Avon 2009 Annual Report Download - page 22

PART I
ARepresentative contacts customers directly, selling primarily
through our brochure, which highlights new products and
special promotions for each sales campaign. In this sense, the
Representative, together with the brochure, are the “store”
through which our products are sold. Abrochure introducing a
new sales campaign is usually generated every two weeks in the
U.S. and every two to four weeks for most markets outside the U.S.
Generally, the Representative forwards an order for acampaign
to us using the mail, the Internet, telephone, or fax. This order is
processed and the products are assembled at adistribution cen-
ter and delivered to the Representative usually through acombi-
nation of local and national delivery companies. Generally, the
Representative then delivers the merchandise and collects pay-
ment from the customer for his or her own account. ARepre-
sentative generally receives arefund of the full price the
Representative paid for aproduct if the Representative chooses
to return it.
We employ certain electronic order systems to increase Repre-
sentative support, which allow aRepresentative to run her or his
business more efficiently and also allow us to improve our order-
processing accuracy. For example, in many countries, Represen-
tatives can utilize the Internet to manage their business electron-
ically, including order submission, order tracking, payment and
two-way communications with us. In addition Representatives
can further build their own business through personalized web
pages provided by us, enabling them to sell acomplete line of
our products online. Self-paced online training also is available in
certain markets, as well as up-to-the-minute news about us.
In the U.S. and selected other markets, we also market our
products through consumer websites ( www.avon.com in the
U.S.).These sites provide apurchasing opportunity to consumers
who choose not to purchase through aRepresentative.
In some markets, we use decentralized branches, satellite stores
and independent retail operations to serve Representatives and
other customers. Representatives come to abranch to place and
pick up product orders for their customers. The branches also
create visibility for us with consumers and help reinforce our
beauty image. In certain markets, we provide opportunities to
license our beauty centers and other retail-oriented opportunities
to reach new customers in complementary ways to direct selling.
The recruiting or appointing and training of Representatives are
the primary responsibilities of district sales managers and zone
managers. Depending on the market and the responsibilities of
the role, some of these individuals are our employees and some
are independent contractors. Those who are employees are paid
asalary and an incentive based primarily on the achievement of
asales objective in their district. Those who are independent
contractors are rewarded primarily based on total sales achieved
in their zones or downlines. Personal contacts, including recom-
mendations from current Representatives (including the Sales
Leadership program), and local market advertising constitute the
primary means of obtaining new Representatives. The Sales
Leadership program is amulti-level compensation program which
gives Representatives, known as Sales Leadership Representatives,
the opportunity to earn bonuses based on the net sales made by
Representatives they have recruited and trained in addition to
discounts earned on their own sales of our products. This program
limits the number of levels on which commissions can be earned
to three and continues to focus on individual product sales by
Sales Leadership Representatives. The primary responsibilities of
Sales Leadership Representatives are theprospecting, appointing,
training and development of their down-line Representatives
while maintaining acertain level of their ownsales. Development
of the Sales Leadership program throughout the world is one
part of our long-term growth strategy. As described above, the
Representative is the “store” through which we primarily sell our
products and given the high rate of turnover among Representa-
tives (a common characteristic of direct selling), it is critical that
we recruit, retain and service Representatives on acontinuing
basis in order to maintain and grow our business. As part of our
multi-year turnaround plan, we have initiatives underway to
standardize global processes forprospecting, appointing, training
and developing Representatives, as well as training and developing
our direct-selling executives.
One of our key strategies to recruit and retain Representatives is
to improve the reward and effort equation for our Representatives
(Representative Value Propositionor“RVP”). We have allocated
significant incremental investment to grow our Representative base,
to increasethe frequency withwhich theRepresentativesorder
and the size of the order. We have also undertaken extensive
research to determine the pay back on specific advertising, field
tools and other actions and the optimal balance of these tools and
actions in key markets. In addition to aresearch and marketing
intelligence staff, we have employed both internal and external
statisticians to develop proprietary, fact-based regression analyses
using our vast product and sales history.
From time to time, local governments and others question the
legal status of Representatives or impose burdens inconsistent
with their status as independent contractors, often in regard to
possible coverage under social benefit laws that would require
us (and, in most instances, the Representatives) to make regular
contributions to government social benefit funds. Although
we have generally been able to address these questions in a
satisfactory manner, these questions can be raised again following
regulatory changes in ajurisdiction or can be raised in additional
jurisdictions. If there should be afinal determination adverse to