Future Avon China Case
MKT 600-011 [Weekly Critique Notes] Case Title: Future of Avon China: Direct Sales, Retail Sales or Both 1. What is the central issue in this case? Avon China [who] is given the opportunity to consider the previously successful but fallen direct sales strategy which possesses challenges alongside the opportunity [what] in the distant future [when] because [why] * Chinese officials have intermediately lifted the direct-sales strategy ban after the economic instability in 1998 * With the ban lifted, competition can impede on Avon’s retailing strategy
Avon China does not want to limit its grown opportunities at this current time. At present, China has been geographically saturated with Avon boutiques but might net handsome profits by adopting a hybrid selling strategy to capture rural shoppers that don’t or can’t visit retail outlets.
2. What are the alternatives and chosen alternatives? Alternative 1: Avon China keeps its current retail sales via boutique and does not reintroduce the once successful direct-sales strategy that is continually successful in other geographic regions.
Alternative 2: Avon liquidizes the retail boutiques and adopts direct sale strategy that was once the only strategy. Alternative 3: Avon converts the retail boutiques into service centers to offer after-sales service to sales representatives, including pickups, product returns, credits, product trials, billing assistance and provide beauty consultation services to consumers. Alternative 1: Avon is encouraged to keep their original Retail “beauty boutique” strategy because history often repeats itself.
Pyramid schemes would bear a poor brand association with Chinese consumers because of the economic instability caused in 1998.
Simply because the Chinese government has lifted the direct-selling band, it doesn’t suggest that Chinese sales representatives will likely follow that career path due to risk of being pressured to stock up by their agents and then being left in hot water. A multi-level award system would not sit well with Chinese citizens because of previously mentioned risk, conversely, a simple level award system will not motivate Chinese sales representative to move up the sales latter for incremental compensation.
Therefore, it is most prudent to avoid direct sale strategy in China, although it was proven successful since penetration to China until 1998, because of the volatility of the culture. Also, given that Chinese federals are only implementing a trial-stage suggest that the government might implement another ban contingent on Chinese economic outcome.
3. What are the lessons learnt/key findings? * There are still plenty of cultural differenced regardless of current globalization trends. * China is a volatile country for direct-sales strategy * China’s aggregate population and buying power makes for an excellent investment . Questions/Comments intended to share during class discussion. * Would the hybrid model require franchisees of the beauty boutiques to assume this distribution philosophy of doing business including selling inventory to sales representatives at reduced margin, crediting consumer products * Although the direct sales model has been proven to be financially less risky because of the low degree of operating leverage [low fixed costs and higher variable costs/commissions], does that reduction of risk outweigh the political and societal risk of Federals banning direct sales again and slow recruitment of sales agents.
