GoalBy Tom Steinert-Threlkeld | Posted 2001-10-29 Email Print
Re-Thinking HR: What Every CIO Needs to Know About Tomorrow's Workforce
For 115 years, Avon Products has been employing personalization--in the form of its ubiquitous Avon ladies--to sell everything from cosmetics and fragrances to sundresses and bug repellent. Yet when the Web, with its ability to let companies interact one-: Redesign Processes, Boost Returns">
Goal: Redesign Processes, Boost Returns
Avon's focus on supporting the representatives makes sense now, in a world where old-economy companies are being rewarded for sticking to their knitting.
But it wasn't always so. Back in 1997, Avon embarked on a series of business process redesign (BPR) initiatives that were supposed to increase sales 8-10% a year, and earnings per share by 16-18% a share. Yet, despite efforts to improve forecasting, trim the supply chain and boost electronic commerce, Avon's sales only improved 5% a year. Earnings per share fell below the low-end growth target of 16% a year, until 2000. Cash flow of about $323.9 million was essentially unchanged from 1997 to 2000.
At the time when Avon kicked off Phase One of its BPR program, Wall Street and Avon's board of directors were pushing the company to use the Web to make over Avon's less-than-glamorous reputation. Avon, went the reasoning, could directly reach a far broader, wealthier customer base via the Web.
One possible way to alleviate the sluggish growth and modest gains in earnings experienced by the company in the late 1990s could have been to get rid of Avon ladies altogether. Selling directly to consumers over the Web seemed like a foolproof path to more sales and profit, almost immediately expanding the potential market for Avon products to everyone in the world with access to a computer.
The newly minted Avon.com group, led by Avon marketing veteran Len Edwards, decided to hire outside consultants to look at the question of whether to ditch the Avon ladies in the name of progresspotentially, for one thing, saving commissions that total about 40% on each sale. Avon brought in Sapient, a consulting firm founded in 1991 to help businesses develop online and offline strategies.
"There was thinking that the Web provided an opportunity to 'turn the lights on' a massive direct-to-consumer operation almost overnight, without the cost that you would incur for launching a major retail operation with no bricks and mortar," recalls Alex Sion, director of the strategy group for Sapient's Washington, DC, office, and leader on Sapient's Avon engagement.
Sapient's mandate was to help walk Avon through the opportunities and risks for different ways the company might leverage the Web. Sapient, in conjunction with about 20 of Avon's business and technology managers, analyzed how Avon built relationships with customers traditionally; and, how it could change that in the future.
Some of the options Sapient and Avon mulled sound outlandish now, but seemed completely sane during the days of dot-com daffiness. The self-proclaimed "Company For Women" considered transforming itself into a pure content company by acquiring women.com; creating a women-centric Internet Service Provider (ISP) or Application Service Provider (ASP) business; and/or partnering with a content provider like iVillage.com, for which Avon could provide the "commerce back-end," Sapient executives said. Sapient invited a number of Web experts, from companies ranging from Sun Microsystems, to America Online, to Netscape Communications, to act as a sounding board for the Avon.com team.
"At one point, the whole Avon.com group was thinking about going direct," says Sion. "They were looking for ways to politely disintermediate the reps."
Eliminating Avon ladies could have been as disastrous a change in a successful formula as Coca Cola's tinkering with its flagship drink and launching the ill-fated New Coke. And messing with Avon's well-established Avon ladies was just one of many strikes against the pure-play Web concept.