On September 21, 2018, Avon Products, Inc. (AVP) hosted its Analyst/Investor Day. At the event, management focused on financial initiatives and cost savings of $400 million by 2021, and investments in commercial initiatives and digital and IT infrastructure.
- The company outlined a three-year plan to “open up” brand access. The plan focuses on enhancing Avon’s digital capabilities and online and offline selling.
- Avon is reassessing its value-pricing strategies to include fewer promotions and more product bundling and beauty regimens.
- Avon plans to grow its market in India and China. With over one billion Chinese consumers and 500 million Indian consumers that are aware of the brand, these markets hold enormous potential for the company.
On September 21, 2018, Avon hosted its Analyst/Investor Day. The company’s presentation was titled “Open Up” and focused on the following three areas:
- Restoring competitiveness to modernize brand Avon;
- Creating strategies that will make the brand reach more consumers through new channels and categories; and,
- Transforming the company’s business and work cultures by rebooting Avon’s social selling and refreshing ecommerce opportunities, and training and retaining staff.
The day featured management presentations, including those by: Jan Zijderveld, CEO and Director; Miguel Angel Fernandez, Global President; Jonathan Myers, EVP & COO; James S. Wilson, EVP & CFO; and, Amy Greene, VP-Investor Relations.
Restoring Competitiveness to Modernize Brand Avon
Zijderveld kicked off Avon’s 2018 Analyst Day by speaking on Avon’s vision to restore competitiveness by moving from a culture that is “locked in” to one that is “opened up.”
Zijderveld laid out the company’s strategic plan forward that included “breakout strategies” to open up Avon. Specifically, this included increasing brand access, increasing representatives’ earnings, growing product categories, geographies, and channels, and increasing global partnerships.
Increasing Access for Consumers Is First Priority: Avon’s Brand Awareness is Higher Than 90% But Access is Less Than 10%
Zijderveld reported that customer relationship has been Avon’s forte since its founding 130 years ago. Today, the company has over six million representatives selling its products and because it is a direct selling business, connecting with customers has always been at the core of Avon’s business strategies.
Avon is focusing today on increasing consumers’ access to the brand by providing more availability through more channels. The challenge today is that Avon’s brand recognition is much higher than actual sales. The company estimates that around 98% of consumers know the brand, but only 5%–10% have sufficient access to buy its products.
Increasing access will increase Avon’s potential sales opportunities. For example, the United Kingdom’s present population is over 66 million, of which Avon reaches 1 million customers. The company’s representative-to-consumer ratio is similar in nearly every region of the world, varying between 2% and 15% with approximately one representative for every 10–15 customers.
Avon is Growing its Digital Presence to Increase Brand Access: “My Avon Store” Will Give Representatives Both Online and Offline Presence
Avon is focusing hard on e-commerce to grow brand accessibility. Today, Avon representatives mostly operate “offline”, i.e., they have face-to-face meetings with consumers, provide hard copy of brochures, and personally deliver physical products once the orders arrive. This method of doing business has helped Avon grow but it is now limiting the brand’s global expansion.
With a digital presence, the brand will be able to expand its network to include both online and offline. Zijderveld reported that 45% of the individuals that sign up to become Avon representatives are under 30 years of age and they already have large networks of friends on social media platforms—such as Facebook, Instagram and Twitter—that can help drive the growth of the brand.
In the future, Avon’s representatives will have an online “My Avon Store” which will feature events schedules, apps, and special product videos, and this online store will manage both their online and offline businesses.
Avon is Re-Assessing Value-Pricing Strategies to Include Less of Promotions and More of Bundling: 98% of Brand Avon is Presently Sold on Promotions
Zijderveld highlighted that the company is re-assessing its value-pricing strategies in order to become more creative with its product categories. Currently, 98% of brand Avon is sold through promotions. The average price per unit that Avon gets in its three biggest markets—namely, Brazil, Mexico, Russia—is below what its three biggest competitors get in the same markets. Avon prides itself on being an accessible beauty brand, but Zijderveld acknowledged that the company needs to re-do its value-pricing strategies to include less of promotional pricing, and more of product bundles, beauty regimens and innovation pricing.
