International Business Case Study

International Business
AVON: Case Study

Avon, which commenced operations in 1886, is now one of the world's largest manufacturers and marketers of beauty and related products. About 62 percent of its sales are in cosmetics, fragrances, and toiletries, with the rest in gift and decorative items, apparel, and fashion jewelry and accessories. The company is headquartered in the United States, but about 65 percent of its sales, 59 percent of its assets, and 75 percent of its employees are outside the country. It has direct investments in 50 countries and sells in another 84 through licensing, franchising, and distributor arrangements. Avon moved into the Canadian market in 1914. Its next foreign market entry was 40 years later into Venezuela. Since then, Avon has accelerated its international expansion, and its growth in foreign sales now exceeds its growth in U.S. sales. Avon's emphasis on foreign operations is due to a slowed U.S. growth potential. First, there is very little untapped market left in the United States for cosmetics, fragrances, and toiletries. Even if there were, only about 5 percent of the world's women live in the United States and Canada. Second, Avon's U.S. sales rely on independent salespersons (almost always women working part time and known as "Avon ladies" or "Avon representatives") who make direct sales to households by demonstrating products and giving beauty advice. They then place sales orders with Avon and deliver orders to the customers once they receive them. But as more U.S. women have entered the workforce full time, they have become less receptive to door-to-door salespersons, have less time to spend on makeup demonstrations, want to receive their purchases immediately, and are less willing to work as Avon ladies. Third, many foreign markets have been ideal for Avon's growth. For example, the lack of developed infrastructure in the rural areas of such countries as Brazil, China, and the Philippines deters women from leaving their homes to shop for cosmetics. But in these countries, Avon ladies reach consumers in some of the most remote areas, such as by canoe in the Amazon region of Brazil. (Avon has more active representatives in Brazil than Brazil has members in its armed forces.) In transitional economiessuch as Hungary, Poland, the Czech Republic, and Slovakia, Avon's market entry has coincided perfectly with a surge in demand from the ended period of centrally planned economic policies. In rapid-growth economies, such as Chile and Malaysia, Avon taps a growing middle-class market that can afford its products. In all of the aforementioned countries, there are ample labor supplies of potential Avon ladies. Product lines vary by country, primarily because they are geared to the needs of specific markets. For example, Avon sells a skin cream, Sol & Cor, only in the Brazilian market. The cream provides a combination of moisturizer, sunscreen, and insect repellent. The company also sells creams in parts of Asia to lighten the complexion, but the desire for skin lightening is too small elsewhere to justify marketing efforts. When Avon develops new products for a given country, it disseminates the information to its facilities elsewhere. For example, Avon-Japan developed emulsion technologies to produce lotions and creams with lighter textures and higher hydration levels, and many Avon operations in other countries now use the process. Avon also has a Far East office in Hong Kong that sources goods from 9 countries and issues about 2,000 supplier contracts for about 600 new products per year. The office finds sources of products for country groups, tests and handles quality assurance, and designs and develops new products. For example, the office buys gift items for the U.S. market and lingerie for European markets. In addition to developing products for specific markets, Avon emphasizes standardized products using global brands that appeal to women of many nationalities. One of these is a family of skinprotection products using the Anew brand. The first to use alpha-hydroxyl acid, these products have become the market leader in virtually every country in which Avon sells them. Some other
global brands are Rare Gold and Far Away fragrances. Through standardized products and brands, Avon creates a uniform global quality image while saving costs from uniform ingredients and packaging. Global branding also helps inform consumers that the company is international. This helps sales in countries such as Thailand, where consumers prefer to buy products made by foreign countries. Although Avon prominently displays its name on most of its products worldwide, most of its brand names differ among countries. The company prints instructions in local languages, but usually does not put the brand names in that language. It often uses English or French brand names because consumers consider the United States and France as high-quality suppliers for beauty products. Each country operation sets its own prices to reflect local market conditions and strategic objectives. The prices are subject to change for each sales campaign. Avon runs a new campaign with different special offers every two weeks in the United States and every three weeks abroad. The shortness of campaigns is helpful for adjusting prices in highly inflationary economies. Avon's promotion is primarily through brochures that Avon ladies deliver to potential customers during each campaign. The company prints about 600 million brochures in 15 languages, dwarfing the circulation of any magazine or commercial publication. Additionally, Avon relies on both print and television advertising. The basic aim of Avon's campaign is the same