The History About Avon Products Inc Marketing Essay

About the Company

Avon Products Inc. is an American company fabrication and selling beauty and related merchandises all over the universe. It started operations in 1886, and the modern-day company was established in the State of New York in 1916. The company ‘s chief merchandise classs are: Beauty, Fashion and Home. The merchandises of Beauty division are from the classs of tegument attention, coloring material cosmetics, personal attention and aromas. Fashion consists of accoutrements, tickers, manner jewelry, footwear, dress, and kids ‘s merchandises. In the Home class we can happen cosmetic merchandises, gift, house wares, leisure and amusement merchandises and nutritionary merchandises. ( AVON, 2011 )

The company ‘s sections are based on geographic location in five parts: North America ; Latin America ; Western Europe, Middle East & A ; Africa ; Central & A ; Eastern Europe ; and Asia Pacific. The company has gross revenues operations in 65 states and districts, and it distributes its merchandises in farther 42 states and districts. The company sells its merchandises through direct-selling channel, using about 6.4 million independent Representatives. These Representatives are independent contractors, who earn net income through purchasing merchandises straight from Avon on a price reduction monetary value, and selling it to the terminal clients on a monetary value showed in catalogues. The Representative contacts the clients straight, so the booklet and the Representative together are the chief mediators between Avon and the client. ( Avon, 2011 )

Avon industries and packages the bulk of its Beauty merchandises. Natural stuffs like chemicals, indispensable oils, boxing constituents and containers and are purchased from different providers. Most of its Fashion and Home merchandises are obtained from different third-party providers. Furthermore, the company designs the booklets that are used to sell its merchandises by Representatives. Packages are designed as good by creative persons and interior decorators staffed by Avon. Their work is affected by the handiness and cost of stuffs like glass, chemicals and plastics. The company tries to implement an ERP ( enterprise resource planning ) system on a planetary footing. It is expected to do the supply concatenation and fiscal dealing processes more efficient. The company plans to implement it more stages over the following old ages. In their most important markets it has been already applied. ( Avon, 2011 )

Porter ‘s 5 Forces

The constituents of Porter ‘s 5 Forces Model are: Menace of Entry, Industry Competitiveness, Buyer Power, Supplier Power and Threat of Substitutes.

Menace of Entry

The menace of new entrants to this market is undistinguished. To fabricate cosmetics they would necessitate expertness and license. The economic systems of graduated table play an of import function every bit good. Companies in this industry have a great yesteryear, and during this clip they have built valuable webs and relationships with providers, retail merchants and clients. To set up a works it would hold immense capital demand and would cover the demands of merely a little section or part.

Industry Competitiveness

Avon is working in a extremely competitory market section. They face strong competition in beauty and beauty-related merchandises both domestically and internationally. The grade of competition and the figure and strength of rivals varies from state to state. The company has to vie against companies that are selling their merchandises every bit good through direct-selling or through Internet ( Oriflame, Mary Kay ) , and against companies whose merchandises are sold through the prestigiousness retail channels ( The Body Shop ) and mass market channels ( L’Oreal ) . The company ‘s chief focal point is on the rivals who are utilizing direct-selling channel, and secondary they compete with other companies who are selling through retail constitutions and other channels. They besides have many rivals refering the two other merchandise classs like gift stores, section shops, forte retail merchants, few big and many little companies who sell manner jewelry. But as the Beauty section is making about 70 % of net gross revenues, Avon does n’t seek to pay much attending to the competition in other sections. ( Avon, 2011 ) The issue barriers are immense in the industry: batch of investings are made into long-run assets, particularly workss, edifices, etc. At Avon the sum of non-current assets is about the half of entire assets.

