Strategy analysis:

Direct Sales Beauty Industry

Presented by

Marie Osako NgoieDBA Candidate

Argosy University-Chicago

A. Direct Sales Beauty Industry Why did I choose this industry?

Let’s say I understand that Beauty industry believes that beauty

is more than just the way a woman looks. Beauty is an assemble of

different factors such as (1) the products that a woman uses to

enhance her natural beauty; (2) an expression of how she feels; (3)

the characteristics that make her unique and unforgettable; (4) the

way she touches the lives of those around her, etc... As a matter of

fact, all women are beautiful both inside and out; they just have to

understand the expression of their own sense of beauty, get someone

who will guide them and help them feel confident and they will stop

complaining!

1. Definition and origin

A direct sales business in a beauty industry is defined as a

direct selling and marketing of products and services directly to

consumers without fixed retail store or location. Khera

communications (2007) highlighted in their paper that direct sales

went through important changes in the United States. It first

started with Yankee peddlers who were selling their products to

the colonies. When new business forms started emerging, peddling

declined, and retail outlets came into existence.

Though, manufacturers were not satisfied with this

retail form of business, so they introduced direct sales into

their sales force to promote their goods and services.

Modern direct selling includes sales made through the party

plan, one-on-one demonstrations, and other personal contact

arrangements as well as internet sales. Direct selling took

over the retail market on the basis of their product

advantages, convenience to the customer, and because they

had specialized knowledge of their distributors.

Definition and origin (2)

2. Difference between direct selling and direct marketing

Direct selling involves individual sales agents/representative

who are reaching and dealing directly with clients; while direct

marketing is about business organizations trying to establish a

relationship with their customers without going through an

agent/consultant or retail outlet. Direct selling uses both self- and

multi-level marketing (salesperson agent/representative is paid for

selling and for sales made by people he recruits or sponsors) rather

than single-level marketing (where salesperson/consultant is paid

only for the sales he makes himself).

3. Revenue In 2011, Direct selling News reported that direct selling

companies generated over $132 billion in revenue in 150

countries through more than 75 million men and women who

are changing lives serving others.

4. Marketing Strategy: Direct Selling The Direct selling companies within the beauty industry market

their products through the (1) person-to-person method, (2) away

from retail locations, (3) through a network of independent sales

representatives.

5. The benefit of direct sales industry The direct sales industry gives an opportunity to individuals who are looking

for a full or part-time job to earn or increase they household income. These

people are used as a network of independent sales representatives who serve and

offer customers seeking for an alternative to regular method of shopping.

According to the Industry representative, the World Federation of Direct

Selling Associations (WFDSA), consumers benefit more from direct selling

because of the convenience and service it provides, including personal

demonstration and explanation of products, home delivery, and generous

satisfaction guarantees. In contrast to franchising, the cost for an individual to

start an independent direct selling business is typically very low with little or no

required inventory or other cash commitments to start.

6. Inconvenience of the direct sales

industry

Due to the reliance of the industry on direct-selling

through representatives, many companies not only compete for

the end consumer but also for representatives that are

knowledgeable about the industry and about beauty products.

The company’s dependence on the productivity and profitability

of the representative direct-selling model exposes it to cost and

litigation risks. Direct-Selling Business Model is exposed to

Regulations in the Global Market

B. Direct Sales Beauty Company I chose to be a face of “Avon Product” company  

1. Business Summary

Avon Products Inc. engages in manufacturing and marketing beauty

and related products in worldwide. Its beauty products consist of color

cosmetics, fragrances, skin care, and personal care; fashion products

include fashion jewelry, watches, apparel, footwear, accessories; and

children's products; and home products consists of gift and decorative

products, housewares, entertainment and leisure products, and nutritional

products. Avon Products Inc. markets its products through direct selling

and independent representatives, as well as through distributorships. The

company was founded in 1886 and is based in New York, New York.

2. Business Segments

Avon's revenues come from three main categories:

Beauty (79.0% of net sales): cosmetics, fragrances, and

personal care products.

Fashion (17.0% of net sales): jewelry, watches, apparel and

accessories.

Home (11.0% of net sales): Home products and decorative

products.

