The Study of Direct Selling Management Strategies: An example of the Avon cosmetics company in

Yen, Jui-Yen, Associate Professor, Department of Business Administration, National College of Business, Taiwan Chen, Mei-Liang, Lecturer, General Education Center, Hsin Sheng College of Medical Care and Management, Taiwan Chen, Yi- chieh, Graduate student, Grabluate Institute of International Business Management, Ching Yun University, Taiwan

ABSTRACT

The management strategy of Direct Selling is quite different than that of business administration of general enterprise; it is an industry that is highly mobile and emphasizes on interpersonal relationship; no matter it is Direct Selling or Marketing, although they can save the company a lot of cost, yet they are accompanied with uncertain risk. Being affected by the rat’s club due to the misuse of Direct Selling, government has to put control on Direct Selling; currently, most people still do not know too much about Direct Selling and they worry that they might become a victim of ”pyramid fraud” if they are not very careful, which in turn makes the spreading of Direct Selling more difficult. Therefore, some Direct Selling companies such as Avon, changes its form from single-level Direct Selling into multi-channel sale so as to adapt to the change in the social form. Therefore, in this study, we are going to aim at the study of one Direct Selling form, that is, in-depth study and understanding on Avon’s multi-channel system. Keywords: Direct Selling , management strategy, 4P, channel marketing.

INTRODUCTION

Master of Management Peter F. Drucker once said: “What an enterprise is, is decided by the customers”1. For a successful Direct Seller, in addition to treating himself/herself as part of the business body to accurately reflect enterprise image and concept, it is more important to clarify and satisfy real customer’s need through sincere and objective mind. This is also the most important spirit of Direct Selling and is the reason why an excellent Direct Selling company stays strongly in the market. In the past, when the vendor sells the product using traditional selling way, profit will be stripped off by vendors in the first stage and second stage sales channels, and the cost of the vendor will get increased greatly and accordingly. No doubt, these costs will be transferred to the customer, which in turn leads to a burden to the consumer. Therefore, some suppliers, in order to reduce profit stripping in several stages by the intermediate vendors, they start to find their own personnel for the product sale, or try to use mobile technology to assist product sale, the new generation of selling ways such as ”Direct Selling”, “Marketing” and internet shopping are thus generated. In 1982, with the introduction of , Direct Selling started to enter Taiwan and other Direct Selling companies started to follow. On November 1997, some companies which have the sales mainly based on interpersonal network, for example, Direct Selling for example, Amway, SHUANG HOR (HK) COMPANY LTD., Nuskin Taiwan, Forever, etc., started to launch company’s web sites for sales and business promotion so as to enhance the business operation efficiency of Direct Selling; these companies are seen with great potential. At that time, Direct Selling Association also reduces its entrance barrier for the membership application, that is, a company will have the qualification to become a member once it is founded for more than one year; and a commission for promoting commercial virtues has been founded to implement the restrictions of commercial virtues on the companies in this industry. Direct Selling can be divided into single level Direct Selling and multi-level Marketing; however, in recent years, to cope with the change of industry environment, some of the Direct Selling companies such as Avon started to shift its

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strategy toward the development of multiple channels for Direct Selling. We hope, through this study, to understand the business operation system and planning in Direct Selling and compare the advantages, disadvantages, opportunities and threats of different business systems; we hope that the results of this study can be used as reference by companies or people in the Direct Selling industry.

RELATED LITERATURE 2.1 Definition of terms 2.1.1 The definition of Direct Selling World federation of direct selling associations (WFDSA) has defined Direct Selling as: “On non-fixed retailing places and through the use of face-to-face way, the product and service are sold directly to the consumers.“ Robert A. Peterson & Thomas R. Wotruba (1996) briefly described the ”Direct Selling” as a face-to-face selling without fixed retailing sites. However, the Direct selling education foundation of USA in 1992 had a definition on Direct Selling: “Direct Selling is a distribution method for consumptive product or service through personnel contact (Sales personnel to the purchaser) and at different commercial locations, mainly at home.“ Here the nature of ”consumptive” and ”distribution way” are emphasized fro Direct Selling. Direct Selling can be categorized in two ways in broad sense and in narrow sense. In broad sense, Direct Selling is a selling way that the manufacturer or the product importer sells the product directly to the final consumer. For example, the fisherman sells the fishes to the customers directly and the farmers sell the rice directly to the consumers, etc. However, for further definition, the Direct Selling in broad sense should include the narrow Direct Selling: “Product manufacturer or importer, through Direct Seller and consumer and through a way of face-to-face selling, introduces or sells the product or service to consumers. Generally speaking, Direct Seller is not employee of the company and the selling is usually done in non-fixed selling site” (Professor Te-Fa Chen, 2006). Today, both direct Marketing and direct Selling are sometimes all called Direct Selling. However, a direct effectiveness selling is that the product manufacturer or importer, through the mail of DM, catalogue, broadcasting, TV channel, internet, etc., transfer the product and service information to the consumer, and the consumer then reply through mail or answer through telephone (Professor Te-Fa Chen, 2006). Therefore, we can see two keys in Direct Selling: “Face-to-face selling” and ”Sell at non-fixed places”. Direct selling is a process of face-to-face communication between two persons, and the direct effectiveness marketing is way of selling product or service such as mailing of catalogue, telephone/TV marketing, direct reply to the advertisement or the recent emergence of network marketing. The lack of face-to-face contact is the major difference between Direct Selling and direct effectiveness marketing. Direct selling further includes single level marketing and multi-level marketing. In single level Direct Selling, Direct Seller is also the consumer and Direct Seller sells the product or service of the company to the customer, then the Direct Seller receives bonus from the company according to his/her sale performance. In single level Direct Selling, the income of Direct Seller comes directly from the retailing profit he/she sells the product to the final consumer (Professor Te-Fa Chen, 2006). Multi-level Direct Selling is also called network marketing, in addition to getting profit through the sale of product or service, Direct Seller can also become an upstream to absorb or instruct customer to become downstream Direct Seller, then the Direct Seller is awarded with rank and bonus according to the number of persons in his/her downstream and the sale performance. Bonus system is the major difference between single level Direct Selling and multi-level Direct Selling; especially, multi-level Direct Selling is also called ”Marketing” or ”multi-level Marketing”, which is a business operation model selected by most of the Direct Selling companies.

