Chapter 17 Avon's Explosive Growth in China

In the mid-20th century, Avon expanded its business overseas, first in Canada and then into a dozen other countries.At that time, China was certainly not among the choices of Avon, because China's economic system was relatively closed, rejecting the material comforts of the Western world, and people's dress was relatively simple.With China's reform and opening up, Chinese women are eager to be liberated from the neutral dress in the past. Lipstick and face cream have become cosmetics for them to pursue individuality and self-expression. Avon's development in China encountered difficulties from the very beginning. The company's representatives and the Chinese government had arduous negotiations, but the two sides still failed to reach an agreement.Avon's management hopes that when Avon lands in China, its business will start from China's capital, Beijing.However, the Chinese government did not agree to Avon's request.Avon's business model has both confused and alarmed the Chinese government.Moreover, Avon's reluctance to open directly-operated stores has puzzled the Chinese government and potential Chinese partners.Eventually, Avon turned its attention to the Pearl River Delta region in southern China, where "Miss Avon" began selling their products door-to-door.

Avon's then-CEO Hicks Waldron supported the company's negotiations with China.Waldron worked at Heublein before coming to Avon, and KFC was owned by Heublein before it was sold to Reynolds.Waldron was hired by Avon, and his main job was to help Avon reactivate its ailing cosmetics business.Waldron's plans to lead Avon's expansion into other areas, such as health care, failed.In his view, the sales of cosmetics will usher in an inflection point, but even the healthy franchise of beauty salons cannot make up for the huge losses suffered in the field of health products.Avon has had negative net cash flow in seven of the previous 10 years.In other words, Avon has lost money in seven of the past 10 years.The Avon brand lost its luster in the past. At the difficult moment of business operation, the company made an important decision: to expand the Chinese market.

Before the founding of New China, there used to be many small vendors selling various items in the streets and alleys of China, and some vendors even opened shops along the streets.However, the business scale of small traders is not very large, and their survival is relatively difficult.Some of them work alone, some with whole families, and they sell goods around their residences, usually including chicken, tofu, fresh vegetables and some non-local trinkets.Of course, this is very different from what we now call Avon's direct sales model.Avon is a global company that provides the company's products to sales staff who have undergone vocational training, and sets sales quotas and sales scopes for them, and then pays them according to the amount of task completed.Avon's direct sales model is not complicated, but it is quite different from the traditional Chinese way of selling goods.

Avon entered China with a direct sales business model, which is the same as in the United States, but it is also facing an upgrade of its business model.Beginning in the 1950s, many women became professional women. During this period, the number of Avon's direct sellers - "Miss Avon" - continued to increase, and the number of products the company put on the market also increased dramatically.Today, Avon does not expect sales in the Chinese market to make up for the company's slump in the United States. However, something unexpected happened.Through the recruitment of agents, Avon found that it could attract a large number of high-quality, highly educated people, including direct sellers, including consumers.In the United States, Avon's products are sold to middle-class consumers at moderate prices.In China, the first group of direct sales representatives recruited by Avon is a group of people with high education and business skills.Some people have always hoped that they could become elites in the economic or educational circles, but they failed to do so.Avon gives them an opportunity to develop their abilities and realize their self-worth.Avon products, which have been struggling for many years in the low-end market in the United States, failed, so they changed to high-end products in China.When it knocked on the door of China and entered the Pearl River Delta region, it received a different response than it did in the United States.

Among the first batch of direct sales representatives recruited by Avon, there was a 40-year-old pediatrician named Liang Yongjuan from Guangzhou. Her monthly income as a direct salesperson of Avon was US$120, which was much higher than the average salary of the society at that time.Chinese women of her age wear uniforms most of the time.When Deng Xiaoping put forward the slogan "to be rich is glorious", Liang Yongjuan responded positively, but did not find a suitable opportunity.It wasn't until Avon landed in China that she found a satisfactory job.As a part-time direct seller for Avon, she quickly sold $5,000 of Avon products, for which she was paid $1,500. "It was Avon that gave me confidence. I plan to quit my current job and become a full-time direct seller of Avon. My son always says that I love Avon more than him." Liang Yongjuan said.

Unlike KFC, Avon has no eye-catching stores in China, and its business relies on "Miss Avon".Initially, Avon plans to recruit 3,000 direct sales representatives, and each direct sales representative needs several weeks of business training before taking up the job.The company opened a regional distribution center where direct sales representatives could obtain Avon products and briefings on various products.Avon believes that this direct sales model needs several years of adaptation in China.China has experienced the influence of the long-term planned economy, and there is still a gradual acceptance process for the Western business model.But this time, Avon completely miscalculated the situation in southern China.Avon's product sales were booming, and the company was caught off guard by the rapid growth of its business.

