Reference no: EM133054366

Avon

As the world's largest direct seller of cosmetics and beauty-related items, Avon Products wants to continue building its global reach. To do so, however, Andrea Jung, chairman and CEO, must continually juggle the strategic challenges of guiding this $6.9 billion company and its worldwide army of almost 4 million sales representatives.

Jung was named Avon's first female CEO in 1999. Since that time, she has overseen some significant strategic initiatives. One of these is the company's $100 million investment in a state-of-the-art product research facility outside of New York City, which is scheduled to open in 2005. Avon has always lagged behind its competitors in R&D, spending less than 1 % sales on R&D. Competitors Estee Lauder Companies and L'Oreal SA were spending over 1.3 % and 3 %, respectively. Because this industry is one in which customers are continually looking for new products that look good and that are also good for the skin, R&D is critical. In addition, because Avon is primarily a direct-sales company whose sales representatives pitch new products to customers every two weeks, the importance of investing in new product development becomes even more apparent.

Another of Jung's strategic moves was revamping Avon's stodgy, old-fashioned image through new marketing and advertisement. Avon, best known for its troops of mostly middle-aged women selling skin creams to their neighbors from catalogs, needed a serious overhaul of its dated image. Jung ordered a new design for the company's all-important sales brochure. Using heavier, glossier paper that was more visually appealing, the company completely redid its brochure and increased distribution by 6 %. This meant that its sales brochure would now reach an additional 1 million women every two weeks-a bold strategic move that Jung felt would pay off.

The biggest strategic initiative, though, was Jung's decision to develop and target a new line of cosmetics at young women ages 16 to 24. It was the company's first push into the youth market and a dramatic change from its core customer group that was age 35 and older. Deborah Fine, president of Avon Future, the company division responsible for the new line, said "We want to capture a younger customer, bring in new reps, and create a new global youth brand." According to Avon, 17 million young women in the United States spend at least $75 billion a year on beauty and fashion. If Avon could capture part of that spending with appealing products, it had the potential to add significantly to its bottom line. With over 300 items available, the new brand, called "mark", was launched in 2003. So far, more than 16,000 young Avon sales representatives have distributed 25 million mark catalogs. Avon plans to go global with the product line in 2004. Jung is confident that the company's new brand will help it "pass the makeup brush" to a new generation of Avon customers. The strategic challenge, obviously, will be to keep mark's customers and sales force excited and hooked. Teens are notoriously fickle; what's hot one day can be passé the next. But Jung, her management team, and the company's global sales force appear to be up for the strategic challenges.

Question 1

From the case, explain in detail how Andrea Jung managed to turn AVON into a profitable company? (word count: 700 to 850 words)