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Changes needed at Avon are more than cosmetic

Time:4/30/2012 6:26:31 PMLarger Medium SmallerSource:Knowledge@Wharton

Sherilyn McCoy, Avon Products' new CEO, faces a daunting list of challenges: a three-year internal investigation into charges of government bribery in China; an SEC investigation into alleged leaks to analysts; possible takeover offers from two different suitors, and a performance profile that includes lagging sales and a stock that lost nearly half its value in 2011.

While McCoy will no doubt call on her three decades of experience at Johnson & Johnson -- most recently as worldwide chair of pharmaceuticals -- many observers are wary about her ability to re-establish the 126-year-old company as an innovative customer-centric cosmetics organization. But they all agree that to succeed, she needs to defuse the current controversies and return to Avon's door-to-door direct sales roots.

"She is clearly qualified, but she has no direct sales experience," says Wharton management professor Lawrence Hrebiniak, adding that this lack of familiarity with Avon's business model means McCoy faces an unusually steep learning curve. Her biggest challenge, he notes, is to refocus a brand that former CEO Andrea Jung led astray over the past few years in her attempts to recreate Avon as a retail powerhouse that could compete with the likes of L'Oreal. Yet the company never had the manpower or resources to make it to that level, Hrebiniak states, even as it was turning away from its tried and true direct sales model. "Jung really created strategic uncertainty for the company. It's still in the position of deciding what it wants to be when it grows up."

The Original Social Network

Wharton marketing professor Peter Fader suggests that McCoy needs to once again focus Avon on its customer base. "There are signs that Avon is going the other way -- focusing on brand and other wishy-washy things rather than leveraging its rich understanding of customers," Fader says. "Avon has a gift," he adds, which it does not fully appreciate. 

With the advent of social media and other technologies, many companies are now trying to become more customer-centric, which includes efforts not just to better understand customers, but also to identify the most valuable ones -- a strategy which Avon has followed through face-to-face contact for over a century. "There is actually now a celebration of business models -- like Avon's -- that are unabashedly direct," says Fader, author of a recent book titled, Customer Centricity.

Companies are also using social media to promote, and benefit from, customers' word-of-mouth marketing. Again, Avon has practiced this approach, in its own way, almost from the beginning by turning frequent customers into full-fledged sales representatives, according to Wharton marketing professor 

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