It is also understandable that this situation occurs.John Novosad, regional director of Avon, said that when the company started to contact Chinese local officials to discuss issues such as operating permits and hiring employees, we thought it would be a very difficult process.Chinese officials want to know what kind of business model direct selling is and its feasibility in China, and from the time they figured out the concept of direct selling to accepting this business model, the whole process went very smoothly.Avon plans to recruit 1,000 people as the first batch of direct sales representatives and business executives. The company's managers have prepared for this job for several months, and have made full preparations for interview questions and possible mistakes at any time.The recruitment process went very smoothly.The question Novosad is asked most by candidates is: "How many products do I have to sell?"

Avon's move into China has damaged the reputation of Avon products in the United States.Many American companies worry that their business activities in China will be affected by the deterioration of Sino-US political relations. After 1989, the United States imposed trade sanctions against China, but this did not stop Avon from seeking trading partners in China, because it needed China, a huge market.In the words of Avon CEO James Preston (James Preston) at the time: "We came to China to do business, not to engage in politics. The investment in China is to benefit Chinese women and Avon. shareholders."

The truth is exactly what Preston said.Chinese women like Liang Yongjuan responded enthusiastically to Avon.Within a few months, Guangzhou, a metropolis with a population of one million, already had 7,000 "Miss Avon".In our interviews with "Miss Avon," we learned that what they value more is that this job can help them realize their self-worth, not just the higher income of doing this job.Avon provides Chinese women with a platform for self-expression and independence.Deng Xiaoping and his successors laid out a clear and definite path for the development of foreign companies in China: do business to get rich but not interfere in Chinese politics.Selling cosmetics is not political, and Avon is not involved in Chinese politics.At the same time, the job opportunities provided by Avon's direct sales model to Chinese women are also subtly influencing their thinking concepts.

Avon provided free working opportunities for individuals, which was rare in China at that time. Since the reform and opening up in the 1980s, the degree of openness of Chinese society has increased a lot.But as late as the 1990s, women in their 20s and 30s vividly remembered having to abide by a strict dress code for fear of being criticized for behaving inappropriately. In the 1980s, society's restrictions on people were reduced, but the lives of many people (especially women) were still bound by "what not to do". Therefore, when Avon came to China, the dreams of millions of Chinese women combined with Avon's desire for development.Avon wants to achieve rapid development, and China just provides an opportunity for it.Entering the Chinese market from southern China, Avon established a number of distribution centers along the coast of China, and finally established a branch in Beijing.Avon's sales in the first year after entering China reached 4 million US dollars, three times its expected sales.Although the sales in China only account for a small part of Avon's global sales, the development speed of the Chinese market is astonishing. In 1992, Avon's annual revenue in China doubled, and it doubled again a year later. In 1995, Avon's operating income had reached 40 million US dollars.Subsequently, in order to carry out business expansion, the company established a new distribution center and factory.By 2000, Avon's sales exceeded $250 million. In 1996, the number of "Miss Avon" in mainland China reached 100,000.Following Avon, cosmetics companies from other countries have also come to seize the Chinese market. In 1990, there were not many types of cosmetics and skin care products on the Chinese market, but today women living in coastal cities in China can choose products from many brands such as Avon, L'Oreal, Mary Kay, and Estee Lauder.

