. In the last few years,
Avon has been unsuccessfully trying to overcome the financial problems: cutting
costs, updating their products and trying to stop the reduction the number of
sales representatives. According to the group of shareholders Shah Capital,
Barington Capital Group LP and NuOrion Partners, which jointly owns 3.5% of
company’s stock, they are very disappointed in the company’s board of
directors. From the words of shareholders, the board of directors couldn’t stop
the stock price to fall and also, they could not hire a new Chief Executive
The current CEO Sheri
McCoy said in August of last year that she would leave the company in March
2018 because of the pressure from Barington Capital. Since McCoy became the CEO
of Avon in 2012 the shares prices dropped by nearly ninety percent.
The main issues of the
company’s downfall are:
1. Obsolescence of the direct sales system.
Avon agents are no longer as relevant and effective as in previous years.
2. Declining number of sales representatives
means decreasing customer awareness.
3. Ethical issues: bribery is an offensive
tool that is hurting the reputation of the company.
4. Growing competition in the domestic and
international markets. Every day there are new promising cosmetic brands that
confidently fill the market. Avon cannot compete with many of them. The company
is to blame for this – working in the consumer market, it is necessary to
develop the ability to predict changes in preferences of its target audience
and to react to them in a timely manner.
of concepts from this course that help structure analysis of the information
provided in the article.
environment of the company is extremely important. Analyzing general,
competitors and industry environments will help the company to identify threats
and opportunities which company will face. By monitoring the external
environment, the firm will be able to: identify changes that affect different
aspects of the strategy, determine the threats, and assess what environmental factors
can be used to achieve a strategic goal. This will allow the company to direct
their efforts in the most favorable way for business development. Analysis of
the external environment helps to obtain important results: predict unforeseen
circumstances, determine preventive technics, help to turn potential threats to
The strategy must be
ethical. It should include lawful actions and exclude unlawful actions,
otherwise, it will not pass the test for compliance with the norms of morality.
This means more than just compliance with the requirements of the law. Ethical
and moral norms go beyond legal prohibitions and the phrase “do not do
this” to the problem of moral duty, the words “can” and
“not.” Ethics consider the moral obligations of a person and the
principles on which they are based. Management has to make sure the strategic
plan is aligned with ethics and anti-corruption program. When company losses
its ethical value it does lose their brand image and sales going forward.
original analysis of the situation.
Avon was the first beauty
company in direct sales. But in recent years, Avon struggled to adapt its model
of direct sales to the realities of modern life. Nowadays women less often buy
cosmetics through catalogs. There is no need for sales representatives now when
you can independently order what you need through the internet. The number of
distributors has been declining the last five years. Avon started at the
beginning of the twentieth century when 80 percent of American women were
staying home and waiting for their husband return from work or were involved in
agriculture. McConnell promised that “any consumer Avon will be able to
become a business lady” – and it worked. grew exponentially. Now the
company has 6.5 million representatives in 100 countries.
In the modern world, more
and more women choose to work. Avon representatives were no a desirable job
anymore. This shows the obsolescence of direct sales system.
In addition, competitors
in retail cosmetics such as Revlon and Maybelline were “eating up” Avon’s
sales. Online companies were tremendously expanding, gaining more and more
market share in the beauty industry. The company should have adopted new
technologies and developed in the direction of online sales. But everybody was
scared that there would be no need for sales representatives. Only since 2014,
the company was ready to sell products through the website, but it was too
late. Competitors have long bypassed in that direction. The company could not
stand up on retail rails either – it simply did not have a built-in system for
selling its products in stores.
Over the last fifteen
years, Avon was associated with a number of big scandals. In 2006 Avon entered
the Chinese market. It was a big success. But it was discovered that the
company was bribing Chinese officials, making them expensive gifts and paying
for their vacations. To gain access to the market and to receive the license.
The company had to spend more than $500 million “to wash off” itself from the corruption
scandals. When the company’s brand image is hurt because of the bribery
allegations, the company loses not only litigation costs but sales along with
it. Because of these ethical issues, the company’s sales have been decreasing
to the top management team of the company discussed in the article.
The best solution for
Avon is to develop a new strategy. The traditional model of the company is
dead. Avon should not be scared to come up with completely new ideas and
strategic plans. Only these will help the company to overcome its financial
crisis and be successful again. Avon
needs to do something big. My suggestions are:
1. Heavily invest to expand in internet sales.
2. Go retail: open stores, sell products at
supermarkets and malls.
3. Recruit Chief Operational Officer who will
start managing the company.
4. Invest in R to create new products to
keep up with the competition.