2.2 The related definition literature of management strategy 2.2.1 Strategy related definition literature ”Strategy” evolves from Greek word Strategos. The term strategy is originally applicable to military and political situation, which means an art of leadership, that is, through the use of effective resource to destroy enemies. Until 1950, the emergence of Game Theory pushes the term strategy to the application in business operation (Yi-Wu Li, 1998). In this study, the strategy related literatures defined by many scholars are summarized as in the followings:

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Table 2-1 Strategy definition related literature Year Scholar Views from the scholars Strategy is that the enterprise creates an unique and valuable position so as to facilitate its 1980 Porter attacking or defensive behavior. 1988 Mintzberg Strategy includes plan, ploy, pattern, position and perspective. Strategy is to select the development focus, to define the survival space of the enterprise in the Ta-Hsien 2001 industry environment and to instruct the directions of functional policies. Strategy is a thinking Szutu way to build and maintain competitiveness. Chhing-Pin Strategy is the solid actions performed by the enterprise runner and its business operation team 2004 Lin when they have to face with enterprise’s future development. Strategy is instructive and long term commitment. In the content, it emphasizes on ”quality” 2007 Tzu-Tsan Fu goal instead of the” quantity” goal of financial performance. Data source: Summarized by the author

To summarized the above discussions, it can be seen that strategy is to define the survival niche of an enterprise, to use the limited resource to maximize opportunity and to minimize the threats; meanwhile, it controls every step to let it match the plan and it is the solid action taken by the enterprise runner and its business operation team to face with future development of the enterprise.

2.2.2 Related definition literatures for management strategy The main function of ”management strategy” is to make a plan for the future development of the enterprise from the enterprise runner’s view point by associating the internal resources of the organization and the external opportunity; all kinds of action projects for the operation of the enterprise are implemented through this plan (Hsin-Pai Liu et al., 2000). In this study, the management strategy related literatures defined by many scholars are summarized as in the followings:

Table 2-2 Related definition literatures of management strategy Year Scholar Scholar’s views The key of management strategy is competitiveness, And the so-called management strategy is, 1985 Omae Keniti through the use of the most effective way, to change the power of a company relative to its competitor. Management strategy is the highest level decision in business operation. Management strategy Ta-Hsien is the means to achieve the organization goal; to up-level, it is to cooperate intimately with the 1995 Szutu external environment, to the down-level, it guides all the functional policies or strategies within the enterprise. Management strategy means a series of action projects taken by the enterprise in order to achieve organizational goal after analysis and understanding on the opportunities and threats of the external environment and the advantages and disadvantages of the enterprise itself; those 2001 Yi-Chin Lin actions projects are made based on the internal superiorities of the enterprise and through effect distribution and allocation of resources so as to cope with the external environment and to set up long term competitiveness. Wen-Ke 2004 Management strategy means a combination of business operation decision and action. Chiu Management strategy is used by an enterprise to make development blueprint and to decide ”What things are worth of investing efforts” (That is, do the right thing); furthermore, it 2007 Tzu-Tsan Fu is used to decide what goals should be reached by each department and what are the implementation actions each department must do. Data source: Summarized by the author

From the above descriptions, it can be seen that management strategy is a set of consistent plan made by the enterprise to cope with environment change and competition situation; to the up-level, it acts intimately with the exterior environment, to the down-level, it instructs all kinds of functional policies or strategies within the enterprise to ensure that the basic goal of the enterprise can be achieved through appropriate implementations by the organization.

