This business case study examines Andrea Jung's turnaround strategy for Avon Products, Inc., beginning with her appointment as CEO in 1999. The paper conducts a comprehensive situation analysis—including SWOT, Porter's Five Forces, stakeholder, portfolio, and macro-environmental assessments—to identify the internal strengths and external opportunities available to Avon. Financial analysis covering liquidity, profitability, debt, and returns demonstrates improving health across key indicators from 1998 to 2000. The study evaluates four strategic alternatives and recommends a phased implementation plan spanning short-, medium-, and long-term horizons, with a focus on new demographic markets, retail channel development, and growth through acquisition.
At the beginning of 2002, Avon Products Inc. (Avon) remained the world's largest direct seller of cosmetics, fragrances, and toiletries (CFT), a position it had held for over a century. Despite this standing as the global leader in direct sales of CFT, Avon placed only fourth in global sales of personal care products, with a significant gap between itself and the top three competitors ($10.3 billion for L'Oréal in the top spot compared to $3.5 billion for Avon). The overall business model failed to deliver respectable growth throughout the 1990s, languishing in the 1.5% range, and the company was further plagued by a falling stock price. A tired image, poor-quality products, untimely and unappealing new product lines, and an aging and evolving clientele had posed problems to Avon's success over the previous two to three decades.
Andrea Jung, appointed CEO of Avon in 1999, quickly launched an aggressive turnaround strategy to improve the company's overall performance. The strategy included changes to existing product lines, expansion through new business lines, transformation of business processes and the value chain, evolution of the direct-sales model to reflect contemporary clientele, entry into the retail sector, introduction of e-commerce initiatives, and rejuvenation of Avon's image beyond its reputation as a product for grandmothers and great-aunts. The bold new direction set by Andrea Jung included transforming Avon into the ultimate relationship marketer of products and services for women. By the end of 2001, many of her turnaround initiatives had delivered positive returns. However, Jung and her team could not afford to become complacent — much more work remained to sustain the level of success recently achieved.
Avon differentiates itself from other CFT sellers through its direct-sales model. Growth in traditional markets using existing product lines is nearly stagnant. However, significant opportunities exist to expand the clientele through further globalization and through the creation of new product lines that appeal to untapped demographics such as preteens, teens, and young adults. While women remain the primary consumer of Avon's products and services, opportunities also exist to sell Avon products to men shopping for the women in their lives — expanding beyond the traditional audience to wives, mothers, sisters, and daughters.
E-commerce, retail sales, expanded global application of the direct-sales model, reinvigorated relationships with existing Avon sales representatives, and refreshed image-building campaigns are at the heart of an ongoing plan to strategically rebuild Avon as an industry leader — not only in the direct-sales segment, but across the broader CFT industry.
A few key assumptions underlie this analysis and its recommendations:
Internal strengths include the proven leadership abilities of Andrea Jung as Chairman and CEO and Susan Kropf as President and COO, both of whom are guiding the company through a turnaround and into a new era of global and electronic commerce. Avon also possesses a clear vision — to become the ultimate relationship marketer of products and services for women — supported by sufficient resources in research and development (R&D) and marketing. Diversification already exists, with 60% of sales coming from CFTs, 20% from jewelry, watches, accessories, and apparel, and 20% from home products, gifts, health, and nutrition products.
Additional strengths include high brand recognition in established markets such as North America and Europe, along with admirably high levels of recognition in new markets (53% brand awareness in China and the highest beauty brand image index within global CFT brands in Eastern European countries such as Hungary, Poland, Russia, and Ukraine). Streamlined business processes — including significant improvements in supply-chain management and more responsive product development cycles — further contribute to the company's competitive position. An extremely dedicated direct-sales network with global reach, growing use of e-commerce to support the direct-sales model, and a broadly positive set of financial trends round out the key internal strengths.
Internal weaknesses include an unclear emphasis within the company's vision regarding how much attention should be paid to Avon's core CFT business versus new and unrelated product lines for women such as banking, insurance, fitness, and clothing. The brand image is improving but still battles decades of misperceptions that Avon is not relevant for working or young women. Avon also has an extremely limited presence in the all-important retail sector, and carries too many non-performing products without enough distinct business lines to cater to a broad demographic spanning preteens through seniors.
Financially, interest coverage (times earned) is on a downward trend, indicating that increased asset growth has been financed through debt and has strained cash flow — though not to the point of financial jeopardy. The current sales force is also not representative of the general population: US sales representatives under the age of 35 make up only 17% of the workforce compared to 34% of the general population, while those over 35 make up 83% compared to 65% of the population.
External opportunities include new markets through globalization — particularly in China, Eastern Europe, the Middle East, and Africa — where women are embracing personal care products and disposable income among young women is growing. Expansion of product lines to include wellness products (nutritional supplements, vitamins, and lifestyle items) and wide-ranging services catering to women also presents significant potential. Development of global product lines supported by a limited number of efficient suppliers and continued growth of Internet-based direct sales are additional external opportunities.
External threats include the highly fickle nature of consumer trends among preteens and teens, which poses a risk to product lines aimed at nontraditional Avon segments. Competitive forces must be watched closely, since the first company to launch a product that satisfies current trends will enjoy a market-share lead until competitors catch up. Currency fluctuations can also impact earnings from global operations, requiring active management of foreign-currency risk through hedging strategies.
"Porter's Five Forces applied to the CFT industry"
"Financial ratios, portfolio lines, and macro environment"
"Phased actions for short, medium, and long-term growth"
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