Will a makeover help Avon?

Updated Thursday 2nd November 2006

The success of Avon rests on addressing some key questions.

Avon competes in a global industry which, according to estimates from Datamonitor, was worth $120 billion in 2002. Avon, which was perhaps one of the first global cosmetics companies, is now overshadowed by industry leaders such as L’Oreal and Procter & Gamble. These companies are over three times the size of Avon when measured by turnover.

The Money Programme 'Avon’s Still Calling', highlights the very different set of competitive forces the company faces now, compared to those it faced when it was founded. Competitors have grown in number, diversity and financial power. Meanwhile, the demographics, preferences and brand awareness of consumers have changed. Avon lipsticks Creative commons image Icon Mundoo under CC-BY-NC-ND licence under Creative-Commons license Lipstick traces: Avon samplers

'Avon’s Still Calling' also raises concerns about the company’s strategic response to these competitive forces. Can its cost and revenue structure and business model deliver a sustainable long-term profit? Yet the major problem identified is the lack of any retail presence. Avon relies too much on the direct selling channel.

The success of Avon rests on addressing some key questions. Some commentators have talked about the idea of “retail theatres”, outlets that offer the consumer a shopping experience rather than just an opportunity to buy the product. Would creating such a distribution channel be feasible?

Could the company generate the revenues and afford the costs associated with such a shift? If it went ahead, would Avon apply this model in all of its markets or just where its market share is static or declining?

Perhaps, and even more importantly, would they be trying to copy their major competitors? Most writers on strategy argue that “me too” strategies don’t work. You may copy a competitor’s approach, but your resources (money, brand and people) are setup in a different way.

For example, some traditional booksellers such as Blackwell in the UK and Borders in the USA launched online bookstores to compete with Amazon. However, a key source of Amazon’s advantage is their proprietary software. The competition just didn’t have the expertise or resource to successfully replicate this, and thus their online activities floundered.

Avon’s trying to improve brand awareness by increasing advertising spend and other activities, for example through its sponsorship of ITV’s Footballers’ Wives. It’s also addressed its product range and introduced internet selling.

However, the basic question remains: should Avon seek to imitate its largest rivals such as L’Oreal? Or should it take advantage of the unique capabilities and model it's developed over many years?

Avon’s model has allowed it to succeed in overseas and emerging markets (75% of turnover comes from outside the US) and to sustain profit performance. One way to expand the current model would be to sell additional products through their direct selling channel.

So far Avon has chosen to make changes within the current model. Will these be enough? Avon will need to blend strategic management thinking and thorough industry knowledge if it’s to continue calling!

Further reading

  • Avon’s Still Calling – Avon’s share price is falling and the company’s out to reinvent itself. The Money Programme discovers what it’s got up its sleeve.
  • Competitive advantage – how can companies ensure they've got a lead over their competitors?
  • Securing your brand – how do you build value into a brand? More to the point, how do you preserve that value?
  • The world's top beauty companies
  • Contemporary Strategy Analysis by Robert Grant, published by Blackwell
 

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