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THE HISTORY OF DIRECT SELLING IN TAIWAN

3.1 The background of Direct Selling in Taiwan Direct Selling originated in 1886 from “California Perfume” Corporation (It is Avon right now). At that time, sales personnel sold perfume through Direct Selling way, later on, the product sold is expanded to cosmetic and skin care product; therefore, many people think that it is the sign of the birth of single level Direct Selling. In Taiwan, company that uses ways similar to Direct Selling model to sell the product for the first time is English publishing company. Later on in 1978, The head of rat’s club of ”ChiaHsien Coporation” of Japan escaped to Taiwan and founded ” Pao-Kang-Ai Association of ” and ”Taichia Corporation”. They use Marketing model to cheat massive amount of money, and many companies follow their ways of rat’s club to run their businesses; therefore, general public have very bad or unforgettable image on the word ”Marketing”. Until 1982, Amway and Avon entered Taiwan’s market and Direct Selling starts to take off in Taiwan. The followings are the development events in recent years for Direct Selling:

Table 3-1 Recent development of Direct Selling Year Direct Selling history “California Perfume” Corporation (It is known as Avon right now) sells perfume through 1886 person-to-person way. The head of rat’s club in Japan escaped to Taiwan and founded ” Pao-Kang-Ai Association of China” 1978 and ”Taichia Corporation”. They use Marketing model to cheat massive amount of money. 1982 Amway and Avon entered formally Taiwan’s market. 1990 Taiwan Direct Selling Association was founded. Taiwan issued ”Fair Trade Legislation”, and the Direct Selling is formally 1992 given a legal identity. Direct Selling starts tough fighting in bonus system; the heading of the bonus system of single level Dec., 1997 Direct Selling toward that of multi-level Marketing is an unavoidable trend. After China’s government founded it very difficult to manage, in order to prevent the frequent April, 1998 occurrence of illegal fraudulent events, it starts to entirely prohibit Direct Selling, and the legal Direct Selling company is forced to be changed to the operation of real general store. Data source: Summarized by the author

3.2 Direct Selling category and overview Taiwan Direct Selling Association has a rule that once a company is founded for more than one year, it will be qualified to become a member; currently, there are 39 members joining Direct Selling Association. The classification based on multi-level Direct Selling and single level Direct Selling is as in the followings: As shown in table 2-1, (single level Direct Selling), Nu Skin (multi-level Marketing) and Avon (converted from single level channel to multi-level channel Direct Selling) all have their main products on cosmetic and skin care products; in this study, the management strategy of the above mentioned three Direct Selling companies will be studied and investigated. Mary Kay was founded in 1960 with its Direct Seller called cosmetology consultant; Nu Skin was founded in 1984 with three business groups under it, namely, Nu Skin, Pharmanex, Big Planet. Among them, Nu Skin sells personal care product, Pharmanex sells health food product and Big Planet mainly sells high tech product and environmentally friendly cleaning products. Since this study only focuses on Direct Selling involves cosmetology and body care product, hence, only Nu Skin is taken as target in the study. In product aspect, Mary Kay’s product includes skin care product, cosmetic, SPA body cosmetology product and perfume series; Nu Skin’s product includes face and body care, hair and skin care product. The product of Mary Kay has a warranty period of three months, if the product has trouble within the warranty period, consumer can contact with the cosmetology consultant he/she knows for product exchange or an exchange of equivalent product.

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Table 3-2 List of membership company of Taiwan Direct Selling Association Name of the company Single level Formosan Magazine Press Ltd. Direct Avon Taiwan Selling Mary Kay Amway Taiwan Co., Ltd. Taiwan Nefful Co., Ltd. Forever Sunshine Life Sunpak Corporation MJ Life Enterprises, Ltd. Enterprise Co., Ltd. President Natural Industrial Melaleuca of Asia Co., Ltd., WideDoctor (International) Corp. Taiwan Branch Enterprise Co., Ltd. Nu Skin Taiwan Inc., Taiwan Summit International Lily Co., Tianshi Health Products, Inc., Branch Ltd. Taiwan Branch Medical Designs Inc. Morinda International Inc., Meiyi Corporation, Taiwan Viva America Marketing, Taiwan Branch Branch Taiwan Branch Redin International Co., Ltd. Usana Health Sciences Taiwan Multi-level Sunrider Taiwan Inc., Taiwan NIKKEN Taiwan Inc., Taiwan Inc., Taiwan Branch Direct Branch Branch Synergy Taiwan Inc., Taiwan Selling E. Excel International (Taiwan) Boching Enterprise Group Branch Inc. Nu Life International AMKEY (TAIWAN) Co., Ltd. Taiway International Co., Ltd. Matol Taiwan Corportation Sheng-En Development Co., Lanfar Interantinoal Co., Ltd. Fuh Jen International Co., Ltd. Ltd. Hsin-Ten Enterprise Altwell Taiwan Inc. Re-Young International Co., Herbalife Taiwan Inc., Taiwan Taiwan Naturally Plus Co., Ltd. Ltd. Branch Kelti Group Totallife (International) Co., Ltd. Data source: 2007 Taiwan Direct Selling Association. http://www.dsa.org.tw/

