I.

Perspective of the Decision

This case, as per our analysis, focuses on Avon China. With this, we considered
the perspective of its CEO. The company, started by David Hall McConnell, opened
for business in the 1880s. Due to its successful rate in terms of sales, customer
service, profit, plus women empowerment for years, Avon continually rose up. With
this, they considered and moved on to globalization - targeting multiple countries
across the world. By 2004, their operations expanded throughout North America,
Latin America, Europe, and Asia Pacific - China included.

Avon penetrated China through the investment of a government-owned

company, Guangzhou Cosmetics Factory which amounted to US$27.95 million. The
problem of the case was centered around the company’s operations in China. With
this, we attacked this case through the eyes of Avon China’s CEO. Furthermore,
throughout this paper, we ought to explain our own analysis well - the problem/s,
the strategies towards the chosen problem/s, our conclusion and recommendations.

II. Problems Identified in the Case

Initially, reading through the case, the first problem we noted was the negative
effect of Avon’s selling approach, direct selling, towards the citizens in China. A lot
of people were convinced and tempted to join this multi-tiered income system (or
pyramid sales) due to promised huge commissions and agent benefits. But in reality,
these presented facts do not work for everybody. Other companies with the same
sales approach forced their agents to stock up, leaving them hanging afterwards.
These caused issues in the society. In the long run, it affected social stability and
economic development, according to the Chinese government. With all these, direct
selling was banned in China.

Although it was a hard fact to take, Avon China took their approach to an
alternative route. And they had to act fast, due to rising foreign and domestic
competitors. This, in turn, became another problem of the company. During that
time, China’s population was approximately 1.3billion people and almost 40% lived
in the urban areas. With better living standards and higher incomes, people tend to
be more fashion conscious - thus, the cosmetic products in the country were in
demand. In these urban cities, there were two targeted audiences by the cosmetic
companies - the high income earners and the white-collar women. High income
earners comprised the majority percentage of imported brands users while the latter
preferred the domestic brands for their cheaper price yet established quality. In
addition to this, the local products also seemed to continue to beat the imported
and foreign brands in the rural areas of China.

Another problem was the rapid growth in number of different foreign cosmetic
brands that was entering China. Imported brands were not only from America.
Cosmetic products in Japan, France and Switzerland also paved their way inside the
competition.

The three problems stated beforehand were corrected through the company’s
decision to sell their products in department stores and in fashion boutiques. Avon
China was one of the first direct-selling companies allowed by the Chinese
government to exercise these approaches mentioned. For our group, we believed it
was a good move for the company. 6,300 boutiques and 1,700 department counters
across 74 cities within 5-6 years? Those are good numbers, in just several years.
Sales also continued to increase yearly. Throughout the years that the ban of
direct-selling was practiced strictly, they have clearly proven that their products are
the real deal, and they have loyal consumers in China. Their operations and
performance in the country remained high, and continued to go higher throughout
the years. They even entered online selling, and presented their products in a
Chinese website for the convenience of their Chinese consumers.

Avon continued to have faith in China. In March 2004, they proposed to buy the
remaining 40% of their company to be able to possess full ownership of Avon China.
All of these changes and consecutive success stories were startled with the uplifting
of the ban of direct-selling strategy by the Chinese government.

