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Teaching Note: Case 13 – Avon: A New Era?
Case Objectives
1. To examine how the competitive forces in an industry affect strategy.
2. To examine how formulating a strategy involves assessment of internal activities and resources.
See the table below to determine where to use this case:
NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The Teaching
Chapter Use Key Concepts Additional Readings or
Exercises
PRIMARY
CONCEPTS
2: External
Environment
Industry competition five forces NOTE: See web-links.
3: Internal Analysis Resource-based view of the firm
5: Business-Level
Competitive strategy; generic
SECONDARY
CONCEPTS
1: Strategic
Management
Vision, mission, strategic objectives
4: Intellectual Assets Intellectual and human capital;
6: Corporate-Level
Corporate strategy; diversification;
Case Synopsis
Avon has had a history of successes as a direct selling pioneer. However, competitive pressures have
increased from global and regional competitors. In addition, execution issues have plagued the company’s
efforts to get back on the growth track. New CEO Sheri McCoy was appointed in April 2012 to turn
around the faltering company. However, it is unclear if the company has much more potential to keep
growing. Further, the path ahead is fraught with many challenges. Given this, should CEO McCoy
continue to try to return the company to profitable growth, or throw in the towel and recommend that the
company be sold to the next bidder?
Teaching Plan
Given Avon’s history, goals, and current strategy, the focus of general discussions should center on what
the issues were and whether there were ideas presented in the case that might sustain improvement.
Details in the case provide the basis for discussion and analysis of strategies, potential markets and
products, diversification, organizational structure and leadership, and external factors such as the
economy and the industry.
ICEBREAKER
This case can start with an icebreaker. Starting from the perspective of a customer may make it easier for
students to transition to a strategic analysis. Ask the following:
What beauty companies have you heard of? Which products do you or your friends purchase most often?
Have you or anyone you know tried Avon products? Why/Why not?
Have you noticed any changes in the way the company markets its products in recent years?
Since cosmetics products are heavily marketed and companies like Avon have been around for over a
Have students visit the Avon website at https://www.avon.com/ and report on what they see. Several
things should stand out: the ability to find your “local representative” and the range of products displayed
on the main page. Not every product shown is a beauty product. What does this mean for the company?
What business is it now in, and who might it now compete with? Does this blur the lines of business such
that one consistent strategy will still work, or are different strategies needed for different product
categories?
Given that products can be purchased off the website, what does this say about Avon’s premier niche – its
direct selling model? Are the “Avon Ladies” still crucial to Avon’s success?
Before engaging in discussion, you might want to test student’s basic knowledge regarding the case and
the major concepts. Here are some multiple choice questions to use. (This will get the student’s attention
– they can’t answer these if they haven’t read the case!)
Which of the following statements is most true?
a. Avon, famous for its women sales reps, was founded by a book salesman.
b. Avon cosmetics were the first products sold door-to-door.
c. Avon still sells only beauty products.
d. Like competitor Mary Kay representatives, Avon Ladies had to invest in the products up front.
ANSWER: a. In 1886, David H. McConnell, a book salesman from rural New York, created a novel
opportunity for women— a chance to become financially independent by selling perfumes. The first
product that Avon sold was the Little Dot Perfume Set to customers in the United States. Over time, Avon
How does Avon distribute the majority of its products worldwide?
a. Online
b. In retail stores
c. Via direct sales
Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign, and also
which additional readings or exercises to include to augment each discussion. Refer back to the Case
Objectives Table to identify any additional readings and/or exercises so they can be assigned in advance.
Discussion Questions:
1. What forces in the industry environment might affect Avon’s choice of strategy? And what does
an internal analysis tell us about this?
2. What business-level strategy should Avon pursue? What other options does CEO McCoy have to
try and fix the company?
Discussion Questions and Responses
1. What forces in the industry environment might affect Avon’s choice of strategy? And what does
an internal analysis tell us about this?
Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter 1, Exhibit
1.1: Strategic management consists of the analyses, decisions, and actions an organization undertakes in
order to create and sustain competitive advantages:
●strategy directs the organization toward overall goals and objectives;
●includes multiple stakeholders in decision making;
See Chapter 1, Exhibit 1.3 for a depiction of the strategic management process. During strategic analysis,
the leader does “advance work” to anticipate unforeseen environmental developments, identify
unanticipated resource constraints, assess changes in his or her preferences for how to manage. During
In strategy implementation, depending on the type of organization structure, the leader might include key
individuals in a discussion around selecting which strategies might be best to implement at which level
The basic question strategic management tries to answer is: How can we create a sustainable competitive
advantage in the marketplace that is not only unique and valuable but also difficult for competitors to
copy or substitute?
Avon’s leadership had struggled in the past to connect strategy analysis, formulation and implementation:
did the company adequately assess the relevant changes in the external environment and adapt its internal
resources accordingly? Had the company correctly anticipated the rivalry in its industry and formulated a
strategy that allowed it to compete effectively in its chosen business? And, even if analysis and
formulation activities were correctly executed, was the chosen strategy correctly implemented? Leaders
need to learn from their strategic decisions and adjust as necessary. It appeared Avon had not done this
successfully in the past. Could it do so in the future?