In the price aspect for Mary Kay, only Direct Seller can shop in the web site, when the amount is over 10,500 and 17,325 respectively, the discount would be 40% and 50% respectively of the original price; Nu Skin has web site shopping function; in the past, as long as you are member of Nu Skin, you can enjoy 70% of the original price in the shopping, but today, the web site price is the same as that of a member and Nu Skin ARO member can purchase it at 90% further the web site price. In the sale channel aspect, Direct Seller is the only sale channel of Mary Kay, hence, when consumer wants to order Mary Kay’s product, the consumer has to find cosmetology consultant he/she knows, the sale channel is thus very narrow; for Nu Skin, in addition to Direct Seller, another easy way of shopping is through the internet, and the consumer does not have to spend time to find Direct Seller he/she knows; therefore, its sale channel is a little bit superior. Both products’ transportation is through logistics transportation. In the promotion aspect for Mary Kay, in addition to publishing enterprise’s book and launching the web site, it also promotes charity business ”Blossomy rose” project and cooperates with ”Fund for Children and Family” to help poor children to improve their life; moreover, Nu Skin cooperates with Nongnong Magazine to open a Nu Skin special column to discuss how the business runner of Nu Skin heads toward success. In 1996, ”Force for good foundation” was founded to promote ”Nutrition project for children under huger”; it designed warm dish for children for domestic and foreign children under hunger, meanwhile, a donation project of warm dish for children was started to try to help more children under hunger. In the personnel aspect, Mary Kay recruits female of over 18 years old to become its cosmetology consultant (that is, the Direct Seller). Anyone who wants to join but does not know any cosmetology consultant can check into the web site to leave personal contact information. Before the entrance of Mary Kay, it will take about 1,490 dollars to purchase ”Career entrance kit”; meanwhile, cosmetology consultant is incubated by supervisor of Mary Kay, in addition to group meeting held once a week, the company will also hold irregularly a series of education activity; anyone who wants to join Nu Skin can select to spend 850 dollars to purchase ”Entrance tips”, or purchase company’s product for at least 2,000 dollars; anyone who use ARO repeating and circulation system for placing order every month can waive from the membership fee. However, there is no limitation on the qualification of becoming a member of Nu Skin, and

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the joining way is similarly to find Direct Seller you know; anyone who just wants to be a consumer can use the internet shopping. For the business operation qualification and encouragement standard of Direct Seller, the purchase amount of cosmetology of Mary Kay each half year should be at least more than 10,000 dollars and when the purchase amount exceeds certain value, certain discount is available. In the basic sale regulation, if a cosmetology consultant does not place order for consecutive three months, it is called job idleness; if the order is not placed for consecutive five months, the job will be stopped starting from the sixth month. However, within six months after the job stop, the job can be started again once a new order is placed again; however, if within 12 months after job stop, there is no new placement of order of product from the company, it is called job quit, and the qualification of cosmetology consultant is then lost. The bonus issuance of Mary Kay is dependent on the performance of the small groups incubated by the up-level and different uniforms are made as symbols of businesses; people of different ranks will have different uniforms, and the national supervisor will have special uniform; in addition, different pins are awarded according to different ranks, for example, ladder pin, bumblebee pin, pink Cadillac, etc.; furthermore, there are also welfares such as bonus system, oversea travel and insurance, etc. The encouragement system of Nu Skin can be divided into PSV personal score and GSV group score, 1PSV score means 1 US dollar; when the Direct Seller accumulates a score of PSV 1,000, the Direct Seller can receive a bonus of about 4,000 NT dollars and 12000 NT dollars for a score of 1,500, 20,000 NT dollars for a score of 2000, and the person can get promoted to a chief supervisor when a score of 7,500 is acquired; later on, the personal consumptive amount each month is a score of 150, 以 to the group score, as long as the GSV score of each group is more than 2,000 (US dollars), then the person can receive a low-level number and a group bonus. If the Direct Seller wants to withdraw from Nu Skin business, any product not unsealed or not expired can be refunded with 90% of the product value as long as the invoice is still within one year; the rest 10% is tax collected by the government; in addition, membership fee can be refunded at about 90% of the original fee. To the personal incubation and promotion, Mary Kay has implemented” consignment-incubation system” for a long time, that is, supervisor in different area can help supervisors in other area to incubate cosmetology consultant under them. After the course training, Direct Seller (cosmetology consultant) can then get promoted in the order of group leader, business supervisor and then national supervisor, etc. The promotion of Nu Skin is absorbed and incubated by each area and each group, hence, the incubation method of each group will be dependent on the style of each group. Meanwhile, the headquarter holds irregular product exhibition meeting and new product launching announcement, weight management lecturer qualification incubation, supervisor incubation camp, praise meeting and annual meeting, etc. When the Direct Seller encounters any difficulties, he/she can go to the company directly or use telephone and web site to consult to the company. The promotional levels of Nu Skin are, for example: Direct Selling supervisor under examination (normal Direct Seller), Direct Selling supervisor, Gold Direct Selling supervisor, Lasurite Direct Selling supervisor, Ruby Direct Selling supervisor, Emerald Direct Selling supervisor, Diamond Direct Selling supervisor and blue diamond; the promotional method will be dependent on personal performance. In the advertisement aspect, Mary Kay uses placement marketing way to advertise product catalogue in accordance with special column of many female magazines, for example, Cosmed, Girl, Mamibaby, Tvbs Weekly; Nu Skin instead, provides electronic publications, for example, Nu Vision, Nu People, Nu Wave (Nu Skin), Nu Style to be browsed and downloaded by the customer. However, both of them currently do not have planned to use TV advertisement to enhance brand visibility. From the above comparisons, it can be seen that Mary Kay is superior to Nu Skin in terms of price, discount and personnel incubation; however, Nu Skin is superior in terms of product types, sale channel and promotion; however, both use only magazine and book in promoting enterprise image and concept and no marketing strategy through TV advertisement at this moment. In the later section and chapter, SWOT analysis will be used to compare Mary Kay, Nu Skin and the case study company Avon.

