Amway and Avon: The Big Ship Turns

For the Amway and Avon people working in the Chinese market, there have been a lot of good things recently. Both companies have had a lucrative fiscal year. In fiscal year 2002, Avon's global net sales revenue was 6.2 billion US dollars, and the Chinese market was 1.2 billion yuan. The total sales of Amway Global based on the company's own sales turnover was 4.5 billion US dollars, the total sales in the Chinese market is 6 billion yuan, and both companies have achieved rapid growth for five consecutive years.

During the atypical SARS period, Amway's nutritional food and some lotions were in short supply and out of stock. Amway's US headquarters immediately decided to increase a one-time investment of 120 million US dollars in China, mainly for large-scale The introduction of production lines, the expansion of the production of nutritional foods, protein drinks and functional foods; and Avon's sales of health products such as wheat germ oil and hand cream have also increased exponentially, which also prompted Avon to accelerate the development of health products as a global strength. The pace of introduction to the Chinese market.

Looking back 5 years ago, they were forced to transform and start a new voyage due to the unexpected crisis in the direct selling industry.

Stores: Anchors for the New Model

In fact, the government's 1998 MLM ban gave Amway, Avon and other direct selling companies very little room for "innovation". The government expressly stipulates: "Foreign-invested MLM enterprises must be converted into store operations (including setting up special counters in stores, wholesale of corporate products to domestic wholesalers or retailers, and self-operated stores)." "Enterprises that are converted into store operations are classified into employment sales Personnel (referring to non-official employees of an enterprise who obtain labor remuneration by selling products for the enterprise) and those who do not employ salespersons." In this way, companies such as Avon and Amway are faced with either "shop + employment sales" in their business models. staff", or "shop + zero-employment salesman". No matter which choice you choose, the "store" has become an important symbol for "anchoring" whether the direct-selling transformation enterprise is operating legally.

It is commendable that both companies put serious strategic thought into this seemingly simple choice. The senior management of the two companies should realize that the transformation of the business model should be based on the company's core capabilities and traditional advantages. Success is possible.

Amway has always been well-known in the international direct selling industry for its multi-level direct selling model. The sales of products are realized in a multi-level network composed of sales representatives and customers, and it is proud of no-store sales. Avon's traditional model is single-level direct sales. The practice of "fixed location" selling company products was invented and implemented by Avon Corporation in the Philippines 26 years ago. Avon also discovered that the fixed location sales model is effective in covering new customers, recruiting And training sales representatives, to provide services for sales representatives and customers, establish a positive role in the company's image, etc. Therefore, Avon decided to transform into a store-led wholesale and retail sales model in China, while Amway adopted a "store + hired salesman" model.

Although Avon later applied to the government and was approved to use the "store sales + hire salesman" system to sell products, it can be seen that this is an option reserved for the future, because in fact, the company has basically grown from the past The direct sellers of the company have transformed into manufacturers integrating wholesale and retail functions in the traditional sense. In the sales link, they set up special counters in stores, wholesale the company's products to domestic wholesalers or retailers, and open stores.

At present, Avon has more than 5,000 specialty stores nationwide, more than 2,000 Avon counters in major shopping malls, and more than 100 open-shelf supermarket counters. Among them, specialty stores are divided into flagship stores and concept stores invested by Avon, and specialty stores invested and operated by dealers and guided by Avon's business. The establishment of the specialty store is based on a point of 60,000 non-agricultural population, and the existence of a second specialty store will not be allowed within 500 meters. The reason for emphasizing the non-agricultural population is because Avon believes that the agricultural population is not mature enough to buy cosmetics, and the non-agricultural population is a mature buyer group.

In comparison, Amway's core competencies and traditional advantages determine that the company will not open a large number of specialty stores, and up to now, all 110 specialty stores are invested and operated by the company. After the transition, the company hired salespeople around specialty stores. At the beginning of this year, for the purpose of standardizing and effective management, the company decided to stop hiring new salesmen and conduct "territorial management" of about 70,000 existing salesmen under its command. In fact, the company has always retained the essence of the multi-level direct selling incentive mechanism after the transformation, which has become an important driving force for the company's sales revenue to rise year after year after the transformation.

The two different business models of Amway and Avon have been discussed in the industry. Some people think that Avon is opening stores too fast and the number of stores is too large, while others think that the expansion of Amway stores is too slow. Moreover, executives at both companies have responded to both criticisms with at least seemingly self-justifying answers. In fact, from the perspective of strategic flexibility and the company's actual performance, it can be said that these two models are based on the actual situation of the two companies, have a solid strategic foundation, and also reflect the two companies' preparedness to deal with the crisis. Good intentions for strategic flexibility.

Products: Sails for a New Voyage

As we all know, the root cause of this industry crisis is the invisibility of those illegally operating MLM companies and their MLM personnel in the so-called "pyramid" network. Many MLM companies don't even have the basic facilities to produce and sell products, and their MLM staff can blow things up without a shadow.

Therefore, an idea for Amway and Avon to deal with the crisis is to strengthen the company's tangible factors, distinguish themselves from those illegal pyramid schemes that destroy people intangible, and justify their own names. And products, logistics, and the resources of the company's US headquarters are such powerful tangible factors (of course, stores are also a factor, which has been regulated by the government).

Generally speaking, the change of business model will inevitably affect the company's business and products. The changed business model often makes some businesses and product lines out of date. First, because these businesses and product lines cannot meet the changed customer needs, Second, because the company's resources cannot be comprehensive, it can only invest in those businesses and products that are consistent with the business model. This is also the reason why many international companies that have changed their business strategies and models in difficult times have cut businesses and products.

Fortunately for Avon and Amway, direct selling is an "industry" defined by its sales model, as opposed to a general "industry" defined by business and products. Therefore, what Amway and Avon need to do is not to cut off the product line, but to highlight the introduction and launch of tangible products according to certain strategic considerations.