3. Competitors According to Direct Selling News, the largest direct selling beauty

companies, by revenue in 2012 within the USA are Avon Products,

Amway, Herbalife, Mary Kay, Tupperware, Oriflamme, Nu-Skin

Enterprises, Forever Living Products, and Malaleuca.

Avon Company has competitors all around the world. For this analysis, the

competition will be limited to direct sales companies within the USA. In

the U.S., Avon competes on two levels: first, with the major cosmetic

companies such as L’Oreal, Revlon, Bare Escentuals, Elizabeth Arden &

Estee Lauder companies; and second with the direct sales beauty

companies mentioned previously.

 Companies’ names  Year of

foundation

 Distributo

rs

 2012

Revenue ( $)

 Compensation  Products  Employe

es

 1. AVON  1886  6.2

Million

$11.3 Billion  S & M level  B; F; J; and A  42,000

 2. AMWAY  1959  3 Million+ $ 10.9 Billion  M-level  P C; B; & H C  1 3,000

3. HERBALIFE INC.  1980  2.1

Million

$ 3.5 Billion  M-level  N S; H/F; S/H

C; W M P

 43,000

4. MARY KAY  1963  2 Million  $2.9 Billion  S & M-level  S C P & C C  5,000

 5.TUPPERWARE  1946  2.6

Million

 $2.6 Billion  S & M-level  B & P C ; S &

S P

 13,500

7.  NU SKIN  1984  800,000  1.7 Billion  M-level  P C & N P 1,200

 6. FOREVER

LIVING XTS.

 1978  Not

available

 1.4 Billion  M-level  S C & C P; A-

V D; & N S

 9.3

Million

8. MALALEUCA  1985  N/A  750 Million  S-level  P C P & C; C

S; and V

 1,200

Symbols:

P C: Personal Care A: Apparel

C C: Colors Cosmetics B: Beauty

H/F: Health/Fitness F: fashion

S/H C: Skin/Hair care H C: home Care

N S: Nutritional Supply S P: Supplement Products

S C P: Skin Care Products P C P: Personal Care Prod.

S & S P: Storage & Serving Products C: Cosmetics

A-V D: Aloe-vera drinks C S: Cleaning Supplies

S C& C P: Skin Care & Cosmetics Products V: Vitamins

W M P: Weight Management Products

Avon challenge Looking at the cosmetic’s competition, most of the Avon’s

major competitors such as Revlon, L’ Oreal, Bare Escentuals,

Elizabeth Arden and Estee Lauder companies distribute their

products to resellers for example drugstores, department stores, or

cosmetics stores; whereas Avon sells its products solely through

its direct selling channel of independent sales representatives and

on its websites. The Avon company is facing a challenge; due to

the dissatisfaction of the sales representatives and the global legal

restrictions, Avon direct selling business model is at risk for

incurring more cost.

Avon challenge (cont.)

However, the Avon company rely on its direct-selling

business model, therefore earning potential, satisfaction of

its Representatives and maintaining its business model are

essential for the company's success in global markets.

Which strategic market should the Avon Company

consider in order to protect and retain its independents

sales representative within a tough economy with such

high competition?

In 1998, the Chinese government banned direct-selling in

response to abuses perpetrated by some corporations. The

company's business in the region was crippled in the short-term

and strongly disadvantaged in the long-term as the company was

forced to abandon its direct-selling strategy and had to open its

own retail stores in order to sell products. Not until 2006 did

China re-licensed Avon for direct-selling, which allowed Avon's

revenues from China to increase rapidly.

Avon challenge (cont. 2)

Similar situations may arise in Avon's other emerging market

segments, which would negatively impact Avon's revenue growth

globally.

What can be a preventive marketing strategy if this scenario

has to be repeated in the United States or else where in the world

where Avon has established its direct selling business model?

Avon challenge (cont. 3)

Reference

These information were retrieved from these web sites:

1. http:/ / www. directsellingnews. com/ index. php/ site/

global_100_listing/ dsn_global_100_2012_ranking 

2. http://finance.yahoo.com/q/is?

s=AVP+Income+Statement&annual

3. http://www.wikinvest.com/wiki/AVP