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CASE STUDY: AVON TAIWAN

In 1886, Avon’s precursor ”California Perfume Corporation” was founded; in 1939, Mr. McConnell formally used a river beside Shakespeare’s old home ”Avon” as the name of the company; in 1972, Taiwan’s Avon was founded. It is 119 years since its first foundation, Avon continuously devotes itself to the creation of unique beauty for female; at the same time, it also creates a new career for millions of females worldwide.

4.1 Avon 5P+Aanalysis 4.1.1 Product Avon’s product is so diversified and it will mail every year a copy of general catalogue of that year to cosmetology supervisor and VIP member; in addition, it will provide the member 18 volumes of catalogue for one year or special edition catalogue; in the web site, you will see catalogue product of two volumes. Since its product is so diversified, we can not list all of them, and they are only classified in different types; only price range for different product type is listed as follows. To guarantee customer’s right, within one month after the purchase of Avon’s product, customer can get refunded for 100% with full satisfaction.

Table 4-1 List of classification of Avon’s product Price Product Product Price range Product Price range range classification classification (Unit: NT) classification (Unit: NT) (Unit: NT)

Face cleaning care health and Nutrition Nutrition and 100-1,200 990-1,980 Perfume 600-1,600 product energy Charming perfume perfume Youth Perfume Lotion 300-1,800 1,000-4,200 250 adjustment Generics Cream 600-1,500 Cosmetology 700-880 Bath lotion 300-800 Nutrition and Day protection 400-2,000 700-1,600 Body lotion 350-800 slimming Whole family Sun screening Night cream 400-600 900-1,980 120-480 care product Children’s Slimming Skin care Exfoliation 400 800-990 600-1,500 heath series Moisture Makeup 400-2,500 200-450 care Body Bath lotion 150-350 keeping remover Foundation Refresher 650-2,450 400 Skin lotion 150-350 cream Special care 600-3,000 Isolation 300-800 Hand’s cream 100-200 Anti-aging cosmetic Colorful 700-3,600 Mirror box 400-500 Body perfume 150 protection Face film 230-1,500 Lip cosmetic 200-700 Foot care 150-250 Grease control 200-400 Eye cosmetic 250-800 Skin perfume 350-350 and anti-pimple Eye and lip 90-1,500 Face care 250-900 Shampoo 135-380

care care Hair

Man’s care Nail care 150-300 Hair rinse 135-380 Hare care Cosmetic 190-380 Face care 90 product accessory and 45-1,500 Styling others 210 product Data source: Summarized by the author

4.1.2 Price With ”Low unit price and high circulation” in mind, Avon has provided the members with diversified consumption way and discount, for example, VIP member has the favored purchase right of ”Use it first and pay it

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later”; meanwhile, VIP and cosmetology representative can purchase ultra low price clearing product, that is, product that is sold in its cost. Since Avon product is so diversified, it can not be fully listed; therefore, in this study, only the price range of different product type is listed as in the above table 4-1.

4.1.3 Place On Feb., 1998, in one way, Avon recruits more newcomers to expand its Direct Selling net, it also steps aggressively into open shelf cosmetic retailing channel; starting from Feb., it was sold in Watson’s and COSMED to try to raise its sale proportion in retailing channel to as high as 8%. Until now, Avon is the largest female catalogue sale channel in Taiwan with around 49 exhibition centers in Taiwan and the distribution is as shown in figure 4-2. Currently, Avon has more than two hundreds thousands members and the annual issuance of its catalogue is over 6 millions.

Table 4-2 A list of exhibition centers of Avon in Taiwan Northern Taiwan 6 stores Taoyuan, Hsinchu and Miaoli 9 stores Central Taiwan 8 stores Yunlin and Chiayi area 11 stores Kaohsiung and Pingtung Area 11 stores East District 4 stores Data source: Summarized by the author

In Taiwan, In addition to the open shelf special counter in Watson’s, Avon is only operated in three different sale models, that is, headquarter-operated store, Miss Avon and network sale: 1. Exhibition center: Avon’s exhibition center is run by the headquarter directly and it not only sells cosmetic product but also provides personal cosmetology service to the customer. 2. Miss Avon: That is, Avon Direct Seller. Miss Avon sells the product through single level Direct Selling model and there is no difference of up-level or down-level. 3. Network sale: As early as Nov. 1999, Avon had seized the newly emergent e commerce wave and started its network selling activity. Avon takes full use of the unlimited nature of network space and combines its new web site launching activity with the real expansion work of special counters (Te-Ling Ni, 2006). Avon has its own logistic channel in Hsinchuang city. After customer places the order in the internet, the product can be distributed directly to customer’s home. Meanwhile, consumer can pay at the convenience store to facilitate the financial flow. In the process of changing sale model and performing supply chain change and in order to ensure normal and high efficiency operation of special counter system, Avon has enhanced its internal management. It has passed the implementation of standardization and internal target management, the operation efficiency of store and sale channel is thus greatly enhanced, at the same time, this is also the guarantee for the sustaining development of the company.

