Avon 2011 Annual Report Download - page 12

PART I
combination of local and national delivery companies. Generally, the Representative then delivers the merchandise and collects payment
from the customer for his or her own account. A Representative generally receives a refund of the price the Representative paid for a
product if the Representative chooses to return it.
We employ certain web enabled 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, zone managers, and
independent sales leaders. 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.
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. 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.
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