Buyer Power

Avon ‘s clients have weak or instead no bargaining power. Their concentration on the market is little. As I mentioned before the company has approximately 6.4 million independent Representatives, and none of them is responsible for more than 10 % of net gross revenues. Customers are loyal to the trade name ; sometimes they build tight relationship with their Representative. The shift costs are low, as we consider non merely money but clip and attempts every bit good. Although the quality of the merchandise is truly of import to them: if it turned out that Avon is utilizing chemicals that can do skin harm, allergic reactions, or that they are experimenting on pets, they would boycott purchasing their merchandises.

Supplier Power

Avon has several providers for its Beauty, Fashion and Home merchandises. Avon is fabricating its goods itself, so it needs natural stuff supplies in Beauty section, merchandise supplies in Home and Fashion sections and packaging supplies for all the sections. Although the quality of natural stuffs and ingredients are really of import, the loss of any provider would n’t hold a material impact on the company ‘s ability to beginning the necessary natural stuffs, boxing stuffs or merchandises for Fashion and Home. ( Avon, 2011 )

Menace of Substitutes

The menace of replacements is high, as the client can take among several trade names runing from inexpensive and bad quality merchandises through cheaper merchandises but chiefly in the same quality to expensive and higher quality merchandises. In the tegument attention industry there are non merely the rival ‘s merchandises endangering, but several “ place patterns ” ( like honey or Cucumis sativus battalions, etc. ) that are cheaper or more natural solutions to the same job. In the Home section once more there are some home-made replacements as good. As we talk about manner and jewelry there are some homemade points, but people can purchase manner goods with traditional motivations back uping domestic merchandises.

To sum up I can province that the appropriate scheme based on Porter ‘s 5 Forces for Avon would be to distinguish its merchandises from the rivals by doing an attempt to do them more natural. The company tries to distinguish itself by back uping foundations, and demoing itself as a socially and environmentally responsible company, but this scheme is easy to copy, and in the following old ages it might be a basic outlook of clients to all companies. The company might seek to cut down costs, to offer their merchandises cheaper, but non on the disbursal of the quality, because it is more of import for clients.

SWOT Analysis

Strengths-S

Established trade name name

Long history

One of the taking companies in fabrication and merchandising cosmetics

Customer trueness

Advanced company

Pricing Power ( strong bargaining power against clients and providers )

Weaknesses-W

Low Research and Development activity

Not diversified merchandise portfolio

Using merely direct-selling channel

Not developed or consistent ERP system

High advertisement costs

Decreasing presence net gross revenues in North American market

Opportunities-O

Invention: new merchandises, new fabrication engineerings, new combination of ingredients, more efficient merchandises

Developing more natural merchandises

Involving pupils in selling or inventions from higher instruction through competitions or titles

Raising money from fiscal markets ( stock exchange, debt, etc. )

Geting new markets

To be more efficient through ERP system ( after complete execution )

Use Representative ‘s merchandising informations for client information

Threats-T

Strong Competition

Dependence on third-party providers in Home and Fashion section

Price war

Disadvantageous alterations in currency exchange rates

External alterations ( revenue enhancements, legal, political relations, ordinances, authorities, etc. )

Too dependent on the cognition and attitude of Representatives

Fiscal Analysis/ Ratio Analysis

In the following portion I am traveling to analyse the company with the aid of ratio analysis.

Liquidity ratios

The company ‘s liquidness is non hearty, but steadily bettering, as it is shown in Table 1. For all ratios the figure are acquiring better since 2007. The current ratio should be around 2, but the company ‘s Numberss do n’t make that sum. The Quick ratio is considered to be good between 1 and 2. In Avon ‘s instance it is below this figure. The Cash Ratio is low, but it does n’t intend needfully a bad scheme, because this means every bit good, that there are few hard currency and hard currency equivalents which are n’t in usage and which do n’t make value. This low Cash ratio is unsafe if it jeopardizes the company ‘s solvency. The company prefers long-run debt to short-run debt particularly in the last three old ages. The company should pay more attending to its liquidness scheme, particularly refering hard currency and hard currency equivalents.

