, Jung earned respect from both industry peers and the
Avon direct sales force comprised largely of suburban mothers. Jung led one of the world's largest sellers
of an operation with sales of $6.8 in 2003 and a presence in about 137 countries.

In one of her first contributions to the company, she unified regional brands into powerful global lines like
Avon Color. She fired Avon's ad agency and oversaw a complete packaging redesign. Her decisiveness
caught the eye of then CEO James E. Preston, who appreciated her bold take on the business. Said
Preston, "We looked at the market through one set of glasses, she had a fresh take on what Avon could
be" (Business Week, September 18, 2000). Preston became her mentor and ally, asking her to speak at
board meetings and increasing her exposure to upper management, ensuring a quick climb up the
corporate ladder. Just three years after joining the company, Jung was named head of global marketing
at age 37.

But embracing these new distribution channels was not without risk. Ever since the first Avon
representative, armed with makeup samples and catalogs, knocked on her neighbor's doors, direct
salespeople had been the backbone of the company. The danger of alienating those reps became
painfully clear with the advent of the Web. In the late 1990s, Avon printed its Web site on catalogs, only to
find that its outraged reps covered them up with their own stickers. Additional criticism followed Avon's
decision to sell online while prohibiting sales reps from setting up their own sites. Until Jung found a way
to resolve those issues and integrate the reps into her new vision for the company, Avon's future would
rest on a foundation. Jung noted, "If we don't include them in everything we do, then we're just another
retail brand, just another Internet site, and I don't see the world needing more of those" (BusinessWeek,
September 18, 2000). To that end, Jung announced her decision to invest $60 million to build a Web site
that would involve, not alienate, Avon's reps. Reps could sign up to become "e-representatives" for $15 a
month, earning commissions of 20 to 25 percent on orders shipped directly or 30 to 50 percent for orders
they delivered to customers themselves. The initiative promised additional income for Avon reps as well
as considerable savings for the company. The cost of processing an order from the Web is 30 cents, or
roughly one-third the cost of processing the paper order. The site gave customers the option of shopping
with Avon directly or with the help of an e-representative in their zip code. Said Jung of the new
opportunities for an Avon rep "She can actually sell at retail in a licensed way; she can have in a mall
today”.

Avon reps responded enthusiastically to Jung's initiatives, made all the more remarkable by how little in
common the CEO had with the suburban moms who sell Avon's products. In the early 21st century, Jung
expanded Avon's lines of cosmetics, jewelry, and clothing by adding nutritional supplements and vitamins
manufactured by Roche Holding, a line that the company said could generate $300 million in five years.
Taking from the Avon competitor Mary Kay, Jung launched Beauty Advisor, a program that turned Avon
reps into beauty consultants who help customers choose the clothing and makeup that work best for
them. She even floated the possibility of offering financial and legal services to women.

Throughout Jung's ambitious expansion, her management style was to emphasize open communication,
goal orientation, and feedback from her sales force. To that end, she set up a CEO advisory council of 10
top salespeople from every level of the company internationally. In addition, she brought panels of Avon
representatives to New York City to share their concerns and react to her ideas. She even enlisted as an
Avon lady in New York City. "I was terrible," she said (London Times, June 29, 2002).

In the first half of 2000 Jung received a report card—sales and earnings were up 9 percent and 40
percent respectively. As the investor Robert Hagstrom, senior vice president of Legg Mason Fund
Manager and director of Focus Capital, remarked, "She bit off a lot. The challenges are great. But at this
point, it would be very hard to give her anything less than A's" (BusinessWeek, September 18, 2000).

Q2

Under Jung, Avon's vision statement read: "Our vision is to be the company that best understands and
satisfies the product, service and self-fulfillment needs of women globally. Our dedication to supporting
women touches not only beauty, but health, fitness, self-empowerment and financial independence”.

Here is my argument that Jung's strategy is properly focused and directed:

CURRENT ENVIRONMENT
Single digit growth
Volatile stock
Archaic and limited distribution channel (which would impede the intermediate and long-term)
Jung's strategy: Broaden Avon's reach in the U.S.