Amway has formed four product lines of beauty cosmetics, nutritional and health food, home care products and personal care products, totaling more than 450 products in the world. How to reasonably introduce and launch products in the Chinese market, especially when the company encountered an industry crisis just three years after its opening in China, has become an urgent issue that needs to be taken seriously. According to Amway's original plan, the launch of products follows the order of low-end to high-end. Before the crisis, the company was first to market with home care and personal care products. Amway's consideration is that these cleaning products are relatively cheap and easy to enter every household; as a daily necessities, its use effect and consumer feedback will be reflected very quickly, quickly recognized by consumers, and will be consumed repeatedly , it will be used after it is used up, and it will be bought after it has been bought; more importantly, these products put on the market use "Amway" as the brand name, which is conducive to strengthening consumers' impression of the Amway brand in a new market. Then, the company let the Artistry brand come in, but instead of letting all the Artistry cosmetic series enter, it only launched skin care products and put them on the market to see the reaction. The company believes that not all cosmetics have been launched because operating cosmetics requires a deep understanding of consumer objects and a considerable accumulation of experience in the specific market. American consumers and Chinese consumers have many different concepts and preferences for cosmetics, especially in the highly personalized makeup, so they must be cautious.

However, Amway (China) executives acknowledged that the crisis had "disrupted our pace". Observing the course of the company's product launch, it can be seen that after the MLM ban was issued in April 1998 and the company took 3 months to adjust and resume business, the first product launched on the market was Nutrilite protein powder, not along the lines of the original. The plan continues to launch ARTISTRY Cosmetics. Nutrilite nutritional supplements were Amway's global flagship product, with sales accounting for 20% of Amway's total global retail sales at that time, and one of the fastest growing parts of Amway's business. In addition to the special significance of nutritious food to Chinese consumers, it is obvious that choosing to introduce such a product at this time will highlight the company's image and strength and justify its own name. In fact, the company has also taken the top spot in China's health food industry because of Nutrilite's success.

Avon, which mainly produces beauty and skin care products, has formed more than 20,000 products in seven series including skin care products, cosmetics, personal care products, fragrances, fashion accessories, underwear and fashion, and health food. After the crisis, the business model has been transformed into a store-led wholesale and retail method, and the company has introduced high-tech products from Avon from around the world and high-tech skin care products and make-up products from Avon from Japan that are suitable for oriental skin types. In 2000 alone, more than 200 new products were introduced, that is, an average of 50 new products were introduced to consumers every quarter. The company accelerates the speed and breadth of product introduction, in fact, in order to adapt to the store-led business model, it is trying to seize the opportunity to occupy the market.

Both Amway and Avon have adjusted their product launch strategies before and after the crisis. On the one hand, it is to adapt to the transformed business model, and on the other hand, it is to eliminate the negative impact of the crisis on the company's image and reputation. In the new voyage after the crisis, the product is like a shining sail, guiding the two giant ships.

Logistics: a new driving force for navigation

It is not only the introduction and delivery of products that is compatible with the transformation of the business model and the elimination of the negative impact of the crisis. In fact, both Avon and Amway have turned their attention to their respective logistics areas, but Avon started earlier due to its tradition of store management.

Before the crisis, Avon Global launched a business process reengineering campaign within the company in order to cut costs and increase profits, and the reorganization of the supply chain is one of the important contents. This industry crisis in China prompted Avon to speed up the pace of logistics construction in China. After Amway put "large-scale addition of stores and expansion of service channels" at the top of the company's top ten business development plans in September last year, logistics construction has also accelerated.

Both companies' logistics systems provide strong support for their respective branches and sales terminals. Through nine "regional customer service centers" set up in nine important cities including Guangzhou, Beijing, Chongqing, Shanghai, Wuhan, Shenyang, Xi'an, Zhengzhou, and Urumqi, Avon supervises third-party logistics companies to deliver Avon products directly, quickly and accurately. Delivered to Avon stores in 74 large and medium-sized cities, truly realizing the dealer's "home delivery within 48 hours" promise. Amway, on the other hand, is based on the new logistics center established in January this year, covering an area of 40,000 square meters, starting from Beijing, Shanghai, and Guangzhou, and radiating more than 100 stores across the country, thus establishing a nationwide information network system. . The two companies have also cooperated with relevant banks to realize the integration of logistics, information flow and capital flow.

On a single company basis, the logistics system provided new impetus for the respective transformation and development of both companies. But for them with a competitive relationship, what kind of subtle competitiveness does the logistics system bring to each other? Is it worthwhile to spend a lot of resources to build a logistics system in terms of input and output? It is believed that only these two companies "know" about these issues. But what is certain is that logistics is a very conspicuous area for a company. Its coverage is wide and involves all parties. For companies that need to show their strength to escape the shadow of the crisis, its significance is self-evident.

Fortunately, both companies are strong, with a wealth of resources, and both are trying to use them wisely. For example, after the crisis, the leaders of Amway headquarters frequently visited China and visited government officials by taking advantage of their important positions in the American Chamber of Commerce. While promoting Sino-US business relations and economic cooperation, they also rationalized and strengthened Amway and various companies. level of government relations. While Avon has implemented business process reengineering globally and tightened spending, it has increased investment in Chinese companies to ease the impact of the industry crisis on the company.

Resources like this from the company's U.S. headquarters and across the eastern and western hemispheres are invaluable and have not only played a decisive role in the successful turnaround of the two companies during the crisis over the past five years, but will also be expected in China in a few years. Legislation on direct selling Under the circumstance, whether the two companies return to the direction of direct sales and whether they return successfully are still very important. This shows that, in fact, the ship is more able to turn around in some cases.