1. GROUP- F3 CASE STUDY I

2.  Company History  From Charles Perrin to Andrea Jung  Improvement of Avons Image  Current Situation

3. Company Name2000 Revenues (Overall) 2000 Revenues(CFT) L'Oreal $10.6 $10.3 Proctor & Gamble $40.1 $7.3 Estee Lauder $4.4 Avon$5.7 $3.5 Alberto-Culver $2.3 $2.2 Coty$1.8 LVMH$9.7 $1.7 Johnson & Johnson $29.1 $1.5 Revlon $1.5 Mary Kay $1.2 In billions

4. Company Sales Revenue Sales Growth from FY2007 Gross Profit Operating Margin Net Profit Margin % of Sales from Outside U.S. Avon Products (AVP) $10,6907.5%$6,74112.5%8.2%76.7% L'oreal (LRLCY)$24,6002.8%$1,73015.5%11.1%76.2% Estee Lauder Companies (EL) $7,91012.4%$5,91410.2%6.0%53.1% Bare Escentuals (BARE) $556.28.8%$401.531.5%17.6%1.2% Revlon (REV)$1,346-1.5%$855.911.5%4.3%42% Elizabeth Arden (RDEN) $1,1411.2%$46636.6%1.7%39.8% FY 2008 AVP vs. Competitors (millions)

6. Developing a Strategic Vision and MissionSetting ObjectivesCrafting a StrategyImplementing and Executing the Strategy Evaluating Performance and Initiating Corrective Actions

7.  Vision- to be the company that best understands and satisfies the product, service and self-fulfillment needs of women globally.  Mission- We will build a unique portfolio of beauty and related brands, striving to surpass our competitors in quality, innovation, and value, and elevating our image to become the world’s most trusted beauty company.

8.  Grow global beauty category sales.  Greater career opportunities.  Reduce inventory levels.  Improve Operating Margin by 50-100 basis.  Launch new products.  E-commerce opportunities.

9. 1997 – 20002001 - 2004 Sales growth9%10%+ Beauty growth10%12%+ Operating margin improvement +3.2 points50+ basis points/year Cash flow from operations $350 million$700 million Capital expenditures$200 million (2000) $225 million average/year Financial Objectives

10.  Basic EPS for 2009 is 0.47%  Dividend growth rate is 13.75%  Declared a regular quarterly dividend on its common stock of $.21 per share, payable September 1, 2009

11.  Respond to changes  New market conditions  Grow business  Achieve performance targets

12.  Market transformations  Supply chain improvement  Sales leadership  International expansion

15.  Financial problems  Problems for the customers  Poor logistics  Effect of crisis  Failure of non core business

16. “ our vision is to be the company that best understands and satisfies the product, service and self-fulfillment needs of women globally. Our dedication to supporting women touches not only beauty- but health, fitness, self empowerment and financial independence.”

17.  Change in customer need and expectation  Aggressively pursuing promising markets  Strategy to outrun competitors  Focus on profitable retail business and e- commerce  Invest in growing product category

18. Product Category Hair care Fragrance Cosmetics Skin care Bath products and other personal care Total 2005 Dollar value Percent of (in billions) total $8.6 21.6% 6.0 15.0 8.4 21.1 9.4 23.7 7.4 18.6 $39.8

20. Marketing Transformations 2000 2004 Active beauty product SKUs 5,000 4,000 Breakthrough innovation frequency 3 years 2 years Product development (average) 88 weeks 50 weeks Campaign development 52 weeks 26 weeks Supply chain improvement 2000 2004 Days of Inventory 119 8-10 Forecasting accuracy Baseline +30% Order fill rate 68% 90%

21. Sales Leadership 2000 2004 Leadership down lines per U.S. district 110 214 Representatives per U.S. district 322 440 Growth in active representatives 2%-3% 2%-3% Growth in average rep earnings -- 25%-30% E-commerce and Internet 2000 2002 E-Representative participation 13% 50% Representative support cost savings $3 million +$20 million Geographic market penetration U.S., Japan, Taiwan 20 markets International 2000 2004 Local currency sales growth 50% 20%-30% Representative growth 25% 20%-30% Sales outlets (China) 3,463 6,000

22. Financial 1997 – 2000 2001 – 2004 Sales growth - 9% 10%+ Beauty growth- 10% 12%+ Operating margin improvement - +3.2 points 50+ basis points/year Cash flow from operations - $350 million $700 million Capital expenditures - $200 million (2000) $225 million average/year

23.  Reduce inventory which is currently at 40% of total current asset.  Reduce the long term debt which had increased 58% in 2000 vis-à-vis 1999.  To improve the operative margin by 0.50% every year to achieve higher net profits.

25.  Advertising, marketing and promotional strategy  Develop new products  Improve its image  Use of technology to aid sales representatives  Development of Avon’s Leadership Opportunity program.