Referencing Chapter 2: Analyzing the External Environment
As part of strategic analysis, it’s necessary to engage in external scanning: surveillance of a firm’s
external environment to predict environmental changes to come, detect changes already under way, put
It’s also necessary to assess the segments of the external competitive environment that include
However, before an industry analysis can proceed one important question needs to be asked: “what
business is Avon in?” Until students are sure about the boundaries of the business, it is impossible to do
an industry analysis – what is the “industry” to be analyzed? Given Avon’s current push to enlarge its
product offerings to include jewelry, clothing, accessories, and gift items for the home, some students
Choosing the cosmetic/beauty industry, ask students to diagram the five forces. It should look something
like the diagram below:
Rivalry
High
Substitutes’
Threat
Buyers’
Power
Low
Suggested: High Rivalry -
many rivals compete for market
share. The company
experiences direct competition
Suggested: Avon’s products
are generally sold via direct
selling representatives (i.e.
Suggested Low supplier power
- The suppliers in the beauty
industry appear to have low
Suggested: There is a low to
moderate threat from substitute
products. Currently, there appear
to be no direct substitutes to
beauty products as all options
Suggested: The threat of entry is
medium. There are low entry barriers
The five forces analysis indicates the beauty/cosmetics industry has major threats from rivals and possibly
Suppliers – Low Threat: The suppliers in the beauty industry appear to have low bargaining power.
Ingredients required for the manufacture of beauty products are commodities like oils, chemicals, and
Buyers – Low Threat: Since the company’s products are sold via direct selling representatives, the end
Industry Rivalry – High Threat: The company operates in the highly competitive beauty industry and
experiences worldwide competition in all of its principal products. In the direct selling arena, the
company faces intense competition from rival Mary Kay both in terms of products and in recruiting direct
New Entry – Medium Threat: The threat of entry is medium. There are low entry barriers, such as low
capital requirement, easy learning curves and acquirement of the know-how, but at the same time the new
entrants should expect retaliation from the incumbents. In established markets, new entrants will need to
Substitutes – Low-Medium Threat: There is a low to moderate threat from substitute products.
Consumer attitudes towards beauty continue to evolve towards more natural and holistic alternatives. This
may make consumers seek lifestyle changes and natural remedies to looking beautiful. In emerging
markets, there is a threat from home-based beauty treatments that may use unique ingredients that are
Additional Exercises:
One interesting way to evaluate the competitiveness in the industry is to look at comparative financial
performance from the perspective of an investor. Since Avon is a publicly-traded firm, take a look at
http://finance.yahoo.com/q/co?s=AVP to see how it compares with its peers.
Referencing Chapter 3: Analyzing the Internal Environment of the Firm
When one firm outperforms others by a wide margin over a long period of time, it’s important to figure
out how this could be. The answer may lie in how that firm arranges its activities and creates unique
Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total
revenue, a reflection of the price a firm’s product commands, and the quantity it can sell. A firm is
To answer the question of whether Avon’s choice of strategy may be adequately supported by its internal
resources, Avon must first assess the relationships between the elements in its value chain. Every activity
should add value. Take a look at Exhibit 3.1.
Here is what an assessment of this might look like for Avon:
Value chain activity How does Avon create value for the customer? What
challenges does Avon have in its value chain?
Primary:
Inbound logistics (distribution
The company’s principal executive offices are company-
Operations (efficient work flow
design, quality control systems)
Company’s globally located manufacturing and processing
plants are well maintained and are generally adequate to
Outbound logistics (consolidation
of goods, efficient scheduling,
Distribution efficiency appears effective. Avon products are
currently distributed and sold in over 100 countries. Use of
Marketing and Sales (motivated
sales people, innovative advertising
Sales activities are mostly conducted by the company’s own
direct sales force and limited retail or online operations. This
Service (ability to solicit customer
Due to its direct selling approach, the company maintains
Secondary (or support):
Procurement (procurement of raw
materials, “win-win” relationships
The ingredients required for the manufacture of the
company’s products were purchased from various suppliers.
Technology development
(innovative culture & qualified
Avon sustains an appropriate technology infrastructure to
provide and maintain connections among its marketing, sales,
Human resource management
(effective recruitment, incentive &
retention mechanisms)
Company had the mission to become one of the premier
direct sales companies and best places to work. However,
there are tensions between direct sales force and company
General Administration (effective
planning systems to establish goals
diverse stakeholders)
Although ineffective in the past, under Ms. McCoy’s
direction, Avon made many reforms to strategies and
Primary Activities: Avon has some significant strengths in its primary activities, mostly related to its
direct selling model.
Secondary Activities: Although Avon has some strengths in its procurement and technology development
To further answer the question of how to support a competitive strategy, students can be asked to identify
The logic of RBV argues that unique bundles of resources and capabilities or core competencies can (and
should) be leveraged in pursuit of a competitive advantage. Students should be able to identify Avon’s
The concept of the resource-based view of the firm includes the three key types of resources: tangible
The resource-based view of the firm takes the perspective that firms’ competitive advantages are due to
their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute.