TACTICS
Partner with Sears and JC Penney department stores and create store-within-a-store where it could
introduce more upscale exclusive product lines.
Done in conjunction with "Direct selling"

BENEFITS
Increased profits, sales, nationwide exposure; continue to attract baby boomer segment; financially
appropriate as only $15 to $20 million to launch products in these locations and department stores would
carry bulk of expenses

JUNG'S ARGUMENTS "FOR" THIS STRATEGY

Retail selling was on the rise

Increase in customer traffic in virtually all traditional department stores
Baby boomers' spending power expected to grow 16% in next five years
Baby boomers are among Avon's main customers
Baby boomers sought alternative distribution with personal care products, especially traditional
department stores
Direct selling feasible since personal care products second most popular product group sold via this
channel
Direct selling key to senior citizens, who were Avon's most loyal customers
This strategy would win against competitors Mary Kay, L'Oreal, and retail brands in traditional department
stores
Edge against Mary Kay: Mary Kay was weak in traditional department stores and if Avon diversifies here,
it would win a greater baby boomer customer base
Edge against L'Oreal: Traditional department stores sought new products to add to their mix as well as
high turnover personal care merchandise
Edge against retail brands: Avon could match the medium- to high-priced products and is globally
recognized brand name and image
To defend her strategy: Avon could allocate portion of following year's marketing budget to increase
cosmetic traffic to Sears an JC Penney; Avon could promote certified Beauty Advisors to build traditional
department store personal care infrastructure; Avon could increase monetary incentives to sales reps

WHY I THINK THE STRATEGY IS FOCUSED AND DIRECTED:

There are various routes that Avon can take and even the outside consultants had offered several
suggestions. However, Jung's grand strategy remained focused on emphasizing WHERE to sell its
products, WHO would be the target market, and WHICH product lines best fit its brand image.

WHERE: Nation-wide in department stores Sears and JC Penney

WHO: Baby Boomers mainly and also senior citizens
WHICH: Exclusive upscale new product lines

THIS STRATEGY avoids a marketing position that tries to aim at too many target groups in too many
geographic locations where resources will be spread too thinly to be effective. Since Avon seeks to go
WHERE they are not already represented, then these two particular department stores would be a great
choice. Namely, this avenue represented an opportunity for Avon to "help" these two retailers build
cosmetic consumers especially with Avon's "Beauty Advisors." In other words, Avon could focus on being
a "specialist" to these consumers and would be credible experts given that it is a globally-known brand
name. Also, there would be less competition at these two outlets. As for aiming at Baby Boomers, this
group is desirable because of their potential spending power expected to increase over the next five
years. They traditionally "outspend" all the other customer group categories, so they would be a great
target group for Avon.

Again, the key to success would be to aim at Baby Boomers and what they want is high quality and high
value products. Jung's vision of developing an upscale line to suit them would be in line with their needs.
Furthermore, this group liked having various distribution channels and by offering Sears and JC Penney,
this would be another way to capture more shoppers from this group. Comment about the outside
consultant's strategy: Cost too much and had too many focuses.
Jung also addressed the problems brought up about her strategic plans and came up with good remedies
to those problems. In short, she FOCUSED on what was the way to go for Avon (i.e. saw an opportunity
("Opportunity"), knew what it was good at ("Strengths"), understood their weaknesses and came up with
solutions on how to counter them ("Weaknesses"), and thought about the threats out there as well
("Threats"). Jung's strategy was an OFFENSIVE one rather than DEFENSIVE. She saw an area where
Avon could grow (internal expansion) and wants to go after it.

Q3

Andrea Jung’s Financial and Strategic Objectives are in line with her strategic vision for Avon. All
objectives are future orientated, are measurable and attainable and are specific in meeting her vision.
This motivates staff as they are aware of the new products available and they know what is expected of
them, which can encourage growth for the company. Through my analysis of Avon’s objectives it is
evident that Avon will experience an increase in sales and growth due to the introduction of the e-
representation scheme, which targets one of their main problems: selling products to the busy and
workingwomen of society. Avon needs to ensure that they keep up to date with the latest technology and
use the Internet to their advantage in promoting and gaining sales in the future as failure to do so could
be detrimental to their strategic vision and implementation of their strategic plans.