throughout the worldto promote its products and image, increase the number of customers served, and recruit new representatives. However, the specific needs and execution of the promotion differ among markets. For example, in 1996 Avon's ads in the United States and Canada used the theme "Just Another Avon Lady" to show that women in all walks of life use Avon. In Germany, the ads sought to change Avon's image of being old-fashioned. In Japan, where more than 2,000 cosmetic companies compete and Avon is not a leading competitor, the company sought consumer awareness of its name. In the Philippines, Avon used a top entertainer and fashion model to counter similar ads by Revlon and Max Factor. Avon seeks to develop a global image of being a company that supports women and their needs. It sponsored "The Olympic Women" exhibit at the Atlanta Olympics, where many women competed under the sponsorship of various Avon subsidiaries. Avon publicizes how being an Avon lady heightens the role of women. For example, its publicity has shown how civil war in El Salvador caused casualties and disabled men, leaving women with little education to head households; however, by being Avon ladies, they can earn income while continuing their duties at home. The company also gives annual Women of Enterprise Awards to leading women entrepreneurs. Avon's activities have generated further favorable publicity in media reports, such as a 20-page article in Veja, a weekly Brazilian magazine. Perhaps Avon's biggest social responsibility project is its work internationally in fighting breast cancer. Avon ladies generate information about breast cancer along with their promotion brochures and sell pins to raise money for local needs. Avon basically duplicates its distribution method in foreign countries, which means it sells to independent representatives who have taken orders from customers they have visited. However, it varies aspects of its distribution among countries. To begin with, not all of Avon's distribution abroad is door-to-door. In Russia, during decades of communist rule, women became wary of knocks on the doora discomfort that persistsso representatives sell at work or through personal networks. Such selling is similar in India because women associate door-to-door
transactions with old-newspaper and old-clothes buyers. In parts of Brazil, many upscale customers are gathered in apartments that are virtually inaccessible to salespeople because of security entrances. Avon-Brazil advertises on television and offers an 800 number to reach that clientele. In response to the 1998 Chinese law prohibiting house-to-house sales, Avon opened retail stores in China. A drawback of direct selling is that customers cannot obtain a product whenever they want it. They must wait until a representative visits them to place an order and then wait again to receive it. In response to this drawback, Avon-Malaysia opened a retail outlet called a beauty boutique, where customers can buy Avon products and receive as much personal attention as when they buy at home. Moreover, representatives can go to the boutique to obtain products immediately, rather than waiting for Avon to fill their orders. The concept proved so successful that Avon opened additional beauty boutiques in Malaysia and duplicated the concept in Chile. In some countries, particularly emerging economies, getting merchandise to consumers in rural areas is a major challenge. Mail systems are unreliable, and personal delivery to representatives is expensive. Because of this problem, Avon-Philippines pioneered a system of branch selling. Instead of delivering orders to the homes of district managers, who in turn would arrange delivery to representatives as in the United States, Avon-Philippines has established franchise centers that stock merchandise. Franchise managers visit the centers and pick up merchandise for the representatives in their district. This saves the representatives from making difficult treks, sometimes two hours by bus. The centers have experimented with more retail like services such as wide aisles, shopping carts, and scanners at checkout so that the franchise managers can fill and pay for their orders quickly. Avon has since adopted the franchise center concept in other countries such as Indonesia. Avon transferred successful practices in one country to other countries. To encourage the transfer of knowledge, Avon brings marketing personnel from different countries together to share what they call "best practices." They also promote competition among countries, such as contests for best brochure cover and best color cosmetics advertisement. Avon anticipates that international operations will account for the bulk of its growth in the foreseeable future. Although Avons foreign expansion has been aggressive, its products are still not available to more than half the worlds women. Avon classifies the countries in which it sells as either developing markets or established markets. It expects most of its future growth to be the former.
Questions:
1) Why did AVON begin to expand their business beyond the USA? 2) Why were countries such as Hungary and the Czech Republic so receptive to AVON products? 3) Why was AVON so successful in Malaysia and Chile? 4) Why do certain AVON products succeed in some countries but not in others? Examples? 5) How do the promotion techniques differ among various markets? Examples?

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Why did AVON begin to expand their business beyond the USA?

Why were countries such as Hungary and the Czech Republic so receptive to AVON products?

International Business

AVON: Case Study

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