By Tom Steinert-Threlkeld  |  Posted 2001-10-29 Print this article Print

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-

: Cut Out Costs, Not Reps">

Goal: Cut Out Costs, Not Reps

The numbers told the tale. Even if the technology to "disintermediate" the reps was available, the data gathered by Sapient showed the costs of going direct would have been prohibitive.

Avon reps have traditionally filled out paper forms that can reach 50 pages to place orders. If reps—or customers—place orders online, the cost falls dramatically. Edwards estimates the cost per online order at 30 cents, versus $1.50 for paper orders. With more than a million orders being handled a week, the difference to the company's annual profits of $478.4 million could be substantial.

But if Avon simply did away with reps, those savings would be outweighed by changes the company would need to make in its manufacturing, logistics, and other processes to support 100% Web-based sales, Sapient found.

Avon manufactures over one billion individual products a year. The company's well-established batch ordering, manufacturing and delivery systems were not set up for the "onesy-twosey" kinds of orders that occasional Web shoppers most likely would generate, Sion explains.

Avon's fulfillment model was based on a basic premise: Avon ships multiple orders for multiple reps in a single package, and reps unpack and customize those orders for each customer before delivering. If Avon had changed its shipment policy, moving to a complete "direct-to-customer" model, it would have had to redesign from scratch its delivery, fulfillment and other back-end processes.

At the same time, Sapient analyzed how much it would cost Avon to acquire direct customers in the way that companies such as Amazon.com had done. One area where Avon would have had to shell out major dollars in order to sell direct would have been in print, broadcast and TV advertising to build brand recognition—an area where the company has invested relatively little money to date. Instead, Avon has largely relied on good old word-of-mouth to spread the word about its products.

While Sion declines to provide the exact data that Sapient provided to Avon, citing client confidentiality as the reason, he did explain the thought process. "We gathered information on how much it would cost Avon to provide customers with the same level of quality as the agents (reps) provided." The bottom line: "Going direct was cost-prohibitive," Sion says.

Even acquiring 10 million customers—about the size of its offline business in Canada—could have cost $350 million, at $35 a customer in acquisition costs. That was considered a cheap rate for acquiring an online customer, back in 1999.

"The amount of investment with direct brand building that would have had to have been undertaken just didn't make sense for what kind of company Avon was," Sion recalls. "As we moved more and more down the analysis, it became very clear that the rep was Avon's core asset," Sion said. "Avon was a (more than) 100-year-old company with no established relationship with its customers. Their core competency was with their reps."

Instead, the analysis suggested that Avon adopt multiple avenues of selling its cosmetics to customers.

In this hybrid model, Avon's representatives would not only sell to their customers face-to-face, but online as well. At the same time, Avon itself would sell its products online via www.avon.com to customers who didn't like to buy from Avon ladies—customers Avon.com president Edwards has come to call "channel rejecters."

Avon would also pursue other ways to sell more cosmetics, primarily through retail stores and kiosks that would be located at good old brick-and-mortar malls.

When faced with the numbers, and fortified by the recommendations of Sapient and the outside tech experts, the Avon.com team threw its support behind the double-barreled approach of selling online, both through Avon's Avon.com site, and thousands of e-rep sites on a complementary yet competing portal, called YourAvon.com. The Avon.com team presented the plan to the Avon board in September 1999, and the board signed off on it. One year later, on Sept. 27, 2000, the revamped Avon.com business-to-consumer (B2C) and YourAvon.com business-to-business (B2B) sites went live, as did the company's MyAvon.com online portal for reps, managers and Avon employees.

The distinctions and terminology have proved confusing. An Avon customer can buy Avon products from either Avon.com or YourAvon.com. Avon reps manage their sales efforts through YourAvon.com, but find news about the company and its rep programs through MyAvon.com.

And the company still has a long way to go to justify the $60 million or more Avon says it will spend on the Web over the course of three years, in pursuit of a strategy that has—in the words of Avon.com general manager and president Edwards—produced miniscule revenue and profit results for Avon. Avon is still at least a year away from reaching the $100 million milestone in annual sales over Avon.com and YourAvon.com—combined. And even then, those sales would amount to less than 2% of Avon's business.

The company right now is not even pushing reps to sell products online. Instead, it is looking for the biggest impact to come from getting reps to order products online. If the company can get half its reps to order online, the savings from eliminating the collection of paper order forms across the country could be tens of millions of dollars a year. But, so far, a little more than one year since Avon launched its e-rep program, only 15% of Avon reps order online.

Tom was editor-in-chief of Interactive Week, from 1995 to 2000, leading a team that created the Internet industry's first newspaper and won numerous awards for the publication. He also has been an award-winning technology journalist for the Dallas Morning News and Fort Worth Star-Telegram. He is a graduate of the Harvard Business School and the University of Missouri School of Journalism.

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