For Avon, numbers don't tell everything.Unlike KFC, Avon's sales performance in China cannot give strong support to its global operating performance. The significance of China to Avon lies in the growth of the market.In any case, Avon's practice in China can be said to be successful.The company has finally turned around years of mismanagement as it sees Chinese people enthusiastically pursuing a new way of life.Of course, there is also the help of other markets, such as the Russian market, but the most important thing is to rely on the Chinese market.At the shareholder meeting, the company's executives expressed optimism about Avon's prospects, and Wall Street investors took notice.Investors believe that Avon's traditional door-to-door sales model is successful.While it raised concerns when Avon's core business and key competencies were considered, Avon's impeccable performance in the mid-1990s earned admiration. Avon's explosive growth in China has no apparent connection to the company's appointment of a new chief executive in 1998.However, this move by the company still raises serious concerns.The company's new CEO is named Andrea Jung. She was born in Toronto, Canada, and graduated from Princeton University. Her father is from Hong Kong and her mother was born in Shanghai.Since Zhong Binxian came to Avon in 1993, her position has been promoted rapidly.Her focus is on the company's marketing, and Zhong Binxian has played a key role in promoting the company's image, advertising and brand management.In addition, she also pays special attention to some core links in business operations, such as how "Miss Avon" establishes contact with customers as an independent seller.After Zhong Binxian's unremitting efforts, Avon finally ended the difficult period in the late 1990s. At that time, Avon's business in Latin America was also weakened due to economic difficulties in many Latin American countries. Sales are also on the decline.Although Avon has many loyal customers, in the Internet age, these customers will also be attracted by new and other brands.When the "new economy" hit, Zhong Binxian became the company's CEO.She is young, smart and energetic, and she is a representative of the combination of many cultures.Zhong Binxian led Avon to join the wider global competition, and at the same time emphasized the importance of the Chinese market to Avon. She revitalized Avon. For an established company with a history of more than 100 years, Chung is a new face.It is precisely because of her timely appearance that Avon has entered another round of growth track.Before Chung became CEO, Avon was already facing many challenges, just like it was 10 years ago.At that time, even the Chinese market, which had the brightest prospects, faced many uncertainties. The first is increased competition, which is beyond Avon's control. In the mid-1990s, many foreign cosmetics companies entered the Chinese market after Avon.Although the consumer base continues to expand, the supply and sales outlets of various brands of cosmetics are also increasing accordingly.Avon's product portfolio is not the first choice for Chinese consumers.Chinese female consumers are more willing to spend money on skin care products, which is why Procter & Gamble's Olay brand has achieved rapid success.So Avon tweaked its offerings, shifting its main focus from cosmetics to skincare, which of course took time and effort.When expanding its business outside southern China, Avon found that the original product distribution model had to be changed.In many developed countries, Avon usually establishes several large distribution centers, and then ships products from these distribution centers to different places according to the different needs of each place.But the situation in China is different.China has a vast territory and relatively backward infrastructure. The transportation capacity of roads and railways is insufficient, and transportation from one place to another is difficult.In response to this situation, Avon has invested in the construction of several small distribution centers, but each of them needs to negotiate with local governments and relevant departments on business licenses and cooperative operations. The steady increase in sales has temporarily masked other problems.In China, Avon's direct sales model also needs to be changed, because Chinese women are not used to knocking on strangers' doors.Same goes for New York, generally people don't like strangers selling products in front of them.In order to solve this problem, the managers of Avon Company suggested that the direct sellers first sell Avon products to their family and friends, then expand the sales scope to colleagues, and finally form a product sales network through these social relationships. After a brief lull in the mid-1990s, Avon produced more products specifically for the Chinese market, which put the company back on the fast track to growth.Avon has also established its own product supply chain in China.Raw materials are obtained locally, transported to local factories for processing, and products suitable for Chinese women are designed according to their needs, and Avon products are sold to more Chinese women by relying on "Miss Avon" recruited in China.This is something worthy of the joy of hundreds of thousands of Chinese employees and managers of Avon.A consumer once said: "The skin of Asians is different from that of Europeans and Americans, and Western products are not suitable for us." In China, Avon began to regard itself as a company "made for Chinese people", Driven by this philosophy, the company has achieved impressive results. With the gradual understanding of the market environment, Avon has also started the process of localization, which is also a necessary step for many foreign companies to invest in the host country.The company's management believes that sales staff should be trained.Novosad said: "The sales people we really select are those who are willing to join Avon and receive training from the company. We will teach them how to sell products directly and how to build a product sales network among their circle of friends." At the beginning of the company, employees did need corporate training to adapt to the working environment as soon as possible.However, this process has not been as long as US managers imagined.American managers rely on their own experience to predict China's immature consumer market.China has entered the consumption era so quickly, and it may have passed a generation or two. Americans have more experience in promoting products and persuading consumers to buy than Chinese people.But to the surprise of Avon's management, with the continuous expansion of Avon's business in China, Avon's Chinese employees have shown super working ability, and Chinese consumers have also shown strong spending power. All multinational companies face some problems when