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Strategy analysis: Direct Sales Beauty Industry Presented by Marie Osako Ngoie DBA Candidate Argosy University-Chicago.

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Presentation on theme: "Strategy analysis: Direct Sales Beauty Industry Presented by Marie Osako Ngoie DBA Candidate Argosy University-Chicago."— Presentation transcript:

1 Strategy analysis: Direct Sales Beauty Industry Presented by Marie Osako Ngoie DBA Candidate Argosy University-Chicago

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

3 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.

4 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)

5 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).

6 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.

7 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.

8 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 companys 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

9 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.

10 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.

11 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 LOreal, Revlon, Bare Escentuals, Elizabeth Arden & Estee Lauder companies; and second with the direct sales beauty companies mentioned previously.

12 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 P1,200 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

13 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

14 Avon challenge Looking at the cosmetics competition, most of the Avons 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.

15 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?

16 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)

17 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)

18 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. nt&annual 3.

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