Table 1: Liquid ratios

liquidity.png

Beginning: Own computations based on Avon ‘s Annual Report 2011, 2009, 2008

Working Capital Management

The ratios in Table 2 show the direction of Working Capital. The Net Working Capital is turning twelvemonth by twelvemonth since 2007. In 2009 there is a projecting value. The stock list period is longer twelvemonth by twelvemonth. This means that since 2008 stock lists are on stock 7 yearss longer. This can reflect on a hapless stock list direction, because stock lists spend in norm about 1/3 of the twelvemonth in stock. There is an pressing demand for implementing a company-wide ERP system. The company is roll uping receivables from clients within one month, but paying for providers in 5-6 months. This reflects on its strong bargaining power both against providers and clients. The company ‘s scheme is to roll up money on a steady, 1 month footing, to be able to cipher with grosss, and to prorogue histories collectible every bit long as possible, to be able to put that money. In my sentiment the working capital direction of the company is good ; it is using its strength in the supply concatenation.

Table 2: Working Capital Management

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Beginning: Own computations based on Avon ‘s Annual Report 2011, 2009, 2008

Asset Management

Table 3 shows Avon ‘s Asset Management ratios which can reflect on its plus direction scheme. Entire Asset Turnover is about 1.5 times per twelvemonth. Working capital turnover is about 5 times per twelvemonth and fixed plus turnover is about 3 times per twelvemonth and it slowed down since 2008. I already mentioned that its histories receivable turnover is really hearty, particularly compared to payment turnover, but inventory direction should be improved. The company ‘s scheme in plus direction is to maintain it on a changeless degree, there are no projecting Numberss. This scheme ‘s advantage is that the hereafter is easy to foretell, and it is easy to cipher with historical informations.

Table 3: Asset Management

assetmgmt.png

Beginning: Own computations based on Avon ‘s Annual Report 2011, 2009, 2008

Investings and Cash Flow

Avon ‘s Investings and Cash Flow ratios are shown in Table 4. Harmonizing to the Numberss the company has important Free Cash Flows at the terminal of the twelvemonth, but its reinvestment rate is really low. Depreciation is at a steady low degree every bit good, so there were n’t important investings into fixed assets. It turns out from the informations that the company has non efficient reinvestment scheme that would be necessary for constructing a base for farther enlargement, uninterrupted growing and development.

Table 4: Investings and Cash Flow

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Beginning: Own computations based on Avon ‘s Annual Report 2011, 2009, 2008

Profitableness

Table 5 shows that the company ‘s profitableness is steady and it is easy to foretell. There are no projecting Numberss once more, which shows that Avon is a dependable company with steady and high quality of net incomes and balanced operations. Return on Assetss ( ROA ) , Return on Equity ( ROE ) and Return on Invested Capital ( ROIC ) ratios show that the profitableness is low. So puting in the company is chiefly recommendable for investors who are instead risk avoiding and do n’t anticipate high return on invested capital.

Table 5: Profitableness

profitability.png

Beginning: Own computations based on Avon ‘s Annual Report 2011, 2009, 2008

Growth

Avon ‘s Growth ratios are shown in Table 6. The Numberss in the tabular array show that the company is turning truly easy. Gross saless even dropped in 2009.

Table 6: Growth

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Beginning: Own computations based on Avon ‘s Annual Report 2011, 2009, 2008

Decision

After looking over Avon ‘s strategic and fiscal analysis it can be stated that the company has high potencies. It has really good chances to spread out its markets or to establish some advanced merchandises. Its repute and loyal client base can be warrant for its success. The company has a really good provider concatenation direction scheme ; it uses its bargaining power to implement its Collection-Payment scheme. The extremely competitory environment of the industry is a existent menace and is restricting the company ‘s chances, particularly growing chances. The company should put more in R & A ; D and ERP system to better its stock list direction and to be able to happen a niche in which it could distinguish itself and in which way it could turn.