We need to keep in mind that after becoming the CEO sales jumped 45 percent, from $5.3 billion to $7.7
billion in 2004 and the company's stock has risen 164 percent. She focused on the younger generation in
the rapidly changing personal care industry. College girls started peddling Avon products on campuses,
from a new line called Mark that includes Hook Up for the 16- to 24-year-old crowd. Jung thought that
high-end brands can scale down for the masses, but moving in the other direction is hard when you're
competing on a crowded store shelf. All Avon needed to do was upgrade its act and stick with the direct
sales. She also thought that almost all women have similar notions of beauty, and therefore they would
buy the same products. There is no need to customize so much for local markets. This strategy helped
her to reduce a great portion of costs. However Jung missed many opportunities in traditional cosmetic
retail for a long time in her period because of the fear of competing against its own representatives. But in
order to avoid the possible oppositions, she thought that the kiosks can be franchised to them. Jung’s
idea is simply to rebuild the organization from the ground up into a company that does much more than
sell lipstick door-to-door. She envisions that Avon can be a source for anything and everything a woman
wants to buy in the future.

Q4

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 lead 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 lack
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 Cosmetics Fragrances and Toiletries (CFT) companies in
the same industry.

Lack of a well defined strategic vision

Avon did not have a well-defined strategic vision – which stated who are we, where are we going and how
we are going to get there. Without this vision for the company, employees had no sense of organizational
purpose and no motivation and as a result Avon’s image declined. Many customers commented that
Avon’s products were ‘dull’ and ‘not for me’. Alongside this, were comments regarding poor product
packaging, distribution and advertising campaigns. All of these were symptoms of a lack of strategic
vision and clear-cut objectives.

Lack of innovative technology – Managerial problem

A problem that was evident for Avon was the inability of the company to change with the new
technological world, which was fast emerging. As times were changing Avon did not implement vital
technological processes that could manage the firms inventory and sales more efficiently rather Avon
continued with onerous paperwork which consequently lead to mishandling customer orders. This
contributed to losing sales as Avon were unable to sell products to busy and workingwomen which as a
consequence lead to the slow growth which occurred in 1998 - 99. The inability to move with changing
times illustrates a lack of strategy on the management’s behalf to meet their objective outcomes.

Lack of leadership

A third problem evident at Avon was the lack of leadership displayed by all management. Avon had no
clear cut direction that could be facilitated to staff at all levels, the objectives seemed unattainable and
there was incompetent implementation of strategies. This lack of leadership on the management’s behalf
left Avon without being able to release a new product into the market in over a decade. Without correct
leadership, advertising campaigns and product innovation could not be successful nor could Avon remain
competitive with other companies within the same industry.

Q5

Under Jung, Avon's vision statement read: "Our vision is to be the company that best understands and
satisfies the product, service and self-fulfillment needs of women globally. Our dedication to supporting
women touches not only beauty, but health, fitness, self-empowerment and financial independence".
Trying to match up the company's strategic initiatives with the vision leaves one thing uncertain: financial
independence. It is true that bigger companies are forced to hold broader vision statements that those
with few employees and less market power. But this vision statement is lacking due to the fact that it is
supposed to show "who we are, what we do, and where we are now”. The financial independence is in no
shape or form reflecting Avon's position at the current moment - 2001. The vision is clearly too broad and
ambitious.

Another Avon initiative we would like to examine more closely is the store-within-a-store concept. This
concept puts a mall kiosk - an Avon Center within a JCPenney store to promote it's becoming line of
cosmetics. Although Avon is desperately in need of acquiring younger customers they are, in fact,
keeping themselves back due to the wrong choice of department store. If the company wants to attract
younger customers the management should realize the fact that the shoppers of JCPenney stores are in
the same age range as their current customers.

While on a quest to attract younger buyers, Avon teamed up with super stars Venus and Serena William
"to an exclusive three-year global advertising and promotional agreement". At the same time, acquiring
young role models for access to the teen market, the company did not utilize this opportunity enough to
its advantage. As any sports stars, the Williams sisters were not able to effectively promote the
company's image; instead, they were seen wearing Puma and Reebok athletic clothes. The Williams
sisters' image would have been more valuable in promoting the Wellness line of Avon instead of "Let's
Talk" campaign, which was too generalized and ineffective.