26.  eRepresentative sales concept  Information technology and use of the Internet  Concept of Sales Leadership  Beauty Advisors program  Store-within-a-store concepts Strategy Under Current CEO: Andrea Jung

27. GLOBAL INDUSTRYCOMPETITORS STRATEGIES  highly fragmented with distribution channels beyond direct selling  Market was segmented by consumer demographics and by geography.  Country-specific differences in consumer preferences  Sales driven by product innovation  product innovation ;  Acquisition;  Diversification;  Expansion Products were available at  discount stores, supermarkets, and drug stores  department stores, retail stores & Internet

30. The changing face of Avon’s sales force is shown below: Employees as On Dec 08: AgeNew RepsTotal Reps Under 3552%17% 35+48%83%

31.  Increase in company’s expenditures for advertising by 50% to $90 million in 2000  The U.S. brand image indexes of Avon and selected competitors in June 1999 and March 2001 are shown below: BrandJune 1999March 2001Change Cover Girl150146-4 Clinique150138-12 Revlon138131-7 Mabelline107 -- Avon8996+7 Mary Kay96 -- L’Oreal10496-8 Oil of Olay8693+7

33.  Avon’s new products aided in market share gains of 0.8% in color cosmetics, 2.2% in anti-aging, and 0.3% overall share.  Avon’s sales by product category for the years ended Dec. 31

34.  Avon held the title of world’s largest direct seller of beauty related products  Avon’s common shares had increased by approximately 90%, while indexes such as the S&P 500 had fallen by nearly 25%.  Avon’s sales growth had increased from 1.5% to 6%  BPR had saved more that $400 million in costs and improved operating margins by more than 350 basis points.  international sales grew at double-digit rates

35.  In China,  Avon brand awareness improved from 41% to 53%,  annual usage rates increased from 26% to 31%,  sales improved by 47%  In EEMEA markets,  Share makeup subcategory from 8.7% to 11.5%  increased its share of fragrance sales from 6.5% to 9.3%,  market share in the skin care category raises from 7.7% to 10.6%

37. REVENUE 2009

38. Misstep:  Avon pursued business diversification to boost its revenues by acquisition of Tiffany & company in 1979, Giorgio Beverly Hills and Parfums Stern in 1987.  This diversification left the company with a large amount of debt and in a vulnerable financial position.

39. Problems:  Any initiative by the company to expand beyond its direct sales model is met with fierce opposition by its sales representatives.  Any effort to sell via the Internet and through retail channels has been rejected by the representatives.  Brand name reputation  Dependence on one sales model  Single line of business  To many manual processes

41.  Jung’s ‘Pre-CEO’ association with Avon  Jung’s ‘Post-CEO’ performance  Corrective adjustments  New developments  Financial Results

42. AVP FY2006-2008 Financial Metrics (millions) MetricFY2008% ChangeFY2007% ChangeFY2006 Net Sales Revenue $10,690.7.6%$9,93913.4%$8,764 Gross Profit $6,64012.5%$5,90412.2%$5,261 Operating Margin 12.5%3.7%8.8%0.1%8.7% Net Income $87564.7%$53111.1%$478

43. AVP Q2 FY2009 Financial Metrics (millions) Metric 3Mon ended Q2 FY2009 % Change 3Mon ended Q2 FY2008 Total Revenue$2,470-9.8%$2,736 Gross Profit$1,511-12.0%$1,718 Operating Margin7.4%-6.3%13.7% Net Income$82.3-64.0%$234

48.  Working hard and earning her wants and desires  Decisiveness and no nonsense style  Ambitious  Good balance of aggressive and humane approach  Generating innovative options to solve problems  Taking initiative wherever necessary  Focused  Ability to deliver  Never say die spirit

50.  To sign contracts with premium brand ambassadors  To increasingly employ more male sales representatives for men’s products

51.  To progressively increase expenditure on R&D  To reduce costs of production  To conservatively increase the dependence on debt  Improve the current ratio of the company  Implement more effective risk management techniques

52.  In their vision they could along with women also cater to the beauty needs of men

53. STRATEGYCHALLENGES  To be more focused in its growth  To focus & innovate more in areas of CFT market which show promising growth  To resort to a little more aggressive retailing  To focus more on Mass merchandisers and specialty stores in retailing  To hedge foreign currency and interest rate transactions  Increased costs of retailing  Deal with the huge sales force  Increase in borrowings  Forex fluctuations

55. 19962000CAGR Channel Dollar value (in billions) Percent of total Dollar value (in billions) Percent of total(1996 – 2000) Supermarkets$4.617.9%$5.316.3%+3.6% Drug stores4.818.75.416.6+3.0 Mass merchandisers 5.621.88.024.6+9.3 Department Stores 5.521.46.820.9+5.4 Specialty stores 2.38.93.310.2+9.4

56. 199620002005CAGR Product Category Dollar value (in billions) Perce nt of total Dollar value (in billions) Perce nt of total Dollar value (in billions) Perce nt of total (1996 – 2000) Hair care$6.625.9%$8.225.2%$8.621.6%5.3% Fragrance4.718.45.115.66.015.01.7 Cosmetics4.617.86.419.78.421.18.7 Skin care4.316.76.319.59.423.710.3 Bath products and other personal care 5.421.26.520.17.418.64.6 Total$25.7$32.5$39.8

57.  Political, legal and regulatory risks in the Global Market  Currency Fluctuation Risks  Interest Rate Risk  Credit Risk of Financial Instruments

58. Andrea Jung has achieved success through "not by abandoning the seemingly outdated Avon Lady, but by reviving her"