Avon’s profile might look like this:
Tangible Resources:
Human – Avon has an army of 6 million direct selling representatives globally. In emerging markets the
Physical – Avon’s physical facilities are adequate. It maintains a presence in over 100 countries, thus
Technological – Avon maintains an upgraded technological system that allows it to operate its business
Intangible Resources:
Innovation and creativity: Avon is constantly adding new products that better reflect customer’s needs
and preferences. Direct and repeated contact with its end users provides the company an opportunity to
Reputation: Avon started its business in 1886 and now sells its products in over 100 countries. Avon’s
name presents reliability in product quality. In addition, numerous philanthropic activities in woman-
Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute
(VRIN) can help a firm sustain a competitive advantage. Applying the VRIN analysis to the above shows
that Avon had valuable resources, which nearly every competent firm should have in order to compete,
Referencing Chapter 4: Recognizing a Firm’s Intellectual Assets
See the concepts of intellectual capital, human capital, and social capital, all of which are intangible
assets that a company needs to have in order to compete successfully. Intellectual capital is a measure of
Human capital involves the individual capabilities, knowledge, skills, and experience of the company’s
Success in retaining human capital could also be attributed to the nurturing of the “social ties” or social
capital. Social capital is a function of the network of relationships that individuals have throughout the
Dynamic capabilities involve a firm’s capacity to build and protect a competitive advantage, which rests
on knowledge, assets, competencies, complementary assets, and technologies. Dynamic capabilities
Intellectual assets or intangible resources are critical to organizational success. Here are some questions
organizations should ask.
Human capital: does the organization effectively attract, develop, and retain talent? Does the
organization value diversity?
Social capital: does the organization have positive personal and professional relationships among
employees and alliance partners?
Technology: does the organization effectively use technology to transfer best practices across the
Presence of Organizational Capabilities
Human and Social Capital: Attracting, developing and retaining talent is critical to Avon’s success,
especially given its direct sales model. Direct sales motivation is crucial and needs to be managed
Organizational Capabilities: The ability to produce new varieties of products for their customer’s health
and wellness and its expansion into emerging markets means Avon has some significant capabilities to
This analysis shows that Avon has a mixed profile here: capabilities exist, but the ability to mobilize and
2. What business-level strategy should Avon pursue? What other options does CEO McCoy have
to try and fix the company?
Referencing Chapter 5: Business-Level Strategy
The question of how to compete in a given business to attain competitive advantage requires an
assessment of the types of competitive strategies, including the three generic strategies that are used to
overcome the five forces and achieve a competitive advantage:
●Overall cost leadership
oLow-cost-position relative to a firm’s peers
●Differentiation
oCreate products and/or services that are unique and valued
●Focus strategy
oNarrow product lines, buyer segments, or targeted geographic markets
Ask the students which strategy they think Avon should pursue, and why.
Avon originally differentiated itself on offering value and convenience to women who did not want to
travel long distances and spend more on cosmetic products being sold in department stores. In addition, in
the past, the Avon product line offered an exclusive premium product. However, in recent times, this
In addition, the growing presence of online and mobile sales venues negates the effectiveness of the direct
selling model. Is the personal touch of a woman in the home, demonstrating the product prior to purchase,
Students can debate the path that Avon needs to take here. It would appear that a focus strategy of
achieving cost/value leadership among a smaller niche group of women might be a good option. Staying
Referencing Chapter 6: Corporate-Level Strategy
Thinking about combining resources to achieve a competitive advantage, corporate strategy focuses
discussion on the questions of what businesses a corporation should compete in, and how the businesses
Diversification is the process of firms expanding their operations by entering new businesses. In related
diversification, a firm enters a different business in which it can benefit from leveraging core
competencies, sharing activities, or building market power. Some possibilities include:
●Mergers and acquisitions
●Strategic alliances
Whatever the choice, it should create value for all stakeholders – employees, suppliers, distributors, and
Companies can achieve synergy through diversification in two ways:
Through related businesses (horizontal relationships)
●Sharing tangible resources
Or through unrelated businesses (hierarchical relationships)
●Value creation derives from corporate office
Core competencies reflect the collective learning in organizations—how to coordinate diverse production
skills, integrate multiple streams of technologies, and market diverse products and services to create
Avon had tried to diversify via internal development into related businesses: it had pursued more diversity
of product categories as it expanded into different customer segments and international markets.
Further addressing the issue of sharing resources, and regarding the other options McCoy had for fixing
the company, CEO McCoy had replaced the existing leadership with qualified candidates from the
industry who had proven track records. She also invested heavily in updating the technology being used
Prior CEO Jung had attempted to turnaround the company by expanding into new channels, e.g., retail.
However, despite her best efforts, she was not able to return the company to a path of steady growth. New
CEO McCoy has certainly identified areas of needed improvement. However, like Jung, McCoy is also an
