Avon 2010 Annual Report Download - page 16

PART I
We employ certain electronic order systems to increase Representative support, which allow a Representative to run her or his business more
efficiently and also allow us to improve our order-processing accuracy. For example, in many countries, Representatives can utilize the Internet
to manage their business electronically, 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 a complete 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 some markets, we use decentralized branches, satellite stores and independent retail operations to serve Representatives and other
customers. Representatives come to a branch 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 and direct to consumer opportunities to reach new customers in complementary ways to direct-selling. In the U.S. and
selected other markets, we also market our products through consumer websites (www.avon.com in the U.S.).
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 a salary and an incentive based primarily on the achievement of a sales 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 recommendations 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 a multi-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 generally
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 the prospecting, appointing, training and
development of their down-line Representatives while maintaining a certain level of their own sales. 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 Representatives (a common characteristic of direct-selling), it
is critical that we recruit, retain and service Representatives on a continuing 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 for prospecting, 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 Proposition or “RVP”). We have allocated significant incremental investment to grow our Representative base, to
increase the frequency with which the Representatives order 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 a research 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 a jurisdiction or can be
raised in additional jurisdictions. If there should be a final determination adverse to us in a country, the cost for future, and possibly past,
contributions could be so substantial in the context of the volume and profitability of our business in that country that we would consider
discontinuing operations in that country.
Promotion and Marketing
Sales promotion and sales development activities are directed at assisting Representatives, through sales aids such as brochures, product
samples and demonstration products. In order to support the efforts of Representatives to reach new customers, specially designed sales
aids, promotional pieces, customer flyers, television and print advertising are used. In addition, we seek to motivate our Representatives
through the use of special incentive programs that reward superior sales performance. We have made significant investments to understand
the financial return of such field incentives. Periodic sales meetings with Representatives are conducted by the district sales or zone
managers. The meetings are designed to keep Representatives abreast of product line changes, explain sales techniques and provide
recognition for sales performance.