Avon Business Model and Growth Strategy

Avon is a leading provider of beauty solutions, personal care products, and other merchandise that is sold all over the world. They have an online presence, offer personal delivery options, and provide an affordable way to use department store quality brand name products without the brand name price. What makes people leery of this brand, however, is the Avon business model. It’s a traditional multi-level marketing business.

Some Aspects of the Avon Business Model Are Traditional

There are a number of components to the Avon business model that are traditional MLM. New consultants often pay a fee to enter into the Avon sales program. Whomever recruited the new seller will then have a downstream established that will help them earn more sales. Avon sales reps can earn cash through retail markups of products and through commissions earned.

The process is pretty basic. A new rep can choose to purchase starter packs or any other combination of products that they believe they can sell directly. Catalogs are available for purchase to be distributed throughout a community. Home shows, trunk sales, and personal demonstrations are commonly used to increase a sales rep’s brand awareness.

Avon also uses a classification system to establish some reps from others. Some definitions are based on total sales, while others are based on product knowledge and skill. Becoming a Certified Beauty Consultant, for example, can provide a sales rep a leg up on the rest of their competition that exists in the community.

There Are Some Advantages to the Avon Business Model

The one primary advantage to the Avon business model is that there are no minimums in place like there are in other MLM opportunities. There is not required minimum purchase or number of unique customers that must be registered in a certain time. Reps are instead encouraged to sell in the best way they know.

That doesn’t mean Avon doesn’t encourage reps to sell certain products. When a new line of perfume is introduced, for example, a rep may receive free samples and a free full-sized product. They can use them or they can sell the full-sized item. The goal is to let the rep get familiar with the product so they’ll want to sell it. Discounts on bulk orders on new items are common so that a greater retail markup and profit can be achieved. Bonuses are awarded for top sellers as well.

Avon reps also have the option of starting an online presence where people can specifically shop for items in the catalog. All active catalogs are available online and going through the rep’s site creates commissions just as if they’d sold the product in person. This allows some Avon reps to be 100% online and never have to step outside of their home.

There Are Some Disadvantages to the Avon Business Model Too

The biggest problem with the Avon business model is that there isn’t any territory restrictions in place. Avon doesn’t care if a neighborhood has 1 representative or 100 representatives. This can make it very difficult to create a brand name for oneself as an Avon rep. It is often why new reps tend to focus on sales to family and friends and then try to expand their network from there.

Avon reps are also responsible for delivering products to their customers when direct orders are placed. The shipments come in twice per month to the regional distributor or the key person in the downstream chain. Some will deliver the boxes personally to local reps, while others will just require the reps to stop by their home. Then personal deliveries have to be made or customers have to come to the rep’s location to pick up their merchandise.

This is why the online orders are such an advantage. Avon ships the items out directly when independent online orders are placed.

Avon Has Downstream Limits

In 2014, Avon shocked the world when they resigned from the Direct Selling Association, which was an organization that they helped to create. Their reason behind the resignation was simple: the ethics were stringent enough. Avon believes that a strong code of ethics is required for business success and that is seen in the structure of its MLM business model.

• Sales reps are generally limited to three generations of downstream commissions. Although some exceptions are made from time to time, there are no unlimited commission earnings in place like other MLM models offer.
• There is no requirement for sales reps to purchase excess inventory off of other reps or refer sales to a different rep if they have inventory in stock and they do not.
• Incentives are based on sales to customers and personal performance rather than team performance or recruiting capabilities.

The MLM world has been taking a lot of hits as of late. Companies similar to Avon have been called “Ponzi Schemes” and billion dollar bets are being taken that many of them will fail. Avon’s stock has dropped more than 30% because the company has seen stale sales within its 6 million representatives. Yet because of their focus on ethics and desire to provide innovative, updated, and useful products to people, there is still hope for the future.

This is why Avon split away from the DSA. They noticed how many similar agencies are designing their business models on slightly altered pyramid schemes and they want to separate themselves from the inevitable fallout that will occur.

Why the focus on ethics right now? It is likely a PR move to counter the bribery charges that were self-reported to the SEC regarding company officials and their dealing with China and Brazil. Avon agreed to pay $135 million to settle a 6 year investigation. By focus on ethics, it is easier to brush unethical behavior under the rug.

Does Avon Not Understand the MLM Business Model?

Some people believe that the Avon business model is taking a risk by adopting a position that fits between a traditional direct sales model and the MLM business model. The point is valid. Avon has only incorporated elements of MLM in its business structure since 1992. For the century before this, each Avon rep was considered an independent direct sales contractor. This is even promoted on their website today as in the late 19th and early 20th centuries, it was virtually impossible for a single woman to run her own business, but Avon made it possible.

Where Avon is struggling is through the adoption of an omni-channel system of being able to place orders. Customers can place face-to-face orders, use phone or email contacts, or go through a rep’s personal website. Customers can even shop on the national website if they don’t have a local Avon rep if they prefer as well. The problem is that Avon has been slow in communicating all of these specific points to their customer base.

There have been successes. Debbie Davis recently became the company’s first millionaire through direct sales. Based on 2013 sales data, however, the $2.32 billion in sales that were report average out to just $129 in profit per representative. This means a number of reps are not earning anything some months. Since items are purchased in advance so that they can be sold with a retail markup later, whether goods get sold or not doesn’t really matter to Avon. They make their money from inventory stock-ups and direct sales through the company structure.

What Will the Future Be For the Avon Business Model?

The Avon business model has been successful for the last 20 years, so there isn’t anything to expect that success won’t continue to be achieved. Because direct sales are emphasized more than the MLM structure in most cases, what Avon’s reps are going to be relying upon are new, innovative products that target their local demographics. Downstream revenues can help a little, but since they’re limited to 3 generations, it will be a small bonus at most for the average rep.

For decades, Avon has primarily targeted women. This is still the case, but there is a growing men’s and children’s section that will give reps some adding selling options over time. There must also be a focus on the quality of the products being offered for Avon to continue seeing success. If innovative products can target a mass market consumer base and make people want to speak with their local Avon representative, then all the bets of selling short aren’t going to be paying off.

As with many direct sales opportunities, there is never a guarantee for success. Anyone can become a representative and that’s ultimately the biggest problem that current Avon reps face. If these issues can be solved and territories can be established, even if just in a beginning fashion, then Avon could experience great success and offer reps a legitimate money making opportunity. Until then, expect to earn an average of $129 per month if you decide to become an Avon representative.