4.1.4 Promotion “Avon commitment day” is a nationwide virtual network that Avon has built for research, medical care and social service for the recognition of the complication of breast cancer among the females of different races; starting from 1993, 5 key anti-cancer fields are the focuses: namely, medical research, clinical care, support and service, education and early detection. More than a decade, Avon Breast Cancer Crusade continuously raise fund and waken people the importance of the finding of breast cancer prevention channel.

4.1.5 People Avon has two kinds of member systems, consumer and business runner. Please look at Table 4-3.

Table 4-3 List of the right of Avon’s member Successful business Happy consumer runner Professional Name cosmetology of the Network member Avon member Avon VIP member representative (that is, member Miss Avon)

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Free to join. It does not include net When this member has Pay 1,000 dollars to Only basic value 2 special purchased for 20,000 dollars join. information needs Product. The member in consecutive two months, Joining to be filled out only needs to purchase the membership will be method through the for more than 1000 upgraded to VIP internet. dollars of consumer membership automatically. 3 price. 1. Can participate 1. Can enjoy at the same 1. Can have the right of 5. Can have the rights of in any internet time all the rights of a network member and Avon network member, Avon activities network member. member at the same time. member and VIP sponsored by 2. Free Avon catalogue. 2. First visit gift for VIP member at the same Avon. 3. Can have a discount of member. time. 2. Can have 15%~30% in the shopping. 3. Extra favored net price 6. One career classical personal network 4. Can have first priority birthday gift. combo pack.6 service. purchase of new product. 4. Exclusive new 7. Can have the right to 3. Can subscribe 5. Can purchase the net knowledge share and first receive the bonus. the newsletter value product at ultra low priority free trial on new 8. 18%~33% purchase Right of of ”Great woman” price. product. discount (3% more than the for free. 6. Can receive gift after 5. VIP exclusive bonus point that of Avon member). member 4. Can shop in shopping exceeds certain accumulation and 9. Irregular the internet amount. exchange.4 encouragement activity. without going 7. Can have a trial pack of 6. Avon catalogue for the 10. Professional outside. new product for free. entire product. assistance and 8. Can have in-time 7. Nutrition-assisted food counseling from the cosmetology and nutrition 15%~25% extra discount.5 recommended counseling. 8. Flexible credit right to personnel. 9. Can attend cosmetology enjoy first and pay later. 11. Free and nutrition courses. 9. “Top winner” annual delicate ”Beautiful life” 10. No annual fee on Avon bonus point accumulation monthly for one year of Union card. competition. 18 volumes. Free delivery to Free delivery to home for 1. Send the gift on behalf Free delivery to home home for shopping over 500 dollars. of the customer. for shopping over 500 Product shopping over 2. Consumer can assign the dollars. delivery 500 dollars. time of delivery. 3. Free delivery for over 500 dollars of shopping. Data source: Summarized by the author

In the Direct Seller business operation qualification and encouragement standard aspect, after joining cosmetology representative, Miss Avon can receives Avon for one year 18 volumes free (Each volume for an average of three weeks). Miss Avon has to order from member catalogue and monthly magazine for each term for amount of consumer’s price of over 500 dollars, if the order amount is more than 500 dollars, 15% off can be applied; if the order amount is over 2,000 dollars, 25% off can be applied; if the order is over 10,000 dollars, 30% off can be applied. The business performance of Miss Avon will be calculated every 3 months, within these 3 months, 45 customers should be introduced to consume in Avon successfully; meanwhile, the revenue within three months should be over 150 thousands dollars before Miss Avon can be promoted to professional reserve cosmetology supervisor; for the beginning cosmetology representative, if the consumption amount at consumer’s favored price within three months does not reach over 1,000 dollars, the qualification will be lost. If the qualification is reached, then bonus reception condition is matched, and the bonus can be divided into nine grades:

Table 4-4 Avon bonus system Sale revenue in each Percentage of the bonus Sale revenue of each Percentage of the bonus term received term received 10,001~30,000 3% 350,001~500,000 8% 30,001~70,000 4% 500,001~650,000 9%

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70,001~140,000 5% 650,001~800,000 10% 140,001~200,000 6% Above 800,001 11% 200,001~350,000 7% Data source: Summarized by the author

The promotional ranks of Avon are, for example, cosmetology representative, professional reserve cosmetology supervisor, formal professional cosmetology supervisor, professional cosmetology vice manager, professional cosmetology manager, senior professional cosmetology manager; the first three emphasize on sales and the last three emphasize on incubation. In addition to receiving the bonus according to the sales revenue, Avon also uses KPI index 7 as the encouragement standard. Since Miss Avon scatters everywhere, Avon company has to hire district manager to play the role of sales manager; each district manager will be in charge of the recruitment, education and counseling of 100 Miss Avon. Meanwhile, the company will also hold related educational courses so as to enhance the related cosmetology knowledge and technique of Miss Avon.