For us, this is the main problem. The company was presented with a dilemma -
to go back to direct-selling, or to continue selling the products in department stores
and boutiques. Both of which have advantages and disadvantages. Direct-selling
meant they could meet the growing demands of their products but the possibility of
another ban from the government concerned the company of this approach’s
stability. It could, once again, capture the government’s attention and revise their
decision. The retail business via counters and boutiques, on the other hand, was a
continuous improvement in selling their products but it included a huge investment
and higher fixed costs.
SWOT Analysis:
Strengths
 Avon’s direct-selling approach
catered effectively to the needs
of the consumers.
 Avon was one of the first
companies to practice direct
selling.
 The company’s women
empowerment
 The multi-level award system
provided a stable income and
profits to their sales agents and
representatives.
 They have committed and
hardworking sales
representatives.
 Their sale representatives were
compensated well
 Globalization
 The company’s visionary goals to
continue their expansion
 Geographically dispersed
distribution centers
 A Chinese website that provided
an effective way to cater
consumer needs.
Weaknesses
 Avon’s direct-selling approach
caused social unrest to the sale
representatives in the lower end
of the pyramid.
 There seems to be a neglect to
the potential customers in the
underdeveloped regions.
Opportunities
 Sales continued to increase
yearly.
 There was a high demand for
cosmetic products due to better
living standards and higher
incomes.
 Women that were high-income
earners preferred foreign
products than local ones.
 Avon was one of the direct-selling
companies permitted by the
Chinese government to enter the
retail business through
department stores and fashion
boutiques.
 Within 5-6 years, there were
already 6,300 Avon boutiques
and 1,700 department counters
all over 74 cities.
 Geographically dispersed
distribution centers offered a
wider range of customers.
Threats
 The rapid growth of imported and
foreign cosmetic products from
America, Japan, France and
Switzerland.
 Domestic cosmetic products also
posed a threat to their company.
 Women with lower incomes
purchased domestic products.
 Upon the ban lifting of the
direct-selling approach by the
Chinese government, a dilemma
emerged between going back to
direct-selling or continuing and
 improving their retail business
approach.

III. Strategies and Alternative Courses of Actions

There can be a variety of strategies for the problems identified using the
SWOT Analysis.

1. Go back to direct-selling approach and keep the boutiques and department

counters to provide direct customer services to the consumers.
Direct-selling approach provided a very successful strategy of the company
in the beginning. Compared to their retail business, this strategy provided a
more established approach to their sales, as well. For the group, different
strategies could be applied to make this option work:
a. Training all the sales representatives. For years already, there are a
lot of companies who practiced direct-selling, so we have to consider
that this approach kept on changing for the better. Sales
representatives should be able to keep up with the new trends, new
demands, etc.
b. Training all employees working behind the customer services offices.
This will make sure that all customer concerns and problems of the
products and services will be dealt with accordingly.
c. Introduce products and services through online marketing.
Competitive rivals require competitive methods. With this, the
products and services of the company will be widely available to all
potential customers, in different parts of the country, and can expand
more in Asia Pacific.
2. Continue the retail business in department counters and fashion boutiques.
This has been their strategy that was continuously improving throughout
years of operation. If the company focused on this, this strategy could do
better and better through time. Considering the possibility that the decision
of the ban lifting will be changed, this should be a more stable option.
Different strategies could be applied to this option:
a. Training all employees – salespersons, cashiers, managers,
supervisors, etc. in every department counter, boutiques, and
franchise. This could improve the sales, customer satisfaction,
product and company branding.
b. Placing trained managers in every area. Having authorized people to
oversee all operations will help the company monitor all their outlets.
 c. Providing advertisements using all means – newspapers, magazines,
TVs, brochures, flyers, posters, billboards, radios, internet, etc. This
will help expand their areas of production. These kinds of platforms
are influential to the people and with these, many will be able to
know the products and the company.
d. Introduce products and services through online marketing.
3. Both. Going back to direct-selling but maintaining the already opened
department counters and fashion boutiques. A company could have two
selling approaches. Combining all the strategies stated beforehand can also
provide an effective way for the company to maintain their operations and
increase their sales and audience. In this way, both their successful
approaches are applied. If one of these approaches fails, they will still have
one left standing strong.

IV. Conclusions

Avon was, and still is one of the longest running and most successful cosmetic
companies in the whole world. Sales continue to rise. Products continue to meet
their clientele’s expectations. Rivals continue to see this company as a threat. Even
with the presence of all these problems, this company continued to stand their
ground, with their huge market, high quality products, hardworking workforce and a
promising CEO.

Exchanging ideas and a little brainstorming led us to this mutual

recommendation. Considering the rise of technology, plus the increase in people’s
knowledge on cosmetics, plus an increase in people’s fashion consciousness,
cosmetic companies continue to grow in number. With a thriving competition like
this, the company should explore all means to get their products and services out in
the market. They should get back to direct-selling, to directly and more closely cater
their consumer’s needs. This could also help and employ more people. They should
also retain their department counters, fashion boutiques and franchises. Adding
customer services and a complaint desk to these offices will help them monitor their
product’s performance in the market. Also, placing online marketing in the list will
make their products and services known to people worldwide. With all of these,
their goals of yearly sales increase, product expansion and the like will be
competently pursued.