"Over the past 20 months [Andrea Jung] has overhauled nearly everything about the way Avon does
business: how it advertises, manufactures, packages and even sells its products". (Fortune, 10/15/01)
Under Jung's management, the company has set strategic and financial objectives that are in line with the
company's mission and vision statements. There are 6 areas of development the company is looking at:
marketing transformations, supply chain improvement, sales leadership, e-commerce and internet,
international, and financial objectives.

Marketing transformations

"The transformation of Avon's image called for new products, new packaging, celebrity endorsements,
stylish new catalogs, and new advertising campaigns." Seeing women who cannot afford department
store brand cosmetics but still yearning for them, Jung asked for a new, more glamorous look for Avon's
products. Since they would be selling for much less than the department store brands, Avon cosmetics
were able to attract more customers through this strategy.

Supply chain improvement

As the aggressive campaign to turn the company around, Jung needed more funding for research and
development, e-commerce initiatives, global image building, and more. Under Susan Kropf, COO
business process reengineering efforts achieved great success. Just cutting its number of suppliers from
300 to 75 saved the company $56 million dollars.
Sales Leadership

The company had two issues with the representation: there was trouble in the retention of
representatives, and there was difficulty recruiting younger representatives. The solution proposed by
Jung solved those problems simultaneously. "With the launch of Sales Leadership, Avon representatives
could earn commission on the sales of their recruits."

E-commerce and Internet

This initiative has launched the eRepresentative idea of doing business. Internet served as key in the
relations between representatives, customers, and the company's marketing and supply chain operations.
The results were: saving significant amounts of money in internal costs, and promoting Avon to the
younger generation who could access information over the web interface. Through eRepresentatives the
customers did not lose the personal touch that Avon always offered, even on Avon's website the
customers was asked how to address them besides using their formal name.

International

With Andrea Jung's vision Avon realized the importance of emerging markets globally. Management
recognized China "...as an attractive market because it had 20 percent of the worlds' population, its
population was relatively young, and it represented a large and growing market for beauty products."
There was a need for an effective battle with the competitors in the market. As a result, Avon brand
awareness improved from 41 to 53 percent and sales improved by 47 percent in China. "Also, Avon had
the highest beauty brand image index among global CFT brands in Hungary, Poland, Russia, and
Ukraine”.

Q6

The successes achieved by Avon have been tremendous. There are, however, a few recommendations
we would like to address. One suggestion to Avon concerns the vision statement. It is the case where the
analysis shows that the vision statement promises more than Avon is at the moment. None of the
strategic initiatives touches upon "financial independence", and it doesn't seem likely that it would in the
near future.

Another recommendation to Avon concerns the spokesperson(s). While enhancing Avon's image and
promoting new products, the firm should have been more careful as to choosing their spokesperson. The
Williams sisters' publicity would have probably achieved greater results if they would have been
promoting the Wellness line of Avon, not the generalized "Let's Talk" campaign. That way, the image of
sports star who puts their physical fitness above all would have been more victorious.
The third identified problem would be the store-within-a-store concept. Although JCPenney carries teen
apparel and such, if Avon would do research on which stores teenagers and young adults visit and buy at
most, the launch of kiosks would have yielded greater numbers in sales. Hopefully, Deborah I. Fine who
was recently hired as President, Teen Business will steer Avon in the right direction. In the end, the
accomplishments of Avon in the past year have been astonishing.

Q7

All businesses must create strategies that will see them into the next phase of their growth. It is through
assessment, generic and grand strategy development, and implementation that a corporation can move
beyond just existing in the market, to becoming a powerhouse in their arena, as well as increase
shareholder wealth. Andrea Jung, in 2000, faced having to create growth strategies for the 115-year-old
company of Avon Products, Inc. This company had shown recent single digit growth in many areas, and
this paper will offer analysis as to why we believe Andrea Jung developed a grand strategy for this
organization that is properly focused or directed. Grand Strategy is properly focused and directed

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. This
strategy included the following plans:

Reinvigorating the brand (new products, new packaging, and a new ad campaign)