Avon to Enter Fast Growth Markets: It Will Go Digital to Enter China
Avon reported that 69% of Chinese consumers (around 1 billion people) know about brand Avon, and said that it plans to enter into China using e-commerce, digital marketing, and boutiques, not its traditional direct selling model. Avon has a large factory in China that is currently sitting empty but will be used for product storage in the future.
Avon is Re-Establishing a Trusted Relationship with its Six Million Representatives
Fernandez identified six steps for re-establishing the company’s trusted relationship with its six million representatives. He said that the company is focusing on improving its logistics and delivery services and is also looking to give its representatives more flexibility at work.
He continued by saying that in more than half of the countries where Avon has a presence, representatives can order Avon products only once every three weeks and that means customers’ orders are often delayed. That is not acceptable in today’s retail sector where delivery is expected overnight and the company is looking to change these standards to help its representatives perform better.
The company is also changing its recruiting process. Fernandez acknowledged that not everyone wants to work with Avon full-time and many of its potential representatives might want part-time opportunities with a more flexible work culture. He said the company is focusing on revamping its recruiting campaigns and will adopt a more targeted approach to train new recruits. To that end, Avon is now using a segmented approach in which information on product benefits and tutorials on special selling techniques is being provided to representatives through videos broadcast in WhatsApp and Facebook.
Fernandez also said that the company plans to use bundled packages that will help representatives increase their price points (by selling more products) and can also be used as tools for expanding their customer base by providing solutions created around beauty regimens. For example, product bundles can help to solve a specific problem such as wrinkles. He added that providing representatives with the right sales tools will turn them into beauty advisors and help them engage better with customers.
Avon is also supporting causes as a way of engaging and retaining both its workforce and customers. Over the past four years, the company has raised over $1 billion to increase breast cancer awareness and has also raised its voice against domestic violence.
Avon Plans to Grow Its Market in India and China
With 1 billion Chinese consumers and 500 million Indian consumers that are aware of the brand, Avon’s brand awareness is 69% and 56% in China and India, respectively. These two markets—which presently account for less than $100 million in the company’s annual sales—are very important for Avon because they hold enormous opportunities and huge potential.
Avon is Bringing More Relevant Products to Markets, in Less Than Half the Time it Took Earlier
Myers spoke about modernizing Avon by building a more relevant brand, a crisper product portfolio, digital transformation, and an agile, leaner and more open ecosystem. He highlighted that building a more relevant brand involves democratizing beauty by strengthening the brand, capturing growing trends and getting closer to the market. The company is working to reduce the time it takes to bring its products to various markets and gave three examples that are shown below. In all three, Avon brought innovative products to markets in less than half the time it took earlier. For example, Avon is introducing a lip tattoo in the UK that is on track to be the company’s third largest lip-product launch of all time, at a 21% price premium versus the normal innovation price for its lip launches.
Avon Plans to Save $400 Million in Costs Over Three Years to Fuel Growth
Wilson spoke on value creation and Avon’s plan for financing its future. The company is planning for cost reductions and improved efficiencies in these four areas: manufacturing and sourcing; distribution and overhead; back-end efficiencies; and, interests and taxes. Wilson said that these moves will result in cost savings to the tune of $400 million.
The company plans to invest around $300 million of the money saved in its representative training and recognition program, modernization of the brand and improving its IT infrastructure. It also plans to spend $230 million in capital expenditures over the next three years.
Avon anticipates that over the next two to three years, its investments will generate an additional $565 million of cash flow, of which the company is going to invest $275 million back into the business which will net an incremental cash flow of around $290 million.
As mentioned earlier, the company plans to spend $230 million in capital expenditures, and for funding operations, it plans to sell assets to free up an estimated $130 million in cash. Additionally, the company plans to take $120 million from its working capital to cover investments.
A timeline for its plans were also presented at the event. Management plans to reset the company basics in 2019, stabilize revenue in 2020, accelerate revenue in 2021, and start building momentum with mid-single-digit revenue growth after 2021. The company’s vision for its future is to become a digital social selling beauty company.