Avon

Andrea Jung’s Makeover of Avon Products

Overview

In 2001 Avon held the title of world’s largest direct seller of beauty related products—a title it had held for over a century. However, there were many ways beyond direct selling for women interested in color cosmetics, hair care products, fragrances, bath products, skin care products, or jewelry to purchase such products. Supermarkets, drugstores, discount stores, and department stores accounted for approximately 93% of the industry’s $140 billion global sales. When Andrea Jung was promoted from President to CEO of Avon Products, Inc. in November 1999, the company was in serious trouble with annual sales growth of less than 1.5% and a crashing stock price during the greatest economic boom in history. Jung took on the role of AvonLady during her first month as CEO to better understand what customers thought about the company’s products and to find out what it was like to be a member of Avon’s direct sales force. Jung heard customer complaints about Avon’s image, its poor quality products, lack of interesting new lines, unattractive catalogs and learned that Avon’s sales representatives, at times, could not reorder popularselling items and, very often, did not receive the correct items that were ordered. After one month as CEO, Andrea Jung outlined a bold new vision and strategic plan for Avon that included the following priorities:

ν Grow global beauty category sales through continued investment in new product development, advertising and sampling.

ν Provide representatives with greater careeropportunities through sales leadership, enhanced Internet capabilities and training.

ν Reduce inventory levels while at the same time improving service to representatives.

ν Improve operating margin 50-100 basis points through business process redesign.

ν Successfully launch Avon Wellness line of nutritional supplements and vitamins.

ν Begin to build a profitable retail business tofuel future growth.

ν Develop e-commerce opportunities for Avon and its sales representatives.

ν Pursue market opportunities in China and Eastern Europe.

At year-end 2001, all signs indicated that Jung and Avon’s Chief Operating Officer Susan Kropf were executing the plan to near perfection with the company’s 2001 revenues expected to increase by 6%, its sales force expected toexpand by 15%, operating profits expected to grow by 7%, and operating margins expected to reach the highest level in over a decade at 14%. In addition, during Andrea Jung’s first 24 months as CEO, Avon’s common shares had increased by approximately 90%, while indexes such as the S&P 500 had fallen by nearly 25%. Just prior to the completion of Andrea Jung’s second year as the company’s chiefexecutive, Avon’s board of directors endorsed her performance by announcing to its investors that Jung would assume the role of Chairman in addition to CEO.

top Suggestions for Using the Case

This case was written to (1) illustrate the CEO’s role as chief strategist, chief strategy-implementer, and organization leader, (2) practice evaluating a company’s direction and strategy and consider when itmight be time to radically shift gears and move in a different direction with a different strategy, and (3) illustrate the five tasks involved in the strategic management process. The case requires that students draw upon most all of the concepts discussed in Chapters 1 and 2 in doing their analysis and preparing the case for class discussion.

We think it is an excellent leadoff case for thecourse (other good choices are The Solar Feeder, World Wrestling Federation (A), and Pi Kappa Phi Fraternity). Student familiarity with Avon’s brand name and its Avon Ladies, the company’s dramatic shift in vision and strategy, the company’s attention to detail in its implementation of the strategy, and Andrea Jung’s aggressive leadership provide more-than-ample ingredients for an interesting and...