Instituting beauty-advisory training

Expanding the multilevel sales program

Suggested a strategy to partner with Sears and JC Penney department stores

Jung's suggested strategy to partner with Sears and JC Penney department stores was an idea that
would help to promote the strategy 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 selling
increased with in-store customer traffic and expected growth of spending power to 16 percent within five
years. Face-to-face selling comprised 79.7 percent of direct selling, preferred among senior citizens. The
marketing budget would be increased to target customer traffic at Sears and JC Penney. Investment
costs were limited to $15 – 20 million to launch retail products, with a bulk of expenses being absorbed by
the department stores. Diversification channeled through retail was a win-win situation for Avon against
its competition Mary Kay and L'Oreal. Mary Kay was simply weak in this market and despite L'Oreal's
strong market position in the retail market manufacturers were looking for new product lines, competing
brands and consistent price range.
Avon's strengths would help increase global recognition of brand name and image. Jung suggested
promoting certified Beauty Advisors in department stores and increased incentives for sales
representatives. In addition, having department stores sell via the Internet would increase the channels of
distribution, thus increasing consumer loyalty.

The economic factors that Jung used to help create her proposal included:

Slow earning, stagnant sales, limited distribution capabilities and shifts in personal care preference and
spending habits

Single digit growth

Volatile stocks

Limited distribution channels

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 seemed to be 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 toward e-business. This ideal would be
synergistic and build upon their present success.

Grand Strategy is not properly focus or directed

Upon consultation with an outside auditing group, Jung was provided with a detailed prospective
of options, which did not match the ones she originally discussed with the Avon Operating Council. Their
assessment of the company's situation recommended a three-step approach

Distribution of higher priced better-quality spa products in specialty stores,

Sell a more affordable line in full-discount stores, and

Extend Kiosks in the domestic market

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.
Recommendations

Clear Cut Strategic Vision (Image Enhancement)

The strategic vision developed by Andrea Jung incorporates many useful functions for example the vision
specifies where the company is headed (into fitness and health), it provides long-term direction and
illustrates to customers and staff the type of company Avon wants to become. However as Avon is still in
the implementation phase phase this vision may open the door to many products that are unrelated to
beauty products and may place a burden on the company in the future unless Avon can remain
competitive in this area by vigorously keeping up to date with new innovative products. It is in my view
that for Avon to expand the company horizontally they should enter into a market for men as it is evident
in today’s society that many men are interested in hair and beauty products based on competitors enter
into this market. With a correct image and advertising campaign Avon should be able to enter into the
market for men’s products thus stimulating the growth of the company as a result.

Leadership (Implementation of Strategic Vision)

It is evident that a lack of management leadership in Avon lead to disappointing results in 1999. Andrea
Jung’s new vision for Avon, created strategy elements that were well matched to the changes that have
occurred in the cosmetics industry. The strategies are sensible and are related to what Avon’s
competitors are doing in the marketplace, which in turn will lead to Avon creating a competitive advantage
and thus an improved financial performance. My analysis of Avon indicates that Andrea Jung and Charles
Perrin leadership in developing a good sustainable strategy for Avon and Jung’s implementation of this
has resulted in increased revenue and growth for the company. The use of the Internet and newly
introduced products seem to be doing well as do the sales leadership program with an increased number
of employees in 2000. However I recommend that Avon should prioritize its strategic objectives in an
effort to keep up with its strategic vision as Avon could find itself in the same position they were in before
Jung’s appointment as CEO.

Conclusion

Avon's multilevel selling has helped reenergize a flagging U.S. sales force. During most of the
1990s, the number of new reps -- who were brought in by company managers rather than Leadership
reps -- had stalled. While Avon was growing in Latin America, Eastern Europe, and Asia, by 1999 the
number of Avon ladies in the U.S. had fallen by 1% from the year before . When Andrea Jung stepped in
as CEO of Avon, she brought 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 a good, solid foundation that
will continue to keep Avon at the top as America's number one selling Cosmetic and Beauty Company.
Overall my research has shown that Andrea Jung’s efforts in rejuvenating Avon should be commended as
all her strategic and financial objectives are outlined within her vision for Avon. Avon needs to continue to
expand globally, especially those, which are not being accentuated by competitors. Avon needs to be
wary of having a broad product line as by introducing too many new innovative products could be costly
to the firm and Avon also may lose sight of their vision of a company that ‘best understands the products
of women’.

In the end, Andrea Jung has achieved success through "not by abandoning the seemingly
outdated Avon Lady, but by reviving her".

*****