Avon 2008 Annual Report Download - page 14

PART I
programs that reward superior sales performance. Avon has
made significant investments to understand the financial return
of such field incentives. Periodic sales meetings with Represen-
tatives are conducted by the District Sales Managers or Zone
Managers. The meetings are designed to keep Representatives
abreast of product line changes, explain sales techniques and
provide recognition for sales performance.
A number of merchandising techniques are used, including the
introduction of new products, the use of combination offers, the
use of trial sizes and samples, and the promotion of products
packaged as gift items. In general, for each sales campaign, a
distinctive brochure is published, in which new products are
introduced and selected items are offered as special promotions
or are given particular prominence in the brochure. A key current
priority for our merchandising is to expand the use of pricing and
promotional models to enable a deeper, fact-based understand-
ing of the role and impact of pricing within our product portfolio.
Investment in advertising is another key strategy. We significantly
increased spending on advertising over the past three years,
including advertising to recruit Representatives. We expect this
to be an ongoing investment to strengthen our beauty image
worldwide and drive sales positively.
From time to time, various regulations or laws have been pro-
posed or adopted that would, in general, restrict the frequency,
duration or volume of sales resulting from new product intro-
ductions, special promotions or other special price offers. We
expect our pricing flexibility and broad product lines to mitigate
the effect of these regulations.
Competitive Conditions
We face competition from various products and product lines
both domestically and internationally. The beauty and beauty-
related products industry is highly competitive and the number
of competitors and degree of competition that we face in this
industry varies widely from country to country. Worldwide, we
compete against products sold to consumers by other direct-
selling and direct-sales companies and through the Internet, and
against products sold through the mass market and prestige
retail channels.
Specifically, due to the nature of the direct-selling channel, Avon
competes on a regional, often country-by-country basis, with its
direct-selling competitors. Unlike most other beauty companies,
we compete within a distinct business model where providing a
compelling earnings opportunity for our Representatives is as
critical as developing and marketing new and innovative prod-
ucts. As a result, in contrast to a typical CPG company which
operates within a broad-based consumer pool, we must first
compete for a limited pool of Representatives before we reach
the ultimate consumer.
Within the broader CPG industry, we principally compete against
large and well-known cosmetics and fragrances companies that
manufacture and sell broad product lines through various types of
retail establishments. In addition, we compete against many other
companies that manufacture and sell more narrow CFT product
lines sold through retail establishments and other channels.
We also have many competitors in the gift and decorative prod-
ucts and apparel industries globally, including retail establish-
ments, principally department stores, gift shops and specialty
retailers, and direct-mail companies specializing in these products.
Our principal competition in the fashion jewelry industry consists
of a few large companies and many small companies that sell
fashion jewelry through retail establishments.
We believe that the personalized customer service offered by our
Representatives; the amount and type of field incentives we offer
our Representatives on a market-by-market basis; the high qual-
ity, attractive designs and prices of our products; the high level
of new and innovative products; our easily recognized brand
name and our guarantee of product satisfaction are significant
factors in establishing and maintaining our competitive position.
International Operations
Our international operations are conducted primarily through
subsidiaries in 65 countries and territories outside of the U.S. In
addition to these countries and territories, our products are dis-
tributed in 44 other countries and territories through
distributorships.
Our international operations are subject to risks inherent in
conducting business abroad, including, but not limited to, the
risk of adverse currency fluctuations, currency remittance
restrictions and unfavorable social, economic and political
conditions.
See the sections “Risk Factors - Our ability to conduct business,
particularly in international markets, may be affected by political,
legal and regulatory risks” and “Risk Factors - We are subject to
other risks related to our international operations, including
exposure to foreign currency fluctuations” in Item 1A on pages
11 and 13 of this 2008 Annual Report on Form 10-K.
Manufacturing
We manufacture and package almost all of our CFT products.
Raw materials, consisting chiefly of essential oils, chemicals,
containers and packaging components, are purchased for our
CFT products from various suppliers. Almost all of our non-CFT