entering new markets.Each country has its own characteristics, needs and development prospects, as well as its history, culture and language.Like Coca-Cola, Procter & Gamble, McDonald's and other companies, Avon will inevitably encounter various problems when entering the market of different countries.To be successful in different markets depends on the strategies and means adopted by the company to face different environments.Since China is an important force in the future global economic development, Avon will certainly face more problems in China than in South Africa.Avon is an important aspect of the super fusion between China and the United States, and its development will have a more profound impact on the relationship between the two countries. With the continuous expansion of Avon's business in China, the Chinese government began to pay attention to Avon's business model.Avon's direct sales model is not as simple as it seems.From the perspective of the Chinese government, regular mass gatherings of direct sellers look more like events organized by pseudo-religious organizations than normal corporate employee meetings.The Chinese government also believes that Avon's pyramid-like multiple sales levels are also different from the traditional sales model.The agent gets a commission on the sales, the manager gets a commission, the regional head gets a commission, and the manager already gets a commission when he assigns products to the agent, regardless of whether those products sell or not.The concern of the Chinese government is that this direct sales model will make the price of products out of control.Because at every level, direct sellers are there to make a profit, raising product prices is the only way to do so, and the burden falls on new agents who buy from regional distribution centers and sell at higher prices. Priced to sell to cover high restocking charges.Avon isn't alone in adopting this sales model.Tupperware and Sally Group also carry out similar businesses in China, as well as Amway and Mary Kay, but Avon is a typical representative of them. Avon executives realized that the Chinese government was increasingly dissatisfied with the direct sales model.Although Avon introduced the direct selling business model into China, by the end of the 1990s, most of the nearly one million salespeople in China were not "Miss Avon" or direct sellers from Western companies.In order to alleviate the concerns of the Chinese government, Avon promises that their business operations are fair and legal, and will not cause adverse effects on Chinese society. In the spring of 1998, the Chinese government promulgated a decree prohibiting pyramid schemes. Due to the influence of China’s immature market environment, legal system, and immature consumer psychology at that time, pyramid schemes were not suitable for China. To be completely banned.The Chinese government also pointed out that certain organizations use pyramid schemes for superstitious propaganda, reactionary activities, and underground gang activities. There have been stories of companies using gatherings for superstitious propaganda.Among the individuals or closed stores repeatedly captured by the Chinese government, many of them carried out secret superstitious activities under the banner of direct sales of these companies.But in fact, Avon has no direct relationship with it.In China, it is not easy for the government to manage the relationship between maintaining social stability and enterprises pursuing commercial profits.From the fact that the Chinese government banned pyramid schemes, we can see that there is still a big gap between the actual situation in China and the actual needs of many Chinese people.There is no doubt that pyramid schemes can lead to fraud, but such phenomena are also common in factories and real estate projects.It's just that the disadvantages brought about by the MLM model in 1998 have exceeded the limit that the Chinese government can tolerate. The Chinese government's ban on pyramid schemes has dealt a heavy blow to Avon.The company's nearly 10 years of painstaking efforts and millions of dollars of investment are facing a huge threat, and the Chinese market, which has just begun to improve, has once again fallen into uncertainty.Under new management, Avon had just turned its attention to direct selling when it encountered a Chinese government ban on pyramid schemes.Avon had no other sales strategy before, but to survive in China, the company had to change its direction.When one door closes, another door must be opened.Avon is once again transforming, this time targeting the high-end consumer market. When I first came to China in 2002, two things surprised me.One is that KFC is so fashionable, and the other is that Avon is so cool.Like many Americans, I am familiar with these two brands, where the adjectives "fashion" and "cool" are not usually used to them.Avon Company opened a store on the commercial street of Nanjing Road in Shanghai. The store uses avant-garde blue and silver as the background, and the big screen in the store keeps playing lipstick advertisements. Fashionably dressed sexy girls stand in front of the counter, each A variety of cosmetics line the counters and shelves on the walls, and the simple and abstract style creates a high-end shopping atmosphere.Young girls were in and out of these Avon stores.Not only young girls, Avon store exudes a modern atmosphere also attracts the patronage of working women and wealthy people.Soon after, stores of the same style opened in shopping plazas in Beijing and metropolises in the Pearl River Delta region. In 1998, after the Chinese government issued a decree banning pyramid schemes, people believed that Avon would disappear from China.But just a few years later, Avon has become a giant in cosmetics retailing with its boutiques all over China. The rebirth of Avon in China is the result of the benign reform of the company.In a very short period of time, the company has made a huge adjustment in its business model, which shows that in the 1990s, the business activities of Western companies in China must have strong flexibility.Simply put, there is no unified development model to follow to succeed in the market, and there is no need to have a grand blueprint for the future, because the actual situation and the direction of economic development are constantly changing.The decree prohibiting pyramid schemes is the need of China's development, and the speed of China's development is almost unstoppable. Since everything is changing, previous rules and practices often no longer apply in new situations, and we must respond to changing realities with constant reform.For a company lacking in flexibility and creativity, doing business in a new way also portends opportunities to come.That's what Avon does, and its sales model in China is very different from the rest of the world.