4.1.6 Advertisement In TV advertisement, Avon always resorts to the emotional aspect of a product and uses sensible topic and story to attract customers and to be distinguished from other brand names. In the advertisement of magazine and website, its unique slogan of”Understand woman better than a woman.” really impresses people on Avon’s expertise and brand content. What it is different than Mary Kay and Nu Skin is, Avon devotes to advertisement, no matter it is TV advertisement or spokesman way, etc., Avon put large amount of money into them, Avon hopes that its resort of ”Understand woman better than a woman” can really impress women around the world. Here we will sum up the member rights of the above mentioned three Direct Sellers. Furthermore, we will perform SWOT analysis on each Direct Seller so as to understand the strength and weakness of each company and propose our suggestions:

Table 4-5 Analysis of member’s right for different companies Mary Kay Nu Skin Avon 1. Mary Kay consumer 1. Nu Skin consumer 1. Network member member Type of 2. Mary Kay cosmetology 2. Nu Skin Direct Seller 2. Avon member consultant (that is, Direct 3. VIP member Seller) 4. Professional cosmetology (that is, Direct Seller)

Method of joining 1. Can place order directly 1. Shop from Nu Skin through 1. Free to join. from the Direct Seller. internet or Direct Seller. 2. When the shopping amount exceeds 2. Pay member fee of 1,499 2. Pay a membership fee of 850 1000 dollars. dollars. dollars; or join ARO system to 3. When the shopping is over 20000 waive the membership fee. dollars in consecutive two months, the membership will be upgraded to VIP automatically. 4. Pay 1000 dollars of membership fee. 1. Professional consultation 1. Direct Seller professional 1. All the network services.

Rights of the member from cosmetology counseling and after-sales 2. Can receive catalogue and shopping representative and after-sales service. discount and irregular membership service; three months of product 2. Rank bonus and corporate favored activity and welfare. warranty period. welfare; ARO system member 3. Catalogue for all the products, bonus 2. Very low price and high will have 10% off in the point accumulation, shopping discount, discount for a purchase order; purchase order. . flexible credit amount and other favored rank encouragement and activity and welfare. corporate welfare. 4. Can enjoy all the rights of consumer member, order discount, monthly magazine and encouragement activity.

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The Direct Seller nearest to the The Direct Seller nearest the 1. Free delivery to home for shopping delivery Product consumer will provide product consumer will provide the over 500 dollars for all members. delivery and product product delivery and product 2. VIP and Direct Seller can have consultation service. counseling service. delivery time selection and consignment-gift-delivery service. Data source: Summarized by the author

4-2 SWOT general analysis In this study, the SWOT strength and weakness of the case in the case study and the competitors will be listed:

Table 4-6 SWOT general analysis Strengths Weaknesses Opportunities Threats ．The order discount to ．The traditional channel ．Personnel ．The sale is promoted only Direct Seller can be as customers can not be consignment-training by personnel; it is thus

Mary Kay Kay Mary low as 50% of the taken care of. system without area very difficult to enhance original price. ．The product refund or consideration. customer’s recognition ．Product warranty exchange time is longer ．Save the sale channel on the brand name and to period of three and less convenient. cost. promote the brand image. months and for 100% ．The member is limited by ．The threats coming from refund guarantee. basic qualification. the competitor’s competition. ．It has the lowest ．Use survey questionnaire ．High age society ．High level Direct Seller is member fee; the to perform new means ”Health, hired by the competitors. member fee is free if customer development anti-aging and youth” ．Team work system, the you have joined ARO. has very low efficiency. will be tomorrow’s

Nu Skin Skin Nu management is very ．Convenient and simple ．The price is too high and superstar industries. difficult and the quality is order placement customer’s consumption ．Zero time difference very different. system and product thus can not continue. international market. delivery service so as ．Bonus system is too to create convenient strict, which might lead consumption. to over-inventory at Direct Seller. ．Diversified product. ．The total bonus is lower ．Multiple sale system to ．Multi-channels will ．Reasonable product than the competitors. increase business increase the cost. price. ．Difficult to develop male development chance. ．It is more complicated in Avon ．Customer can have customers. ．Advertisement the sale channel product warranty ．Product price is in the spokesman can management. period for one month. middle and low range increase the willing of ．Excellent brand and and high price purchase from corporate image. consumption groups consumers. might be lost. Data source: Summarized by the author

It can be seen from the above table that Mary Kay and Avon all commit to customers long term product satisfaction warranty, 100% refunding and exchanging services can greatly enhance consumer’s confidence on their products. The product prices of three companies are made according to customer and Direct Seller, and Avon gives member and Direct Seller respectively favored purchase discount; in addition, Avon also provides Direct Seller and customers diversified product discounts, such strategy can not only encourage purchases but also clear out the inventory. However, in the order discount of Direct Sellers, Mary Kay give them discount even up to 50% off, which is the highest discount among the discounts from all the three companies; for Nu Skin, in addition to the additional 10% off for ARO member, the recommended sale price has been unified to 70% of the original price too, but the product price is still too high and can not convince customers that real discounts are offered to them. Although Avon also provides product warranty period of one month, yet the warranty period is even longer in Mary Kay, that is, three months; if the product

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has trouble within the warranty period, although there is no real sale channel, yet the customer can exchange to new product or product of equivalent value with cosmetology consultant the customer knows. Although in this aspect, Mary Kay is superior to Avon, yet the product risk is increased. Mary Kay has set up basic limitation on the personnel it recruits and its membership fee is the highest among the three companies, hence, it might affect consumers to become the member of Mary Kay. For the membership fee, Nu Skin is the lowest among those three companies; meanwhile, as long as the consumer chooses to use ARO product circulation system, the member registration is then free. The sale channel of Mary Kay is the only one, among the three companies, that provides face-to-face sale; however, Avon has four sale channels such as: Direct Seller, cosmetology special counter, special store and network Direct Selling, which greatly enhances the brand visibility. Avon resorts to the emotion in the first place and invests big money on the advertisement and find advertisement spokesman to speak for the product so as to enhance consumer’s recognition on its product and consumer’s good impression on its brand image. Nu Skin and Mary Kay only advertise in magazine and books or in newspaper column to enhance their visibility, which is inferior as compared to Avon.

