Future of Avon in China:
Direct Sales, Retail Sales or Both
A Case Analysis
Marketing Management
BA 206
I. Perspective Held by the Group
The group would like to take the viewpoint of a top-level executive or marketing manager who can determine as to what strategies to undertake. Specifically, we would like to solve this case in the perspective of the manager in charge of its Chinese operation.
II. Statement of the Problem
- Avon is currently facing a dilemma as to what strategy to implement in distributing its products to the Chinese market. Changing and determining the operations model would involve a lot of trade-offs for Avon China.
III. Objectives
- To determine what strategy or model to implement in distributing the products to the market.
- To determine or develop a model that is beneficial and sustainable in the long-run scenario.
IIII. Analysis of Relevant Case Facts
From the viewpoint of the marketing manager, the following are the external macro-environment factors that have affected and may affect the business operations of Avon China, determined through PEST Analysis.
Political Factors | - The Bureau of State Administration for Industry and Commerce in China has conducted reviews regarding business models similar to Avon, and in year 1998, China has banned such models which greatly affected Avon China.
- Though the ban was eventually lifted, the direct selling model would seem to be a trial version overseen by the Chinese government. The probability of another ban in the future would make the operations unstable and unsustainable.
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Economic Factors | - Urban residents in China had formed a new middle class, define as households with total assets of USS18,000- 36,000.1
- According to a report by the China Perfumes and Cosmetics Association, the total sales value of cosmetics in China had grown by an average of 23.8% each year from 1982 to 1998, peaking at 41%. Cosmetics production in value terms had grown by 40% annually on average from 1990-2002, scaling a peak of 200% in 1993-even higher than that of the national economy.2
- Cosmetic sales in China had grown more than 200 times from around US25 million in 1994 to US6 billion in 2004.3
- In 2004, China’s cosmetics industry was ranked fourth in terms of consumption expenditure, after real estate, automobile and tourism.4
- With the increase in disposable income, urban residents had become a dynamic consumption force for the Chinese cosmetic market.
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Social Factors | - There are underdeveloped regions with untapped potentials.
- Chinese government had adopted a series of policies like the Great Western Development Policy and Urbanization Policy to develop rural areas which contributed to the growth of disposable income there.
- Similarly, many of the coastal towns had become wealthier.
- There are female immigrant customers who were generally less knowledgeable about cosmetic products and their purchases were largely based on price concerns rather than brands. They would prefer domestic to international brands.
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Technological Factors | - Along with technological advancement, the company introduced a Chinese website to provide information for consumers and sales representatives.
- Avon’s products could also be purchased online.5
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Table 1. PEST Analysis of Avon China
1 Economist Intelligence Unit (2004) “Coming of Age: Multinational Companies in China”, p.13
2 Chen, D. and Xue, L. (7 February 2005)”Beauty Sector Benefits Chinese Economy”, www.crienglish,com (date accessed 21 October 2005).
3 Global Cosmetic Industry, New York: Apr 2004, Vil 172, p.24
4 Chen, D. and Xue, L. (7 February 2005) on cit.
5 Avon China website, www.avon.com.cn
V. Statement of Strategies and Alternative Courses of Actions
