Name: Surabhi Sharma Serial Number: 24

Section: F Roll number: 140101181

Case AnalysisAvon.com (A)

Introduction: Avon has been the world’s 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.

Purchase order cycle of Avon:Following is the purchase order cycle of Avon:

AVON

High Quality

Outstand-ing value

Highly innovative products

Each representative gets catalogs from Avon

The catalogs are distributed to friends,

families or put at conspicuous locations

Representative collects orders from customers

for 2 weeks

All the orders are aggregated

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

inventory

The order is placed Delivery after 5 days of receiving the order

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 representative’s 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 womenOnly well known products sold directly from manufacturer

Only information exchange

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.

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 optionFor updating 1997 version of Avon.com= $5 millionFully functional online ordering system=$60 million (5 years cost)Total Cost= $65 million (5 years)

Present cost of processing orders

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

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 millionHence, 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.

1 2 3 4 5 60

500

1000

1500

2000

2500

3000

3500

ProductsCosmetics , fragnances , toi-letriesGifts and decorativejewelry and accessoriesApparel

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 millionCost through the current setup=$450 millionA 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.