CONCLUSION AND SUGGENTION 5.1 Conclusion The seven main products of Avon have included most females’ need and it is superior to Mary Kay and Nu Skin in terms of product type. Meanwhile, the price not only is very affordable, the most favored discounts are also constantly provided to members so as to encourage the purchase; furthermore, one month of satisfaction warranty is provided for the product, customer is thus very confident on Avon’s product because the consumption is very trustable. As compared to that of Mary Kay and Nu Skin, Avon’s bonus is somehow lower, but its multi-element promotional method becomes assisted force when Direct Seller sells or promotes Avon’s product. Since Avon’s product has very reasonable price and so many promotional discounts, it is thus very superior to Mary Kay and Nu Skin in terms of price. However, Avon does not have high price product, which might lead to the loss of high level consumers, hence, we think that its market segmentation is still not clear enough. The largest innovation of Avon in sale channel is its successful transfer to multi-channel sale; although real store can compensate the drawback of brand promotion by Direct Selling, yet the multi-channel has its price of large marketing and management fee. Moreover, Avon’s product is very diversified but the brand feature is not very clear; therefore, to potential consumers, it is very difficult for them to understand Avon’s business operation image and its features.

5.2 Suggestion 5.2.1 Suggestions to companies in this business Business operation features －Avon has includes seven major products which can most of the females’ need. Although such strategy has taken care most of the market, yet its own feature is lost and it can not have strong impression on consumer’s mind. Therefore, Avon can head toward a more professional company and try to develop unique and competitive product and use the product as a segmentation of its brand and image with its competitors; in addition to the product feature, its price can also be segmented in medium and high price so as to seize the need of consumers of high level groups and enhance corporate and product image. Green product －In recent year, the global warming issue becomes serious, environmental protection, in addition to be hot topic in recent years, is also a large business opportunity. Since cosmetics is consumptive product, Avon can thus focus on green related projects, for example, discount for using old bottle to buy a new product and the development of green product so as to create new product opportunity.

5.2.2 Suggestions to consumers 1. Since Avon’s product has wide scope, it is thus very difficult for a consumer to make a choice during the shopping process. Therefore, during the shopping process, a consumer can start from his/her own need instead of just

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considering new product or simply considering the price so as to find ”personal merchandise” that fits to consumer himself/herself. 2. Although Direct Selling is very popular right now in Taiwan, yet many fraudulent events can be frequently seen by using Direct Selling way; therefore, when consumer has chance to contact Direct Seller, the consumer must collect enough related information and refer to consumer protection law so as to protect his/her own rights.

5.2.3 Suggestions to the government 1. In recent years, global warming issue becomes more serious, the environmental protection topics have caught people’s attention; therefore, in addition to making laws to protect Direct Sellers’ right and regulate them, the government can also emphasize on environmental issues and make related standards, for example, green consumptive product support policy, the promotion of environmental protection consciousness and the implementation of natural and ecological protection concept. 2. In addition to getting profit, if an enterprise can perform social marketing to feedback to customers, the enterprise’s image and visibility is for sure going to be enhanced. Therefore, we suggest that the government can encourage the enterprise to implement social marketing and to feedback the social resource through legislation.

NOTES

1. Jo-Lan Chi ed., Peter F. Drucker (2004). Management bible of Peter F. Drucker, Yuan-Liou Press. 2. “Net price” is price that is close the cost. All the net price products can not be accompanied with other discounts. 3. The VIP membership qualification can remain if starting from the second year, the year end accumulated customer’s price value has reached 60,000 dollars. 4. For the bonus point accumulation, any consumption of 1 dollar consumer’s price can have one accumulation point, when over 30,000 points are acquired, the consumer can receive a gift; when it is over 60,000 points, the consumer can exchange the accumulation bonus point for a gift. 5. The extra discount of nutrition-assisted food is: When the value of one single purchase order is over a customer’s price of 2,000 (included), 15% discount can be applied; when it is over 4,000 (included), a discount of over 25% can be applied. 6. Career classical combo pack includes: Avon’s career hand pack, Avon’s career classic, Avon’s star product experiencing set, Avon’s beauty rights, Avon’s manual for customer’s purchase order, visit slip, Avon’s invitation card, Avon’s invitation manual, Avon’s universal manual and VIP’s first visit gift, etc. 7. KPI means ”key performance index”, which uses the most important indexes of the company as bases for the issuance of the bonus. Avon will adjust KPI index at the end of each year so as to create a fair bonus distribution system.

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